Loading...
HomeMy WebLinkAboutStaff Report 342-09TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: AUGUST 3, 2009 CMR: 342:09 REPORT TYPE: CONSENT SUBJECT: Finance Committee Recommendation to Direct Staff to Re-examine the Electric Power Acquisition and Energy Efficiency Policies and Plans RECOMMENDATION The Finance Committee recommends that Council direct staff to work with the Utilities Advisory Commission (UAC) and then report back to the Finance Committee with a re- examination of the policies and goals that are being used in the alternate energy program, including the energy efficiency plans and the electric acquisition policies and plans. BACKGROUND At its July 21 meeting, the Finance Committee received a presentation on the status of staffs efforts to acquire renewable power to meet the City'S Renewable Portfolio Standard (RPS). The presentation was intended to provide background information for the decision the Committee faced regarding whether to recommend Council approve a contract for renewable power with Ameresco Johnson Canyon LLC (CMR: 305:09). The City's RPS goal is part of the Council- adopted Long-term Electric Acquisition Plan (LEAP) guidelines, which sets a target to meet 33 percent of the City'S electrical load with new renewable resources by 2015, while ensuring the retail rate impact does not exceed 0.5 cents per kilowatt-hour (¢/kWh) on average (CMR: 158:07). DISCUSSION The City currently receives renewable power from five long-term contracts for about 19% of the City'S annual energy usage. These contracts were executed in 2004 and 2005 and the cost of the renewable power was approximately equal to the cost for traditional "brown" power. Two additional long-term renewable power contracts were executed in 2008 and are slated to deliver power in 2010. These contracts have about a 2 ¢/kWh premium over brown power. Overall, however, the total impact on rates for the seven executed contracts is less than 0.03 ¢/kWh, significantly below the 0.5 ¢/kWh rate impact limitation. However, current prices for renewable power are significantly higher than current prices for brown power. Proposals received in response to Palo Alto's latest Request for Proposals (RFP) include premiums for renewable power of 6 to 10 ¢/kWh over brown power. With these premiums being commanded in the marketplace for renewable power, Palo Alto may have CMR: 342:09 Page 1 of2 difficulties meeting the 33% RPS goal with an average retail rate impact of 0.5 ¢/kWh. In addition, the contract that was executed in February 2010 for geothermal power may not go forward due to project financing issues. The project developer has indicated that thc project will not go forward unless the price is renegotiated upward. Since this contract must be amended with this price adjustment before September 3, staff is also bringing this contract to Council on August 3 (CMR: 347:09) for consideration. COMMITTEE REVIEW AND RECOMMENDATIONS The Finance Committee considered a 20-year contract for renewable power with Ameresco Johnson Canyon LLC on July 21, 2009. While it voted unanimously to recommend Council approval of the contract, the Committee noted that the cost for renewable power has increased significantly from prices for renewable power contracts entered into in 2005 and 2006. Given the dramatic price increases, the Committee expressed a desire for staff and the UAC to review the overarching policies, guidelines, and plans related to the acquisition of energy. The Finance Committee, noting that reducing energy usage will help to achieve RPS goals, also asked that the efficiency plans and goals be reviewed as well to ensure that the value of energy usage reductions is considered. The Finance Committee voted unanimously (3-0) to recommend that the City Council direct staff to work with the UAC and then report back to the Finance Committee with a re-examination of the goals and the matrix that are being used in the alternate energy program. The notes from the Finance Committee meeting are attached. RESOURCE IMPACT No additional staff time is expected to be required to conduct this review as many aspects of the proposed review were already planned. POLICY IMPLICATIONS Any new policies that may be proposed after the review of the existing policies will need to be approved by the Council. ENVIRONMENTAL REVIEW Review of energy acquisition and efficiency programs and policies does not meet the definition of a project, pursuant to section 21065 of the California Environmental Quality Act (CEQA). ATTACHMENT A. Draft excerpted minutes from the July 21,2009 Finance Committee meeting PREPARED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: CMR: 342:09 \::bANE RATCHYE U Assistant Director, Resource Management VAL~NG Director of Utilities \'-'~C' ~-.~.~ .,.z:,. ____ .,. __ ._ .. _ __ ~ ==---- JAMES KEENE City Manager - Page 2 of2 ATTACHMENT A FINANCE COMMITTEE DRAFT EXCERPTED MINUTES -Regular Meeting July 21, 2009 3. Adoption of a Resolution Approving the Ameresco Johnson Canyon Landfill Gas Renewable Energy Power Purchase Agreement for the Acquisition of Up to Two Average Megawatts of Energy Over Twenty Years at an Estimated Cost Not to Exceed $30 Million. MOTION: Vice Mayor l\1orton moved, seconded by Council Member Burt I that the Finance Committee recommend that the City Council adopt a resolution approving the Power Purchase agreement with Ameresco Johnson Canyon, LLC and that Council waives the application of the investment-grade credit rating requirement of Section 2.30.340(d) of the Palo Alto Municipal Code to this transaction. Chair Burt said that he supports the Motion but he is concerned that CO-2 generation goals have been achieved at a minimal cost difference to the rate payers. Now that there is a divergence from the past trends, the past trends may no longer be accurate predictors of the future. We have to decide where we go from here. There is a danger in looking at these successes and having them indicate that everything is rosy going forward. It's getting harder to find these sources, not because of leveling of renewables, but it's in an increase in demand. We've had a great demand for them. He expects both those trends to continue. He asked if we have enough to keep up with legislative demand. He stated that Palo Alto is on a course that is similar to statewide demands. Council Member Schmid recalled the last time the State went through energy reform the City ended up with the stranded cost of Calaveras. He thought it would be appropriate to add an Amendment to the Motion. The goals and the matrix that are used in the alternate energy program should be examined. Chair Burt said he would second that. Vice Mayor Morton said that it would not be an Amendment since one issue is a contract agreement and the other is a separate policy. 07/21/08 FIN:090721 FINANCE COMMITTEE Ms. Fong said it would be better for Staff if the two issues were separate. MOTION PASSED: 3-0, Klein absent MOTION: Council Member Schmid moved, seconded by Chair Burt, to direct Staff to work with the UAC and on re-examining the goals and the matrix used in the alternate energy program. Vice Mayor Morton said that for the new members of the UAC this will be a useful review. This is an issue close to the hearts of Council, and wondered if it could be part of the Study Session. Ms. Fong said that the study session was canceled due to vacations and the pending vacancies on the UAC. They are planning on rescheduling it in a month or two. Chair Burt asked if it would be appropriate to modify the Motion to have as a discussion during the study session between the Council and the UAC in September or October. Council Member Schmid said the intent was to have a study with recommendations, not an open ended discussion such as happens in a study session. Chair Burt said that maybe they should have UAC discuss, and then the Council discuss the issues. He asked who would initiate the discussion. He also asked if it should it be the Council, as a whole, making a recommendation to the UAC, without delving into details or making a policy recommendation or for the UAC to evaluate the issue and then the UAC would come back to the Council with a recommendation and then the Council would act. If it is the UAC acting first, the study session might be useful. Council Member Schmid said that in study session the Council can't make a decision. Vice Mayor Morton said that is correct, but since it is Council policy, and the issue is going back to an advisory board, without input from CounCil, it may be useful to have this discussion and to layout the changes. There is so much policy tied up in this it may be useful for Council to give input to the UAC. 07/21/08 FIN:090721 FINANCE COMMITTEE Chair Burt stated the other point is that either way the Council wouldn't make any decision at the first discussion, they are only making a request to the UAC for a recommendation. Perhaps the way to launch this to the UAC would be a discussion at our study session with the UAC, an informal direction, or discussion with the UAC and then agendize for next Council meeting whether to put it as a formal request to the UAC. Ms. Fong agreed that that could be a way to launch the discussion. She said that the UAC works with a 12 month rolling calendar. It is scheduled in the next 3-4 months to have a discussion regarding a long term energy acquisition plan, which this is part of. This study session would be for the UAC to hear where Council is and then move into this long term. She didn't think Council would need to take extra action as it is already on the 12 month rolling calendar. Chair Burt said that the Council would not need to initiate that, other than the UAC may get a sense of the areas of interest to the Council. He suggested the Motion reflect that the Council will give input to the UAC at the study session. Vice Mayor Morton said that the Motion should also clearly request a UAC response and after that Council would come back with recommendation. Chair Burt said if they were asking the UAC to come back to Council with recommendations that are different than they would have done under their standard rolling calendar, then his sense was that should not come out of the study session but rather an agendized Council action. Council Member Schmid said the Motion that was already approved was to recommend to the Council that they act on tonight's Staff recommendation. Perhaps at that point since they will already have it agendized they can discuss this issue. Since it is an inherent part of the presentation and from that they can have directive to the Staff and UAC Chair Burt said that he has apprehensions about that. The Committee evolved into this discussion, whether it was an inherent part or not, he wasn't sure. They would look at a specific contract with the Council and whether or not anyone wishes to see a more clear Council request of the UAC for evaluation of this broader policy as energy acquisition, not just goals but conservation and efficiency goals. There could be two items agendized 07/21/08 FIN:090721 FINANCE COMMITTEE on the same evening. One agendized item to the UAC reporting back in some time frame under whatever parameters the Council would agree on. It sounds not very different than what the UAC would be doing under the rolling 12 month plan but it might differ somewhat from where they are heading giving it a more specific time frame and focus. Ms. Fong said that it really is in the UAC work plan. She reiterated that there are four new members coming on board so she can not gauge where they are on these issues. The UAC will bring this to the Finance Committee after it's discussed at the UAC and then bring it to the Council. A study session that does include the UAC and Council would be a healthy discussion and would guide and inform the UAC where this should be taken without specific Council action. Chair Burt said he believed the sense of the Finance Committee was that they would like to have the Council look at a more clear direction on what they are seeking in the upcoming months. It mayor may not be different than what they are already receiving from the UAC. He didn't know if the more thorough evaluation of a greater emphasis on conservation of energy use reduction would have been as high on the priority list as it might be coming from the Council. He said there are two options, 1) Deferring to the study session with the UAC to figure out what the Council wants and to make a more specific request at an agendized meeting, or 2) At this point in time request that this subject be a second agendized item at the time that we discuss item three as tonight. MOTION RESTATED: Council Member Schmid moved, seconded by Chair Burt, to direct Staff to work with the UAC and then report back to the Finance Committee with a re-examination of the goals and the matrix that are being used in the alternate energy program as a second agendized item when the UAC discusses the Power Purchase Agreement with Ameresco Johnson Canyon, LLC with the Council. MOTION PASSED: 3-0 Klein absent 07/21/08 FIN:090721