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HomeMy WebLinkAboutStaff Report 215-08City of Palo Alto City Manager’s Report TO: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER APRIL 28, 2008 DEPARTMENT: UTILITIES CMR: 215:08 UPDATE ON TIME-BASED METERING AND PRICING PURSUANT TO THE ENERGY POLICY ACT OF 2005 This is an informational report and no action is required. BACKGROUND The Energy Policy Act of 2005 (EPACT) required each electric utiliD; to offer time-based metering and pricing options to al! customer classes, subject to the City Council conducting an investigation and issuing a decision by August 2007 as to the appropriateness of implementing the requirements. In July 2007. the City; Council held a public hearing and approved staff’s recommendations not to implement the electric time-based metering mad pricing options required by EPACT, mad to defer adoption of the federal standard until at least FY 2008-09. Council also directed staff to report back by June 30, 2008 on the feasibility of adopting the federal standard (CMR: 299:07). Time-based metering and pricing options provide incentives for customers to respond to electric supply costs and constraints. Modifying behavior in response to time-based prices can result in lower costs, reduced envirormaental impacts and increased system reliability. Electric supply is more costly during periods of high usage, and therefore, reducing use or shifting use to less costly time periods can reduce utility costs and save money for both the utility and its customers. Because high-price periods coincide with lower power generation efficiency and greater transmission system congestion, time-based pricing can also realize environmental and reliability benefits. The specified time-based rate options that are to be considered under EPACT are: 1) time-c~f-use pricing; 2) critical-peak pricing; 3) real-time pricing; and 4) peak load reduction credits. 1)Time-of-use (TOU) pricing provides an electric rate to customers based upon the time of day, or for pre-deten-nined blocks of hours during the day that electric energy is consumed. TOU rates are usually seasonal in nature, apply to pre-determined blocks of hours, and are published in advance. CMR: 215:08 Page 1 of 4 2)Critical-peak pricing (CPP) goes a step further than TOU pricing by adjusting prices more frequently and with shorter notice, with an increase of prices for peak usage hours during days of unusually high electric system demand to directly reflect actual wholesale market price spikes. 3) For real-time pricing (RTP), retail rates change on an hourly, or possibly more frequent, basis. Rates are usually announced to customers on an advance, or forward, basis. 4) Peak load reduction credits (PLRC) are provided to large load customers who enter into pre- established agreements to reduce load during peak hours. The City of Palo Alto Utilities (CPAU) has been offering TOU rates to conm~ercial and industrial customers (rates E-4-TOU and E-7-TOU) since January 2002. CPAU has also maintained, in cooperation with its large customers, a Voluntary Load Curtailment program that has successfully demonstrated demand reduction results in times of need to help ensure reliable system operation. The voluntary customer demand reduction is also facilitated by CPAU through the Meterli~ffcs Program, which is offered to large business customers with interval metering. The Meterlinks Program, a web-based monitoring tool, allows customers to view their own hourly electricity usage data, and to take steps to modify their energy use patterns on a voluntary basis. DISCUSSION In July 2007, staff reported to the Council its conclusion that implementation of time-based metering and pricing options were not practical or cost-effective for some Palo Alto electric customer classes at that time. The reasons behind this conclusion included utility billing system limitations, insufficient metering capability, and uncertain and expected low customer participation due to low time-based cost differences at the time. At this time, staff still believes that expanding efforts in time-based metering and pricing options is neither practical nor cost-effective for some Palo Alto electric customer classes for reasons similar to those identified in July 2007: 1) insufficient net customer or commmaity benefits; 2) limitations of the current utility billing system and resource constraints due to the ongoing city- wide SAP up~ade; and 3) insufficient metering capability. Insufficient net customer or communi~’ benefits Palo Alto has offered voluntary TOU rates to comrnercial demand-metered electric customers since January 2002, but no customers have chosen service under the commercial TOU rate schedules. CPAU completed an evaluation of technical and economic potential for energy efficiency in work conducted with the Rocky Mountain Institute (RMI) in 2005. RMI recommended that additional efforts in. price-driven demand response are not likely to achieve substantially more participation than the current voluntary program, which is capable of lowering short-texan electric demand by 3 to 5 MW. RMI cited several factors for these conclusions, including: CPAU’s relatively flat load profile with little ability to shift load from peak to off-peak periods; relatively small air conditioning demands; and the flexibility of CPAU’s hydroelectric supply resources. Additionally, !ow- participation may require charging participating customers for their time-based meter, which would make the program even less attractive. CMR: 215:08 Page 2 of 4 After review of the FY 2006-07 peak and off-peak cost differential for CPAU, staff reaffirmed that the potential for time-based metering and pricing options remains low for Pa!o Alto electric customer classes at this time. Limitations of the current customer information and billing systems. The current utilities billing system cannot readily accept the necessary prograrmning modifications required to generate customer bills on a TOU rate option. Mmmal billing would be required to implement these rate options, and the current staffing tevel is insufficient to support manual billing. The CPP, RTP and PLRC time-based rate options are not available under the current billing system either. The current billing system is in the process of mi~ation to a new Utility Customer Information System (CIS) in conjunction with the city-wide SAP upgrade. The first phase of this process is expected to be complete by the end of April 2009 with subsequent phases or enhancements beginning after successful implementation of this first phase. Until then, staff resources devoted to billing system maintenance are assigned to this CIS project. Insufficient metering capability. The only Pa!o Alto meters capable of time-based pricing are demand meters currently installed in commercial and industrial applications. The majority of cm-rent meter installations are not capable of being programmed for TOU, CPP or RTP options. Staff initiated a project to gather information on potential replacement of existing residential and commercial single-phase electric meters with meters capable of recording consumption by time. Staff’s review of options for residential and conmaercial metering included meter purchasing, calibration standards, comanunication capabilities, meter maintenance budgets, staffing, and Capital Improvement Program impacts. Staff provided a report to Council on the Automated Meter Reading (AMR) Pilot Project (CMR:419:07) in November 2007. The pilot project demonstrated that an AMR system is able to meet many objectives with regards to reading electric, gas and water meters for billing purposes. Staff plans to return to Council in 2009 with a recommendation on how to further implement AMR. The factors delaying a recommendation at the time of the November 2007 report included: 1) the rapid advancement of technology resulting in newer tectmologies anticipated to support other utilities progrmn objectives, thus providing added benefits; and 2) the SAP/CIS upgrade project and its requirements on the same manpower resources as the AMR project, impacting the pace of progress in the AMR project. In the meantime, staff continues to move forward on its existing AMR pilot program, learning more about the tectmo!ogy from the perspective of the meter readers, the meter operations and maintenance shops, and the billing area. For the reasons noted above, it is staff’s determination that a further delay in implementing the electric time-based metering and pricing options required by the EPACT is appropriate. Staff will continue to assess the feasibility, cost-effectiveness and practicality of expanding time-based metering and pricing. After the new billing system is operational, staff will report again on this matter to the UAC and Council. CMR: 215:08 Page 3 of 4 BOARD/COMMISSION REVIEW AND RECOMMENDATIONS At the April 2, 2008, Utilities Advisory Commission (UAC) meeting, staff presented an information report on the subject. In the UAC’s discussion, one cormnissioner asked why Palo Alto is continuing to study time-based metering options if it doesn’t appear to make sense even if the metering and billing system issues didn’t exist. Another commissioner conm~ented that since the residential customers comprise only 16% of the load, there is even less chance that significant savings could accrue from expanding time-of-use rates to that sector. RESOURCE IMPACT Any costs associated with the reconmaended evaluations wilt be included in the various Utilities Department operating budgets. POLICY IMPLICATIONS These recommendations do not represent a change in cm-rent City policies. ENVIRONMENTAL REVIEW This informational report does not constitute a project under the California Environmental Quality Act, pursuant to California Public Resources Code Section 21065, therefore, no environmental assessment is required. ATTACHMENT A: Energy Policy Act of 2005, Smart Metering, SEC. 1252 PREPARED BY: REVIEWED BY: IPEK CONNOLLY Senior Resource Plalmer JANE RATCHYE~ (’’’[/" " Assistant Director. ReSOurce Management DEPARTMENT HEAD: CITY MANAGER APPROVAL: VALERIE 9" FONG Director of Utilities Assistant City Manager CMR: 215:08 Page 4 of 4 ATTACHMENT A: ENERGY POLICY ACT 2005, Subtitle E--Amendments to PURPA, Section 1252 SEC. 1252. SMART METERING. (a) In General- Section 11 l(d) of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2621(d)) is amended by adding at the end the following: (14) TIME-BASED METERING AND COMMUNICATIONS- (A) Not later than 18 months after the date of enactment of this paragraph, each electric utility shall offer each of its customer classes, and provide individual customers upon customer request, a time-based rate schedule under which the rate charged by the electric utility varies during different time periods and reflects the variance, if any, in the utility’s costs of generating and purchasing electricity- at the wholesale level. The time-based rate schedule shall enable the electric consumer to manage energy use and cost through advanced metering and comrnunications technology. (B) The types of time-based rate schedules that may be offered under the schedule referred to in subpara~aph (A) include, among others-- (i) time-of-use pricing whereby electricity prices are set for a specific time period on an advance or forward basis, typically not changing more often than twice a year, based on the utility’s cost of generating and!or purchasing such electricity at the wholesale level for the benefit of the consumer. Prices paid for energy consumed during these periods shall be pre-established and known to consumers in advance of such consumption, allowing them to vary their demand and usage in response to such prices and manage their energy costs by shifting usage to a lower cost period or reducing their consumption overall; (ii) critical peak pricing whereby time-of-use prices are in effect except for certain peak days, when prices may reflect the costs of generating and/or purchasing electricity at the wholesale level and when consumers may receive additional discounts for reducing peak period energy consumption; (iii) real-time pricing whereby electricity prices are set for a specific time period on an advanced or forward basis, reflecting the utitity’s cost of generating and/or purchasing electricity at the wholesale level, and may change as often as hourly; and Page 1 of 5 ATTACHMENT A: ENERGY POLICY ACT 2005, Subtitle E--Amendments to PURPA, Section 1252 (iv) credits for consumers with large loads who enter into pre-established peak load reduction a~eements that reduce a utility’s planned capacity- obligations. (C) Each electric utility subject to subparagraph (A) shall provide each customer requesting a time-based rate with a time- based meter capable of enabling the utility and customer to offer and receive such rate, respectively. (D) For purposes of implementing this paragraph, any reference contained in this section to the date of enactment of the Public Utility Regulatory Policies Act of 1978 shall be deemed to be a reference to the date of enactment of this paragraph. (E) In a State that permits third-party marketers to sell electric energy to retail electric consumers, such consumers shall be entitled to receive the same time-based metering and conm~unications device axed service as a retail electric consumer of the electric utility. (F) Notwithstanding subsections (b) and (c) of section 112, each State regulatory authority shall, not later than 18 months after the date of enactment of this paragraph conduct an investigation in accordance with section 115(i) and issue a decision whether it is appropriate to implement the standards set out in subpara~aphs (A) and (C). (b) State Investigation of Demand Response and Time-Based Metering- Section 115 of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2625) is amended as follows: (1) By inserting in subsection (b) after the phrase the standard for time- of-day rates established by section 111 (d)(3) the following: and the standard for time-based metering and cormnunications established by section 111(d)(14). (2) By inserting in subsection (b) after the phrase are likely to exceed the metering the following: and communications. (3) By adding the at the end the fol!owing: (i) Time-Based Metering m~d Conm~unications- In making a determination with respect to the standard established by section 111 (d)(14), the investigation requirement of section 111 (d)(14)(F) shall be as follows: Each State regulator?, authority shall conduct an investigation and issue a decision whether or not it is appropriate for electric utilities to provide and install time-based meters and con~rnunications devices for each of their customers which enable such customers to participate in time-based pricing rate schedules and other demand response programs. Page 2 of 5 ATTACHMENT A: ENERGY POLICY ACT 2005, Subtitle E--Amendments to PURPA, Section 1252 (c) Federal Assistance on Demand Response- Section 132(a) of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2642(a)) is amended by striking "and" at the end of paragraph (3), striking the period at the end of para~aph (4) aaad inserting "and", and by adding the following at the end thereof: (5) technologies, tectmiques, and rate-making methods related to advanced metering and communications and the use of these technologies, techniques and methods in demand response programs. (d) Federal Guidance- Section 132 of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2642) is amended by adding the following at the end thereof: (d) Demand Response- The Secretary shall be responsible for-- (1) educating consumers on the availability, advantages, and benefits of advanced metering and communications technologies, including the funding of demonstration or pilot projects; (2) working with States, utilities, other energy providers and advanced metering and comrnunications experts to identif)~ and address barriers to the adoption of demand response programs; and (3) not later than 180 days after the date of enactment of the Energy Policy Act of 2005, providing Congress with a report that identifies and quantifies the national benefits of demand response and makes a recommendation on achieving specific levels of such benefits by January 1, 2007. (e) Demand Response and Regional Coordination- (1) IN GENERAL- It is the policy of the United States to encourage States to coordinate, on a regiona! basis, State energy policies to provide reliable and affordable demand response services to the public. (2) TECHNICAL ASSISTANCE- The Secretary of Energy shall provide technical assistance to States and regional organizations formed by 2 or more States to assist them in-- (A) identifying the areas with the greatest demand response potential; (B) identifying and resolving problems in transmission and distribution networks, including through the use of demand response; (C) developing plans and programs to use demand response to respond to peak demand or emergency needs; and (D) identifying specific measures consumers can take to participate in these demand response programs. Page 3 of 5 ATTACHMENT A: ENERGY POLICY ACT 2005, Subtitle E--Amendments to PURPA, Section 1252 (3) REPORT- Not later than 1 year after the date of enactment of the Energy Policy Act of 2005, the Colmnission shall prepare and publish an annual report, by appropriate region, that assesses demand response resources, including those available from all consumer classes, and which identifies and reviews-- (A) saturation and penetration rate of advanced meters and connnunications technologies, devices and systems; (B) existing demand response programs and time-based rate programs; (C) the atmual resource contribution of demand resources; (D) the potential for demand response as a quantifiable, reliable resource for regional plodming purposes; (E) steps taken to ensure that, in regional transmission plarming and operations, demand resources are provided equitable treatment as a quantifiable, reliable resource relative to the resource obligations of any load-serving entity, transmission provider, or transmitting party; and (F) regulatory barriers to improved customer participation in demand response, peak reduction and critical period pricing progran~s. (f) Federal Encouragement of Demand Response Devices- It is the policy of the United States that time-based pricing and other forms of demand response, whereby electricity customers are provided with electricity price signals and the ability to benefit by responding to them, shall be encouraged, the deployment of such technology mad devices that enable electricity customers to participate in such pricing and demand response systems shall be facilitated, and unnecessary barriers to demand response participation in energy, capacity and ancillary service markets shall be eliminated. It is further the policy of the United States that the benefits of such demand response that accrue to those not deploying such technology and devices, but who are part of the same regional electriciU enti~, shall be recognized. (g) Time Limitations- Section 112(b) of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2622(b)) is amended by adding at the end the following: (4)(A) Not later than 1 year after the enactment of this para~aph, each State regulatory authority (with respect to each electric utility for which it has ratemaking authority) and each nonregulated electric utility shall commence the consideration referred to in section ! 11, or set a hearing date for such consideration, with respect to the standard established by paragraph (14) of section 111 (d). Page 4 of 5 ATTACHMENT A: ENERGY POLICY ACT 2005, Subtitle E--Amendments to PURPA, Section 1252 (B) Not later than 2 years after the date of the enactment of this paragraph, each State regulatory authority (with respect to each electric utility for wtzich it has ratemaking authority), and each nol~regulated electric utility, shall complete the consideration, and shall make the determination, refen’ed to in section 111 with respect to the standard established by paragraph (14) of section 111 (d). (h) Failure to Comply- Section 112(c) of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2622(c)) is an~ended by adding at the end the fol!owing: In the case of the standard established by paragraph (14) of section 111 (d), the reference contained in this subsection to the date of enactment of this Act shall be deemed to be a reference to the date of enactment of such paragraph (14). (i) Prior State Actions Regarding Smart Metering Standards- (1) IN GENERAL- Section 112 of the Public Utility Regulatory Policies Act of 1978 (16 U.S.C. 2622) is amended by adding at the end the following: (e) Prior State Actions- Subsections (b) and (c) of this section shall not apply to the standard established by para~aph (!4) of section 11 l(d) in the case of any electric utility in a State iL before the enactment of this subsection-- (1) the State has implemented for such utility the standard concerned (or a comparable standard); (2) the State regulatory authority for such State or relevant nom-egulated electric utility has conducted a proceeding to consider implementation of the standard concerned (or a comparable standard) for such utility within the previous 3 years; or (3) the State legislature has voted on the implementation of such standard (or a comparable standard) for such utility within the previous 3 years. (2) CROSS REFERENCE- Section 124 of such Act (16 U.S.C. 2634) is amended by adding the following at the end thereof: In the case of the standard established by paragraph (14) of section 111 (d), the reference contained in this subsection to the date of enactment of this Act shal! be deemed to be a reference to the date of enactment of such paragraph (14). Page 5 of 5