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HomeMy WebLinkAboutStaff Report 216-07City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DATE:APRIL 23, 2006 SUBJECT:UTILITIES ADVISORY APPROVE THE UTILITIES PORTFOLIO PLAN DEPARTMENT: UTILITIES CMR: 216:07 COMMISSION RECOMMENDATION TO TEN-YEAR ENERGY EFFICIENCY RECOMMENDATION The Utilities Advisory Commission and staff recommend that the City Council approve the proposed 10-Year Energy Efficiency Portfolio Plan ("Efficiency Plan"). BACKGROUND The Long-term Electric Acquisition (LEAP) Implementation Plan was revised in April 2006 (CMR:169:06), and LEAP Objectives and Guidelines were revised this year (UAC February, 2007 and approved by Council on March 5, 2007; CMR:158:07). The revisions were made, in part, to respond to new legislative requireinents and new policy directives related to energy efficiency. The Gas Utility Long-term Plan (GULP) also includes energy efficiency as a key objective (CMR:345:03). Palo Alto has long been a leader in energy efficiency programs, and views efficiency as a valuable "supply" resource that plays a key role in long-term utilities planning. Pat0 Alto has offered energy efficiency programs since the 1970’s. However, due to increasing supply costs, new regulatory requirements, and the City’s desire to continue to promote envirolvnental stewardship, a renewed emphasis is being placed on energy efficiency. The Utilities Ten-Year Energy Efficiency portfolio Plan (Attachment A to April 4, 2007 UAC Report) provides the detailed analysis and plans for enhancing Palo Alto’s energy efficiency efforts. The key elements of the plan are: 1: Teclmical and economic potential; 2. Cos~- effectiveness criteria; 3. Relationship to greemh0use gases; 4. Retail rates, demand response, and metering; 5. Core focus areas in the first two years; and 6. ~Budget and funding. The proposed Ten-Year Efficiency Plan includes energy efficiency funding from Public Benefits as well as new funding from supply budgets to accomplish program objectives. CMR:216:07 Page 1 of 2 BOARD/COMMISSION REVIEW AND RECOMMENDATIONS At the April 4, 2007 meeting, the UAC considered the proposed Ten-Year Energy Efficiency Plan. The UAC discussion focused primarily on the program economic criteria and ensuring that adequate financial controls are in place for the program. The UAC voted three to zero to recommend approval of the Efficiency Plan, with one commissioner absent and one abstention. RESOURCE IMPACT Increased efforts in cost-effective energy efficiency are expected to have a short-term impact on reserves, but no adverse impact on average electricity bills. Successful implementation of the ten-year plan would result in a lo~ag-term rate increase of approximately 0.5-1%, with an average bill decrease of 2.5-3%. No new staff positions will be required. Existing positions within the Utilities Department will be reassigned to implement the Efficiency Plan. The budget estimates for the first two years of the long-term efficiency plan are included in the proposed budget. Unspent funds fi’om supply-funded efficiency will flow back to the Supply Rate Stabilization Reserve. Unspent funds from Public Benefits will flow back to the Public Benefit Reserve. The incremental proga’am costs are designed to be recovered over time by reduced expenditures in the long-term supply purchasing budget. POLICY IMPLICATIONS The proposed Efficiency Plan supports the Council-approved Utilities Strategic Plan, Long-tema Electric Acquisition Plan, the Gas Utility Long-term Plan, and Comprehensive Plan Goal N-9. The proposed Efficiency Plan also supports the National Action Plan for Energy Efficiency Memorandum of Understanding (NAPEE MOU) endorsed by the Council (CMR:316:06), and also facilitates addressing the federal Energy Policy Act of 2005, particularly Title 1 (Energy Efficiency). Energy efficiency efforts are also critical in achieving greenhouse gas reduction goals reflected in California Climate Action Team goals and AB32 (California Global Wanning Solutions Act of 2006) and identified in the report to Council by the Mayor’s Green Ribbon Task Force, a Council priority for this year. ATTACHMENTS A: April 4, 2007 UAC Report: Item 2 April 4, 2007 B: Draft April 4, 2007 UAC meeting minutes excerpts PREPARED BY:I~RL E. KNAPP Senior Resource Planner DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: Director EMILY Assistant City Manager CMR:216:07 Page 2 of 2 TO: FROM: DATE: SUBJECT: ATTACHMENT A MEMORANDUM UTILITIES ADVISORY COMMISSION UTILITIES DEPARTMENT APRIL 4, 2007 TEN-YEAR ENERGY EFFICIENCY PORTFOLIO PLAN 2 REQUEST Staffrecolnmends that the UAC recomlnend that the Council approve the proposed 10-Year Energy Efficiency Portfolio Plan ("Efficiency Plan"). BACKGROUND Palo Alto has long been a leader in energy efficiency programs, and views eff~ciency as a valuable long-term "supply" resource that plays a key role in long-term planning. Palo Alto has offered energy efficiency programs since the 1970’s. However, due to increasing supply costs, new regulatory requirements, and the City’s desire to continue to promote environmental stewardship, a renewed emphasis is being placed on energy efficiency. The Efficiency Plan includes energy efficiency funding from Public Benefits as well as new funding from supply budgets. The Long-term Electric Acquisition (LEAP) hnplementation Plan was.revised in April 2006 (CMR: 169:06), and LEAP Objectives and Guidelines were revised this year (UAC February, 2007 and iapproved by Council on March 5, 2007; CMR: 158:07), bothof which include energy efficiency as the highest-priority resource. The revisions were made, in p.art, .to respond to new legislative requirements and new policy directives related to energy efficiency. The Gas Utility Long-term Plan (GULP) also includes energy efficiency as an important contributor to the energy plan (CMR:345:03). The key California state legislation influencing new specifics ofCPAU’s energy efficiency program design and implementation are SB 1037 (2005) and AB 2021 (2006). ¯SB 1037 established a "Loading Order" for electric power resources, specifying a preference hierarchy of: first, Energy Efficiency and Demand Reduction; second, Renewable Energy Supply; and then third, Conventional Power Supply. AB 2021 added new and very specific long-term planning, reporting, and )’eview requirements with specific deadlines, and a requirement to "treat efficiency as procurement investments...without regard to previous minimum investments". AB 2021 requires that utilities develop and submit 10-year energy efficiency plans on a three-year cycle, the first of which was originally due by June 1, 2007, but the submission date has been extended until September 1, 2007. The attached report fulfills this requirement. Policy, legislative, regulatory, and community interest motivations behind the proposed Efficiency UAC April 4, 2007: Ten Year Efficiency Portfolio Plan Page 1 of 4 Plan are discussed in detail in the attached staff report (Attachment A), which includes excerpts fi’om the relevant legislation as an appendix. DISCUSSION The attached staff report provides the detailed analysis and plans for enhancing Palo Alto’s energy efficiency efforts. The key elemems of the plan are highlighted in this SUlnmary report: 1. Technical and Economic Potential; 2. Cost-effectiveness Criteria; 3. Relationship to Greenhouse Gases, 4. Retail Rates, Demand Response, and Metering; 5. Core Focus Areas in the First Two Years; and 6. Budget and Funding. 1. Technical and Economic Potential CPAU has already completed evaluation of technical and economic potential for energy efficiency in work conducted with the Rocky Mountain Institute (RMI) in 2005 (reported to UAC in November 2005 and included as an attachment to CMR:169:06). Staff seeks to achieve at least half of the electric efficiency potential identified in the RMI efficiency potential study (3.5% of the estimated economic potential of 7% of annual energy use). Because energy efficiency investments can take anywhere from 3 to 20 years to realize the energy savings, the initial load reductions will be fairly small, but will build over time. Staff also recommends an identical percentage target for natural gas efficiency savings, which may include incentives for solar hot water or heating systems in addition to efficiency. Efficiency savings targets in the first two years of the Efficiency Plan are 2.5% and 2.8% of annual energy use, realized over the lifetime of the efficiency investments. 2. Cost-effectiveness Criteria The proposed Efficiency Plan programs focus on lowering average bills, as opposed to retail rates. Energy efficiency reduces sales, and therefore can slightly increase the rate (C/kWh or ¢/therm). For supply-funded efficiency measures, a project would be considered economic when the savings from lower procurement costs exceed the utility investment. Cost effectiveness criteria for public benefit- funded efficiency measures include a prelnium compared to energy supply, reflecting efficiency’s higher priority. Staffalso recommends that the efficiency programs aim to reach all customer sectors so that everyone has the option to participate. 3. Relationship to Greenhouse Gases As contemplated in the CMUA Greenhouse Gas reduction principles (CMR:315:06), RMI is under contract to review the "carbon adder" methodology employed by the CPUC and investor-owned utilities (IOUs) in California and to advise CPAU on methodology alternatives applicable to municipal utilities, with results and recommendations expected in April 2007. An "adder" is used to adjust the cost criteria upward for higher emission alternatives when determining cost-effectiveness. Staff recommends incorporating such an adder into cost-effectiveness screening and evaluation for energy efficiency, as part of both the Efficiency Plan and the Climate Action Plan. 4. Retail Rates, Demand Response, .and Metering The RMI efficiency potential study recommended that CPAU should continue the existing voluntary load curtailment program, concluding that, at least for the next few years, price-driven demand response programs were unlikely to garner significant peak demand reductions. "Demand response" UAC April 4, 2007: Ten Year Efficiency Portfolio Plan Page 2 of 4 is a strategy to make specific customer loads more responsive through various combinations of price signals, curtaihnent incentives, or technology that controls appliances or equipment with the ability to curtail or turn off devices. In the mean time, CPAU is actively pursuing advanced metering systems that could be used as a platform for launching a demand response program should it become economic and feasible. The Advanced Metering Program provides customers with the necessary technical inforlnation to manage the overall consumption of electricity for their facility, as well as stage their actions to respond to utility requests for load curtailment. 5. Core Focus Areas in the First Two Years The first two years’ effort will concentrate on the following main areas: ¯Re-optimize existing programs to maximize cost-effectiveness criteria. ¯ .Revamp commercial custom rebate program to better reflect new technologies and costs; ¯Establish new construction and remodeling incentives; ¯Pursue third-party and joint agency efficiency programs; and ¯Conduct start-up and parallel analysis, develop software tools, and procure legislatively mandated services needed to implement the plan. The details of these main areas, as well as several ancillary and support activities required to meet the new requirements ofAB2021 are described in detail in the attached staff report. 6. Budget and Funding The proposed cost-effectiveness criteria applied to the proposed targets yields the proposed budgets described in the attached report, and will be incorporated imo the budgetpackage for the next two years. The efficiency budgets for incentives and direct installations are designed to maintain a cumulative program costs including startup activities and regulatory-mandated verification and reporting below 7.5 C/kWh saved for electric and 75 ¢/therm saved for natural gas. In five years, the projected prograln expansion would approximately double efficiency incentive budgets for electricity and natural gas. The incremental program costs are designed to be recovered over time by reduced expenditures in the long-term supply purchasing budget. The near-term funding details are discussed under the Resource Impact section of this repol~. RESOURCE IMPACT increased efforts in cost-effective energy efficiency are expected to have a short-term impact on reserves, but no adverse impact on average electricity bills. Successful implememation of the ten- year plan would result in a long-term rate increase of approximately 0.5-1%, with an average bill decrease of 2.5-3%. No new staff positions will be required. Existing positions within the Utilities Department will be reassigned to implement the Efficiency Plan. The current two-year budget estimates for the first two years of the long-term efficiency plan are SUlnmarized in Table 1. Final funding allocations are subject to the City’s normal budget process. Unspent funds from supply-funded efficiency flow back to the Supply Rate Stabilization Reserve. Unspent funds fi’om Public Benefits flow to the Public Benefit Reserve. UAC April 4, 2007: Ten Year Efficiency Portfolio Plan Page 3 of 4 Table 1. Current two-year budget estimate for energy efficiency programs. Final funding subject to budget process. Funding ($1,000’s) Supply-Funded Efficiency Public Benefit Efficiency Efficiency Total Energy Targets Lifecycle energy savings Percent of Annual Load Electric FY 07/08 FY 08/09 $980 $880 $1,800 $1,980 $2,780 $2,860 MWh 25,000 28,000 2.5%2.8% Gas FY 07/08 FY 08/09 $375 $345 $300 $320 $683 $660 MMBtu 76,800 86,400 2.5%2.8% The projected costs are approximately two-thirds direct incentives and education programs, and one- third administration, promotion, analysis, and mandated reporting. The additional funding is highlighted as "supply-funded efficiency", to serve as the additional needed funding beyond what is available from the current Public Benefits charges. The incremental costs are designed to be recovered over time by reduced expenditures in the long-term supply purchasing budget. POLICY IMPLICATIONS The proposed Efficiency Plan supports the Council-approved Utilities Strategic Plan, Long-term Electric Acquisition Plan, the Gas Utility Long-term Plan,.and Comprehensive Plan Goal N-9. The proposed Efficiency Plan also supports the National Action Plan for Energy Efficiency Memorandum of Understanding (NAPEE MOU) endorsed by the Council (CMR:316:06), and also facilitates addressing the federal Energy Policy Act of 2005, particularly Title 1 (Energy Efficiency). Energy efficiency efforts are also critical in achieving greenhouse gas reduction goals reflected in California Clilnate Action Team goals and AB32 (California Global Warming Solutions Act of 2006) and identified in the report to Council by the Mayor’s Green Ribbon Task Force, a Council priority for this year. ATTACHMENT A. Staff Report: Proposed Ten-Year Energy Efficiency Portfolio Plan B. LEAP Objectives & Guidelines (proposed 2007) C. GULP Objectives & Guidelines PREPARED BY:Karl E. Knapp, Senior Resource Planner, Utilities Department Bruce Lesch, Key Account Representative, Utilities Department APPROVED BY: VALERIE O. FONG DIRECTOR OF UTILITIES UAC April 4, 2007: Ten Year Efficiency Portfolio Plan Page 4of 4 Attachment A: City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 CITY OF PALO ALTO UTILITIES TEN YEAR ENERGY EFFICIENCY PLAN 2007 TABLE OF CONTENTS SUMMARY ................................................................................................................................................1 BACKGROUND - Motivation ...................................................................................................................2 CORE POLICY OBJECTIVES AND IMPLEMENTATION STRATEGIES ...........................................6 PROPOSED IMPLEMENTATION PROCESS .........................................................................................7 COST EFFECTIVENESS .........................................................................................................................11 CONTEXT - Existing Programs ..............................................................................................................16 POTENTIAL: Technical, Economic, Achievable .....................................................................................24 PROPOSED TARGETS ...........................................................................................................................27 BUDGET, FUNDING & STAFFING ......................................................................................................30 TECHNOLOGY ROADMAP ..................................................................................................................32 NEXT STEPS ...........................................................................................................................................35 APPENDIX A: Selected Legislative Language ........................................................................................36 APPENDIX B: Mayor’s Green Ribbon Task Force Utility-Related Ideas and Recommendations ..........37 APPENDIX C: Rocky Mountain Institute Energy Resource Portfolio Planning Recommendations .......42 APPENDIX D: Glossm2 of Abbreviations and Terms .............................................................................43 SUMMARY This memo outlines the proposed long-term energy efficiency plata for the City of Palo Alto Utilities Department (CPAU). The plan will facilitate CPAU’s ability to pursue all cost-effective energy efficiency opportunities that are feasible and reliable. The long-term vision embodied in the Plan is to integrate water and energy efficiency where there are overlaps and synergies, which will be addressed over the next few years after the proposed new processes for energy efficiency are established. This report addresses only electricity and natural gas. Water efficiency and conservation efforts are currently addressed in the Urban Water Management Plan (UWMP). The revitalized emphasis on energy efficiency (electric and gas) as a key high-priority resource requires short-term budget increases to be recouped out of future cost savings (one definition of cost-effective), hnplementing the increased efforts will require reassigned staff priorities, as no new staff positions are currently contemplated. The proposed targets and implementation plan would increase near-term incentive budgets for the next two fiscal years from approximately $1.2 million per year to approximately $2.1 million per year for electric and fi’om approximately $300,000 to approximately $670,000 for natural gas. Projected present value savings resulting fi’om the first two years of efficiency investments are approximately $4.2 million for electricity and $1.2 million for gas, realized over several years, with an average estimated payback time of the initial investment of approximately 8 years, excluding regulatory mandated reporting and independent measurement and verification. Utility cost benefit- cost ratio for the proposed plan is estimated to be 1.0, or 1.2 excluding initial start-up costs of approximately $1 million. S:\UTL\OIdH\01 DIRECTOR\CMR\CMRs IN PROCESSWen Year Energy Efficiency Portfolio Plan~Attachment A - Proposed Long-term Efficiency Portfolio Plan 15-Mar-2007.doc City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 BACKGROUND - Motivation The City of Palo Alto faces a long-term electric supply shortfall of approximately 25% of projected annual energy demand under average hydrological conditions. Electric and gas prices are highly volatile and unpredictable, many electric supply resources are subject to variations in weather, and the transmission grid is not guaranteed to be sufficient to reliably deliver electricity to Palo Alto cost effectively at all times. CPAU is working to fill this energy deficit with a diversified approach that includes demand-side measures (including energy efficiency improvements and load control technologies), new renewable generation, local ultra-clean distributed generation, generation capacity outside of Palo Alto, and diversified market purchases, complemented by enhancing the transmission and distribution system and managing market, regulatory and technical risks. Although Palo Alto has aggressive efficiency programs in place already and has offered energy efficiency programs since the 1970s, increasing supply costs, new regulatory requirements, and the City’s desire to continue to promote environmental stewardship have converged to foster a revitalized emphasis on energy efficiency, and are stimulating new approaches to deploying cost- effective energy (and water) efficiency. This report focuses primarily on energy. CPAU’s electric energy efficiency programs were first modified with the passage ofAB 1890 (1996), the electricity restructuring bill, which established a minimum percentage of electric revenue (2.85%) to be collected and spent in four categories identified as Public Benefits: 1.Cost-effective energy efficiency; 2.Research, development and demonstration; 3.Renewable energy; and 4.Low-income programs. The key California state legislation driving new specifics of CPAU’s energy efficiency program design and implementation are SB 1037 (2005) and AB 2021 (2006). ¯SB 1037 established a "Loading Order" for elec(ric power resources, specifying a preference hierarchy of: 1.Energy Efficiency and Demand Reduction; 2.Renewable Energy Supply; and then 3.Conventional Power Supply. This hierarchy is reflected in the LEAP Implementation Tasks and is slated to be included in the next LEAP update. The bill also requires annual reporting to the CEC and to the public regarding specifics of energy efficiency programs. The first such report for CY 2005 was submitted jointly with other California municipal utilities in December 2006. AB 2021 added new and very specific long-term planning, reporting, review requirements with specific deadlines, and a requirement to "treat efficiency as procurement investments...without regard to previous minimum investments", highlighted in the graphic below. 2 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 AB 1890 (1996) Public Benefits = 2.85% ¯Cost-effective energy efficiency ¯Renewable energy ¯Low-Income Assistance¯Research & Development ] I S(B2 010053) 7 1l First acquire all available enerqy efficiency and demand reduction ¯Cost-effective ¯Reliable¯Feasible Report annually to customers I and CECi ° Programs i " Expenditures¯ Expected and actual energy Invest in Pubfic Good ~ savings results ~-----~.. Invest and Report AB 2021 (2006) Same lO-year plan every 3 years ¯ First due.to CEC September 1,2007 ¯ Identify all energy efficiency potential ¯ Establish annual targets ¯Withoul regard to previous minimum investments ¯Treat as procurement investments Report targets to CEC within 60 days of Council adoption of plan Report annually to its customers and CEC ¯ Programs ¯ Expenditures ¯ Cost-effectiveness ¯Expected and actual energy savings results¯Funding Sources ~. , Methodologies and assumptions ¯ Independent M&V evaluation ¯ CEC to include in iEPR and provide Invest and Report in a Specific Way Figm’e 1. California energy efficiency legislation has continued to evolve over the past decade, with expanding applicability to municipal utilities in the last two years AB1890 applies only to electricity, whereas SB 1037 and AB2021 apply to both electricity and natural gas. Recent California legislati6n is only one of many reasons to enhance CPAU’s energy efficiency programs with renewed vigor. Numerous policies and regulations, ranging from the Federal Energy Policy Act of 2005 to CPAU’s electric and gas utilities’ long-term resource implementation plans provide additional impetus. The changing utilities landscape also led to revised LEAP Objectives and Guidelines. The main motivating polices and regulations that are relevant to energy efficiency are outlined below. Long-terln Resource plans: LEAP and GULP a. Proposed Updated LEAP Guidelines 2007: Guideline 7: Electric Energy Efficiency and Demand Reduction A. Fund innovative programs that promote and facilitate deployment of all cost- effective, reliable and feasible energy efficiency and demand reduction opportunities as high priority resources. B.Use. a community-wide perspective in program evaluation criteria. C.Use a bill reduction (utility cost) perspective in program funding criteria. D.Promote equity by designing and making programs available to all customers Guideline 8: Climate Action Plan 3 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 As part of the City’s commitment to develop and implement an action plan to reduce greenhouse gas emissions, develop and ilnplement a Climate Action Plan relating to utility activities. A. Consider all of the Mayor’s Green Ribbon Task Force utility-related recommendations. B. The plan shall be consistent with the California Municipal Utilities Association Greenhouse Gas Reduction Principles. C. Take actions to meet ICLEI Cities for Climate Protection Campaign milestones. D. Coordinate with and support Climate Action Plan efforts of other departments. b.LEAP hnplementation Tasks #3 Efficiency Portfolio, #1 Clilnate Action, #2 Public Benefits c.GULP Guideline #4; Pursue cost-effective energy investments by A. Providing expertise, education and incentives to support cost-effective customer efficiency improvements; B. Demonstrating new efficiency and load management alternatives; and C. Providing rate assistance and efficiency programs to low-income customers. City Policies a. Comprehensive Plan i. Policy N-44: Maintain Palo Alto’s long-term supply of electricity and natural gas while addressing environmental and economic concerns. ii. Policy N-47: Optimize energy conservation and efficiency in new and existing residences, businesses, and industries in Palo Alto. b. Sustainabitity Policy (CMR: 175:01) c. Green Business Pledge (CMR:284:99) d. Utilities Strategic Plan (updated CMR:148:05) e. Energy Risk Management Policies (updated CMR: 128:06) f. Interim Electric Utility Resource Adequacy Program (CMR:222:06) g. National Action Plan for Energy Efficiency (NAPEE MOU) (CMR:316:06) h. CMUA Greenhouse Gas Reduction Principles (CMR:315:06) i. Ultra-clean Distributed Generation Incentive Program Guidelines (CMR:406~:06) j. ICLEI Cities for Climate Protection Campaign (CMR:426:06) k. Climate protection plan as "Top 4 Priority" in 2007, including recommendation of the Mayor’s Green Ribbon Task Force on Climate Protection (December 18, 2006). Legislative &Regulatory a. AB 1890 (1996) -Electric Restructuring [established public benefits and competitive markets] b. SB 1037 (2005) - Loading Order [efficiency first, then renewables, then conventional supply] c. AB 2021 (2006) - Energy Efficiency [specific planning, funding and reporting requirements] d. SB 1 (2006) - Million Solar Roofs [includes energy audit requirements for solar rebates] 4 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 e. AB 32 (2006) - Global Warming Solutions Act [sets State targets for GHG reduction to 1990 levels by 2020 and establishes mandatory reporting requirements for utilities] f. SB 1368 (2006) - Greenhouse Gas Limits On Long-Term Baseload Electricity Contracts [baseload electric contracts 5 years or longer or baseload facilities to have greenhouse gas emission no greater than a reference combined cycle natural gas generator] g. SB 107 (2006) - Accelerated Renewable Portfolio Standard [moves 20% target to 2010, new reporting requirements for publicly-owned utilities, procurement plans to achieve efficient use of fossil fuels] 4. State Policy a. Integrated Energy Policy Reports (updated November 2006) [adopts 33% renewables by 2020 target] b. Governor’s Executive Order: Climate Action Team (June 2005) [sets State greenhouse gas emission goals to 2000 levels by 2010, 1990 levels by 2020, and 80% below 1990 levels by 2050] 5.Federal Energy Policy Act of 2005 (new requirements for energy efficiency, tax incentives (Tittle 13) and time-differentiated retail rates. 6. Customer and Colnmunity Preferences a. Recommendations of the Mayor’s Green Ribbon Task Force on Climate Protection (December 18, 2006) [long list of efficiency and sustainable development recommendations] b. 2006 Utility Rebate Program Online Citizen’s Advisory Panel [shows strong interest in enhanced efficiency and guidance on key interest areas] c. RKS Customer surveys [Palo Alto residents are knowledgeable of and show a strong interest in climate change, and are willing to pay more to help the environment] ’ d. City Council selected Climate protection as a "top 4" priority for 2007. 5 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 CORE POLICY OBJECTIVES AND IMPLEMENTATION STRATEGIES The core policy objectives embodied in the long list of references above are sumlnarized in Table t, with the proposed implementation strategies to address each major objective and references to legal requirements, policies or strategic recommendations. Table 1. Energy Efficiency Program Core Policy Objectives and hnplementation Strategies POLICY DIRECTION IMPLEMENTATION STRATEGY Pursue all available energy efficiency and demand reduction resources that are cost-effective, reliable and feasible. Use a community-wide perspective in program design/evaluation criteria Aim to reduce average bills. Design programs for broad participation to promote equity. Utilize an integrated "systems" approach to program design. Track and report program effectiveness. Explore technologies and rates to encourage demand reduction, conservation, and load shifting. Be innovative - tailor programs unique to Palo Alto’s needs. o o o o o o Recognize energy efficiency as priority resource in long-term planning and procurement Invest in both demand side and supply side efficiency. Design funding mechanisms to manage fluctuations in customer participation. Maintain flexibility with custom incentive options Apply combined utility and customer net benefits to overall program design. Develop environmental adder. Fund program through avoided supply cost savings. Apply average customer benefit to individual measures and sub-programs. Seek efficiency competitively, similar to shopping for supply Design programs so that all customers can participate. Minimize "free riders". Design & evaluate programs based on combined electricity, gas and water impacts. Coordinate efficiency efforts with green building and other city-wide sustainability efforts. Report annually on actual and projected savings and cost-effectiveness. Develop/report meaningful energy intensity metrics (per ft2, per person, per $ GDP, etc.) Provide price signals to customers through retail rates. (e.g. additional tiers, time-differentiated rates) Advanced metering, energy storage, smart homes, etc. Streamline City processes and update building efficiency requirements. Target specific sectors with focused integrated programs Make use of programs successful elsewhere. REFERENCES SB 1037 AB 2021 RMI Section 1 NAPEE MOU Sustainability Policy Goal N-9 Policy N-44 RMI Sections 5 & 7 CMUA GHG principles RMI Sections 4 RMI Section 5 RMI Section 2 RMI Section 1 GRTF SB 1037, AB 2021 USDOE/EIA 861 Western IRP EPAct 2005 Program N-62 GRTF Programs N- 64/65/66, N- 24/25/26 (water) RMI Section 1 GRTF 6 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 PROPOSED IMPLEMENTATION PROCESS Staff proposes a combination of a long-term plan review cycle (no less than every three years) for adopting long-term targets, in combination with a more fi’equent annual review cycle for evaluating and reporting progress and updating budget projections, and continuous process for rolling out llew programs that pass the cost-effectiveness criteria and approved budget. A ten-year energy efficiency plan for electric utilities is required by AB2021, originally due to the CEC by June 1, 2007, but the submittal deadline has been extended to September 1, 2007. The 10- year plan provides estimated technical and economic potential, sets long-tern energy savings targets, including cost-effectiveness criteria, and long-term budget implications. This report represents the first 10-year plan that will be presented to Council for approval in April ,2007. A 3-year implementation plan cycle is also stipulated in AB2021. In practice, staff expects that the review cycle will more naturally fit into the two-year budget cycle, so that revised long-term plans would take place more often than the statutory 3-year requirement; either every two years, or perhaps more often if appropriate within the City’s mid-year budget adjustment process. Costs associated with the proposed targets in this report are included in the proposed budget beginning in FY 07/08. Annual reporting to the public and the CEC is required by AB2021, with specific requirements still being developed by the CEC. The biannual budget review process for mid-year adjustments already facilitates the practice of review and adjustment on a more fi’equent basis than is required, which will enable incorporation of new program ideas, and adjustments of near-term expectations in response to measured progress. Staff anticipates developing the ability to revise estimates quarterly, with annual reporting. The main new addition to the reporting requirement is the need to provide for independent measurement and verification of results, which requires hiring of an outside consultant, the cost of which and scope of work required is not yet known. Many of the new reporting requirements are already partly met in existing reports, including periodic Public Benefits program reports, UAC Quarterly repoxts, LEAP updates, and the annual integrated resource planning report to Western. hnplementation begins in FY 07/08. The first two years of expanding the program includes numerous stm~-up items needed to facilitate independent measurement and verification, systems to facilitate more frequent repo~ting and cost-effectiveness testing for program design and evaluation, and mechanisms to manage a more substantial investment in efficiency with limited staff resources. These start-up activities comprise approximately $1 million (39%) of the projected two-year additional efficiency program costs of $2.6 million. The basic long and.short-term planning and implelnentation process is illustrated in Figure 2. 7 of 44 rn ~:~o~oEe~- ~0uJ©0n- © © -r © Attachment A: City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 The expanded efficiency program is not simply an increase in the Public Benefits charge. The law aims to size energy efficiency efforts to maximize community net benefits, removing the constraints imposed by limiting program size to Public Benefit budgets. Two key stipulations of AB2021 are: (a) (b) Each local publicly owned electric utility, in procuring energy to serve the load of its retail end-use customers, shall first acquire all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible; A local publicly owned electric utility’s determination of potentially achievable cost- effective electricity efficiency savings shall be made without regard to previous minimum investments ... A local publicly owned electric utility shall treat investments made to achieve energy efficiency savings and demand reduction targets as procurement investments. One interpretation of what "treat investments as procurement investment" means is that the investments are funded from supply budgets. If the investments are cost-effective, the initial supply investment should be recouped from savings in the supply budget over time. There can still also be Public Benefit funded efficiency progrmns (CPAU’s "previous minimum investments"), or a Colnbination of both. The cost-effectiveness criteria are discussed in the next section of the report. The proposed approach to screening and initiating new programs is outlined in Figure 3, which illustrates that new program funding must pass a cost-effectiveness screening and must be included in the authorized budget, after which the program implememation process will depend on whether it is primarily a customer-interface program such as rebates, implemented by Utilities Marketing Services, or instead something else, such as high-efficiency distribution system equipment or manufacturer-direct incentives, in which case the program might be implemented by Resource. Management. In either case, it is likely that much of the work will require managing outsourced services in order to realize the aggressive targets. S:\UTL\OIdH\01DIRECTOR\CMR\CMRs IN PROCESS\Ten Year Energy Efficiency Portfolio Plan~Attachment A- Proposed Long-term Efficiency Portfolio Plan 15-Mar-2007.doc W© 0 © ~d Attachment A: City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 COST EFFECTIVENESS The core aim for cost-effective energy efficiency is to reduce customer bills while improving the environment, employing programs that are available to all customers. PERSPECTIVES What is cost-effective depends on perspective. The five perspectives most commonly used in efficiency program cost-effectiveness testing are: 1. PalOdcipant: An energy efficiency measure that provides net savings to a customer is cost-effective for them as a "pmnticipant". 2. Utilit.2: A measure that lowers overall cost for the utility is cost-effective for the utility (also referred to as "Program Administrator"). For CPAU, this could also be considered the "all ratepayers test" or "average utility bill test", as it reflects the change in the utility bill to the average customer. Supply-funded incentives should pass this test to be considered cost-effective. 3. Total Resource: If the combination of the utility and all customers together save money, it is cost- effective from a "Total Resource Cost" viewpoint. 4. Societal: If the community as a whole is better off, including cost savings plus a value assigned to environmental improvement or other public benefit, then it is cost-effective from a Societal viewpoint. Total efficiency program expenses including Supply and Public Benefit budgets should pass this test to be considered cost-effective. 5. Non-Participant: Even if the bill for the average customer shrinks significantly, retail rates could increase slightly, so that customers who do not reduce consumption could see a slight increase in rates and therefore bills. This effect is due to the portion of retail rates that must be collected to pay for fixed costs. For example, reducing sales from energy efficiency by 10% would lead to a rate increase of up to 3%, and the average bill would as a result be down by 7%. For this reason it is important to design diverse programs to be widely available in order to facilitate efficiency implementation in as broad a manner as possible. The cash flows and relevant costs and benefits that go into calculating benefit-cost ratios, from these different perspectives are illustrated below in Figure 4 and delineated in Table 2. S:\UTL\OIdH\01 DIRECTOR\CMR\CMRs IN PROCESS\Ten Year Energy Efficiency Portfolio Plan~Attachment A - Proposed Long-term Efficiency Portfolio Plan 15-Mar-2007.doc City of Paio Alto Utilities Ten Year Energy Efficiency Plan 2007 Table 2. Cost-Effectiveness Perspectives and Associated Costs and Benefits. Cost Effectiveness Test Participant Cost Test (PCT) Does the participant save money? Utility Cost Test (UCT) - Average Bill Are utility revenue requirements lowered? Total Resource Cost Test (TRC) Sum of Participant + Non-participant Are total community expenditures lowered? Societal Cost Test (SCT) Do total societal benefits exceed the costs? Rate Impact Measure (RIM) Also known as non-participant test Are utility rates lowered? Costs Measure Cost Incentive to Customer Program Delivery Cost Measure Cost Program Delivery Cost Measure Cost Program Delivery Cost Incentives to Customer Lost Revenues (=Bill Savings) Program Delivery Cost Benefits Incentive to Customer Bill Savings Tax Savings Avoided Supply Costs Avoided Supply Costs Tax Savings Avoided Supply Costs Tax Savings Societal Benefits Avoided Supply Costs ....EnergyProgram vendors ~’,Serviceand in-house Company t Program Cost ~< ~"~’Avoided "i-" CPAU Cost S avings Electric Grid Other ~ Cost Savings t Measure Cost Tax Savings -.a-. Incentives, ~ ~ Bill Savings ,i i .... Participant .] [ost Net Revenue = ! .......7:-:,~ Ia~icipant Bill Savin£4~ ~ Util tv Net ,, ,,, Rate Impact.,~; ’, ",, Total Resource Cost ..... ........................................................................Environmental ’,," ....................................................========================================= Benefits .Societal Cost Figure 4. Energy Investment Cost and Benefit Flows. Total Resource Cost reflects the financial perspective of the Palo Alto comnmnity as a whole. The Utility Cost, Participant, and Rate Impact perspectives should be balanced to ensure lower average bills and sufficient incentives to achieve participation, but not set so high as to encourage free riders, to prevent any undue burden on non-participating customers, and to promote equity. 12 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 CRITERIA The Rocky Mountain Institute study recommendations regarding economic criteria applicable for energy efficiency programs were: The Total Resource Cost (TRC) perspective is the appropriate measure for ranking energy efficiency measures and contrasting energy efficiency investments with supply alternatives fi’om a community standpoint. On the supply side, it is important to account comprehensively for avoided costs, including transmission and distribution costs, line losses, reserve capacity, and future emission costs. Program portfolio design and incentive levels should produce a group, of programs under a TRC limit, select among these to minimize rate impact, and consider customer equity. The Utility Cost, Participant, and Rate Impact perspectives should be balanced to ensure lower average bills and sufficient incentives to achieve participation, but not so much as to encourage free riders, to prevent any undue burden on customers, and to promote equity. There will be participants and non-participants for any one program. Thus, to address equity, the utility should run a portfolio of programs so people can pm~icipate in some, but may be a non-participant with regard to others. CPAU needs to explore the threshold for permissible rate impacts. Palo Alto City Council has already established an acceptable rate impact that defines how much may be spent for renewable supplies; the same may be able to be done for efficiency, in which case, CPAU could roll this issue into a LEAP update. CPAU’s Rate Assistance Program (20% discount on utility bills for low-income. participants) serves customers for whom efficiency could be most profitable for CPAU, because the lost revenues and potential rate impact would be diminished, while promoting equity. Consider employing the same methodology to address climate change risk as has been adopted for use by the investor-owned utilities. CO2 emissions serve as a proxy indicator for environmental impact, and one that Council recognizes. CO2 can be effectively treated as an uncertain future (regulatory) cost, rather than as a more nebulous "externality." CPAU should present a plan with opportunities for additional efficiency, showing the economic and environmental consequences that would result if no action is taken, leading to a concise recommendation of economic criteria, including rate impacts. Staffneeds to educate and engage the public and City Council, and Council guidance is needed for cost-effective efficiency, program design, based on criteria that are simple, clear and measurable, based on total budget, rate impact, etc. 13 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Whereas TRC is academically the appropriate perspective to apply for energy efficiency measures, it is difficult to verify and must rely on assumed costs incurred by a participating customer incremental to what they would have otherwise chosen to do, whereas the utility cost is known precisely. Staff recommends using the UCT to apply to all supply-funded efficiency measures. SCT allows for including non-financial benefits, such as environmental externalities, learning from R&D, market development, or others. Staffrecommends expanding the perspective for overall program design to include the broad social perspective, which would apply to the combined supply and public benefits funded energy efficiency efforts. This approach facilitates leveraging public benefits funds to achieve what the fund name reflects. A greenhouse gas "adder" is under development, to be incorporated per the Council-endorsed CMUA Principles Addressing Greenhouse Reduction Goals (CMR:315:06) as part of cost- effectiveness testing as part of UCT/TRC, reflecting the financial risk, not the environmental externality associated with greenhouse gas emissions. This adder is anticipated to add $8-20/tonne to cost-effectiveness tests ($20 adds approximately 1 cent/kWh and approximately 10 cents/therna), similar to the same basic practice employed by investor owned utilities such as PG&E. Council approval of a 20% Renewable Portfolio Standard with a rate impact limit of 1½ C/kWh to the overall portfolio established an implied preference for clean energy versus brown supply of 2.5 C/kWh for renewable supply, and with the current proposed move to a 33% target, but with no increase in the rate impact limit, translates to 1.5 C/kWh. Such a "societal value" would translate to 20-30 cents/therm for natural gas. Staff proposes to utilize a Social Cost environmental adder externality for screening and evaluating cost-effectiveness of Public Benefit funded efforts, excluding the R&D portion of efficiency demonstration projects. This practice would add the societal benefits of 1.5-2.5 C/kWh to the financial benefits when making decisions about measure selection and program design from a Societal perspective. Potential inequity from rate impacts to non-participants will be reduced by designing programs that ensure that all customer classes have the opportunity to participate, and avoiding "fi’ee riders" by limiting rebates and incentives to a reasonable fi’action of the actual cost. Staff does not recommend any limitation of program cost-effectiveness based on the RIM test, but as part of annual reporting and tracking, all five cost-effectiveness perspectives will be calculated. Although low income efficiency programs are not restricted in AB 1890 to be cost-effective, the costs and benefits of these programs will also be tracked and reported. RISK and RISK MITIGATION Energy efficiency investments provide numerous benefits, which include some risk reduction benefits, but are not without risks of their own. The key risks and benefits associated with energy efficiency investments are listed in Table 3 below. t4 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Table 3. Energy Efficiency Risks and Benefits. Risks Performance Permanence and Durability Technology development & obsolescence Cost-effectiveness Actual cost Free riders Benefits Energy cost savings Capacity cost savings Transmission cost savings Reduced system losses Transmission congestion relief Reduced load variability Enhanced load predictability Enhanced reliability Local control Local jobs, taxes, rents Environmental stewardship Reduced regulatory risk Enhanced GHG robustness Reduced customer bills Happier customers Customers view utility/City as responsive Customers buffered from price shocks Reduced local pollution from gas savings Provides leverage by demonstrating that more is possible to encourage other utilities to do more The impacts of these risks are explicitly addressed in standard cost-effectiveness testing practices by reducing the expected energy savings, depending on the specific measure. This correction factor is referred to as the "Net-to-Gross Ratio" or NTGR: A NTGR of 0.8 reduces the estimated energy savings by 20%. Palo Alto’s low cost of capital also makes investment in energy efficient measures morecost- effective that would otherwise be the case. This feature is a synergy or strength rather than a benefit. 15 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 CONTEXT- Existing Programs CPAU began implementing energy efficiency programs in the 1970s. In 1996, CPAU approved a policy to fund electric, gas and water efficiency progralns at one percent of revenues per year. In 1998, CPAU increased the electric public benefits program budget to approximately 3% of revenues, with a one-year increase of an additional 8% fi’om the electric commodity purchase budget during the 2001 energy crisis. Over the past 8 years, these electric efficiency programs have resulted in peak demand reductions of 7.8 MW. Estimated cumulative energy savings are over 71,000 MWh for the 8-year period. Current energy and water efficiency program offerings are summarized in Table 4 below. Table 4. Current CPAU Energy and Water Efficiency Programs Residential Programs Smart Energy Program: Rebates for energy efficient appliances and building modifications. New items being rebated include dual speed pool motors, tankless water heaters, and refrigerator recycling. REAP: Residential Energy Assistance Program. Installation of energy saving measures to low income Palo Alto residents. Online Audits: Home energy audits that can be conducted via the web. Programmable Thermostat Program: Instant in- store rebate given for the purchase of Energy Star rated programmable thermostats. LED Christmas Light Program: Instant in-store rebate given for the purchase of LED Christmas lights. Commercial Programs Commercial Advantage Program: Rebates for energy efficient upgrades to commercial or institutional facilities. Consultant Assistance for Resource Efficiency (CARE): Funding for a professional consultant to perform an energy and/or water efficiency study at a commercial or industrial facility. Right Lights (NEW): A program to assist the small commercial customers with high efficiency lighting, along with other energy saving devices. Below Proqrams are Cost Shared with Santa Clara Valley Water District High Efficiency Toilet Rebates: Get REBATES of up to $125 for High Efficiency Toilets (HET). Water Wise House Calls: Trained water surveyors will review your water use, provide FREE low-flow showerheads and aerators and make water wise recommendations including an annual irrigation plan. Water Saving Devices: Receive your FREE low- flow showerheads, faucet aerators and toilet leak detection tablets. Water Efficiency Technologies (WET): Rebates for customers implement process and equipment changes that reduce their water usage Irrigation Technical Assistance Program (ITAP): Irrigation efficiency audits. Evapotranspiratidn Controller Program: Specialized irrigation controllers for commercial landscapes Clothes Washer Rebates: Rebates up to $150 Commercial High Efficiency Toilet Program: on qualifying water efficient clothes washers.Installation of HET toilets for high traffic bathrooms. 16 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Programs under consideration in the near term include: ¯ New Construction program, coordinated with City Green Building Policies such as Build It Green and LEED certification. Currently working with a contractor and evaluating the program. °Key Account Facilities Employee Training Programs. The Facilities Manager’s Meeting talk on Recommissioning was a big success. Staff is looking into sponsoring a regular series of classes, possibly 4-6 days, with the first to continue on the recommissioning theme. ¯APPA Tree Power: Incentives for utilizing trees to reduce energy use through shading of buildings and asphalt, evapotranspiration, and removing carbon dioxide from the atmosphere. ¯Revamp commercial custom rebate program to better reflect current market costs of energy. In addition, all customer classes can participate in PV Partners, providing rebates to Palo Alto residents and businesses for new installations ofphotovoltaic (PV) systems, and PaloAltoGreen, City of Palo Alto Utilities’ Renewable Energy option. Efficiency investments have been reported to the public regularly in annual Public Benefits program reports to the UAC and Council, and in UAC quarterly reports. In December 2006, a more detailed reporting of electric energy efficiency programs was filed with the California Energy Commission in COlnpliance with the reporting requirements of SB 1037, entitled, "Energy Efficiency in California’s Public Power Sector: A Status Report". Staff intends to also begin utilizing a similar detailed approach to reporting electric energy efficiency for tracking and reporting natural gas energy efficiency program investments, as well. The electric efficiency program reporting methodology generates an estimate of energy savings over tilne, illustrated in Figure 5 for investments made in 2005/06 and anticipated for 06/07. Total estimated lifecycle savings were 17 million kwh in 05/06 and projected to be 20 million kWh in 06/07. Some measures last only a few years, while others can last up to twenty years or more. The reporting spreadsheet employed this year projects out only 14 years. 17 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 4.5 4.0 3.5 2.5 2.0 1.5 1,0 [] PB Savings Annual kWh 06/07 (est) ! [] PB Say ngs Annua kwh 05/06 I 0.5 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Fiscal Year Ending Figure 5. Projected electric energy savings (first fourteen years) from CPAU’s FY05/06 and FY06/07 electric efficiency programs, per the E3-NCPA reporting tool utilized in completing the SB 1037 report in December 2006. COST-EFFECTIVENESS AND ESTIMATED PAYBACK DSM program design to date has been largely guided by benchmarking to similar prograln offerings. The new long-term efficiency program plan aims to foster a renewed emphasis on cost-effectiveness as a program design criteria. Redesign of existing programs began in earnest this year, wherein several rebates were adjusted (some upward and some downward) to better reflect the benefits due to avoided costs. Program design for the 2007/08 programs began incorporating these more robust savings estimation methodologies that have been developed partly in joint efforts with other municipal utilities and NCPA. Some of the first major efforts in enhancing the existing program will be to further refine current program offerings to extract greater savings from the existing DSM portion of Public Benefit funding. Public Benefit funded DSM programs have nonetheless achieved estimated energy savings which have as a whole been relatively cost-effective. Figure 6 below plots the cumulative savings based on both direct measure costs (including administration and marketing) and total DSM spending (which includes costs of audits, education, consulting, and other activities that save energy but are not reflected in the energy savings estimates). The energy savi.ngs earn back all of the "direct" measure program costs in about seven years, with a 10.6% internal rate of return. When the total program 18 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 costs are included, it still does payback, but takes ten years to do so (with a 1.6% internal rate of return). Electric Efficiency Cost Recovery FY05/06 $1,000,000 $500,000 $(500,000) $(1,000,000) $(1,5oo,ooo) FY Ending Figure 6. Estimated financial payback of FY 05/06 electric energy efficiency programs are approximately six years based on direct cost (10.6% IRR), and ten years based on gross cost. Direct costs include adlnin and marketing, but cover only incentive programs with energy savings identified in the "DEER" database of energy efficiency measures. Gross spending includes programs without directly measurable efficiency savings such as education, audits, and consulting. However, the specific program measures exhibit a wide range of performance, which should be rebalanced not only to adjust the rebate levels, but also to appropriately allocate funding sources to the commodities for which savings are being realized. For example, a high efficiency clothes washer saves a little electricity, but a lot of natural gas and water, so if the cost is fully assigned just to electricity it appears excessively expensive in terms of S/kWh saved. Part of the refinement of existing rebates will also be to allocate the funding for electricity and natural gas in proportion to their savings, and where appropriate, also to water. DEMAND REDUCTION Demand reduction relieves stress on the electric grid during peak usage times. Peak load reduction can be accomplished through more efficient equipment, which reduces peak loads by lowering the power needed to perform a particular function, or through demmad response, which is the ability to reduce electricity use on short notice for a short period of time. RMI evaluated the opportunities and programs at CPAU, with the following conclusions: From RMI Report: 19 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Demand response is a strategy to make specific customer loads more responsive to market prices or supply constraints through various combinations of price signals, curtaihnent incentives, or control technology. CPAU is already implementing delnand response based on voluntary curtaihnents by certain large customers. While there may be potential to expand demand response programs to include smaller customers, dynmnic pricing, and/or automated control technology, several factors likely limit the cost-effectiveness of such potential: ¯CPAU’s load profile is relatively flat, with relatively little ability to shift load from peak to off-peak; ¯Because of the very mild climate, CPAU does not experience a steep on-peak load spike compared to inland areas that have higher loads from commercial and especially residential air conditioning; °Due to the above two factors, the demand response yield, in terms ofkW shifted/customer, would be relatively small, which would make the cost, in terms of $/kW shifted, relatively high; °CPAU has relatively flexible supply resources because of the availability of hydro power from Western and Calaveras; ° Much of the largest and most cost-effective demand response opportunity with large customers is already being realized via voluntary CPAU programs; °Lastly, program costs to serve small customers can be particularly high, and issues regarding split incentives between tenants and owners can cause additional barriers to implementation. For these reasons, RMI did not undertake a rigorous analysis of demand response potential in CPAU territory. However, CPAU is actively pursuing advanced metering systems that could be used as a platform for launching such a program should it become economic and feasible. The Advanced Metering Program ("MeterLinks,’) is an unline utility data accessible for large industrial customers that enable the customer to facilitate efficient implementation of load management programs and energy usage management. In the program, the utility provides participating electric customers with 15-minute interval data in either a Real Time format or on a Day-Plus-One load profiling format. This demonstration program provides customers with the necessary technical information to manage the overall consumption of electricity for their facility, as well as stage their actions to respond to utility requests for load curtaihnent The following Table 5 and Figure 7 summarize the Palo Alto section of the municipal utility energy efficiency program report to the CEC (December 2006). 20 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Table 5. Summary of the Palo Alto section of the report to the CEC - SB 1037. Current Programs Commercial Customer ¯ Programs and Services: Residential Customer Programs and Services: Community Education Program: Public Schools Program: Proposed New Energy Efficiency Programs and Services: (for 2006- 2007) Commercial Advantage Program: Incentives offered to commercial customers for investments in efficient lighting, motors, HVAC and Custom Project/targets peak demand and energy reductions. Net Peak savings: 4 megawatts; Net Annual Savings: 1.35 megawatt- hours, Program Cost: $300,000. [corrected estimate = 1.75 GWh] ¯Consultant Assistance for Resource Efficiency: Comprehensive technical assistance for commercial customers to identify efficiency measures to facilitate peak demand reduction and energy savings. No quantified savings; Program Cost: $250,000. ¯MeterLinks: Online utility data accessible for large industrial customers that enable the customer to facilitate efficient implementation of load management programs and energy usage management. No quantified savings; Program Cost: $60,000. ¯Commercial Lighting Retrofit Program: Turnkey program for small commercial customers that provides an analysis of facility lighting needs and installs efficient lighting upgrades with minimal cost to the commercial customer. Net Peak savings: 65 kilowatts; Net Annual Savings: 285,000 kilowatt-hours; Program Cost: $95,000. ¯Smart Energy Programs: A comprehensive energy efficiency incentive program for residential customers. Rebates and technical assistance promote home shell improvements, and the installation of attic/roof insulation, high efficiency cooling and refrigeration equipment, appliances and lighting. Net Peak savings: 21 kilowatts; Net Annual Savings: 100,000 kilowatt-hours; Program Cost: $300,000. ¯Low-Income Assistance Programs: CPAU provides weatherization and equipment replacement to low-come residents. Net Peak savings: 23 kilowatts; Net Annual Savings: 60,000 kilowatt-hours; Program Cost: $95,000. ¯Community Energy Education: CPAU offers free residential online audits, and other energy conservation and efficiency education programs to target groups in the community. Activities include hosting commercial Facility Manager Network meetings, residential energy workshops, participation in Chamber of Commerce meetings, neighborhood association events, and local fairs and special events. No quantified savings; Program Cost: $85,000. ¯Palo Alto Public Schools: (17 schools with 10,000 students): Annual education grants to the local schools to support teacher training programs and the development of curriculums and education projects that promote energy and water efficiency. CPAU also participates in monthly Sustainability committee meetings, and makes educational presentations to classes on energy efficiency and renewable energy. No quantified savings; Program Cost: $57,000. o Training building operators for retro-commissioning commercial facilities. (No quantified savings available). 21 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Modifications to Existing Energy Efficiency Programs: (for 2006-2007) Commercial Customer =Expansion of Commercial Lighting Retrofit Program: Turnkey Programs:program for small commercial customers that provides an analysis of facility lighting needs and installs efficient lighting upgrades with minimal cost to the commercial customer. Expected net peak savings: 130 kilowatts; Net Annual Savings: 570,000 kilowatt- hours; Program Costs $120,000. ¯Revisions to the Commercial Advantage Program Scope: Revised incentives (to respond to changes in equipment efficiencies mandated by new energy codes: Title 20) offered to commercial customers for investments in efficient lighting, motors, HVAC and Custom Project/targets peak demand and energy reductions. Expected Net Peak savings: 4 megawatts; Net Annual Savings: 11.8 megawatt-hours; Program Costs: $475,000. [corrected estimate = 1.75 GVVh] Residential Customer ¯Revision of measures in Residential Smart Energy Program: Programs:Comprehensive residential energy efficiency incentive program . that provides rebates and technical assistance promote home shell improvements and the installation of attic/roof insulation, high efficiency cooling and refrigeration equipment, appliances and lighting. Expected net peak savings: 35 kilowatts; Net Annual Savings: 180,000 kilowatt-hours; Program Costs $320,000. ¯Expansion of Low-Income Program to More Customers: CPAU provides weatherization and equipment replacement to low- income residents.. Expected net peak savings: 46 kilowatt; Net Annual Savings: 118,000 kilowatt-hours; Program Costs: $125,000. Existing Energy Commercial Customer Programs Efficiency Programs ¯ Consultant Assistance for Resource Efficiency without Major ¯ MeterLinks Modifications 2006-Community Energy Education 2007:Public Schools Programs Future Energy Efficiency Programs: (beyond 2006-07) CPAU expects to significantly increase its investment in energy efficiency beyond what is funded through the public benefit charge. CPAU has completed a study (performed by Rocky Mountain Institute) to identify all cost-effective potential electric (and gas) efficiency measures, and is developing an implementation policy for thenext fiscal year. DEMAND RESPONSE ¯CPAU’s demand response program is voluntary with a few key customers providing 3-5 megawatts of peak reduction upon request. There is no cost for this program. CPAU also owns 4 natural gas fired generation units to add 5 megawatts of demand during Stage 3 alerts. ¯Palo Alto is conducting a demonstration program called the Advanced Metering Program. In the program, the utility provides participating electric customers with 15-minute interval data in either a Real Time format or on a Day-Plus-One load profiling format. This demonstration program provides customers with the necessary technical information to manage the overall consumption of electricity for their facility, as well as stage their actions to respond to utility requests for load curtailment. ¯CPAU does not anticipate any changes to the existing voluntary demand response program. 22 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 CPUC Sector (Used for CEC Form &la and 3.2) Process HVAC HVAC HVAC Lighting Process 3rocess Refrigeration Appliances Appliances Consumer Electronic HVAC HVACHVAC Lighting Pool Pump Refrigeration Other Water Heating Other Category Non-Res Cooking Non-Res Cooling Non-Res Heating Non-Res Shell Non-Res Lighting Non-Res Motors Non-Res Pumps Non-Res Refrigeration Res Clothes Washers Res Dishwashers Res Electronics Res Cooling Res Heating Res Shen Res Lighlhg Res Pool Pump Res Refrigeration Res Solar ’Res Water Heating Other Total Net Net Peak Demand Units kW Net Annual Net Lifecycle Savings Installed Savings kWh Sayings kWh savings (kW) 368 32 221,683 3,546,931 3,238 875 1 11,900 119,000 1 2,897 69 321,670 2,405,281 70 5 6 39,044 585,660 8 477 5 11,066 110,664 5 410 4 10,496 136,448 3 12 1 1,176 13,277 3 41 1 3,279 43,634 1 1,040 11 1,585 29,109 11 1,718 6 66,962 525,960 6 442 5 30,763 553,738 5 927,294 17 1,157,102 8,657,726 17 Utility Utility Mktg, Incentives Utility Direct EM&V~ and Cost ($)Install Cost ($) Admin Cost ($} $14,720 $91,815 $438 $3,080 $49,899 $30,596 $62,262 $2,865 $15,160 $113,049 $2,865$30,750 $3,532 $555 $344 $5,365 $1,130$8,791 $754$17,961 $13,615 53,040 $14,334 s $ $ 935,579 158 1,876,727 16,727,428 3,368 ; $ 73,598 $ 224,111 $371,031 $30,596 $433,000 Total Utility Cost ($) 106,535 3,518 142,757 18,025 115,914 34,282 $899 $6,495 $9,544 $31,576 67,374 297,709 834,627 CPUC Sector (Used for CEC Form 3.1a and 3.2)Category Process Non-Res Cooking HVAC Non-Res Cooling HVAC Non-Res Heating HVAC Non-Res Shell Lighting Non-Res Lighting ~rocess Non-Res Motors Process k!on-Res Pumps !Refrigeration k!on-Res Refrigeration iAppliances Res Clothes Washers Appliances Res Dishwashers Consumer Electronic !Res Electronics HVAC IRes Cooling HVAC ires Heating HVAC Res Shell Lighting Res Lighting Pool Pump Res Pool Pump Refrigeration Res Refrigeration Other Res SolarWater Heating Res Water Heating Other Other Net Net Peak NetAnnual Demand Units kW kWh Net Lifecycle Savings Installed Savings Savings kWh savings (kW) 368 32 221,683 3,546,931 875 1 11,900 119,000 2,898 69 321,882 2,407,613 5 6 39,044 585,660 500 5 11,600 116,000 1,000 8 22,400 291,200 108 7 3,494 61,37310338,198 109,087 2,636 29 5,224 97,956 2,612 15 129,308 1,090,877 5 2 5,600 56,000 600 30 190,480 3,428,640 Utility Utility Mktg, Incentives Utility Direct EM&V~ and Cost ($)Install Cost ($)Admin Cost ($) 3,238 li$70 85 5 7 10 3 29 15 4 3O 0 21 3,44O 14,720 $56,867 438 $1,908 49,899 $30,596 $38,601 2,865 $9,390 118,500 $1,860 37,500 $4,669 150 $984 13,418 $1,749 22,105 $1,571 32,321 $17,490 $898 60,000 $54;971 5 0.716 10,740 927,323 21 1,157,887 8,661,651 $172 88,298 $138,871 Total Utility Cost(S) $71,587 $ 2,345 $ 119,096 $ 12,255 $ 120,360 $ 42,169 $1,134$-15,167$23,675 $49,810 $898 $ 114,971 $ 172 $ 227,169 Total 939,038 228 2,129,416 20,582,728 440,213 $ 30,596 $ 330,000 800,809 Figure 7. Palo Alto SB 1037 Report Summary Page. Costs exclude many DSM programs that are not specifically "measures" such as MeterLinks, education & training, audits, consulting, etc. Total DSM spending was $1,240,050 in 05/06 (actuals). 23 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 POTENTIAL: Technical, Economic, Achievable In 2005, CPAU contracted with the Rocky Mountain Institute (RMI) to evaluate local resource alternatives including energy efficiency, renewable resources, combined heat and power, and conventional generation. As part of that work, RMI estimated technical mad economic potential for electric and gas efficiency measures. The RMI findings were presented to the UAC in November 2005 and March 2006, and to Council in April 2006. RMI also identified potentially advantageous opportunities for combined heat and power and less so for conventional generation. These parallel findings are being incorporated into the "PLUG-In" program to be aimed at encouraging customer- sited ultra-clean distributed generation and cogeneration (CMR: 406:06). RMI estimated that implementing all remaining cost-effective energy efficiency measures by all CPAU customers would reduce long-term electric resource needs by up to 70 GWh per year (approximately 7% of load) at a levelized total resource cost less than 5 C/kWh, and up to 95 GWh per year (approximately 10%) at a levelized cost of less than 8 C/kWh. If, through careful program design and aggressive implementation, half of this potential could be achieved over a ten-year time horizon, historical electric demand growth of approximately 0..3% per year could potentially be met entirely with energy efficiency. RMI fresher recolnmended that additional efforts in price-driven demand response programs would not be likely to achieve substantially more participation than the current voluntary program, which is capable to lowering short-term electric demand by 3-5 MW. RMI also estimated that there are 4.5 million annual therms of gas efficiency potential at costs below $0.65 per therm and 5.6 million annual therms at costs below $1.00 per therm. These estimates include solar domestic hot water, and also include several measures that overlap and therefore should not be simply added together, such as high efficiency hot water heaters and solar hot water, or high efficiency gas furnaces and building insulation, which when combined save less than the two individual measures alone. The efficiency "supply curves" for electric and gas energy efficiency derived by RMI are illustrated below in Figure 8 and Figure 9, indicating the maximum potential in MWh/year or ¯ therms/year at a total resource cost (combined participating customer plus utility cost per kWh or therm saved) at or below a given levelized cost. Table 6 and Table 7 list the "top ten" electric and gas efficiency measures with the highest estimated efficiency potential and costs at or below 8 C/kWh and $1.00 per therm, respectively. 24 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 CPAU Electric Efficiency Potential Efficiency Measures with Cost Below $.08/kWh $0.08 $0.06 $0.05 $0.04 $0.03 $0.01 $- 20,000 40.000 60.000 80.000 100,000 Annual Electricity Saved (MWh/year) --~--Total Electric Potentia ....~.....-Residential Electric --~--Commercial Electric Figure 8. CPAU Electric Energy Efficiency Potential "Supply Curve" as estimated by RMI. Table 6: Ten largest electric efficiency measures at or below a Total Resource Cost of $0.06/kWh, ranked by sawngs ~otential (40% of the total efficiency potential at or below this cost), as estimated by RMI. Building End UseRank Efficiency Sector Measure Description Levelized Potential Type Targeted Cost G Wh/year S/kWh 1 7.9 Residential Existing Lighting CFL, 2.5 hr/day $0.026 2 4.3 Residential Existing Lighting CFL, 6.0 hr/day $0.034 3 2.5 Commercial Grocery Refrigeration High-efficiency fan motors $0.034 Office Network Power4 2.5 Commercial Office $0.009EquipmentManagement Enabling 5 2.0 Commercial Office Interior Retrofit 2-1amp 8-ft fixture,$0.060Lightinglamps and ballast 6 2.0 Commercial Office Interior Retrofit 4-1amp 4-ft fixture,$0.034Lightinglamps and ballast 7 1.8 Residential Existing Pool High Efficiency Pool Pump and Motor $0.026 Centrifugal Chiller, 0.5181.8 Commercial Office Cooling kW/ton, 300 tons $0.017 Double Pane ClearCoolingWindows to Double Pane,$0.01791.7 Residential Existing (central) Med Low-E Coating 10 1.7 Commercial Office Interior Retrofit 2-1amp 4-ft fixture,$0.060Lightinglamps and ballast TOTAL 28 25 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $O.lO $- . CPAU Gas Efficiency Potential Efficiency Measures with Cost Below $1.00/therm ..... -1.00 2.00 3.00 4.00 5.00 6.00 Annual Gas Saved (MTh/year) Total Gas Potential -....~-- Residential Gas -~.- Commercial Gas Figure 9. CPAU Natural Gas Energy Efficiency and Solar Potential ’Supply Curye" as estimated by RMI. Table 7: Eight largest gas efficiency measures at or below a Total Resource Cost of $1/therm, ranked by savings potential (48% of total 5.6 million therms of efficiency potential at or below this cost), as estimated by RMI. There is also substantial potential for solar water and space heating. Rank 1 2 3 4 5 6 7 8 9 10 TOTAL Efficiency Potential ~erms/yr 620,0O0 482,000 302,000 285,000 221,000 177,000 169,000 154,000 144,0800 139,000 2,693,000 Sector Commercial Commercial Residential Residential Commercial Commercial Residential Residential Commercial Residential Building Type Office Office SF pre-79 MF pre-79 Restaurant Restaurant MF pre-79 SF pre-79 Other MF Pre-79 End Use Targeted Heating Heating Water Heating Heating Cooking Cooking Water Heating Heating Heating Water Heating Measure Double Pane Low Emissivity High Efficiency Furnace/Boiler 95% Eft SE Horizontal Axis CW Tier 2 (EF=3.25) Wall 2x4 R-0 to Blow -In R-13 Insulation (.86) Infrared Fryer Infrared Conveyer Oven SE Horizontal Axis CW Tier 2 (EF=3.25) Wall 2x4 R-0 to Blow -In R-13 Insulation (.86) High Efficiency Furnace/Boiler 95% Eft Energy Star CW (EF=2.5) Levelized Cost $/therm $0.05 $0.24 $0.98 $0.63 $.0.22 $0.90 $0.10 $O.82 $0.33 $0.11 26 of 44 City of Pato Alto Utilities Ten Year Energy Efficiency Plan 2007 PROPOSED TARGETS Staff proposes to ramp up to an energy savings rate of at least 50% of identified electric economic potential within 5 years: 35,000 lifecycle MWh at <$.06/kWh UCT (supply budget), <$.08/kWh TRC, and <$.10/kWh SCT (includes Public Benefit). Natural gas efficiency targets aim to reduce the same percentage of total gas use, ultimately reaching lifecycle energy savings equal to 3.5% of annual energy use each year, which translates to a similar ramp-up curve that targets lifecycle efficiency savings goal of 1.1 million therms each year by 2012. These targets are meant to be starting point guidelines, adaptable to new opportunities through new technologies, changes in CPAU customer composition, or improved information about the technical and economic potential in Palo Alto. Long-term goals may need to be adjusted upward with new opportunities, or downward as easier-to-implement efficiency measures are installed and high- efficiency measures more thoroughly saturate local residences and businesses. The mid-range target energy savings trajectory serves as the "Base Case" for long-term efficiency program planning, to be revised annually as part of the normal budget process in response to actual achievements and new information. Each vertical column data point in Figure 10 and Figure 12 reflects total lifecycle savings reflected in each year’s energy efficiency investments. The savings actually accrue over time, as illustrated previously in Figure 5 for FY 05/06 and 06/07. Assuming that a similar shape to energy savings is realized each year over the next ten years, the cumulative impacts on total energy use grows over time are illustrated below in Figure 11 and Figure 13, which result in the cumulative gross annual savings projections in Figure 10and Figure 12, which indicate growing to an annual savings of 2.5% per year in the tenth year (2018). The incremental impacts on the load forecast are slightly lower than these gross savings because efficiency savings from the existing efficiency program investments are already included in lowering the long-term energy forecasts. Cumulative gross annual savings would eventually reach the target level of 3.5% of annual energy use, with a net change in the actual load forecast of about 2.0%, accounting for efficiency program savings due to existing programs. 27 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 40,000 ~35,000 ~ 30,000 25,000 ’5 20,000 15,000 10,000 5,000 f ~ Gross Lifecycle Savings MWh -o--Cumulative Gross Annual Savings MWh Figure 10.Electric Efficiency Target Energy Savings (first ten years). Base case target is to reach a level of realized life- cycle energy savings (columns) equal to 3.5% (35 million kWh) of projected annual energy load each year. Energy consumption reductions and the associated cost savings from energy efficiency investments are realized over a longer time frame, ranging fi’om 3 years up to 20 or more. 40 , ~ 20t¯ ~ . 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 Future year Figure 11. First ten years’ gross projected electric energy savings resulting from lifecycle energy savings targets: excludes future savings fi’om previous programs though 2036. Each color represents the savings over time attributable to the energy efficiency measures installed in the previous year, 28 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 120,000 , 80,000 40,000 20,000 Gross Lifecycle Savings MMBtu =<)-~= Cumulative Gross Annual Savings MMBtu Figure 12. Gas Efficiency Target Trajectory Energy Savings (first ten years). Base case target is to reach a level of realized life-cycle energy savings (columns) equal to 3.5% (1.2 million therms) of projected annual energy load each year. Energy consumption reductions and the associated cost savings from energy efficiency investments are realized over a longer time frame, ranging from 3 years up to 20 or more. 1200 1000 800 600 400 2OO 0 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 Future year Figure 13. First ten years’ gross projected gas energy savings resulting from lifecycle energy savings targets: excludes future savings fi’om previous programs. Each color represents the savings over time attributable to the energy efficiency measures installed in the previous year. 29 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 BUDGET, FUNDING & STAFFING Projected overall efficiency budgets for electricity and natural gas are based on the targets and cost effectiveness criteria described in the previous two sections. If the programs are to be cost-effective from a utility cost perspective, then the cost of saved energy must be less than the least-cost supply resource. The overall budget projections are based on this simple principle, which then sets the upper cost criteria for individual measures and overall program design,. The start-up costs are needed partly to comply with statutory requirements, and partly to facilitate more effective program implementation process in future years. Because of these initial expenses, the first year costs do not appear cost-effective. However, if amortized over the ten-year period, these costs are projected to be fully recovered through avoided cost savings. The figures below illustrate the base case annual life cycle energy saving, the associated projected incentive budgets (combined with Public Benefits) for electricity and natural gas, and the long-term cumulative cost per unit of saved energy resulting fi’om the ten year program. Electric costs average slightly under $74/MWh saved (7.4 C/kWh), and natural gas averages about $7.30/MMBtu (73 ¢/therm), including independent verification and initial startup costs. Direct incentives and direct install costs are projected to comprise approximately 60-70% of the total expenditures. The proposed funding mechanism is to add the incremental amount over and above the existing Public Benefits budget projections, to be provided for in budgeting for energy supply, treating these investments as supply investments. No new staff positions are included in the plan, only reassignment of priorities among existing positions. $3.0 $2.5 $2,0 m ~ $1.5 ._ .~ $1.0 $0.5 ~y,~***/M~-z~y- Electric DSM Total Budget $ $79 -.O.-Cumulative $/Lifecycle MWh Saved $74 $74 ~,.,- $73 -- $72-- $72-- $72-- $73~ 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Figure 14. Base Case Electric Projected Budget and Total Cost per MWh Saved. $90i$88 ~- $86 ~- $84 $80 $78 $76 $74 $72 $70 2018 30 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 $1.0 $0.9 8,~86 ,. $0.8 $O.5 $0.5 !$8.17 ~’X --A--Gas DSM TOTAL Budget $0.4 + Cumulative $/Lifecycle MMBtu Saved $0,3 $7.54 $0.2 ~ $7.28 $7,27 $0.1 2007 $9.50 $9.00 $8.5o $8.00 $7.50 $7.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Figure ]5. Base Case Gas Projected Budget and Total Cost per MMBtu Saved. 31 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 TECHNOLOGY ROADMAP RMI recommended several "starting point" areas that according to their analyses offer the greatest opportunity in the near term for cost-effective energy efficiency, listed in Appendix B. In addition to energy efficiency, solar water heating was also included in the RMI analysis, which offers substantial potential for both residential and commercial natural gas customers. Staff expects to include cost-effective solar heating as part of the efficiency plan. Incentives for solar Photovoltaics, on the other hand, will continue to be provided by CPAU’s PV Partners program. Existing, near- term and possible future programs and concepts are illustrated in Figure 16 along with several startup and parallel support tasks. EXISTING PROGRAMS One of the key first analytical steps will be to re-examine existing programs to ensure that they are aligned with the proposed cost-effectiveness screening approach. This review will allow staffto recalibrate savings esti]nates and rebate levels, phase out or adjust spending on currently non-cost- effective programs, and expand possibilities available through the custom rebate program. NEW PROGRAMS CPAU has already initiated new programs for commercial lighting (Right Lights), residential pool motor rebates, and refrigerator recycling. New programs currently under development include a program for New Construction and Remodeling and the APPA Tree Power program. These latter programs are expected to be implemented starting in FY 07/08. The Commercial Advantage offerings are currently being re-optimized to better reflect current technology, customer needs, and costs. NEW APPROACHES Staff is evaluating possible third-party efficiency programs, sometimes referred to as efficiency "bidding" because it entails soliciting bids for large quantities of"negawatts" similar to the way utilities buy energy on the supply side. PG&E periodically conducts requests for competitively-bid third party efficiency programs, and Silicon Valley Power issued a $1 million RFP for third party energy efficiency programs in December 2006. These programs can be very cost-effective by building on the e>~pertise and innovation of energy efficiency experts and Palo Alto customers. Such programs require diligent contract management and monitoring, but can be and have been very successful. Other new programs that may require more time to evaluate and implement include a wide variety of emerging technologies, enhanced City/Public facilities programs, demonstration, education, training & audits, facility manager Energy Certifications, and Commercial & Public facilities commissioning/recommissioning. In order to maximize participation and optimize program savings, staff anticipates sequencing new programs in targeted "blitzes", and may also need to roll out thematic programs by customer type or business type, such as data centers, industrial motors, commercial refrigei’ation or restaurants, for example. NEW CONCEPTS Other programs are complementary to efficiency and/or demand response, including advanced metering as well as non-rebate alternatives such as revised retail rates or special financing. Staff is 32 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 also analyzing entirely new ways of structuring programs, such as Performance Based Incentives (PBI, or pay-for-performance), manufacturer-direct incentives, landlord incentives, financing, joint action, and outsourcing. Other new concepts that offer promise include supply efficiency: (Generation, Transmission & Distribution), demand reduction and demand response beyond the current voluntary program, energy storage, joint programs with NCPA members/SVP, etc. on some activities, and building-focused alternatives such as building code enhancements, building permit process, training for inspectors/planners, or special incentives for Energy Star buildings or similar building energy rating systems. Staff also plans to evaluate the many concepts and ideas described in the Mayor’s Green Ribbon Task Force on Climate Protection (Appendix B) in developing a more detailed roadmap for implementing the long-term efficiency plan vision. STARTUP AND PARALLEL SUPPORT TASKS The main start-up tasks needed to get the plan rolling include: ¯Hire an independent verification consultant; ¯Analyze existing loads and refine targets; ¯Software: program design, screening, database, and evaluation tools; ¯Link efficiency program targets and accomplishments to load forecast & budgets; ¯Develop energy efficiency benchlnark metrics; ¯Evaluate alternative retail rates that encourage energy efficiency and demand reduction; ¯Establish project management structure and internal controls; ¯Combine electric, gas and water savings measures in program design, screening, and evaluation; ¯identify and analyze electric demand reduction and demand response program and opportunities; and ¯Optimize existing program cost-effectiveness. A second category of support tasks involves tracking and ensuring compliance with the statutory requirement to report to the public and the CEC, including provisions for independent measurement and verification. Some issues to be addressed and hopefully resolved include: ¯How should one interpret the meaning of"actual savings"? ¯How should revisions to building codes be counted? ¯How should third-party verification be implemented? ¯How can the reporting burden be minimized along with other reporting (Western IRP, EIA- 861, etc.)? ¯What do compliance efforts cost? ¯How can energy audit requirements of SB 1 (solar photovoltaic rebates) be coordinated with CPAU solar program or other regulations? Finally, joint action has proven in many cases to help leverage scarce City resources. Staff will evaluate which functions should be conducted in-house and which are more suitably conducted jointly with other agencies. Team members could beother municipal utilities, NCPA, local groups such as Acterra or the Chamber of Commerce, professional associations such as the ACEEE, recognized experts such as RMI, or other partners/advisors. 33 of 44 ~~ E~’~~ 0 m "~0 W n o n .- © © © © T © Attachment A: City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 APPENDIX A: Selected Legislative Language SB 1037: Sec 6 (a) Each local publicly owned electric utility, in procuring energy, shall first acquire all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible. (b) Each local publicly owned electric utility shall report annually to its customers and to the State Energy Resources Conservation and Development Commission, its investment in energy efficiency and demand reduction programs. A report shall contain a description of programs, expenditures, and expected and actual energy savings results. AB 2021 : Sec 3 (emphasis added) (a) Each local publicly owned electric utility, in procuring energy to serve the load of its retail end-use customers, shall first acquire all available energy efficiency and demand reduction resources that are cost effective~ reliable~ and feasible. (b) On or before June 1~ 2007~ and by June 1 of every third year thereafter, each local publicly owned electric utility shall identify all potentially achievable cost-effective electricity efficiency savin~ and shall establish annual targets for energy efficiency savings and demand reduction for the next 10-year period. A local publicly owned electric utility’s determination of potentially achievable cost-effective electricity efficiency savings shall be made without regard to previous minimum investments undertaken pursuant to Section 385. A local publicly owned electric utility shall treat investments made to achieve energy efficiency savings and demand reduction targets as procurement investments. (c) Within 60 days of adopting animal targets pursuant to subdivision (b), each local publicly owned electric utility shall report those targets to the State Energy Resources Conservation and Development Commission, and the basis for establishing those targets. (d) Each local publicly owned electric utility shall report annually to its customers and to the State Energy Resources Conservation and Development Commission. The report shall contain, but is not limited to, both of the following: (1) Its investments iu energy efficiency and demand reduction programs. (2) A description of programs, expenditures, cost-effectiveness, and expected and actual energy efficiency savings and demand reduction results. (e) Each local publicly owned electric utility shall also ~ develop and submit to the State Energy Resources Conservation and Development Commission a reoort containing all of the following: (1) The sources of funding for its investments in energy efficiency and demand reduction program investments. (2) The methodologies and input assumptions used to determine cost-effectiveness. (3) The results of an independent evaluation that measures and verifies the euergy efficiency savings and reduction in energy demand achieved by its energy efficiency and demand reduction programs. (f) The State Energy Resources Conservation and Development Commission shall include a summmN of the information reported pursuant to subdivision (e) in the integrated energy policy report prepared pursuant to Chapter 4 (commencing with Section 25300) of Division 15 of the Public Resources Code. The State Energy Resources Conservation and Development Commission shall also include, for each local publicly owned electric utility, a comparison of the local publicly owned electric utility’s annual targets established in accordance with this section, and the local publicly owned electric utility’s actual energy efficiency savings and demand reductions. If the State Energy Resources Conse,’vation and Development Commission determines that improvements can be made in either the level of a local publicly owned electric utility’s annual targets to achieve all cost-effective, reliable, and feasible energy savings and demand reductions and to enable the local publicly owned electric utilities, in the aggregate, to achieve statewide targets established pursuant to Section 25310, or in meeting each local publicly owned electric utility’s annual targets, the State Energy Resources Conservation and Development Commission shall provide recommendations to the local publicly owned electric utility, the Legislature, and the Governor on those improvements. S:\UTL\OIdH\01 DIRECTOR\CMR\CMRs IN PROCESS~Ten Year Energy Efficiency Portfolio Plan~Attachment A - Proposed Long-term Efficiency Portfolio Plan 15-Mar-2007.doc City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 APPENDIX B: Mayor’s Green Ribbon Task Force Utility-Related Ideas and Recommendations ENERGY SUMMARY: Reduce greenhouse gas emissions fi’om electricity and natural gas usage to achieve climate neutrality by 2020 by doing all of the following: 1.Reduce electricity and natural gas use through conservation and energy efficiency. 2.Reduce carbon intensity of energy supply provided by CPAU. 3.Expand use of renewable energy installed or purchased directly by customers. 4.Participate in and promote greenhouse gas emissions inventory tracking and reporting. 5.Promote and implement climate-neutral alternatives and education. 6.Employ urban forest oppoa~tunities to reduce energy use and increase carbon sequestration. 7.Invest in GHG-reducing projects or offsets to balance remaining emissions. 8.Suppo~ Research and Development in GHG-reducing science and sociology. 9.Coordinate energy climate activities with building and urban planning activities. Summary of Energy Subcommittee "Sho~ List" Recommendations DETAILED: 1.Inventory Greenhouse Gas Sources. a. Community challenge or incentives to repo~’t greenhouse gases with a recognized agency such as Sustainable Silicon Valley, California Climate Action registry, and/or other recognized national or international reporting groups. 2.Information (will have some overlap with Education group) a.Actively advertise available tax credits and incentives (such as the current CPAU website) b.Electricity use and gas use displays in the home and business to encourage . conservation, show energy, cost and environmental impacts. c. Sponsor a"carbon neutral" homes tour. d. Sponsor energy and the environment reference library section. 3.Building & Planning (will have some overlap with Buildings group) a."Energy Budget": Require that homes above a certain size be designed to use energy no more than some size (e.g. 3,000 sq ~t house) at Title 24 standards, and possibly something similar for businesses. b.Add efficiency checklist as standard in planning and ARB reviews. c.Zero energy home incentives. d.Building permit review "fast lane" for low-energy buildings and energy efficiency improvements. e.RECO for rental properties (Residential Energy Conservation Ordinance) f.Require solar option on developments over 5 homes rather than 50. g.Design for LEED/Green Points for new city buildings. h.Build a zero-energy home and use for a B&B or Utility Director’s home! Maybe team with Sunset Magazine or other partner. 4.Energy Pricing 37 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 a.Time of use rates that incorporate CO2 ilnpacts. b.Enhance tiered rate structures to encourage electricity and natural gas conservation - add extra retail rate tier(s) to highest energy users. c.Provide incentives for companies to purchase Palo Alto Green - inverse tiered rate structure -- the more you buy the cheaper it is-per unit. d.Provide voluntary retail rate option to invest in offsets for natural gas use or climate neutral utility bills. e. Discount utility rates for energy star homes. f. Special rates for electric vehicles 5.Efficiency Programs and Investments a.Reduce electric and gas distribution system losses. Reducing electric distribution system losses from 3.6% to 2.6% could reduce GHG emissions by 3,600 tonnes per year (tpy). Estimated gas system leakage of 1.4% is equivalent to 19,000 tpy CO2 equivalent as methane. b.Join Energy Star Pmntnership - both City government and commercial businesses. c.Acterra Cool Homes program to install compact fluorescent lights (CFLs), low flow shower heads, programmable thermostats, water heater blankets, close lines, adjust water heater temp. and other energy efficiency measures. d.Recolnmission comlnercial and public facilities to ensure that efficiency measures already taken are working properly. e.Install high-efficiency lighting and controls. Lighting is the number one electric end-use and has the highest potential for cost-effective energy efficiency reductions. f. Increase use of clotheslines. Natural gas use for residential laundry emits approximately 2,200 tpy. g. LED holiday lights for University Avenue would save up to 10-20 tonnes CO2 per year, but more importantly could have a striking visibility and strategic impact if combined with educational information. 6.Solar Energy Programs and Investments a.Expand solar programs to install solar water, heating, hybrid lighting, and passive solar design. b.Support "Solar for schools" program c.Install 13 MW of Photovoltaics (Goalimplied by Million Solar Roofs Legislation SB1) d.Install solar hot water systems. e.Implement a"Solar Garden" (central PV with subscribers). A solar garden would enable customers without adequate solar resources on their own home or businesses to have solar energy delivered into the CPAU grid fi’om collective action. f.Solar heating for all City and PAUSD pools. Natural gas use for swimming pool heating emits over 4,000 tpy in Palo Alto. Implementing solar sets an example for the community and will save money. 7.Climate Program (tied to GHG emissions directly, not indirectly like solar or efficiency) a.Offer solar-type incentives and rebates for GHG reduction from energy use regm’dless of technology involved. 8."Low-Carb" Energy: renewables and high efficiency/low emission resources 38 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 a.Meet all energy load growth with efficiency and renewable resources. b.Sign up for Palo Alto Green - e.g. set goal to sign up 50% of 10ad to be PaloAltoGreen. This high level of participation would mostly likely require Renewable Energy Credits and/or a change to non-carbon mix other than 97.5% wind and 2.5% solar. c.Deploy clean small-scale distributed generation, including incentives for local renewables and low-net-GHG cogeneration. Urban Forest Management a.Expand City urban forest management/master plan to recognize energy savings and CO2 sequestration benefits. b. Enhance utilities’ "Right tree in the Right Place" program expanded to accommodate solar access for PV and hot water. c. Increase tree canopy coverage for parldng lots. Reduces fuel consumption for car air conditioners and heat island effect. 10. Offsets a. Utilities purchase GHG offsets equal to the residual GHG content of utilities energy supply offsets (natural gas and electricity). b. Individuals and companies purchase GHG offsets equal to the GHG content of utilities energy supply offsets (voluntary). 11. Research a.Establish a Green Tech Center to facilitate the commercialization of new technologies. This is a key opportunity for fostering synergies with Stanford, the City and the community. A technology commercialization center would help emerging clean energy and other green technologies overcome significant barriers to market entry by helping them assemble solid management teams, secure appropriate funding, introducing them to a network of Silicon Valley mentors and clean tech contacts and accelerating the adoption of clean products in the market. Other communities have developed similar centers and found substantial economic benefits. Creation of a green tech center can provide new business formation and healthy job growth while helping to solve local, regional and national environmental problems. The clean tech market is expected to grown exponentially in the next few years, and Palo Alto/Stanford has an ideal opportunity to be a leader. 12. Non-utility a. Reduce energy used for landscape maintenance, such as landscaping not requiring lawnmowers (no grass) or using goats instead oflawnmowers. BUILDINGS 1. Provide green building planning and building review advice and education by hiring new, training existing staff or using consultant time. Require senior building officials to be LEED (Leadership i.n Energy and Environmental Design) accredited and BIG (Build it Green) certified. 2.Provide green educational materials at planning and building depamnent. Some examples might include: a.Building Resource guides b.Information on Green lenders 39 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 c.Energy Star and water-wise incentives d.Information on nonprofit benefits, e.g., tax deduction for donation of building materials deconstructed for reuse rather than demolition. e. Information on tax credits for energy-efficient and green building projects. 3.Require LEED points list to be printed on nonresidential permit drawings, and require an escalating number of points be met over a period of years. 4.Require BIG points list to be printed on residential permit drawings, and require an escalating number of points be met over a period of years. 5.Provide incentives or recognition for incorporating green building elements in both residential and nonresidential buildings. 6.Offer expedited reviews or lower costs for green energy projects. Examples of eligible projects inight include: ¯Projects that exceed Title 24 guidelines by at least 15 percent. °Projects that incorporate radiant barriers for all new and re-roofing. 7.Allow specific exemptions to building guidelines when green elements are applied. For example, provide floor-area ratio allowances in cases where walls are built extra thick for energy efficiency. Likewise, allow some flexibility in setbacks to allow solar building orientation. 8.Establish special, considerations for green building/high-performance building projects. In a vein similar to HIE (Home Improvement Exemption), consider creating a "Green h-nprovement Exemption" (GIE). 9.Create a fund for energy efficiency consultants to address the needs of both large and small clients. 10. Encourage renewable power, such as photovoltaics. 11. Encourage energy-efficient water hea;dng solutions, such as tankless and solar water heating. 12. Explore a residential energy consumption ordinance (RECO) similar to that in effect in the city of Berkeley, which requires an energy upgrade when a propexq~y changes hands or undergoes significant improvement. TRANSPOR TA TION 1. Expand parking benefits for green vehicles. Create more free green vehicle spaces, extend parking times for green vehicles. Provide electric outlets and free chm’ging, etc. 2.Change city purchasing policy to factor in clean energy/efficiency with special attention to clean energy vehicle procurement 3.Enhance the City’s ability to promote alternative fuels within the City 4.Time of Use electric metering for electric and plug-in hybrid vehicles 5.Increase low electric rate limit for those with electric and plug-in hybrid vehicles 6.Join with Plug-in Partners. The City should promise to purchase of a fleet of plug-in hybrid vehicles once an automaker begins producing such cars commercially 7. City should develop or pm’~ner to develop a "Reducing Emissions" portion of the Palo Alto City website. The site should include a carbon calculator and make it available on the. It will show the percentage breakdown of carbon emissions by catego~T (road transport, air travel, electricity, gas) and allow comparison with average Palo Alto, California and national figures. The approach will attempt to factor in the overhead" (i.e. non-personal use) of the transportation sector. 40 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 Integrate the carbon calculator with a public awareness campaign to educate people about their carbon emissions. ED UCA TION 1.hnprove communication about"green" issues between nodes. 2.Identify common goals and reinforce them. Encourage synergy by sharing existing ideas and programs. 3. Create a "bandwagon effect" by making the message about our community’s response to global warming constantly reinforced and visible everywhere. Create a sense of moral imperative about this issue. 4.Assign a part-time City staff person to this public/private pal"~nership, 41 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 APPENDIX C: Rocky Mountain Institute Energy Resource Portfolio Planning Recommendations (Dec 2005) The core RMI findings and ideas are incorporated into the proposed long-term plan: ¯Enhance existing programs ¯New construction program; ¯Commissioning and building operator training; ¯Integrated programs tar~geting specific sectors; ¯Partner with neighboring utilities; ¯Combined electric gas and water; ¯Integrated package of services; ¯Innovative financing; ¯"Building as asystem"; ¯Enhanced low income programs; and ¯Reduced customer bills as focus for economic criteria. Table 8: RMI Smnmarv of Recommended Areas of Focus for Efficiency Programs Sector Recommended Areas of Focus Commercial Electric Interior lighting in office buildings Refrigeration in grocmT stores Interior lightingResidential Electric Pool pumps and motors Heating in office buildings Commercial Gas Cooking in restaurants Water heating in all building types Water heating in older (pre-1979 construction) houses; Residential Gas both multi-family and single-family Space heating in older single-family houses Demand Response: Demand response is a strategy to make specific customer loads moi’e responsive to market prices or supply constraints through various combinations of price signals, curtailment incentives, or control technology. CPAU is already implementing demand response based on voluntary curtailments by certain large customers. While there may be potential to expand demand response programs to include smaller customers, dynamic pricing, and/or automated control technology, several factors likely limit the cost-effectiveness of such potential: ¯CPAU’s load profile is relatively flat, with relatively little ability to shift load from peak to off-peak; ¯Because of the very mild climate, CPAU does not experience a steep on-peak load spike compared to inland areas that have higher loads from commercial and especially residential air conditioning; ¯Due to the above two factors, the demand response yield, in terms of kW/customer shifted, would be relatively low, ~vhich would make the cost, in terrns of $/kW shifted, relatively high; ¯CPAU has relatively flexible supply resources because of the availability of hydro power from Western and Calaveras; ¯Much of the largest and most cost-effective demand response opportunity with large customers is already being realized via voluntary CPAU programs; ¯Lastly, program costs to serve small customers can be particularly high, and issues regarding split incentives between tenants and owners can cause additional barriers to implementation. For these reasons, RMI did not undertake a rigorous analysis of demand response potential in CPAU territory. 42 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 APPENDIX D: Glossary of Abbreviations and Terms AB1890: California Electric Restructuring Bill/Deregulation (1996) AB2021 : California Energy Efficiency Bill (2006) AB32: California Global Warming Solutions Act (2006) APPA: American Public Power Association BIG: Build-It Green (green building rating system) CARE: Consultant Assistance for Resource Efficiency CEC: California Energy Commission CFL: Compact Fluorescent Light CMUA: California Municipal Utilities Association CMUA GHG Principles: Greenhouse Gas reduction principles for publicly-owned electric utilities endorsed by Council in August 2006 (CMR:315:06) CPAU: City of Palo Alto Utilities CPUC: California Public Utilities Commission CO2: Carbon Dioxide CW: Clothes Washer CY: Calendar Year DEER: California Database for Energy Efficient Resources DSM: Demand Side Management E3: Energy & Environmental Economics Inc. (energy efficiency program design software contractor) EPAct: U.S. Energy Policy Act FY: Fiscal year GHG: Greenhouse Gas (main six are carbon dioxide, methane, nitrous oxide, chlorinated fluorocarbons, and sulfur hexafluoride) GRTF: Palo Alto Mayor’s Green Ribbon Task Force GULP: Gas Utility Long-term Plan GWh: Gigawatt-hour, equivalent to one million kWh HVAC: Heating Ventilation and Air Conditioning IOU: Investor-Owned Utility IRR: Internal Rate of Return kwh: kilowatt-hour LEAP: Long-term Electric Acquisition Plan LEED: Leaderghip in Energy & Environmental Design (green building rating system) LED: Light-Emitting Diode MMBtu: One million BTUs, equivale~it to 10 therms MWh: megawatt-hour, equivalent to one thousand kWh NCPA: Northern California Power Agency 43 of 44 City of Palo Alto Utilities Ten Year Energy Efficiency Plan 2007 NTGR: Net-to-gross Ratio PAC: Program Administrator Cost test PCT: Participant Cost Test PV: Photovoltaics RECO: Residential Energy Conservation Ordinance PLUG-In: CPAU’s local ultra-clean distributed generation incentive program POU: Publicly-owned Utility RIM: Rate hnpact Measure test RMI: Rocky Mountain Institute NAPEE MOU: National Action Plan for Energy Efficiency Memorandum of Understanding endorsed by Council in August 2006 (CMR:316:06) REAP: Residential Energy Assistance program SBI: California Solar Roofs Bill (200.6) SB1037: California Loading Order and Energy Efficiency Bill (2005) SB107: California Accelerated Renewable Portfolio Standard Bill (2006) SB 1368: California Greenhouse Gas Limits on Baseload Electric Contracts and Facilities Bill (2006) SCT: Societal Cost Test Tonne: one metric tonne, equivalent to 1000 kilograms or 2,205 pounds tpy: tonnes per year TRC: Total resource Cost test UAC: Utilities Advisory Commission UCT: Utility Cost Test 44 of 44 Attachment B: 2007 Electric Supply Objectives and Guidelines Attachment B Primary Portfolio Planning Objectives Objective 1: Provide competitive and predictable supply cost while bMancing environlnental, local reliability, rate and cost impacts. Objective 2: Maintain a supply portfolio cost advantage compared to wholesale electricity market cost Objective Objective 4: Enhance supply reliability to meet City and customer needs by pursuing opportunities including transmission system upgrades and local generation. Act to maintain the City Council’s ability to exercise local control of decision making related to all aspects of serving customer energy needs LEAP Guidelines Guideline 1: Resource Loading Order Manage a supply portfolio comprising locally selected and joint action cooperative purchases, with the following preference hierarchy for resource acquisition: A.Efficiency B.Renewable Supply C.Local Ultra-Clean Distributed Generation D.Conventional Supply Guideline 2: Hydro Resource Management Manage hydroelectric supply resources by: A.Planning for an average hydro year on a long-term basis; B.Maintaining the flexibility to adopt hydro resource management products; C.Maximizing value of the Western and Calaveras resource; and D.Maintaining adequate supply rate stabilization reserve to manage hydro production volume uncertainty. Guideline 3: Energy Risk Management Manage supply cost uncertainty and risk by: A. hnplementing the City’s Energy Risk Management Policies and Guidelines; B. Maintaining an adequate pool of credit-worthy suppliers; C. Diversifying supply purchases across commitment date, start date, duration, suppliers, pricing terms and fu~el sources; D.Maintaining a prudent exposure to changing market prices; and E.Maintaining adequate supply rate stabilization reserves to manage market, credit, and other uncertainties. Guideline 4: Market Design, Transmission and Resource Adequacy Ensure the reliability of supply at fair and reasonable transmission and capacity costs by: A. Actively participating, as an individual entity and also through collaborative efforts with other entities, in local, regional, statewide and federal regulatory and legislative forums. Supporting, through legislative, regulatory and technical advocacy and/or direct investment, the upgrading of Northern California transmission to improve reliability and to relieve both congestion and local capacity costs; B-1 Attachment B B. Participating in transmission and reliability market design forums to ensure that adopted market designs result in adequate reliability, workably competitive markets and equitable cost allocation; C.Implelnenting the City of Palo Alto Electric Utility Resource Adequacy Program; D.Participating in Joint Action Agencies to optimize value of City-owned transmission assets and ensure compliance with FERC regulations; E. Supporting, through legislative, regulatory and technical advocacy, the development and availability of long-term transmission rights to serve load; and F.Evaluating interconnection options to the City to increase service reliability and lower delivery costs. Guideline 5: Local Generation A. Promote and facilitate deployment of renewable resource supplies by providing expertise, education, incentives and rates to support customer-owned solar power systems, and demonstrating renewable generation technologies. B.. Promote ultra-clean distributed generation incentive program Guideline 6: Renewable Energy Supply Reduce electric portfolio dependence on fossil fuels by meeting at least 80% of City’s long term energy needs fi’Oln non-fossil and non-nuclear supply. A. Renewable Portfolio Standard: In addition to the voluntary progrmn, the City shall invest in new renewable resources to meet the City’s sustainability goals while ensuring that the retail rate impact does not exceed 0.5 C/kWh on average. B. Pursue a target level of new renewable purchases of 20% of the expected portfolio load by 2008 and move to a 30% target by 2012 and 33% by 2015. The contracts for investment in renewable resources shall not exceed 30 years in term. C. Palo Alto Green: In addition to the renewable portfolio standard, the City shall continue to offer a renewable resource-based retail rate for all customers who want to voluntarily select an increased content of non-hydro renewable energy. Guideline 7: Electric Energy Efficiency and Demand Reduction A. Fund innovative programs that promote and facilitate deployment of all cost-effective, reliable and feasible energy efficiency and demand reduction opportunities as high priority resources. B. Use a community-wide perspective in program evaluation criteria. C. Use a bill reduction (utility cost) perspective in program funding criteria. D. Promote equity by designing and making programs available to all customers Guideline 8: Climate Action Plan As part of the City’s commitment to develop an implement an action plan to reduce greenhouse gas emissions, develop and implement a Climate Action Plan relating to utility activities. A. Consider al! Mayor’s Green Ribbon Task Force utility-related recommendations. B. The plan shall be consistent with the California Municipal Utilities Association Greenhouse Gas Reduction Principles. C. Take actions to meet ICLEI Cities for Climate Protection Campaign milestones. D. Coordinate with and support Climate Action Plan efforts of other departments. B-2 GULP Objectives and Guidelines (Approved by Council on August 4, 2003 - CMR:345:03 and CMR:355:03) Objective 1: Ensure low and stable gas supply rates for pool customers. Objective 2: Objective 3: Provide superior financial perforlnance to customers and to the City by managing the supply portfolio cost in a competitive manner compared to market cost and a retail supply rate advantage compared to PG&E. Balance environmental, rate, and cost impacts when considering energy efficiency investments. Guideline 1: Market Risk Management - Manage market risk by adopting a portfolio strategy for gas supply procurement by: A. Diversifying energy purchases for the pool across commitment date, delivery date, duration, suppliers, pricing terms and delivery points; B. Maintaining a prudent exposure to changing market prices by leaving some fraction of the forecasted gas pool needs exposed to near-term market prices; C. Avoiding long-term (>10 years) fixed-price commodity contracts. Guideline 2: Asset Acquisition and Managemeut- Explore supply, pipeline, and storage acquigition options available to the City which may be assembled to yield reliable supply at fair and reasonable cost, taking into consideration: A. Long-term supply cost for gas deliveries at PG&E Citygate; B. Operational needs including the need for daily balancing during Operational and Emergency Flow Orders; C. Existing and potential regulatory mandates; D. Potential operational streamlining oppo~"~unities with other agencies; and E. City’s low cost of capital for asset acquisition. Guideline 3: Management of Regulatory and Legislative Matters - Serve as an effective voice to protect and enhance the City’s position in regulatory and legislative arenas by: A. Intervening in the regulatory and legislative arenas to ensure that the City’s gas utility interests are protected and enhanced; and B. Exploring potential joint action with other public agencies. Guideline 4: Gas Energy Efficiency Investments - Pursue cost-effective energy efficiency investments by: A.Providing expertise, education and incentives to support cost-effective customer efficiency improvements; B. Demonstrating new efficiency and load management alternatives; and C. Providing rate assistance and efficiency programs to low-income customers. S:\UTL\RscMgmt\GAS PORTFOLIO\GULP\GULP Objectives and Guidelines.doc Attachment B: DRAFT Utilities Advisory Commission Minutes of April 4, 2007 Ten Year Efficiency Portfolio Plan Excerpts ITEM 2: ACTION ITEM: Ten-Year Enerqy Efficiency Portfolio Plan Senior Resource Planner Karl Knapp presented a brief summary of the proposed ten-year energy efficiency plan. Adoption of a 10-year plan is required by AB2021 passed last year. The Plan includes all of the elements required by the new statutory requirement. Energy efficiency is the highest priority resource for CPAU, with renewable energy second and conventional supply last. The Plan sets energy efficiency targets that are based on the technical and economic potential study conducted by the Rocky Mountain Institute in 2005, seeking to achieve at least half of the estimated economic potential. AB2021 also requires that utilities "treat energy efficiency as a supply investment". The Plan proposes to fund the efforts needed to achieve the targets by including approximately $2.6 million over two years in the electric and gas supply budgets, which when added to the existing Public Benefits efficiency budgets would bring the two-year efficiency programs total to $7 million. The Plan will be staffed with existing positions. The estimated financial impacts are a potential rate increase of 0.5-1.0% with an average bill decrease of 2.5-3%. Six of the main near-term efforts were described, including revamping existing programs and establishing new programs that address underserved segments such as new construction and remodeling. Dawes asked whether the Plan costs are identified as a line item in financial reports and included in the long-term, financial forecasts and rate projections. Staff responded affirmatively and explained that a new Fund Center has been created and all of the Plan costs are included in the proposed budget. Melton asked whether the Plan takes a stepped approach, going after the "low-hanging fruit" that is on the cheaper end of the scale first. Staff replied that it will be emphasizing the "low-hanging fruit", but that much of the proposed plan will be approaching things more holistically and not simply more of the same prescription-style rebates. Staff noted that the law and our own policies require that CPAU pursue all cost-effective energy efficiency opportunities, and not just the cheapest ones. Dawes noted that the rate of return of 1.6% described in the report is low and asked if there is a mandated minimum spending threshold requirement. Staff explained that the very low IRR cited reflects the added cost of the many required reporting and verification elements of the energy efficiency program, so that while the incentives alone might have an estimated 10.6% return, the other reporting requirements eat up nearly all of that benefit, dropping the payback to only 1.6%. The cost effectiveness tests described in the plan state that energy efficiency that costs less than energy from the market is a preferred investment, consistent with the higher priority of efficiency over supply dictated by the resource loading order. Dawes asked whether small customers will fail to benefit if they do not participate. Knapp explained that one of the main tenets of the Plan is to ensure that there are programs available for all customers to be able to participate. Staff feels that the rigorous and industry-standard cost- effectiveness testing and criteria described in detail in the Plan along with follow-up using DRAFT Utilities Advisory Commission Minutes from April 4, 2007 Not yet approved.Page 1 of 2 independent verification of program results (as required by law) provides the necessary financial controls to ensure that energy efficiency investments are selected judiciously. Melton noted that the Plan does appear to offer opportunities for residential customers. Bechtel asked for an explanation of the carbon adder methodology. Knapp explained the proxy value of approximately $10/ton of carbon dioxide used by California’s investor-owned utilities when making energy procurement decisions. A GHG adder is used in evaluation criteria for purchasing decisions to encourage choosing the lowest cost resource, including the adder. Dawes asked what staff will do next year that is not being done now. Staff explained that in the near term, the main activities will be adding programs to target areas not currently addressed such as new construction and remodeling, coordinating with the Green Building efforts in the Planning Department, supporting both end-user efficiency and supply-side efficiency, third-party programs like "Right Lights", and joint action with other agencies. Rosenbaum moved approval of staff recommendation that UAC recommends that Council approve the ten-year energy efficiency portfolio plan. Bechtel seconded. Motion passed with three ayes, one abstained, and one absent. DRAFT Utilities Advisory Commission Minutes from April 4, 2007 Not yet approved.Page 2 of 2