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HomeMy WebLinkAboutStaff Report 250_09TO: FROM: ATTENTION: DATE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: UTILITIES FINANCE COMMITTEE MAY 19,2009 CMR: 250:09 Utilities Advisory Commission Recommendation to Approve the Funding of Certain Projects from the Calaveras Reserve in an Amount not to Exceed $270,000 in Fiscal Year 2010 and $200,000 in Fiscal Year 2011 RECOMMENDATION Staff and the Utilities Advisory Commission recommend that the Finance Committee recommend that Council approve funding for the following projects from the Calaveras Reserve at a total budgeted amount not to exceed $270,000 in Fiscal Year (FY) 2010 and $200,000 in FY 2011 as follows: 1. $200,000 per year for the PLUG-In Program for investments or incentives for cogeneration projects within the City. Any additional funding requests for larger local generation projects will be requested separately; and 2. $70,000 in FY 2010 to evaluate the cost-effectiveness of advanced metering infrastructure (AMI) and other smart grid elements and to develop a strategic plan to implement appropriate advanced metering infrastructure (AMI) and other smart grid elements. BACKGROUND On January 12, 2009, Council directed staff to work with the Utilities Advisory Commission (UAC) to review possible projects that would benefit electric ratepayers for consideration of funding from the calculated "excess" Calaveras Reserve Fund (CMR: 110:09). On March 31, 2009, the Council Finance Committee recommended that Council approve revisions to the Calaveras Reserve Guidelines (CMR: 161 :09). Council will consider the recommendation as a part of the FY 2010 budget approval process. The recommended new Calaveras Reserve guidelines consist of the following components: • Require the calculation of the stranded costs for the electric supply portfolio during the annual budget process for the upcoming budget year(s) and set the minimum transfer from the Calaveras Reserve to the Electric Supply Operating Budget equal to this amount; CMR: 250:09 Page 1 of6 • Require the calculation of the stranded costs for the long-term (until 2032 when Calaveras debt is paid oft) of the electric supply portfolio during the annual budget process and ensure that the Calaveras Reserve balance will be sufficient to cover this amount; • Calculate stranded cost based on the above market cost of the Calaveras Hydroelectric Project and the California Oregon Transmission Project; and • To the extent that there are funds available in excess of long-term stranded cost needs, staff will work with the UAC to identify and recommend projects for Council consideration and approval. Such projects shall be to the benefit of electric ratepayers. Using the recommended guidelines for the upcoming two-year budget results in the following: 1. The stranded cost for FY 2010 (and the minimum transfer from the Calaveras Reserve) is $2.6 million for FY 2010. This is based on the assumptions and market prices used to develop the FY 2010 budget. The estimated stranded cost for FY 2011 is $2.0 million. The stranded cost will be recalculated for FY 2011 in the FY 2011 budget process, but this estimate is used in the financial projections. 2. Using the FY 2010 budget assumptions and an estimate of long-term contingencies, the long-term stranded cost estimate is $48 million. This is the amount that should remain in the Calaveras Reserve to cover these potential stranded costs. 3. Since the balance of the Calaveras Reserve was estimated at $64.5 million as of the end of FY 2009, then $16.5 million could be used for projects that benefit electric ratepayers. DISCUSSION Staff evaluated a number of potential projects for funding from the $16.5 million "excess" Calaveras Reserve funds. Normal capital projects such as system improvement projects, undergrounding, distribution system upgrades, and control system upgrades were not considered for funding from this reserve. Instead, projects that further the Council priorities and that are not ongoing in nature were considered. In addition, ideas contributed by the UAC for potential funding from the Calaveras Reserve during its November 2008 meeting were considered. These ideas included: • Development of local and/or distributed generation; • Upgrade of transmission voltage from PG&E to the City's distribution system; • Development of smart grid elements and purchase of smart meters; • Purchase ofland from the City that the electric utility currently rents; and • Loans to other Utilities funds and/or the General Fund in order to save financing costs related to issuing bonds for capital projects. Staff evaluated the ideas contributed by the UAC and others, including funding of rebates for photovoltaic projects within the City, replacing street lights with more efficient technologies, and energy efficiency financing programs. Based on this assessment, staff determined that the following three projects were the best projects for funding at this time. 1. Study to evaluate advanced metering infrastructure (AMI) 2. Investment or incentives for cogeneration projects within the City 3. Investment to upgrade transmission connection to 230 kV CMR: 250:09 Page 2 of6 Purchasing land from the City and loaning funds will remain for future consideration, but are not recommended at this time. The recommended projects are consistent with the Council priorities of environmental protection and economic health. Each of the three recommended projects and their funding requirements for FY 2010 and FY 2011 and beyond are described below. 1. Study to evaluate advanced metering infrastructure and other smart grid applications The City's Automated Meter Reading (AMR) Pilot Project was completed in September 2007. The pilot included enabling approximately 4,400 electric, gas, and water meters, which are covered by six meter reading routes, to be read remotely. Currently, the usage recorded by these meters is being read remotely by either the fixed radio network or by a drive-by reader. The pilot project has demonstrated that an AMR system is able to meet many of staffs expectations with regards to reading electric, gas, and water meters for billing purposes. Advances in technology have resulted in the development of Advanced Metering Infrastructure (AMI), or "smart meters," which provides more than meter reading capability and will allow for remote, real time data collection and management to provide benefits to the customer and Utilities operations. AMI is one of the building blocks for a "smart grid." It provides the interface between the customer and the utility and could lead to smart grid related benefits of improved demand-side load management, outage response, customer satisfaction, efficiency of operations, and reduced system losses. Smart grid enabling technologies provide the capability for real time monitoring and response of the electrical system. Staffis proposing a $210,000 budget in FY 2010 to study the technology and the advantages and disadvantages related to AMI/smart grid elements, including the return on investment that incorporates economic, customer satisfaction and environmental sustainability attributes within the City for electric, gas, and water. The study should include the broad array of benefits related to the environment, sustainability, reliability, operational efficiencies, customer satisfaction, and the potential for more efficient use of energy. AMI implementation for the 29,000 electric meters is preliminarily estimated to cost approximately $10 to $15 million. Staff recommends that Calaveras Reserve funds eventually be utilized for funding of the Electric Fund's share of this project. AMI for natural gas and water utilities would have to be funded from their respective utility funds. At this time, staff is requesting up to $70,000 for FY 2010 for AMI, which is equal to the Electric Fund's one-third share of the development of the study. Staff will return to request any additional funds for FY 2010 or future years from the Calaveras Reserve for this project. This project alone could consume most of the $16.5 million "excess" in the Calaveras Reserve Fund. 2. Investment and incentives for local generation and cogeneration projects within the City Since 2001, the City has explored various long-term, natural gas-fired electricity generation investment opportunities within and outside the City, to meet approximately 20% of the City'S electrical energy needs and up to 40% of the City's local capacity needs, but this effort has not yet been successfuL In 2001, the City engaged consultants to survey the City and identify potential City-owned and customer-owned sites for natural gas-fired local generation projects. The study identified land between the wastewater treatment plant and the landfill as the most feasible site for power generation, but this site is designated parkland. Roche and the V A CMR: 250:09 Page 3 of6 Hospital sites were also identified as potential locations for cogeneration applications. The City, along with other Northern California Power Agency (NCPA) members, also pursued opportunities to buy an existing natural gas-fired generation station in the Bay Area. To date, none of these efforts have been successful. In 2007, with the increased emphasis on reducing the electric portfolio's greenhouse gas (GHG) emissions, Utilities revised its strategy to limit the natural gas-based generation options to high efficiency cogeneration applications within the City. Since this option required customer participation, the City launched a distributed generation incentive program for customers, the "Plug-In Program" (CMR:391 :07). Locally sited, natural gas-fired cogeneration applications have the benefits of higher efficiency, higher reliability and sustainability, and elimination of line losses associated with transmitting electricity over long distances. Cogeneration applications (also known as combined heat and power) simultaneously generate electricity and useful heat for utilization in buildings or processes. In 2008, the City jointly explored a 20-megawatt (MW), $50 million cogeneration project with Roche, but this project came to an abrupt halt when Roche decided to close its campus in Palo Alto. No other feasible project has been identified at this time. The City had budgeted $350,000 in FY 2009 for a feasibility study for the Roche project, but none was expended. No capital funds are budgeted for local cogeneration for FY 2010. The City budgeted $400,000 for potential incentive payments for the Plug-In Program in FY 2009, but none of these funds have been expended. The Plug-In incentive budget for FY 2010 and beyond is $200,000 per year. It is recommended that future expenditure related to the Plug- In Program incentives and/or local generation investments be funded from the Calaveras Reserve. At this time, staffis requesting up to $200,000 for FY 2010 and FY 2011 for incentive payments for the Plug-In Program to be funded from the Calaveras Reserve. If larger projects are proposed, staff will return for additional funding requests from the Calaveras Reserve. 3. Investment to upgrade the City's transmission line connection The City is connected to the electrical transmission grid at the Colorado substation at 115 kilo- Volts (kV). Upgrading the connection voltage to 230 kV and receiving all the electricity needed to serve the City at this higher voltage has the potential of saving up to $5 million per year and improving the City's transmission service reliability. The City has conducted several studies independently and in conjunction with the Pacific Gas and Electric Company (PG&E) to upgrade the voltage at the Colorado substation, but the cost of the upgrade was estimated to be over $160 million, making the project economically infeasible. The City is currently exploring a connection to the 230 kV transmission grid most likely through the SLAC substation in the west side of the City. The cost of this project is preliminarily estimated to be over $40 million with the potential of serving approximately half of the City'S electrical load. The feasibility of this project is highly dependent on interest by Stanford and SLAC. Other transmissions upgrade opportunities, including partnering with other Bay Area cities, may arise in the future. CMR: 250:09 Page 4 of6 The City has a budget of approximately $300,000 to evaluate transmission upgrades in the FY 2009 budget. No new funding request was included in the FY 2010 bUdget. If additional funding is required to investigate a project further, staff will return with a recommendation that the Calaveras Reserve be used for this project. Recommended Calaveras Reserve Funding for FY 2010 and 2011 Attachment A summarizes staff's recommendation for Calaveras Reserve funding of $370,000 for FY 2010 and $200,000 for FY 2011 for the projects identified. COMMISSION REVIEW AND RECOMMENDATIONS On May 6, 2009, the UAC voted unanimously (4-0), to recommend that the City Council approve the following projects to be funded from the Calaveras Reserve at a total budgeted amount not to exceed $270,000 in Fiscal Year (FY) 2010 and $200,000 in FY 2011 as follows: 1. $200,000 per year for the PLUG-In Program for investments or incentives for cogeneration projects within the City. Any additional funding requests for larger local generation projects will be requested separately; and 2. $70,000 in FY 201 0 to study the advantages and disadvantages of advanced metering infrastructure (AMI) and other smart grid elements and include an assessment of their cost-effectiveness that should incorporate both economic and environmental benefits. Staff's original recommendation to the UAC was to develop a strategic road map to implement advanced metering infrastructure (AMI) and other smart grid elements. In its discussions, the UAC advised that the first step before creating such a plan should be to evaluate the cost- effectiveness of smart grid elements. In addition, the cost-effectiveness should include benefits related to system reliability, operational efficiencies, environmental sustainability features, energy saving potential and customer satisfaction. Staff agrees with the UAC and has modified its recommendation to reflect the UAC comments. The notes from the UAC meeting are provided as Attachment B. RESOURCE IMPACT Each project proposed for funding from the Calaveras Reserve is currently part of the proposed Electric Fund operating and Capital Improvement Program (CIP) budgets. If funding for these projects, as identified in Attachment A, were to come from the Calaveras Reserve, the Calaveras Reserve balance would be reduced by $270,000 for FY 2010 and by $200,000 for FY 2011. At the same time, the Electric Distribution Rate Stabilization Reserve balance would be increased by $270,000 for FY 2010 and by $200,000 for FY 2011. POLICY IMPLICATIONS The use of the Calaveras Reserve to fund the projects identified is consistent with the proposed Calaveras Reserve Guidelines, recommended by the Finance Committee on March 31, 2009 and scheduled to be considered by Council on June 15,2009 as part of the FY 2010/FY 2011 budget proposal. CMR: 250:09 Page 5 of6 ENVIRONMENTAL REVIEW The recommended action does not meet the definition of a "project" pursuant to Section 21065 of the Public Resources Code, thus no environmental assessment under the California Environmental Quality Act (CEQA) is required. ATTACHMENTS A. Summary Table of Projects and Recommended Funding Levels B. Excerpted notes from the May 6,2009 UAC meeting PREPARED BY: REVIEWED BY: DEPARTMENT HEAD: SHIV A SW AMINATHAN Senior Resource Planner TOMTING Senior Electric Project Engineer (>inNE RATCHYE o !;sistant Director, Resource Management TOMM MARSHALL Assistant Director, Utilities Engineering VALERIE O. FONG ,Yirector of Utilities CITY MANAGER APPROVAL: CMR: 250:09 Page 6 of6 Attachment A: Summary of Projects and ActuallBudgeted Funding Levels Description FY2008 FY2009 FY2010 FY2011 1 nvestment in Cogeneration project and $200,000 incentives pg I $115,000 $300 $70, Total. $115,000 $l.1M $270,000 $200,000 ATTACHMENT B EXCERPTS from Draft Minutes of UAC Meeting of May 6, 2009 ITEMS 3: ACTION ITEM: Proposed Projects for Calaveras Reserve Funding for Fiscal Years 2010 and 2011 Senior Resource Planner Shiva Swaminathan summarized the written report stating that staff had evaluated several project options and, at this time, request that three projects be funded from the Calaveras Reserve: 1) investment in local, clean generation; 2) investment in transmission upgrades; and 3) investment in advanced metering infrastructure (AMI). He said that staff's recommendation at this time is to fund from the Calaveras Reserve: 1) $200,000 per year for FY 2010 and FY 2011 for investment in local, clean generation; and 2) $70,000 for FY 2010 to prepare a road map for implementation of AMI. Chair Dawes asked why no funding was shown for the 230 kV connection in FY 2010 or FY 2011. Swaminathan stated that if discussions proceed productively with Stanford, additional money may be requested. Commissioner Melton asked about the cross-Bay transmission project. Assistant Director Tomm Marshall said that a connection via a SLAC connection remains a possibility. Chair Dawes asked if there were "no takers" in line to construct local generation that would comply with the PLUG-In program. Swaminathan confirmed that this is correct. PUBLIC COMMENT: Herb Borak said that the report was not clear on how much smart meters would cost and how the costs would be shared between the Electric, Gas, and Water Funds. He wanted a better sense of whether the other funds would be paying their share of the cost and whether the new meters would be "smart", or just used for automatic meter reading. Chair Dawes said that the AMI work plan was to create a "road map," but he said that the first step should be a study that would determine the return on investment before proceeding with a plan. Commissioner Melton agreed that any "surplus" Calaveras Reserve funds should be used for projects with a good return on investment so that future costs would be reduced. Otherwise, it's better to return the money to ratepayers. Commissioner Keller asked whether it would be more cost-effective to focus on larger customers for AMI. Utility Director Valerie Fong indicated that this would be evaluated through the study. Commissioner Keller asked what the benefits are for a transmission upgrade. Marshall stated that the main benefits would be transmission cost savings due to reduced transmission losses. Fong added that reliability was also a benefit. Marshall indicated that staff would be returning with more information if a feasible, cost-effective project materialized from the on-going talks with partners. Commissioner Keller asked if the PLUG-In program has had any participants. Swaminathan said not at this time. Commissioner Waldfogel asked if only gas-fired projects are eligible for the program. Swaminathan said that the program would accept other energy sources such as wind, but that solar photovoltaic (PV) projects are included in other Utilities incentive programs. Commissioner Waldfogel advised that the AM I study include a broad discussion and calculation of sustainability factors and customer satisfaction in addition to the costs and savings calculations. ACTION: Commissioner Waldfogel made a motion that the UAC recommend that the Council fund from the Calaveras Reserve: 1) $200,000 per year in FY 2010 and FY 2011 for the PLUG-In Program; and 2) $70,000 in FY 2010 to study the costs and benefits of implementing AMt ensuring that the study included the evaluation of the economic, sustainability, and customer satisfaction benefits. Chair Dawes seconded the motion. Motion passed unanimously (4-0).