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HomeMy WebLinkAboutStaff Report 426-10 TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES ATTENTION: FINANCE COMMITTEE DATE: DECEMBER 7, 2010 CMR: 426:10 SUBJECT: Utilities Advisory Commission Recommendation to Approve the Proposed Long-term Electric Acquisition Plan (LEAP) Objectives, Strategies and Implementation Plan EXECUTIVE SUMMARY The Long-term Electric Acquisition Plan (LEAP) addresses the functions related to the pursuit and management of electric resources. The Plan includes implementation of related Council policies and plans for energy efficiency, renewable energy, greenhouse gas (GHG) emissions reduction, and the management of uncertain and variable costs. LEAP provides direction for the management of these costs and the uncertainties inherent in the business of providing electric service to the City’s electric customers over the next five to ten years. The proposed LEAP Objectives and Strategies have a focus on balancing environmental and economic sustainability. The proposal includes the maximization of cost-effective energy efficiency, examination of alternative ways to pursue renewable energy, and exploration of the feasibility of setting GHG emission reduction targets for the electric supply portfolio. The LEAP Implementation Plan provides a road map for how staff will assess resource needs including energy efficiency and local renewable and clean resources, integrate such resources in acquisition plans and evaluate the economic and environmental merits of competing resources. REQUEST The UAC and staff recommend that the Finance Committee recommend that the City Council approve the proposed Long-term Electric Acquisition Plan (LEAP) Objectives, Strategies and Implementation Plan. BACKGROUND History of LEAP Objectives and Guidelines The Long-term Electric Acquisition Plan (LEAP) is intended to address several functions related to long-term electric resource acquisition and management including implementation of related Council policies and plans for energy efficiency, renewable energy, greenhouse gas (GHG) emissions reduction, management of hydroelectric and market price uncertainty, and resource adequacy. LEAP provides direction for the management of these costs and the uncertainties inherent in the business of providing electric service to the City of Palo Alto Utilities’ (CPAU) customers over the next five to ten years or longer. CMR: 426:10 Page 1 of 23 Council provided policy direction to guide staff in the acquisition and management of electric supply resources through adoption of the first LEAP in November 2001 (CMR: 425:01). LEAP was later updated in October 2002 (CMR: 398:02) and in March 2007 (CMR: 158:07) to reflect regulatory and legislative changes in the industry and to align with community values for environmental solutions related to energy efficiency, renewable supplies and climate protection. Within the LEAP Objectives and Guidelines framework, Council also adopted the first LEAP Implementation Plan in August 2003 (CMR: 354:03) and an updated plan in April 2006. The current LEAP was approved by Council in March 2007. A key element of the 2007 LEAP was that the Renewable Portfolio Standard (RPS) goal was accelerated from 20% by 2015 to 33% by 2015. This goal is to be achieved within a half-cent per kilowatt hour (kWh) rate impact limit. The existing LEAP Objectives, Guidelines and Implementation Plan are provided as Attachment B. The global recession, which continues to affect federal, local and state governments, consumers, and businesses, has been the single biggest change since LEAP was last approved. As a result of lower global demand for energy resources, the cost of natural gas and electricity has fallen; however, the cost of renewable resources continues to climb as more California utilities pursue renewable portfolio goals, thus increasing the gap in the price between conventional and renewable resources. Further, the fate of a federal cap-and-trade program to reduce GHG emissions is uncertain and this uncertainty extends to California’s plans for GHG emissions regulations and a cap-and-trade market. In August 2009 and in May 2010, when it considered recommendations to execute long-term renewable contracts, the City Council expressed concern about the high cost of renewable resources and wished to ensure that CPAU was maximizing the pursuit of cost-effective energy efficiency, which would both reduce GHG emissions and reduce the amount of renewable energy that would be required to meet the City’s renewable portfolio standard (RPS) goals. Council has also expressed concerns about the City’s strategy of locking in long-term renewable energy supplies through power purchase agreements (PPA) to meet the City’s RPS as opposed to alternative contracting mechanisms including the use of a feed-in-tariff (FIT) to promote locally distributed renewable resources. Consequently, Council directed staff to evaluate policies and efforts related to the acquisition of energy efficiency, renewable energy, and local generation and to explore the feasibility of setting GHG emission reduction targets for the electric supply portfolio. In addition to meeting environmental goals and climate challenges, the electric industry is experiencing many technological advances in how electricity is produced, stored, utilized, managed, and regulated. Electric utility customers are also demanding more transparency and information related to their energy use in an effort to better manage their utility bills. To address these and other issues, CPAU has embarked on a process to update its Strategic Plan to establish the appropriate vision and road map for CPAU in the next five years. Ultimately, LEAP will need to align with the Strategic Plan to ensure that the objectives carried out are consistent with the vision and objectives of the Utilities Department and the community; thus, further revisions to LEAP may be necessary in the near future. The UAC discussed the development of the updated LEAP at meetings in June, July, and August, 2010. The UAC recommended Council approval of the proposed LEAP Objectives and CMR: 426:10 Page 2 of 23 CMR: 426:10 Page 3 of 23 Strategies at its September 1, 2010 meeting and recommended Council approval of the proposed LEAP Implementation Plan at its November 3, 2010 meeting. Long-term Demand and Resource Forecasts CPAU forecasts citywide electric usage to remain almost flat at 1,000 gigawatt-hours (GWh) per year between 2010 and 2020. The projections incorporate the goals for energy efficiency set in the 2010 Ten-Year Electric Energy Efficiency (EE) Plan of a cumulative load reduction of 7.2% or approximately 70 GWh by 2020. The load forecast includes the impacts of Roche leaving Palo Alto; the Stanford Medical Center expansion; and the global economic recession. The load projections do not include demand and energy impacts associated with electric vehicles.1 Figure 1: 20-Year Load and Resource Balance Projections 0 200 400 600 800 1,000 1,200 FY 201 0 FY 2 0 1 1 FY 2 0 1 2 FY 2 0 13 FY 201 4 FY 2 0 1 5 FY 2 0 16 FY 2 017 FY 201 8 FY 2 0 1 9 FY 2 0 20 FY 202 1 FY 202 2 FY 2 0 2 3 FY 2 0 24 FY 202 5 FY 2 0 2 6 FY 2 0 2 7 FY 2 0 28 FY 202 9 FY 2 0 3 0 GW h p e r y e a r Expected Load Load without EE Western Calaveras Renewables On average over the next ten years, hydroelectric supplies are expected to account for about 50% of load needs (13% from the Calaveras hydroelectric project and 37% from the Western contract). Commitments for long-term renewable resources are expected to meet 19% of the load in 2010 and grow to 26.5% by 2013. Beginning in 2021, some of the existing long-term renewable energy contracts will begin to expire, leaving a growing gap between load and committed supply resources. Figure 1 illustrates long-term demand and resource projections. 1 Staff estimates that the introduction of new electric vehicles may increase total load by 2-4% by 2020, but is not expected to increase peak demand. EPRI study suggests peak impacts could occur depending on charging location and behavior. The renewable energy quantity shown is the amount that is currently committed to and includes three projects that are under construction and not currently operational. DISCUSSION The external and local changes discussed previously along with increasing commodity costs and cost uncertainty related to the wholesale energy prices, renewable energy, transmission of electricity and resource adequacy, necessitate a thorough review of existing Council adopted policies and guidelines related to the City’s RPS goals, energy efficiency, GHG reduction initiatives and local generation. The following discussion proposes new LEAP Objectives and Strategies and identifies key initiatives, plans and reports needed to effectively implement LEAP. Proposed Changes to LEAP Objectives LEAP Objectives are intended to provide high-level direction in resource acquisition and management some of which endure for over 20 years. Because of the long-term nature of electric resource program planning and implementation, LEAP Objectives should generally neither change dramatically nor often. However, it is appropriate to review and update them when external factors and/or Council priorities change. Modifications to the current LEAP Objectives are proposed with a focus on how to evaluate and procure supply and demand-side electric resources and manage existing electric supply assets to meet customer needs over the next ten years. The proposed changes to LEAP Objectives are shown below. Objectives Existing LEAP Objective Proposed LEAP Objective 1. Demand and Supply Resource Acquisition Provide competitive and predictable supply cost while balancing environmental, local reliability, rate and cost impacts. Meet customer electricity needs through the acquisition of least total cost energy and demand resources including an assessment of the environmental costs and benefits. 2. Supply Cost Management Maintain a supply portfolio cost advantage compared to wholesale electricity market cost Manage supply portfolio cost uncertainty to meet rate and reserve objectives. 3. Local Distributed Generation & Transmission Enhance supply reliability to meet City and customer needs by pursuing opportunities including transmission system upgrades and local generation. No Change 4. Local Control Act to maintain the City Council’s ability to exercise local control of decision making related to all aspects of serving customer energy needs Move to Strategic Plan Proposed Change to LEAP Guidelines and Implementation Plan The proposed modifications to the current LEAP Guidelines are described in detail in this section. The changes are intended to better reflect the revised Objectives, account for initiatives that have been completed and new ones that are underway, eliminate portions of some Guidelines that are no longer applicable or are better situated in the Strategic Plan, and bring the Guidelines more into line with City Council priorities. Further, in an attempt to be consistent CMR: 426:10 Page 4 of 23 CMR: 426:10 Page 5 of 23 with the Strategic Plan, the term “guidelines” was replaced with “strategies”. LEAP Strategies are proposed for the following eight electric resource management activities: 1. Resource Acquisition 2. Electric Energy Efficiency and Demand Reductions 3. Renewable Portfolio Standard (RPS) 4. Local Generation 5. Climate Protection 6. Hydro Resource Management 7. Market Price Exposure Management 8. Transmission and Reliability Current efforts undertaken by staff to meet electric load requirements (e.g. implementing energy efficiency programs, and managing supply resources), while important to meeting LEAP Objectives, are considered operational and not a part of the Implementation Plan. The focus of the LEAP Implementation Plan is to identify new policies, initiatives, rates, plans, and reports needed to carryout the proposed LEAP Objectives and Strategies. Resource Acquisition Setting a hierarchy of preference for types of resources, or “loading order,” is required by state legislation. Loading order was first codified with legislation in SB 1037 (2005), then modified slightly in AB 2021 (2006)2 . Proposed Strategy #1 is intended to clarify how the evaluation of competing resources will be carried out by explicitly stating that staff will pursue resources with the least total cost to the City. Cost-effectiveness for each resource is defined under the respective strategy. To the extent that energy efficiency and demand reduction resources are cost-effective, they will be deployed first. Staff utilizes a mix of energy load forecasting, supply portfolio and energy efficiency models to assess and forecast energy demand, resource availability, portfolio costs and uncertainties. Resource acquisition decisions, whether demand-side reduction through energy efficiency programs or the purchase of renewable and/or conventional power supplies, should be made using the same set of planning assumptions. Better integration of the planning models is needed to properly implement Strategy 1 including ensuring proper accounting for environmental costs and benefits of each potential resource. 2 From AB 2021: 9615. (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. CMR: 426:10 Page 6 of 23 Existing Guideline #1 Proposed Strategy #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 Resource Acquisition Pursue the least total cost resources including an assessment of environmental costs and benefits to meet the City’s needs in the long term by: A. Evaluating each potential resource on an equal basis by establishing costs and values for location, time of day and year, carbon, value of renewable supplies and any secondary benefits attributed to the resource; and B. Including all resources – conventional energy, local and remote renewable energy supplies, energy efficiency, cogeneration, and demand reduction – in the evaluation. Proposed Implementation Plan When 1. Adjust planning and portfolio models to include an integrated and least cost planning perspective which evaluates demand and supply side resources in an integrated manner and includes time of delivery, locational and environmental costs and benefits. Dec. 2010 2. Evaluate the impacts of energy efficiency, demand reductions and electric vehicle penetration in Palo Alto in the annual development of the electric load forecast. Dec. 2010 Electric Energy Efficiency and Demand Reduction Palo Alto has long been a leader in energy efficiency programs, and views efficiency as a critical long-term resource that plays a key role in long-term planning and as such recognizes energy efficiency and demand reduction resources as the highest priority resource as demonstrated by declining load forecasts which show a cumulative decrease in load of 2.29% since Fiscal Year (FY) 2006. The City also recognizes that energy efficiency is critical in achieving GHG emission reduction goals and reduces the need to acquire renewable and/or conventional energy supplies. In developing the 2010 Ten-Year Electric Energy Efficiency (EE) Plan, the long-term cost of renewable energy was used as the avoided cost of energy to determine the cost effectiveness of energy efficiency. This methodology of adopting the Market Price Referent 3 (MPR) as the avoided cost was based on discussions with the UAC in November 2009. As a result of utilizing a higher avoided energy cost and updated energy efficiency measures in the efficiency assessment model, the 2010 Ten-Year Electric EE Plan’s goal is a reduction in energy use of 7.2% by 2020, which is more than double the 3.5% 10-year goal set in the 2007 Electric EE Plan. The proposed strategy incorporates this methodology of evaluating the cost-effectiveness of EE using the cost of renewable energy as the value of the saved energy. The proposed implementation plan also includes development of a pilot demand reduction program. This program could include development of time-of-use pricing to incent peak demand reductions or shifting load from peak to off-peak periods. 3 The Market Price Referent (MPR) is established annually by the California Public Utilities Commission (CPUC), which sets the pre-authorized price for renewable power for Investor-Owned Utilities (IOUs). The MPR is calculated as the cost of owning and operating a combined cycle gas-fired power plant in California plus the cost of CO2 offsets for its emissions. Existing Guideline #7 Proposed Strategy #2 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. Electric Energy Efficiency and Demand Reduction Fund programs that maximize the deployment of cost- effective, reliable and feasible energy efficiency and demand reduction opportunities as the highest priority resources by: A. Every three years, preparing a ten-year energy efficiency plan that identifies all cost-effective energy efficiency opportunities; B. Using the cost of long-term renewable energy resources adjusted for time of day factors and location as the avoided cost when evaluating cost effectiveness of energy efficiency measures; C. Designing and making energy efficiency programs available to all customers; and D. Considering the impacts (costs, benefits and GHG emissions) of substituting electricity-using appliances for natural gas-using appliances and vice versa in the ten-year energy efficiency plan. Proposed Implementation Plan When 3. Provide quarterly updates on electric efficiency program achievements including tracking against 10-Year Energy Efficiency goals to the UAC and annual updates to the City Council. quarterly 4. Develop Energy Efficiency Implementation Plan for the 2010 10-Year Electric EE Plan addressing certain items identified in the May 2010 Council Colleagues Memo and identification of resources and funding needed to achieve EE goals. Apr. 2011 5. Evaluate fuel switching energy efficiency measures and include them, if cost- effective, in the Electric and Gas EE Implementation Plans. Feb. 2011 6. Develop a pilot Demand Response Program for large commercial industrial customers for implementation in summer 2011. Apr. 2011 7. Assess the feasibility and cost-effectiveness of using current and potential thermal energy storage (TES) systems to shift load from on-peak periods to off- peak periods, for use in a demand response program, or for meeting any energy storage needs. Sep. 2011 Renewable Portfolio Standard (RPS) Current and Proposed Renewable Energy Mandates Aggressive renewable portfolio standards statewide have been evolving through legislation and state energy policy. The original goals for investor-owned utilities, established by SB 1078 (2002), were to achieve 20% of electric supply from eligible renewable resources by 2017. Eligible renewable resources are defined by the state and do not include large hydroelectric projects such as the Calaveras hydroelectric project and the resources delivered under the City’s contract with Western. Under SB 1078, publicly-owned utilities are “responsible for implementing and enforcing a renewables portfolio standard that recognizes the intent of the Legislature to encourage renewable resources, while taking into consideration the effect of the standard on rates, reliability, and financial resources and the goal of environmental improvement,” and to report certain information relative to renewable energy resources to their customers. Palo Alto’s existing RPS and reporting complies with SB 1078. CMR: 426:10 Page 7 of 23 Although the California legislature failed to pass RPS legislation which would have established an RPS goal of 33% by 2020 in the 2010 legislative session, legislation is expected to be re- introduced in 2011 to establish a state mandated RPS for all load serving entities, including publicly-owned utilities such as CPAU. California’s Global Warming Solutions Act of 2006, AB 32, directs the California Air Resources Board (CARB) to develop a renewable electricity standard (RES) to achieve GHG emissions reduction goals. In an effort to meet the goals set by AB 32, on September 15, 2009, California Governor Arnold Schwarzenegger issued an executive order (S-21-09) mandating an RES of 33% by 2020 for publicly- and investor-owned utilities. In September 2010, CARB adopted three-year compliance periods leading up to a 33% by 2020 RES including 20% for the 2012 to 2014 period; 24% for 2015 to 2017; and 28% for 2018 to 2019. CPAU’s Renewable Energy and Energy Efficiency Commitments CPAU’s quest to meet the current RPS goal has been through the use of the City’s competitive procurement process; participation in the Northern California Power Agency (NCPA) Green Power Pool; and through collaboration with NCPA’s power generation division to explore investments in ownership opportunities. Since 2004, the City has executed eight long-term Power Purchase Agreements (PPA) for renewable energy. These renewable energy resources are expected to account for about 26.5% of the City’s load by 2013. Figure 2 shows the City’s RPS resources compared to the RPS goal in the existing LEAP Guideline. The RPS goals shown in Figure 2 are based on the planned achievement of the additional energy efficiency goal (7.2% of the Citywide load by 2020) as outlined in the 2010 Ten-Year Electric EE Plan. To fully meet the existing RPS gap with even more energy efficiency would mean increasing the EE goal to 18% by 2020. Staff’s preliminary estimates suggest a 10-year efficiency goal of 18% could increase expenditures six-fold and have a retail rate impact of up to 30% without a commensurate bill reduction during the ten years. Even if sufficient resources were devoted to achieve this higher goal, staff is uncertain if such goals are achievable through voluntary programs. As noted in Strategy #2 above, a new Ten-Year Electric EE Plan will be prepared every three years when measures to achieve energy efficiency savings are reassessed. CMR: 426:10 Page 8 of 23 Figure 2: Renewable Energy Resources, 2003-2033 0 50 100 150 200 250 300 350 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9 2021 202 3 202 5 2027 202 9 2031 203 3 Calendar Year GW h / y r Crazy Horse LFG San Joaquin LFG Short-term Renewables Johnson Canyon LFG Keller Canyon LFG Half Moon Bay LFG Santa Cruz LFG Shiloh Wind High Winds RPS Goal: 33% (2015) RPS Goal: 20% (2008) RPS Goal: 30% (2012) RPS Alternatives Alternatives to the current RPS targets were evaluated including 1) eliminating interim targets; 2) aligning with the state resource eligibility and vintage requirements; 3) aligning with the anticipated state standard by delaying the City’s RPS to 33% by 2020 (instead of 2015 in the City’s existing RPS target); 4) including carve-outs for specific technologies and/or contracting mechanisms; and 5) not including a rate impact limitation for the acquisition of RPS resources. Staff did not consider abandoning an RPS all together as staff felt that this option was not consistent with Council directives and may expose the City to potential regulatory risks and/or penalties. 1. Eliminating Interim RPS Targets The City’s current RPS includes interim targets of 20% by 2008 and 30% by 2012. The existing renewable portfolio fell short of the 2008 interim target and is expected to fall short of meeting the 2012 target by approximately 10%. Given the lack of long-term renewable projects that could be on-line by 2012, acquisition of renewables to meet the shortfall would need to be through the use of short-term bundled energy with renewable energy certificates (REC), resulting in an annual cost of approximately $6.2 million for 2012, $2.0 million for 2013, and $1.9 million for 2014 – for a three-year cumulative cost of $10.1 million. Staff is exploring the use of RECs for short-term compliance requirements and will include those findings in future assessments to meet RPS; however, staff recommends eliminating the interim RPS targets and focusing efforts towards acquiring longer-term renewable resources. CMR: 426:10 Page 9 of 23 CMR: 426:10 Page 10 of 23 2. Aligning RPS Eligibility Standards with State Standards The City’s current standards for resources to qualify towards its RPS targets include that the project be “new” and that it meets the state’s eligibility criteria as laid out in the Public Resource Code 4 . Although the state Public Resource Code eligibility standards include no newness requirement for in-state resources, Palo Alto’s current standard is that resources must have begun commercial operations no earlier than the date of adoption of the first LEAP guidelines, in October 2002. The idea behind the newness requirement in the current LEAP guideline is that Palo Alto wanted to influence the development of new renewable energy projects and not rely on existing renewable energy projects, such as older geothermal projects, to meet the RPS goals. If the City were to eliminate its newness requirement and adopt the same standard that applies to the state’s investor-owned utilities, a small portion of the generation from its two hydroelectric resources would be able to be counted towards RPS targets.5 The amount of this generation varies slightly from year to year based on hydrologic conditions, but on average equates to about 1% of the City’s annual load. This addition to the City’s RPS supply would reduce the existing gap between committed resources and RPS targets, yielding an annual savings of about $500,000 per year. It is also conceivable that when the City seeks additional RPS resources in the future, there may be existing “old” eligible renewable resources available at lower prices than resources that meet the City’s current newness requirement. Staff recommends adopting the standard for the investor-owned utilities and eliminating the newness requirement. 3. Delaying 33% RPS Goal until 2020 Palo Alto’s RPS achievement is expected to be 26.5% in 2013 if the three projects that are under construction are completed as scheduled. If the City were to align its RPS goals with the current state mandated RES, then it would not have to meet a 33% RPS goal until 2020, instead of 2015. By delaying the purchase of the additional renewable resources required to meet a 33% goal until 2020 from 2015, the City could save about $16.5 million related to the premium for purchasing renewable energy. However, assuming a cap-and-trade market materializes in 2012, delaying the RPS goal by 5 years increases the City’s cumulative exposure to the cost of GHG emissions allowances by $4.2 million (from $16.0 million to $20.2 million), yielding a net savings of $12.3 million over the five-year period from 2015 to 2020. The net savings to retail rates achieved by the delay are 0.3 to 0.35 cents per kWh for the five-year period. If the non “new” eligible small hydro resources of about 1% were added (as recommended in the proposed LEAP Strategy), the City would have about 27.5% eligible renewable resources by 2013 and the net cost of delaying the 33% RPS from 2015 to 2020 would be proportionately less. Disadvantages associated with delaying the 33% RPS goal include:  The City may lose its stature as a green leader and as an exemplary case for how local control can achieve the best results.  The delay would increase the community’s carbon footprint and increase GHG emissions by about 20,000 tons per year or 100,000 tons over the 5-year period of delay (an increase of the City’s annual GHG emissions by about 30% during the 5 years). 4 Qualifying resources are those deemed eligible by the state Public Resources Code definition of eligible renewable energy supplies, which excludes large hydroelectric facilities. Further, the City’s current RPS requires the renewable resource to be “new,” which refers to facilities built or repowered after adoption of Palo Alto’s first LEAP guidelines in October 2002. 5 According to Section 25741 of the state Public Resource Code, “small” hydroelectric resources – i.e., those less than 30 MW nameplate capacity – are deemed RPS eligible. The City’s two major hydroelectric resources, Western and Calaveras, each comprise a system of generation powerhouses; a small number of these powerhouses fall into the “small hydro” category.  Due to a lack of viable renewable resources and the lead time necessary to develop new renewables, maintaining the City’s current RPS of 33% by 2015 may provide a safeguard or cushion in implementing the state’s likely mandate of 33% by 2020. 4. Carve-outs for Technologies and/or Contracting Mechanisms The City’s current RPS guideline does not include any carve-outs for technologies or contracting mechanisms. This provides staff the most flexibility and makes the decision between competing technologies based primarily on the best value to the electric portfolio and load requirements. Alternatives to the current RPS guideline include adding requirements that favor one technology over another (e.g. at least X% of the RPS resources must be from solar energy resources, or no more than X% can be from landfill gas to energy projects), or a location (e.g. at least Y% must be located in California, or Palo Alto), or a contracting mechanism (e.g. at least Z% must be procured through a Feed-in-Tariff (FIT). Staff and the UAC do not recommend including such carve-outs in the proposed LEAP strategy. The current mix of RPS resources in the City’s portfolio is the result of several requests for proposals (RFPs) conducted by the City. The RFP process allows staff to evaluate several alternative technologies and proposals in a competitive manner by applying pre-identified evaluation and selection criteria. In an effort to meet the City’s RPS targets and to be responsive to concerns raised by Council in the Council Colleagues Memo dated May 3, 2010, staff intends to expand the scope of the next renewable RFP to include an assessment of the feasibility of meeting the remaining RPS needs through a FIT or other alternative contract structures to power purchase agreements (PPAs). After Council acts on the proposed updated LEAP Strategies, staff intends to bring a range of proposals for different technologies, products and contract structures to the UAC and Council for consideration. In addition, staff does not plan to solicit for new renewable energy supplies until key tasks in the LEAP Implementation Plan are complete. These tasks include evaluation of a FIT, development of the Energy Efficiency Implementation Plan, evaluation of using renewable energy credits (RECs) to meet RPS goals, and analysis of the potential for local generation. 5. Use of a Rate Impact Limitation or Allowance for a Green Premium Part of the current LEAP Guideline related to RPS is that the additional cost of the renewable power over the cost of brown power cannot cause an upward rate impact of more than 0.5 cents per kWh. To date, there has been virtually no rate impact due to the renewable projects since the projects that are currently delivering renewable energy were priced near the price for brown power. When all the projects with which the City has executed PPAs are operational, the total upward rate impact is expected to be about 0.24 cents per kWh for a RPS of 26.5% in 2013. The projected cost of meeting the balance of the RPS goals has increased as the demand and price for renewable resources has increased while brown power prices have fallen significantly in the past two years. However, staff anticipates that it will be possible to meet the 33% RPS goal by 2015 within the 0.5 cents per kWh rate impact limit assuming adequate lead time for the development of any new facilities successfully responding to the RFP(s). If the state mandates an RPS/RES and the City’s RPS goal is in alignment with the state’s, then the need for a green premium constraint may be obsolete. If, however, the City’s RPS goal exceeds the State’s mandate then a green premium constraint may be necessary to ensure that the CMR: 426:10 Page 11 of 23 rate impacts associated with pursuing an RPS beyond the requirements of the law are within an acceptable limit. Summary of Proposed Changes to the LEAP Strategy Regarding RPS The proposed LEAP Strategy #3 continues the existing 33% by 2015 RPS target and the 0.5 ¢/kWh rate impact limit from the existing guideline, but removes the interim targets. The eligibility requirement for renewable resources is proposed to be aligned with the current State requirement so that the newness requirement in the current guideline is removed. The requirement to evaluate a FIT is added to the proposed strategy, but no technology or contract mechanism carve-outs are recommended. PaloAltoGreen Voluntary Program Current RPS guidelines include language related to the PaloAltoGreen (PAG) program, which is a voluntary renewable program providing customers a 100% renewable option at a premium rate. At present, 21% of CPAU customers subscribe to PAG, representing over 6% of the City’s load and making it one of the most successful voluntary green energy programs in the country. Renewable energy credits for the PAG program are procured to meet 100% of PAG load and are typically sourced through wind located in the Pacific Northwest and through solar photovoltaic (PV) projects installed throughout California (including facilities owned by the City). These resources do not qualify for the City’s RPS and, therefore, are not counted towards meeting the RPS. As a result, customers participating in PAG pay extra to “green-up” their energy needs, but the underlying portfolio already contains some green energy from the RPS resources. This will become more of an issue as the RPS grows to 33%. PAG is proposed to be addressed as part of the Climate Protection strategy (LEAP Strategy #5) as the program’s focus is to reduce GHG emissions; the program does not meet RPS goals and, thus, has been removed from the proposed RPS strategy. Existing Guideline #6 Proposed Strategy #3 Renewable Energy Supply Reduce electric portfolio dependence on fossil fuels by meeting at least 80% of City’s long term energy needs from non-fossil and non- nuclear supply. A. Renewable Portfolio Standard: In addition to the voluntary program, 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 ¢/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- Renewable Portfolio Standard (RPS) Reduce the carbon intensity of the electric portfolio by acquiring renewable energy supplies by: A. Pursuing a target level of renewable purchases of 33% by 2015 with the following attributes:  The contracts for investment in renewable resources shall not exceed 30 years in term.  Pursue only renewable resources deemed to be eligible by the California Energy Commission (CEC).  Evaluate use of Renewable Energy Certificates (RECs) to meet RPS. B. Ensuring that the retail rate impact for renewable purchases does not exceed 0.5 ¢/kWh on average; and C. Evaluating a Feed-In Tariff (FIT) CMR: 426:10 Page 12 of 23 based retail rate for all customers who want to voluntarily select an increased content of non-hydro renewable energy. contracting mechanism that considers the full value of locally sited renewable resources. Proposed Implementation Plan When 8. Fully integrate the effects on energy efficiency in the long-term electric load forecast. Nov. 2010 9. Evaluate the merits of implementing a feed-in-tariff (FIT) and the potential to meet RPS goals through local renewable resources. Jan. 2011 10. Seek UAC recommendation and Council approval of the policy elements of a FIT to encourage local renewable resource projects. May 2011 11. Continue working with NCPA to identify opportunities, including joint- ownership, for developing qualifying renewable resources. On- going 12. Evaluate the use of renewable energy credits (REC) to meet a portion of the City’s RPS goal and/or greenhouse gas emission reduction goals and monitor the regulations and requirements regarding the use of RECs to meet RPS goals. On- going 13. Evaluate a proposed geothermal project being considered by NCPA, including a pre-pay option and the benefit, costs, and risks of a pre-pay structure. June 2011 14. Conduct a Request for Proposal for eligible renewable resources including RECs and evaluate alternative renewable resource technologies and contracting mechanisms. RFP in June 2011 Local Generation Between 2003 and 2005 CPAU conducted local generation feasibility studies to identify potential sites for both large- and small-scale distributed cogeneration. A technical potential of 30 to 40 MW was identified for small-scale local cogeneration and several sites were identified for possible development of a 25 to 50 megawatt (MW) gas-fired generator. Additionally, staff estimates the potential for a local renewable distributed generation (e.g. solar PV) of about 10 MW. The existing local generation guideline reflects Council’s decision (CMR:169:06) to emphasize small-scale, local, ultra-clean distributed generation, including solar and other renewable energy resources as well as low-emission technologies such as cogeneration or fuel cells, instead of larger local natural gas-fired power plant alternatives. In 2006, CPAU staff recommended, as part of the LEAP update, to abandon efforts to pursue developing a 25 to 50 MW gas-fired generator within Palo Alto. This recommendation was approved by Council in March 2007 when it modified the LEAP Guidelines. At the time, the support for the recommendation was that there was a lack of viable sites within Palo Alto, developing such a plant in Palo Alto would be cost prohibitive, and development of such a plant was not consistent with potential long-term electric portfolio carbon neutrality goals. Currently, CPAU offers two programs to promote local generation including the Power from Local Ultra-clean Generation Incentive Program (“PLUG-In”) and Solar Photovoltaics (“PV Partners”). To date a total of 2.62 MW has been installed through the PV Partners program. No projects have been completed through the PLUG-In program to date. Local Renewable Generation Staff recognizes that CPAU has a central and unique role in promoting renewable or ultra clean local generation in Palo Alto which would otherwise not happen (e.g. buying Solar RECs from CMR: 426:10 Page 13 of 23 Roche’s 780 kW PV project enabled the project to proceed) and that making such projects happen will have a direct impact in reducing global GHG emissions. However, the cost of acquiring small local renewable generation is higher than the cost of conventional renewable supplies (even when the value is adjusted for the location) under expected market conditions. Under certain scenarios, such as high transmission and local resource adequacy costs, local generation may prove to be less expensive than conventional supply. Value of Local Generation The value of local generation depends on the value of the avoided energy, transmission, and local resource adequacy costs. In addition, avoided emissions costs could accrue if a cap-and- trade system was implemented. Table 1 below shows the value of local generation for the expected case and high and low value cases. The values in Table 1 are based on using the MPR for the avoided cost for a solar PV project with a lifetime of 20 years starting in 2012. The base and high value cases assume that a functioning cap-and-trade market for GHG emissions allowances will be in place in 2012. For the low value case, it is assumed that a functioning cap-and-trade market is not in existence for the next 20 years, or that the City gets no value from the sale of emissions allowances. Table 1: Value of Local Generation and Sensitivity to Value Components Case Avoided Energy Cost (¢/kWh) Transmission Access Charges (¢/kWh) Local Resource Adequacy ($/kW-yr) Emissions Credit Benefit ($/tonne) Total Value (¢/kWh) Base 10.5 1.8 75 37 14.7 High 18.0 2.2 120 74 24.6 Low 8.0 1.4 30 0 9.7 This analysis shows that the value for local solar PV generation is expected to be about $147 per MWh (about 15 ¢/kWh). This means that the City should be willing to pay up to this amount for local solar PV projects. Paying more than 15 ¢/kWh may result in a rate impact to cover the subsidization of PV. The analysis also shows that the value can vary greatly depending on the avoided costs for energy generated, transmission, local capacity, and GHG emissions. Additionally, staff recognizes that there are many benefits of local renewable generation that are difficult to quantify, including:  Having a generation resource close to load has sustainability and environmental justice values  Long term optionality value (land permit, emission permits, etc)  Small local generation at a customer site improves the customer’s supply reliability (however, it does not improve not overall system reliability)  May improve Bay Area system reliability through reduced reliance on the transmission grid and may lower costs through reduced need to expand the transmission grid  Reduces exposure to higher than expected transmission and loss charges Small vs. Large Local Generation Small distributed PV systems within the City do not protect the city against blackouts and cannot provide emergency supplies to customer premises. PV systems, in conjunction with storage systems and load isolation circuitry (for lineperson safety), could provide this option, but such an CMR: 426:10 Page 14 of 23 integrated system will increase costs further. Though a larger (25 to 50 MW) generator could enhance local reliability, the possibility of siting such a local generation resource within Palo Alto is problematic due the lack of suitable sites and because such a fossil-fired resource does not comport with City’s long-term objective of reducing GHG emissions. Staff will continue to explore siting and/or contracting for a large-scale gas-fired generator in or near Palo Alto, to achieve load, resource adequacy and certain reliability needs. Proposed modifications to the local generation strategy are intended to recognize the value of local renewable generation, including those which are less tangible, and promote the use of feed- in-tariffs as a mechanism to incent the development of local renewable generation. Existing Guideline #5 Proposed Strategy #4 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. Promote and facilitate the deployment of cost-effective local resources by: A. Using the renewable market price referent (MPR) adjusted for time of day factors and location as the avoided cost when evaluating cost effectiveness of local resources; B. Considering energy delivery cost uncertainty and strategic value options when evaluating opportunities; C. Evaluating a Feed-in-Tariff to promote locally sited renewable resources; D. Evaluating cost-effective energy storage resources; and E. Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to the City’s distribution system. Proposed Implementation Plan When 15. Provide an update of past local generation feasibility studies and actions to UAC and Council Dec. 2010 16. Assess the potential for and feasibility of small local distributed and non- distributed, renewable and cogeneration projects, including using a FIT to encourage these projects. Jan. 2011 17. Assess the potential, benefits and costs of developing and/or joint ownership of a 25 to 50 MW gas-fired power plant located in or near Palo Alto to meet load, reliability and local capacity needs. Jun. 2011 18. Evaluate the City’s PLUG-In Program to encourage cogeneration including rules, regulations, and buy back rates and recommend modifications as needed. Dec. 2011 19. Following receiving Council direction from Implementation Plan Initiative #10, develop a FIT proposal including rate, rules, regulations, standard contract form and limits. To be determined 20. Assess the economics and potential of the anaerobic digester as a local generation resource for CPAU Sep. 2011 21. Assess the need for and value of energy storage to support local renewable distributed generation resources. Jun. 2012 Climate Protection Climate change continues to be a key global environmental challenge that impacts not only Utilities, but all City operations. In December 2007, the Council approved the City’s Climate CMR: 426:10 Page 15 of 23 CMR: 426:10 Page 16 of 23 Protection Plan (CPP), which set certain goals for the electric utility and allowed for the use of a GHG adder, or carbon price premium, to be used when evaluating electric resource acquisitions. The adder was set at $20/metric ton of carbon dioxide equivalent (CO2e) escalating at 5% annually. The carbon adder in the CPP is similar to the one used by the California Public Utilities Commission (CPUC) – about $20/metric ton for a 10-year investment and $37/metric ton for a 20-year investment. The CPP recommendation was principally designed to hedge against financial exposure that CPAU could face under GHG reduction regulations including AB32 and/or federal cap-and-trade regulation. The electric supply portfolio’s GHG emissions are projected to be 120,000 metric tons of CO2e in 2010 and are expected to decline to less than 50,000 tons/year by 2020 as the City achieves its energy efficiency and RPS goals. Under current plans for California, a GHG emissions cap-and- trade market is expected to be implemented by 2012; depending on the method of allowance allocation adopted, CPAU may be allocated between 50% to 100% of its allowance needs free of charge and will be able to buy, sell and/or bank allowances to minimize cost exposure and maximize value. The value of the electric portfolio’s GHG emissions allocations is highly uncertain and is expected to range between $1.5 and $3 million per year depending on the actual cost of GHG emissions allowances. Staff evaluated three key policy questions related to meeting the City’s CPP goals and LEAP climate protection objectives, including: 1. Should the City adopt a policy minimizing the purchase of greenhouse gas-emitting power supplies? 2. Should the City establish a GHG emissions goal instead of an RPS goal? 3. Should CPAU strive for carbon neutrality in the long-term for the electric supply portfolio? 1. Should the City adopt a policy minimizing the purchase of GHG-emitting supplies? Since about 50% of the City’s electric supplies are from hydroelectric resources in average hydrologic years, when the City meets a 33% RPS goal, approximately 83% of electric supplies will come from carbon-free resources. Therefore, CPAU’s future portfolio will have very low carbon content. The balance of the supplies is short-term market purchases from unspecified resources. These short-term market purchases are assigned the emission content of the “California Mix”6 , which has varied from 724 to 879 lbs of CO2e per MWh in the past few years. the arket as the hydroelectric supplies and the RPS resources are greater than the City’s needs. rm non-carbon-emitting resources is illiquid and ese products may carry high cost premiums. Table 2 below assumes that the City has achieved a 33% RPS and has a demand of 1,000 GWh/year. It shows the approximate amount of market purchases that are required in an average, a wet, and a dry hydrologic year. Note that in a wet year, energy would be sold into m Procuring non-carbon emitting resources to cover short-term balance needs will prove to be cumbersome as the quantity needed will be dependent on highly variable hydroelectric supply resources. Additionally, the market for short-te th 6 As a result of the state’s emission performance standard of 1,100 lbs/MWh of CO2e set by SB 1368 (2006) for base load generation, one can assume this to be the upper emission limit for the “California Mix.” CMR: 426:10 Page 17 of 23 Table 2: Market Purchases/(Sales) in Aver r ic Y Average Year Wet Year Dry Year age, Wet, and D y Hydrolog ears RPS resources (GWh/year) 330 330 330 Hydroelectric supplies (GWh/year) 500 800 300 Unspecified market-based supplies (GWh/year) (130) 170 370 Emissions (metric tones per year of CO2e) (based on carbon intensity of 879 lbs/MWh for unspecified market-based supplies) 68,000 0 147,000 Given the current uncertainty surrounding state and federal cap-and-trade regulations and the potential high cost and complexity of procuring short-term carbon neutral resources, staff does not recommend adopting a policy to minimize the purchase of GHG-emitting power supplies for short-term market based purchases. Further, the primary objective of the proposed LEAP Objectives and Strategies is to pursue all cost-effective energy efficiency measures that minimize e need to buy both brown and renewable energy supplies, thus minimizing GHG emissions. A GHG an ith an electric portfolio carbon content of less than 40,000 metric tons of CO2e per year. tion goal at this me. The proposed implementation plan includes a reassessment of this policy. uld CPAU strive for carbon neutrality in the long-term for the electric supply ds that a decision to set such a goal be deferred for two to three years for the following the City th 2. Should the City establish a GHG emissions goal instead of an RPS goal? An alternative to a standard “bottom up” RPS goal (specified as a percentage of total load) could be a “top down” goal to reduce the purchase of GHG-emitting power supplies, with an upper limit on the number of tons of GHG emissions allowed in the supply portfolio. emissions goal, normalized for an average hydro year, could be structured as follows:  Reduce the dependence of fossil fuel based generation to less than 17% by 2015 with electric portfolio carbon content of less than 68,000 7 metric tons of CO2e per year; or  Reduce the dependence of fossil fuel based generation to less than 10% by 2020 w Adopting a maximum GHG emission goal would need to be in addition to an RPS goal as staff believes that an RPS goal will soon become a state mandate. Given the uncertainty of cap-and- trade legislation and regulation and the potential complexity of simultaneously pursuing two separate portfolio goals, staff recommends not adopting a GHG emission reduc ti 3. Sho portfolio? Carbon neutrality for the electric supply portfolio could be a long-term goal. However, staff recommen reasons:  There is much uncertainty regarding the cost impacts of implementing AB32 and a potential future federal climate bill. Setting local mandates may result in receiving fewer emission allowances than otherwise may have been available;  In the next two to three years as the City pursues energy efficiency and acquires additional renewable resources (including local PV), the City will be closer to carbon 7Meeting load with 17% of supplies (approximately 170,000 MWh/year) from GHG-emitting power supplies at 879 lbs/MWh would result in an annual emission of 67,769 metric tons of CO2. CMR: 426:10 Page 18 of 23 neutrality. The cost of achieving incremental carbon neutrality through the purchase of short-term carbon free resources and/or carbon off-sets may prove to be very high; and  Given current economic conditions, businesses and residents may not be willing or able porting such emissions. Staff will continue to work to implement climate protection goals and to evaluate th on neutral electric portfo ideration. to absorb additional utility costs related to implementing a carbon neutral portfolio. The proposed LEAP strategy regarding climate protection is to support the City’s goals as outlined in the City’s CPP. The CPP’s goals for emission reductions related to the electric utility will be met through implementation of LEAP, specifically through the strategies related to the RPS goals, implementation of energy efficiency, and development of renewable local generation and cogeneration. Additionally, the PaloAltoGreen program supports CPP initiatives. Other efforts include assisting the City in developing an inventory of GHG emissions and tracking and re e development of a carb lio policy for future cons Existing Guideline #8 Proposed Strategy #5 Climate Action Plan As part of the City’s commitment to dev an implement an action plan to reduce greenhouse gas em elop issions, develop and ask io imate y: s; .g. e- want to voluntarily select an increased content of non-hydro renewable Cl implement a Climate Action Plan relating to utility activities. A. Consider all Mayor’s Green Ribbon T Force utility-related recommendations. B. The plan shall be consistent with the California Municipal Utilities Associat Greenhouse Gas Reduction Principles. n t C. Take actions to meet ICLEI Cities for Climate Protection Campaign milestones. D. Coordinate with and support Cl Action Plan efforts of other departments. imate Protection Support the City’s climate protection goals b A. Supporting the City municipal government’s climate protection goal B. Promoting the use of technologies (e incentives for cogeneration systems, promotion of EVs, in-home energy displays) and programs that will reduce he community’s carbon footprint at a cost of up to the City’s value of carbon; and C. Continuing to offer a renewable resourc based retail rate for all customers who energy. Proposed Implementation Plan When 22. Promote the City’s Plug-in program to encourage development of cogenerati systems. on On-going 23. Analyze electric vehicle (EV) charging patterns and evaluate rates to in nighttime EV charging. cent Jun. 2011 24. Meet AB32 mandated annual reporting requirements to California Air 1 Resources Board on annual volumes of electricity purchases by resource. Annually, next in Jun. 201 25. Track and report annually on 6 major greenhouse gas emissions (CO2, CH4, N2O, SF6, HFCs, PFCs) for all of the City’s municipal operations and calculate next in electric portfolio’s overall emissions coefficients (lbs of CO2, CH4, and N2O per MWh of purchases). Annually, Sep. 2011 26. Evaluate the costs, benefits and impacts of the implementation of an electric on l GHG emissions). Jan. 2012 portfolio carbon neutral policy and the setting of quantitative goals (e.g. carb intensity, tota 27. Evaluate PaloAltoGreen program design and recommend modifications, as appropriate. Jun. 2012 Hydro Resource Management The variability in hydroelectric generation is the largest recurring cost uncertainty to the electric supply portfolio, representing an estimated $17 million variation in cost annually. To manage this uncertainty, cash is held in reserve to cover two years of adverse hydrologic conditions. The reserve is drawn down in dry years and funded in wet years. This strategy has allowed for rate certainty within a fiscal year, however it shields ratepayers from a proper price signal that could encourage conservation during dry years. The proposed LEAP includes evaluation of alternative strategies including the use of a rate adjustment mechanism and continuing to seek opportunities to maximize value from existing hydroelectric resources. Existing Guideline #2 Proposed Strategy #6 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 reserves to manage hydro production volume uncertainty. Hydro Resource Management Actively monitor and manage cost uncertainty related to variations in hydroelectric supply and maximize value of hydro resources by: A. Planning for an average hydro year on a long-term basis; B. Utilizing cost-effective hydro resource management products; and C. Implementing opportunities to maximize benefits and reduce costs of the Western Base Resource and Calaveras hydroelectric resources. Proposed Implementation Plan When 28. Evaluate potential rate adjustment mechanisms that would adjust electric rates based on hydrologic year type and develop a recommendation for a rate. Apr. 2011 29. Assess the value related to Palo Alto’s participation in the CAISO’s Metered Subsystem Agreement and the use of the Calaveras hydroelectric project for load following. On-going 30. Identify long-term opportunities to maximize the value of the Calaveras hydroelectric project as an energy storage resource. On-going 31. Work with NCPA to seek opportunities to increase the efficiency of the Calaveras hydroelectric project and implement operational value maximizing strategies. On-going Market Price Exposure Management Wholesale power prices are volatile and electric supply costs can increase by $6 million annually if prices move to high levels. To partially manage this risk, staff implements a three-year “laddering” strategy whereby a portion of energy and capacity needs is purchased at a fixed price up to thirty-six months ahead of delivery. Additionally, to provide for rate certainty, funds are held in reserve to cover adverse market price movements within the fiscal year. The proposed LEAP strategy in this area is not changed significantly from the existing guideline. However, the proposed implementation plan includes the examination of purchasing a five-year block of energy to lock in the costs of a portion of the City’s energy needs as market prices are currently relatively low. Any purchase for delivery beyond three years out requires Council approval, and the UAC’s recommendation would also be sought for such a purchase. CMR: 426:10 Page 19 of 23 Existing Guideline #3 Proposed Strategy #7 Energy Risk Management Manage supply cost uncertainty and risk by: A. Implementing 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 fuel 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. Market Price Exposure Management Actively monitor and manage operational, counterparty and wholesale energy price risk in the short-term (up to three to five years) by: A. Maintaining an adequate pool of creditworthy suppliers; and B. Diversifying supply purchases across commitment date, start date, duration, suppliers and pricing terms in alignment with rate stability objectives and reserve guidelines. Proposed Implementation Plan When 32. Evaluate a block purchase of up to 25 MW to meet base load needs for Jan- Mar and Nov-Dec for a term of up to 5 years. Feb. 2011 33. Conduct an RFP for new electric master agreement counterparties. Dec. 2011 34. Explore opportunities with NCPA, other municipal utilities and/or third party suppliers to reduce scheduling and/or operating costs. On-going 35. Continue to implement a 3-year laddering strategy to manage market price uncertainty. On-going Transmission and Reliability Since LEAP was last approved in 2007, there have been several changes related to the functions of transmission and reliability. First, the California Independent System Operator (CAISO) implemented its much awaited market redesign in April 2009. Through collaborative efforts with NCPA, CPAU effectively transitioned to this new market structure with minimal cost impact to Palo Alto ratepayers. Further, staff has effectively implemented the City’s Resource Adequacy Program in an effort to minimize cost while meeting the CAISO’s requirements and has effectively managed congestion cost through the use of Council-approved congestion revenue right (CRR) products. Lastly, in January 2009, in an effort to reduce cost, the City effected a 15-year assignment of its full share of the California-Oregon Transmission Project (COTP), thus reducing staff’s efforts in monitoring and intervening in FERC regulations related to transmission. At present, Palo Alto does not have any goals or plans to expand its interest in the transmission business (i.e., as a transmission provider or investor). Current interest in transmission assets are driven primarily by the City’s goals to improve reliability and create redundant path(s) of interconnection to the electric transmission grid; for acquiring renewable energy; reducing the cost of delivery of the City’s share of Western Base Resource (WBR); and advocating for fair and reasonable transmissions rates within the CAISO. Besides the evaluation of local generation (under Strategy #4 above), Palo Alto’s reliability needs will focus on evaluating upgrades to a 230KV connection and/or second (or redundant) points of interconnection with PG&E through continued participation in the Bay Area Municipal CMR: 426:10 Page 20 of 23 Transmission Group (BAMx) to advocate on behalf of Palo Alto and promote cost effective grid planning activities for the Bay Area. Existing Guideline #4 Proposed Strategy #8 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. 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. Implementing 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. Transmission and Reliability Pursue the reliability of supply at fair and reasonable transmission and delivery costs by: A. Actively participating through collaborative efforts with other entities, in local, regional, statewide and federal regulatory and legislative forums; 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. Evaluating interconnection options to the City to increase service reliability and lower delivery costs; and D. Exploring transmission opportunities and strategies to meet long-term renewable portfolio objectives beyond 2020 Proposed Implementation Plan When 36. Investigate transmission connection voltage upgrade from 115 to 230 kV, and the potential for a transmission reliability connection to west side. On-going 37. Explore transmission opportunities and strategies to meet long-term renewable portfolio objectives beyond 2020. On-going 38. Evaluate joint efforts for power plant ownership opportunities or long-term agreements to meet the City’s Resource Adequacy Program requirements. On-going COMMISSION REVIEW AND RECOMMENDATIONS The UAC began discussing LEAP and the need for updates at its June 2010 meeting. A review of current LEAP Objectives and Guidelines, current practices and alternatives were presented to elicit feedback from the UAC on broad policy areas of resource acquisition, hydro and market price uncertainty management and furthering of climate protection goals. Staff returned to the UAC twice in July 2010 to continue discussion on updating LEAP. At the July 20 UAC meeting, a proposal to align the City’s RPS with the state’s mandate for investor owned utilities of 33% by 2020 was presented. The UAC indicated a preference for maintaining the expedited RPS goal of 33% by 2015 and for including information about the economic and CMR: 426:10 Page 21 of 23 environmental impacts of alternative policies. The minutes of the July 20, 2010 UAC meeting are provided as Attachment C. At the July 28, 2010 UAC meeting, staff presented an analysis of the impact on costs and GHG emissions associated with several alternative strategies including increased energy efficiency; promotion of local generation; and an aggressive RPS. The UAC provided general feedback that it desired to see more analysis about the impacts on rates and GHG emission reductions from alternatives going forward and in general was in support of the LEAP Objectives and Strategies as proposed by staff. The July 28, 2010 UAC meeting minutes are provided as Attachment D. At the UAC’s September 1, 2010 meeting, staff presented the final draft of the LEAP Objectives and Strategies. The UAC voted to modify LEAP Objective #1 by adding an assessment of the environmental costs and benefits when evaluating the total cost of resources. After the modification, the UAC voted unanimously (7-0) to support the three proposed LEAP Objectives. The UAC proposed a similar modification to Strategy #1 and minor modifications were proposed to Strategies #3 and #5. No changes were proposed by the UAC to Strategies #2, #6, #7, and #8. After the modifications, proposed LEAP Strategies #1, #2, #3, #5, #6, #7, and #8 were unanimously (7-0) approved by the UAC. An addition was proposed for Strategy #4 (Local Generation) to include an evaluation of the feasibility of developing a 25 to 50 MW generating facility in or near the City. This addition was approved by the UAC by a 4 to 3 vote. The minutes of the September 1, 2010 UAC meeting are provided as Attachment E. After receiving the UAC’s recommendation and modifying the LEAP Objectives and Strategies accordingly, staff presented the LEAP Implementation Plan at the UAC’s November 3, 2010 meeting. The UAC unanimously (7-0) voted to approve the proposed LEAP Implementation Plan. The draft minutes of the November 3, 2010 UAC meeting are provided as Attachment F. RESOURCE IMPACT There is no direct resource impact as a result of the proposed changes to the LEAP Objectives, Strategies for fiscal years 2011. The initiatives, plans and/or tasks identified in the proposed LEAP Implementation Plan to meet the Objective and Strategies will require further review and approvals and the resource impact will be identified at that time. POLICY IMPLICATIONS The proposed LEAP Objectives, Strategies and Implementation Plan support the Council- approved Utilities Strategic Plan, Energy Risk Management Policies, and Comprehensive Plan Goal N-9 (a clean, efficient, competitively-priced energy supply that makes use of cost-effective renewable resources). ENVIRONMENTAL REVIEW Adoption of the LEAP Objectives, Strategies and Implementation Plan does not constitute a project for the purposes of the California Environmental Quality Act. CMR: 426:10 Page 22 of 23 ATTACHMENTS A. Proposed LEAP Objectives, Strategies and Implementation Plan B. Existing LEAP Objectives, Guidelines and Implementation Plan C. Excerpted Minutes oftbe July 20, 2010 UAC Meeting D. Excerpted Minutes of the July 28, 2010 UAC Meeting E. Excerpted Minutes oftbe September 1,2010 UAC Meeting F. Excerpted Draft Minutes oftbe November 3, 2010 UAC Meeting PREPARED BY: JAMES STACK, Resource Planner MONICA PADILLA, Senior Resource Planner 8/ REVIEWED BY: JANE RATCHYE\xnL Assistant Director, ~ource Management DEPARTMENT HEAD: (vt~&.~fH=J/lJr . \ ~or of Utilities CITYMAJ"lAGERAPPROVAL: ~W~-f-Af\ ~ JAMES KEENE . ~.~ J e>: City Manager ----------------................ ~ .... . CMR:426:10 Page 23 of23 ATTACHMENT A Proposed 2010 Long-term Electric Acquisition Plan (LEAP) Objectives, Strategies and Implementation Plan LEAP Objectives: 1. Meet customer electricity needs through the acquisition of least total cost energy and demand resources including an assessment of the environmental costs and benefits 2. Manage supply portfolio cost uncertainty to meet rate and reserve objectives. 3. Enhance supply reliability to meet City and customer needs by pursuing opportunities including transmission system upgrades and local generation. LEAP Strategies and Implementation Plan Steps: 1. Resource Acquisition – Pursue the least total cost resources including an assessment of environmental costs and benefits to meet the City’s needs in the long term by: a. Evaluating each potential resource on an equal basis by establishing costs and values for location, time of day and year, carbon, value of renewable supplies and any secondary benefits attributed to the resource; and b. Including all resources – conventional energy, local and remote renewable energy supplies, energy efficiency, cogeneration, and demand reduction – in the evaluation. Implementation Plan Items for Strategy #1 – Resource Acquisition Estimated Completion 1. Adjust planning and portfolio models to include an integrated and least cost planning perspective which evaluates demand and supply side resources in an integrated manner and includes time of delivery, locational and environmental costs and benefits. Dec. 2010 2. Evaluate the impacts of energy efficiency, demand reductions and electric vehicle penetration in Palo Alto in the annual development of the electric load forecast. Dec. 2010 2. Electric Energy Efficiency and Demand Reduction – Fund programs that maximize the deployment of cost-effective, reliable and feasible energy efficiency and demand reduction opportunities as the highest priority resources by: a. Every three years, preparing a ten-year energy efficiency plan that identifies all cost- effective energy efficiency opportunities; b. Using the cost of long-term renewable energy resources adjusted for time of day factors and location as the avoided cost when evaluating cost effectiveness of energy efficiency measures; c. Designing and making energy efficiency programs available to all customers; and d. Considering the impacts (costs, benefits and GHG emissions) of substituting electricity-using appliances for natural gas-using appliances and vice versa in the ten- year energy efficiency plan. ATTACHMENT A Implementation Plan Items for Strategy #2 – Electric Energy Efficiency and Demand Reduction Estimated Completion 3. Provide quarterly updates on electric efficiency program achievements including tracking against 10-Year Energy Efficiency goals to the UAC and annual updates to the City Council. quarterly 4. Develop Energy Efficiency Implementation Plan for the 2010 10-Year Electric EE Plan addressing certain items identified in the May 2010 Council Colleagues Memo and identification of resources and funding needed to achieve EE goals. Apr. 2011 5. Evaluate fuel switching energy efficiency measures and include them, if cost- effective, in the Electric and Gas EE Implementation Plans. Feb. 2011 6. Develop a pilot Demand Response Program for large commercial industrial customers for implementation in summer 2011. Apr. 2011 7. Assess the feasibility and cost-effectiveness of using current and potential thermal energy storage (TES) systems to shift load from on-peak periods to off-peak periods, for use in a demand response program, or for meeting any energy storage needs. Sep. 2011 3. Renewable Portfolio Standard (RPS) – Reduce the carbon intensity of the electric portfolio by acquiring renewable energy supplies by: a. Pursuing a target level of renewable purchases of 33% by 2015 with the following attributes: i. The contracts for investment in renewable resources shall not exceed 30 years in term. ii. Pursue only renewable resources deemed to be eligible by the California Energy Commission (CEC). iii. Evaluate use of Renewable Energy Certificates (RECs) to meet RPS. b. Ensuring that the retail rate impact for renewable purchases does not exceed 0.5 ¢/kWh on average; and c. Evaluating a Feed-In Tariff (FIT) contracting mechanism that considers the full value of locally sited renewable resources. Proposed Implementation Plan Items for Strategy #3 – Renewable Portfolio Standard (RPS) Estimated Completion 8. Fully integrate the effects on energy efficiency in the long-term electric load forecast. Nov. 2010 9. Evaluate the merits of implementing a feed-in-tariff (FIT) and the potential to meet RPS goals through local renewable resources. Jan. 2011 10. Seek UAC recommendation and Council approval of the policy elements of a FIT to encourage local renewable resource projects. May 2011 11. Continue working with NCPA to identify opportunities, including joint- ownership, for developing qualifying renewable resources. On-going ATTACHMENT A Proposed Implementation Plan Items for Strategy #3 – Renewable Portfolio Standard (RPS) Estimated Completion 12. Evaluate the use of renewable energy credits (REC) to meet a portion of the City’s RPS goal and/or greenhouse gas emission reduction goals and monitor the regulations and requirements regarding the use of RECs to meet RPS goals. On-going 13. Evaluate a proposed geothermal project being considered by NCPA, including a pre-pay option and the benefit, costs, and risks of a pre-pay structure. June 2011 14. Conduct a Request for Proposal for eligible renewable resources including RECs and evaluate alternative renewable resource technologies and contracting mechanisms. RFP in June 2011 4. Local Generation – Promote and facilitate the deployment of cost-effective local resources by: a. Using the renewable market price referent (MPR) adjusted for time of day factors and location as the avoided cost when evaluating cost effectiveness of local resources; b. Considering energy delivery cost uncertainty and strategic value options when evaluating opportunities; c. Evaluating a Feed-in-Tariff to promote locally sited renewable resources; d. Evaluating cost-effective energy storage resources; and e. Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to the City’s distribution system. Proposed Implementation Plan Items for Strategy #4 – Local Generation Estimated Completion 15. Provide an update of past local generation feasibility studies and actions to UAC and Council Dec. 2010 16. Assess the potential for and feasibility of small local distributed and non- distributed, renewable and cogeneration projects, including using a FIT to encourage these projects. Jan. 2011 17. Assess the potential, benefits and costs of developing and/or joint ownership of a 25 to 50 MW gas-fired power plant located in or near Palo Alto to meet load, reliability and local capacity needs. Jun. 2011 18. Evaluate the City’s PLUG-In Program to encourage cogeneration including rules, regulations, and buy back rates and recommend modifications as needed. Dec. 2011 19. Following receiving Council direction from Implementation Plan Initiative #10, develop a FIT proposal including rate, rules, regulations, standard contract form and limits. To be determined 20. Assess the economics and potential of the anaerobic digester as a local generation resource for CPAU Sep. 2011 21. Assess the need for and value of energy storage to support local renewable distributed generation resources. Jun. 2012 ATTACHMENT A 5. Climate Protection – Reduce the electric portfolio’s carbon intensity by: a. Supporting the City municipal government’s climate protection goals; b. Promoting the use of technologies (e.g. incentives for cogeneration systems, promotion of EVs, in-home energy displays) and programs that will reduce the community’s carbon footprint at a cost of up to the City’s value of carbon; c. Continuing to offer a renewable resource-based retail rate for all customers who want to voluntarily select an increased content of non-hydro renewable energy; and. d. Evaluating quantitative goals for possible future implementation. Proposed Implementation Plan Items for Strategy #5 – Climate Protection Estimated Completion 22. Promote the City’s Plug-in program to encourage development of cogeneration systems. On-going 23. Analyze electric vehicle (EV) charging patterns and evaluate rates to incent nighttime EV charging. Jun. 2011 24. Meet AB32 mandated annual reporting requirements to California Air Resources Board on annual volumes of electricity purchases by resource. Annually, next in Jun. 2011 25. Track and report annually on 6 major greenhouse gas emissions (CO2, CH4, N2O, SF6, HFCs, PFCs) for all of the City’s municipal operations and calculate electric portfolio’s overall emissions coefficients (lbs of CO2, CH4, and N2O per MWh of purchases). Annually, next in Sep. 2011 26. Evaluate the costs, benefits and impacts of the implementation of an electric portfolio carbon neutral policy and the setting of quantitative goals (e.g. carbon intensity, total GHG emissions). Jan. 2012 27. Evaluate PaloAltoGreen program design and recommend modifications, as appropriate. Jun. 2012 6. Hydro Resource Management – Actively monitor and manage cost uncertainty related to variations in hydroelectric supply and maximize value of hydro resources by: a. Planning for an average hydro year on a long-term basis; b. Utilizing cost effective hydro resource management products; and c. Implementing opportunities to maximize benefits and reduce costs of the Western Base Resource and Calaveras hydroelectric resources. Proposed Implementation Plan Items for Strategy #6 – Hydro Resource Management Estimated Completion 28. Evaluate potential rate adjustment mechanisms that would adjust electric rates based on hydrologic year type and develop a recommendation for a rate. Apr. 2011 29. Assess the value related to Palo Alto’s participation in the CAISO’s Metered Subsystem Agreement and the use of the Calaveras hydroelectric project for load following. On-going 30. Identify long-term opportunities to maximize the value of the Calaveras hydroelectric project as an energy storage resource. On-going ATTACHMENT A Proposed Implementation Plan Items for Strategy #6 – Hydro Resource Management Estimated Completion 31. Work with NCPA to seek opportunities to increase the efficiency of the Calaveras hydroelectric project and implement operational value maximizing strategies. On-going 7. Market Price Exposure Management – Actively monitor and manage operational, counterparty and wholesale energy price risk in the short-term (up to three to five years) by: a. Maintaining an adequate pool of creditworthy suppliers; and b. Diversifying supply purchases across commitment date, start date, duration, suppliers and pricing terms in alignment with rate stability objectives and reserve guideline. Proposed Implementation Plan Items for Strategy #7 – Market Price Exposure Management Estimated Completion 32. Evaluate a block purchase of up to 25 MW to meet base load needs for Jan- Mar and Nov-Dec for a term of up to 5 years. Feb. 2011 33. Conduct an RFP for new electric master agreement counterparties. Dec. 2011 34. Explore opportunities with NCPA, other municipal utilities and/or third party suppliers to reduce scheduling and/or operating costs. On-going 35. Continue to implement a 3-year laddering strategy to manage market price uncertainty. On-going 8. Transmission and Reliability – Pursue the reliability of supply at fair and reasonable transmission and delivery costs by: a. Actively participating through collaborative efforts with other entities, in local, regional, statewide and federal regulatory and legislative forums; 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. Evaluating interconnection options to the City to increase service reliability and lower delivery costs; and d. Exploring transmission opportunities and strategies to meet long-term renewable portfolio objectives beyond 2020. Proposed Implementation Plan Items for Strategy #8 – Transmission and Reliability Estimated Completion 36. Investigate transmission connection voltage upgrade from 115 to 230 kV, and the potential for a transmission reliability connection to west side. On-going 37. Explore transmission opportunities and strategies to meet long-term renewable portfolio objectives beyond 2020. On-going 38. Evaluate joint efforts for power plant ownership opportunities or long-term agreements to meet the City’s Resource Adequacy Program requirements. On-going ATTACHMENT B Existing Long-term Electric Acquisition Plan (LEAP) Objectives and Guidelines and Implementation Plan LEAP Primary Portfolio Planning Objectives Originally approved by Council on November 13, 2001 (CMR 425:01). Objectives modified by Council on March 5, 2007 (CMR 158:07). Objective 1: Provide competitive and predictable supply cost while balancing environmental, local reliability, rate and cost impacts. Objective 2: Maintain a supply portfolio cost advantage compared to wholesale electricity market cost. Objective 3: Enhance supply reliability to meet City and customer needs by pursuing opportunities including transmission system upgrades and local generation. Objective 4: 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 Originally approved by Council on October 21, 2002 (CMR 398:02). Guidelines modified by Council on March 5, 2007 (CMR 158:07). 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. Implementing 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 fuel 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. Page 1 of 4 ATTACHMENT B 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. 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. Implementing 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 an 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 from non-fossil and non-nuclear supply. A. Renewable Portfolio Standard: In addition to the voluntary program, 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 ¢/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 Page 2 of 4 ATTACHMENT B 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 all 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. LEAP Implementation Plan Originally approved by Council on August 4, 2003 (CMR:354:03). Changes approved by Council on April 17, 2006 (CMR 169:06). 1. Climate Action: Promote environmental stewardship by completing the California Climate Action Registry process for reporting and certifying greenhouse gas emissions, developing a Climate Action Plan for utilities, and supporting City efforts to address climate change and other environmental issues. 2. Public Benefits: Continue implementation of electric public benefits programs, which is funded by collecting a fee equal to 2.85% of the electric retail rate. These funds are partially used to demonstrate renewable resources or alternative technologies and to assist customers in pursuing efficiency improvements. Coordinate Public Benefits program enhancements with efficiency portfolio plan development (Task #3) 3. Efficiency Portfolio: Enhance the existing efficiency programs by developing a long-term integrated resource efficiency portfolio plan that recognizes cost-effective energy efficiency and load management as priority resources in the “loading order” for energy resources. Design efficiency programs to account for the combined benefits of electric, gas, and water efficiency savings (e.g. a horizontal clothes washer saves electricity, water and gas). Leverage joint efforts with other public power providers via NCPA’s efficiency initiatives and Public Benefits Committee. Enhance system efficiency through generation efficiency improvements and electric distribution system enhancements to lower system losses. As appropriate, additional funding for cost-effective efficiency programs will be recommended to complement and enhance the existing Public Benefits programs. Develop retail rate options that provide price signals to customers that encourage efficiency. 4. Renewable Portfolio: Acquire renewable energy resources to meet LEAP Guideline 6. Strive to meet 2015 goals by 2010. Work closely with suppliers to meet their contract obligations and to ensure that projects under construction are completed in a timely manner. Participate in NCPA “Green Pool” joint procurement initiative to meet remaining needs. 5. PaloAltoGreen: Continue implementation of the Palo Alto Green program, a green pricing product available on a volunteer basis to customers who wish to purchase a greater fraction of green resources. Where feasible, secure eligible renewable energy supplies to meet both the renewable portfolio investments and the needs of the Palo Alto Green program. Evaluate potential strategies to meet the solar portion of PaloAltoGreen with local solar resources. Page 3 of 4 ATTACHMENT B Page 4 of 4 6. Clean Distributed Generation: Develop a long-term cogeneration implementation plan to capitalize on environmentally friendly and cost-effective high-efficiency combined heat, power and cooling (CHPC) opportunities at large customer sites that are compatible with the Comprehensive Plan. Assist motivated large customers in evaluating technical and economic feasibility of CHPC combined with energy efficiency, and in implementing cost- effective and environmentally sound prospects. Establish standardized distributed generation interconnection standards and procedures that leverage the groundwork of California Public Utilities Commission Rule 21, and update retail and wholesale electric and gas rates for small-scale clean distributed generation. Continue to monitor technology costs and opportunities for smaller renewable technologies, cogeneration and other low-impact generation that can be located within Palo Alto. 7. Natural Gas-Fired Generation: Redirect the local generation feasibility study CIP to focus on clean small-scale distributed generation (Task #6) and power plant opportunities outside of Palo Alto. Given regulatory uncertainty related to local capacity rules and uncertainty of control area constraints, evaluate joint efforts toward power plant ownership opportunities within and near the Greater Bay Area (consistent with levels listed in LEAP Guideline #3B (25-50 MW). 8. Greater Bay Area Contracts: In parallel with Task #7, pursue firm energy and capacity supply contracts within the Greater Bay Area on either medium or long-term basis. Conduct a Request for Proposals to solicit firm energy and capacity offers from all sources within the Greater Bay Area, including renewables, cogeneration and conventional generation. 9. Portfolio Management: Continue to diversify energy purchases to meet load. Continue to develop and maintain expertise and analytic tools, models and other efforts to evaluate scenarios, new resource opportunities, and impact of uncertainties on portfolio position and performance. 10. Risk Management: Develop improved transparent and streamlined Back Office process (contract administration and settlements). Clarify surplus power wholesale sales procedures to ensure transparency and the appropriateness of surplus energy commodity sales transactions that are necessary to meet varying loads with varying and dispatchable electric supplies. Maintain adequate reserves by recognizing the degree of uncertainty the City faces in the future and periodically review and recommend appropriate level of financial reserves. 11. Local Interconnection: Evaluate transmission system upgrades to reduce cost and enhance reliability. Investigate transmission connection voltage increase from 115 to 230 kV, and the potential for a redundant transmission connection to west side. 12. Legislation and Regulation: Monitor and participate in regulatory and legislative initiatives related to transmission market design and pursue alternatives to increase reliability at a reasonable cost. Continue to advocate transmission upgrades in to the Bay Area to increase reliability. Establish a policy to address mandatory resource adequacy requirements. ATTACHMENT C UTILITIES ADVISORY COMMISSION - SPECIAL MEETING MINUTES OF JULY 20, 2010 ITEM 5: DISCUSSION: Long-Term Electric Acquisition Plan (LEAP) Draft Objectives and Strategies Senior Resource Planner Monica Padilla presented draft LEAP Objectives and Strategies as a “strawman” proposal in an effort to get feedback from the UAC. The draft proposed LEAP strategies included: 1. Resource Acquisition – Pursue the least total cost resources to meet the City’s needs in the long-term. 2. Energy Efficiency and Demand Reduction – Fund programs that maximize the deployment of cost-effective, reliable and feasible energy efficiency and demand reduction opportunities as the highest priority resources. 3. Renewable Supplies – Acquire renewable energy supplies to meet the state RPS standard. 4. Climate Protection – Support the City’s climate protection goals 5. Distributed Local Resources – Promote and facilitate the deployment of cost-effective local distributed resources. 6. Transmission and Reliability – Pursue the reliability of supply at fair and reasonable transmission and delivery costs 7. Hydro Resource Management – Actively monitor and manage cost uncertainty related to variations in hydroelectric supply and maximize value of hydro resources. 8. Energy Risk Management – Actively monitor and manage operational, counterparty and wholesale energy price risk. Regarding the proposed Strategy #3 (Renewable Supplies), the proposal is to meet the expected state Renewable Portfolio Standard (RPS) that is under consideration by the legislature today (33% RPS by 2020) and to pursue all projects that are deemed eligible by the California Energy Commission. The new law (SB 722) is also expected to allow Renewable Energy Certificates (RECs) to count towards the RPS. The proposed Strategy #3 also includes the development of a Feed-in Tariff (FiT) to encourage locally sited renewable resources. Padilla explained that alternatives to this proposed strategy include exceeding the expected state standard (33% RPS by 2015, no use of RECs, acquire only new renewables), which would have a rate impact, or including carve-outs for technologies, locally sited PV resources, contracting mechanisms, such as FiTs and owned resources. Padilla added that the proposed strategy is a step back from the existing LEAP guideline for renewable resources, which exceeds the expected state standards. Chair Waldfogel indicated that he liked the direction staff is proposing with the least total cost resource (Strategy #1), but that some of the later strategies may undermine that one. He also asked if the RPS goal should be what the law currently requires (20% by 2010), rather than what we think the law will become based on what’s under consideration at the state legislature today. Commissioner Eglash said that using least total cost sounds fine, but it doesn’t show the impact on rates. If this methodology results in little or no rate impact, then it will have support, but if it would result in a 30% upward rate impact, it would not be supported. Eglash asked if the City was exposed to peak prices and what the impact of time-differentiation of cost means for Palo Alto. Padilla indicated that the City is indeed exposed to hourly prices and when those prices spike in certain hours of hot days, the City must pay those prices for its entire load. At the same time, the City has supplies that receive those high prices for the energy generated during those hours so that the overall effect is mitigated. Utilities Advisory Commission Minutes Approved on: September 1, 2010 Page 1 of 2 ATTACHMENT C Utilities Advisory Commission Minutes Approved on: September 1, 2010 Page 2 of 2 Commissioner Melton suggested raising the strategy of local distributed resource to a LEAP objective. He indicated that local generation offers local capacity value, avoided transmission costs, possibly a renewable attribute and other intangibles that are difficult to assign a value to. Commissioner Eglash indicated that there are a wide range of technologies for local generation. Commissioner Foster asked if local generation would add much to the City’s distribution system reliability. Commissioner Foster indicated his strong opposition to reducing the current RPS goals. He stated that Palo Alto should not just barely meet the goal, but continue to be a leader in this area. He also indicated that he does not support technology carve-outs in the RPS, but said that we should look at a FiT, but wouldn’t want to mandate a certain percentage of the RPS to be met with FiTs. Council Member Yeh agreed that he was in favor of a 33% by 2015 standard. He said he liked the idea of using FiTs saying they provided predictability and a declining price structure. He contrasted these with the escalating price structure in the renewable Power Purchase Agreements that the City has recently committed to. Due to time limitations, further discussion on LEAP was postponed to the July 28, 2010 UAC meeting. ATTACHMENT D UTILITIES ADVISORY COMMISSION - SPECIAL MEETING MINUTES OF JULY 28, 2010 ITEM 3: DISCUSSION: Long-Term Electric Acquisition Plan (LEAP) Draft Objectives and Strategies As a follow-up to the UAC meeting on July 20, 2010, Senior Resource Planner Monica Padilla provided a brief presentation of the impacts on supply cost over ten years associated with alternative CPAU profiles. The alternatives presented included: Profile #1: Status quo (energy efficiency = 7.2% by 2020; RPS = 33% by 2015; no local generation) Profile #2: Cost minimization – delay implementation of a 33% RPS to 2020 (energy efficiency = 7.2% by 2020; RPS = 33% by 2020; no local generation); and Profile #3: Green maximization – aggressive energy efficiency plan and procurement of 100% carbon free resources (energy efficiency = 18% by 2020; RPS = 33% by 2015; local renewable generation, carbon-free market resources). Padilla presented the results of the high level analysis, noting that the analysis did not take into account uncertainties. Profile #3 was the most expensive alternative, but was 100% carbon-neutral. Profile #2 was the lowest cost with Profile #1 in between. Padilla stressed that the analysis was for illustrative purposes only and that it should not be used to make hard conclusions. More time and a thorough review of sensitivity to various variables and scenarios would improve the analysis. Commissioner Eglash commended staff’s effort in providing analysis to aid in making policy level decisions and recognized that delaying RPS goals to 2020 did not have a significant cost savings over the current RPS goal of 33% by 2015. Eglash said he would like to see more of this type of analysis and offered to meet with staff to help frame the policy decisions. Commissioner Melton noted that Profile #3, green maximizer, significantly increased costs and rates; however, he would like to see impacts on rates and customer bills from various strategies. Chair Waldfogel noted that in comparing the status quo to the cost minimization alternatives the impacts on carbon reductions compared to the cost of achieving the reduction in dollars per ton would be an interesting metric. Commissioner Keller expressed her support for additional analysis and recommended this level of analysis be presented to the City Council to provide context in making policy decisions. Council Member Yeh observed that some Council Members do like data, but qualitative conclusions are also beneficial. Assistant Director Ratchye requested feedback from the UAC as to whether or not staff should recommend delaying the RPS to 33% by 2020 in an effort to line up with the anticipated state mandate. Commissioner Eglash opined that he is not supportive of going back on our RPS goals and supports retaining the goal to achieve 33% renewable supplies by 2015. He noted that a quick scan of the graph comparing the different profiles indicates that the current course is a good compromise between the extremes of the profiles. Commissioner Berry would like to see a projection of CPAU’s electric rates compared to PG&E, Silicon Valley Power and other competitors to see whether or not an aggressive RPS erodes the City’s competitive price advantage. Utilities Advisory Commission Minutes Approved on: September 1, 2010 Page 1 of 1 ATTACHMENT E UTILITIES ADVISORY COMMISSION - MEETING MINUTES OF SEPTEMBER 1, 2010 ITEM 2: ACTION: Proposed Long-Term Electric Acquisition Plan (LEAP) Objectives and Strategies Senior Resource Planner Monica Padilla provided a presentation to the UAC on the proposed Strategies to meet the three proposed LEAP Objectives: 1. Meet customer electricity needs through the acquisition of least total cost energy and demand resources. 2. Manage supply portfolio cost uncertainty to meet rate and reserve objectives. 3. Enhance supply reliability to meet City and customer needs by pursuing opportunities including transmission system upgrades and local generation. The eight proposed Strategies related to electric resource management presented include: 1. Resource Acquisition 2. Energy Efficiency and Demand Reduction 3. Renewable Portfolio Standard (RPS) 4. Local Generation 5. Climate Protection 6. Market Price Exposure Management 7. Hydro Resource Management 8. Transmission and Reliability Padilla focused the presentation on several issues raised by UAC members and the City Council with regard to:  Amount of energy efficiency to pursue;  Costs and benefits of advancing the RPS goal of 33% by 2020 (expected state mandate) to 33% by 2015 (City’s current RPS);  Benefits and value of local distributed generation; and  Setting of Climate Protection goals and policies. Energy Efficiency Padilla described the process used to develop the recently approved Ten-Year Energy Efficiency Plan and how cost effectiveness was determined by using the long-term cost of renewable energy, adjusted for time of delivery and location, as the avoided cost. Padilla also explained that while a potential 18% load reduction by 2020 due to energy efficiency was identified, the amount staff believes it could actually achieve given existing resources is closer to 7.2% as currently approved in the Ten-Year Energy Efficiency Plan. Padilla also noted that the cost of pursuing a higher energy efficiency target would be much higher than in the current plan and highly uncertain. Renewable Portfolio Standard Padilla summarized analysis performed on the advantages and disadvantages as a result of delaying achieving a 33% RPS by five years (from 2015 to 2020). The City could save approximately $11 million over five years by avoiding purchases of renewable energy supplies, however would face a potential exposure to green house gas emission taxes of approximately $3 million under a cap and trade regime. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 1 of 7 ATTACHMENT E The net savings of $8 million over five years, which equates to about ¼ cent per kWh, could be used to fund other measures to reduce greenhouse gas emissions. Padilla noted that by delaying the 33% RPS goal, the City may lose its “cushion” for meeting the expected state standard and may not be in line with the community’s values related to sustainability. Local Generation An overview of the both tangible and intangible benefits of local distributed generation was presented by Padilla along with analysis of the value of local generation to meet the City’s RPS. Padilla noted that under an expected case scenario, local distributed generation is valued at 14.7 cents per kWh, however is highly dependent on several market conditions and that the actual value may range from 9.7 to 24.6 cents per kWh. Commissioner Melton noted that staff has chosen not to examine local generation of sufficient capacity to support local demands. He stated that it’s time to look at that option again even though the idea was not pursued when studied in the past. Padilla acknowledged that this was indeed the case and that staff did not intent to pursue large scale generation. Commissioner Melton stated that he disagreed with this stance. Climate Protection Padilla proceeded to address several issues related to Climate Protection including:  Whether to use a greenhouse gas adder in making short-term resource acquisition decisions;  Whether to minimize purchases of greenhouse gas emitting resources;  Whether to adopt a carbon intensity goal; and  Whether to pursue carbon neutrality for the electric supply portfolio. Padilla explained that assuming an RPS of 33% is achieved by 2015 the City’s electric portfolio will be 85% carbon neutral assuming average hydroelectric supplies and that 15% of the portfolio would consist of unspecified market purchases which are assumed to have a carbon intensity of 879 pounds per MWh. Padilla also noted that the cost of “greening-up” the carbon intense portion of the portfolio is highly dependent on the cost of renewable energy credits and hydroelectric supply conditions and can range from $5 to $11 million per year. Padilla concluded that given the cost and complexity of “greening-up” the electric portfolio and the uncertainty regarding cap and trade allowances, a strategy to pursue a carbon neutral portfolio at this time would not be prudent. PUBLIC COMMENT Craig Lewis, Executive Director of the FIT Coalition gave a presentation. He stated that the Fit Coalition is assisting other municipal utilities to implement Feed-in-Tariffs and would like to do the same with Palo Alto. They have done some research to look at requirements for a feed-in-tariff for Palo Alto to achieve and maintain its 33% RPS. They have come up with an estimate of avoided costs in Palo Alto of 14c/kWh. Lewis also showed an example of how much roof top space opportunity is in Los Angeles, which he believes is an indication of the opportunity in Palo Alto. Sahm White, also of the FIT Coalition, gave a presentation. FIT modeled roof-stop solar in Palo Alto and looked at different sizes and rates that would be required. White claimed that the best of the options at 14.85 cents in current dollars over the life of the contract is close to the current avoided cost for power produced locally. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 2 of 7 ATTACHMENT E Council Member Scharff stated that the idea of a Feed-in-Tariff (FIT) needs more work and that it can’t be accepted without further analysis. Director Fong indicated that staff fully intends to study this and come back to the UAC prior to implementing such a rate. Commissioner Eglash noted that progress had been made in the LEAP, but that he has serious concerns. He noted that the objectives and strategies are inconsistent across sections and that it doesn’t go far enough to achieve green goals. Commissioner Eglash stated that he likes the proposed RPS goal, it is consistent with community values, and he is pleased that the economic impact is small. However, it seems inconsistent with proposed Strategy #1 (pursue the least total cost resources to meet the City’s needs in the long term) since that appears to not allow for more renewable resources. In addition, Commissioner Eglash stated that carbon strategy is not reflective of community values and appears weak and watered down. He acknowledged that a strong RPS does impact carbon footprint, but the strategy seems to send the wrong message and misses an opportunity to do the right thing. Regarding local generation, implementing FITs, and cost-effective storage resources, he would be more comfortable if we investigated them, rather than implemented them as proposed in the strategies. Commissioner Foster said that he agreed with Commissioner Eglash’s comments and that regarding FITs, we could change the language in the proposed strategy. He added that he is generally supportive of the plan and is 100% in favor of the RPS goal of 33% by 2015 with a cost limitation. Commissioner Cook said he feels similarly to Commissioner Eglash as well. Commissioner Cook asked why proposed LEAP Objective #1 was changed from the prior Objective #1. Padilla responded that when evaluating resources, all costs and benefits including environmental, would be monetized and that those with the least total cost would be pursued. Regarding proposed Strategy #2 (Electric Energy Efficiency and Demand Response), Commissioner Cook asked why staff would want to identify all the cost-effective energy efficiency opportunities, instead of just the measures with the highest value. Padilla responded that all need to be identified, but that not all may make sense to pursue. Commissioner Cook noted that the proposed Strategy #5 (Climate Protection) as written in the report was redundant. Padilla replied that proposed Strategy #5 was rewritten as provided in the presentation. Commissioner Keller agreed that the RPS goal should be aggressive as proposed. She asked if the rate impact measure should be changed to a percentage of the rate rather than a set amount of 0.5 cents per kWh. Ratchye replied that having the measure be a percentage of the rate is more difficult for staff to calculate the green premium since that would require long-term rate projections to be done, which is problematic. Commissioner Melton stated his support for all elements of the plan except for the absence of a strategy to re-evaluate large local generation. He said that it’s been a number of years since this was last examined and that Santa Clara has such a facility and that it’s important for emergency preparedness. He would like to add to Strategy #4 (Local Generation) to ensure that this is evaluated. Senior Resource Planner Shiva Swaminathan provided the reasons staff did not include this in the proposed Strategy. First, the size of a plant that could add local reliability would have to be at least 25 MW to 50 MW in size and even at that size, the City would have to institute rolling blackouts to have parts of the City served at any one time since the City’s peak load is nearly 200 MW. The last time this was evaluated, no acceptable site was found. Second, the siting of a gas-fired power plant is not aligned with the City’s GHG emissions reduction goals. Third, cogeneration would be considered and the City already has the PLUG-In program that encourages cogeneration, but has been unsuccessful in finding customer sites where cogeneration is feasible. Fong Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 3 of 7 ATTACHMENT E added that investigating this again takes time, money and staff resources and may require the hiring of a consultant. Council Member Yeh suggested that staff could distribute the studies that were done previously to the UAC. He stated that emergency preparedness is a Council priority and asked what elements of a study with emergency preparedness alternatives can be done. Commissioner Melton indicated that he wanted to know what the costs would be if we can find a site. Council Member Scharff stated that he was generally supportive of the RPS strategy, but stated that he wondered what the best way to reduce carbon footprint was if the additional cost is $11 million. There could be other approaches, such as energy efficiency. Staff should look at the best possible way to achieve environmental goals and encouraged the UAC to not rigidly consider only RPS. The discussion should be framed as the best way to move toward carbon neutrality. Council Member Scharff added that CPAU should tout the City’s current low carbon footprint as PG&E does. Commissioner Foster agreed that we should look more at efficiency, but should also have more renewable resources – we should do both. Chair Waldfogel stated that the proposed LEAP Objectives and Strategies was a great staff work and that he was very supportive of proposed Strategy #1 (Pursue the least total cost resources to meet the City’s needs in the long-term), which is a good operating principle. Regarding the RPS, he is not comfortable with 30-year terms and asked if that could be reduced. Chair Waldfogel also expressed concern about the lack of diversity in the renewable portfolio and said that we are at risk with so much in landfill-gas-to-energy projects. He suggested that a limit to a particular technology could be included in the RPS strategy. Commissioner Keller disagreed and stated that it would be best to keep options open and not be too restrictive. She added that the climate protection strategy could include other options such as planting trees. Commissioner Eglash agreed with Commissioner Keller that it is best not to restrict the staff’s ability to comply with the RPS goal by adding requirements by technology. Chair Waldfogel indicated that the Commission would consider the LEAP Objectives and Strategies individually, as needed, to take action rather than taking action as a whole. LEAP Objectives ACTION: Commissioner Eglash made a motion that the UAC recommend that the Council approve LEAP Objectives #2 and #3 as proposed and LEAP Objective #1 with the addition of the phrase “including an assessment of environmental costs and benefits” so that LEAP Objective #1 reads: “1. Meet customer electricity needs through the acquisition of least total cost energy and demand resources including an assessment of the environmental costs and benefits.” Commissioner Foster seconded the motion. The motion passed unanimously (7-0). LEAP Strategy #1 (Resource Acquisition) Regarding proposed Strategy #1, Commissioner Eglash proposed a change so the first clause in the strategy would read: “Pursue the least total cost resources including an assessment of environmental costs and benefits to meet the City’s needs in the long term by:”. Chair Waldfogel asked why environmental cost should be privileged as opposed to any other part of the total cost. Commissioner Eglash responded that the addition was not intended to privilege them, but to Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 4 of 7 ATTACHMENT E ensure that not only tangible costs are included in the analysis. Council Member Scharff asked how this was to be done. Commissioner Eglash responded that the point is to make sure that environmental impacts are included as they could easily be ignored since they are not always easy to quantify. Council Member Scharff asked what staff will do when power is purchased according to this strategy. Commissioner Eglash replied that he wouldn’t want staff to value GHG emissions at a very high level or at zero. He is trying to give some flexibility to incorporate intangibles into the analysis. Commissioner Keller stated that she agreed with this sentiment. ACTION: Commissioner Foster made a motion that the UAC recommend that the Council approve the change proposed by Commissioner Eglash to LEAP Strategy #1 so that the first phrase reads: “Pursue the least total cost resources including an assessment of environmental costs and benefits to meet the City’s needs in the long term by:”. Commissioner Keller seconded the motion. The motion passed unanimously (7-0). LEAP Strategy #3 (Renewable Portfolio Standard) Commissioner Eglash indicated that he would like to change the subsection c. “evaluating” instead of “developing” a Feed-in-Tariff. Chair Waldfogel asked if a new section under subsection a.i. (regarding contracts not exceeding 30-year terms) be added to read: “with reasonable cancellation terms”. He wanted to protect the City in case regulations or legislation was changed in the future that changed what is considered an eligible renewable resource. Director Fong stated that this insurance would likely be very expensive and that historically, existing long-term contracts are grandfathered in if regulations change. Regarding the 30-year term limitation and whether it should be reduced, Commissioner Eglash opined that the maximum term proposed should stay so that staff was not boxed in too tightly. Commissioner Foster agreed that the proposed maximum term should stay as proposed. He also suggested that these long-term contracts should be brought to the UAC for review and recommendation. Council Member Yeh asked whether proposed contracts have to have the 1.5% per year price escalators that the last several renewable contracts contained and whether there was a way to get flat pricing from project proposers. Ratchye indicated that generally proposers can price a project many different ways and usually can provide a flat price, but in the last couple of renewable resource Requests for Proposals (RFPs), staff had required proposers to provide at least one pricing option that included a start price and a 1.5% per year escalation since staff believes that this is a good pricing structure for the City for long-term contracts. ACTION: Commissioner Eglash moved to recommend that the Council approved the proposed LEAP Strategy #3 with a change to subsection c. so that it reads: “evaluating” instead of “developing” a Feed-in-Tariff. Commissioner Foster seconded the motion. The motion passed unanimously (7-0). LEAP Strategy #4 (Local Generation) Commissioner Melton said that he would like to change subsection c. from “implementing” to “evaluating” a Feed-in-Tariff. Commissioner Foster suggested changing subsection c. from “local solar photovoltaic (PV) systems” to “locally sited renewable resources” to be more generic. Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 5 of 7 ATTACHMENT E Commissioner Melton suggested adding a new subsection e. to read: “evaluating the feasibility of developing a 25 to 50 MW generating facility connect to the City’s distribution system.” Commissioner Eglash indicated that he would support Melton’s proposal and would also support removing the word “distributed” in the first phrase of proposed Strategy #4. Commissioner Eglash also proposed changing subsection d. from “promoting” to “evaluating” cost-effective energy storage resources. Commissioner Keller asked how much capacity from cogeneration systems in the City is possible. Swaminathan replied that the City would get from 20 to 40 MW of cogeneration and mentioned that the PLUG-In program exists to encourage the installation of these systems at customer sites. Commissioner Berry asked if the reliability of the City’s system would improve with resources outside of Palo Alto. Director Fong said that they could improve reliability if they were outside of the City, but in close proximity, and, especially, if there were a transmission line directly to the resource outside the City. ACTION: Commissioner Eglash moved, seconded by Commissioner Foster, to recommend that the Council approved the proposed LEAP Strategy #4 with the recommended changes so that it reads as follows: Local Generation – Promote and facilitate the deployment of cost-effective local resources by: a. Using the renewable market price referent (MPR) adjusted for time of day factors and location as the avoided cost when evaluating cost effectiveness of local resources; b. Considering energy delivery cost uncertainty and strategic value options when evaluating opportunities; c. Evaluating a Feed-in-Tariff to promote locally sited renewable resources; and d. Evaluating cost-effective energy storage resources. The motion passed unanimously (7-0). Commissioner Eglash moved to recommend that the Council approve adding subsection e. to LEAP Strategy #4 to read: “Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to the City’s distribution system.” Commissioner Melton seconded the motion. The motion passed (4-3) with Commissioners Cook, Foster, and Keller opposed. LEAP Strategy #5 (Climate Protection) Commissioner Eglash stated that this strategy was weak, especially in comparison to the aggressive environmental goal in the RPS strategy. Council Member Scharff suggested that a target could be added for a carbon neutral content of the electric portfolio. Director Fong cautioned that, since the hydroelectric generation content of the electric portfolio changes with hydrologic year type, this could be a tricky goal to keep track of, or may need to be averaged over several years. Commissioner Eglash suggested adding a new subsection that would read: “Evaluating quantitative goals for possible future implementation.” Chair Waldfogel asked if the UAC has jurisdiction under the item in subsection a. – support the City municipal government’s climate protection goals. Ratchye advised that the City’s 2007 Climate Protection Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 6 of 7 ATTACHMENT E Utilities Advisory Commission Minutes Approved on: October 6, 2010 Page 7 of 7 Plan contains GHG emissions reduction goals that rely on increased renewable resources in the electric portfolio as well as efficiency savings in the gas and electric portfolio so that Utilities is a major part of the plan to meet the City’s climate goals. ACTION: Commissioner Cook moved to recommend that the Council approved the proposed LEAP Strategy #5 with the addition of subsection d. to read “Evaluating quantitative goals for possible future implementation.” and with a correction to the first phrase to read: “Reduce the electric portfolio’s carbon intensity by:”. Commissioner Eglash seconded the motion. The motion passed unanimously (7-0). LEAP Strategies #2, 6, 7, 8 Commissioners indicated that they were comfortable with LEAP Strategy #2 (Electric Energy Efficiency and Demand Reduction), Strategy #6 (Hydro Resource Management), Strategy #7 (Market Price Exposure Management), and Strategy #8 (Transmission and Reliability) as proposed. ACTION: Commissioner Foster made a motion that the UAC recommend that the Council approve LEAP Strategies #2, #6, #7, and #8 as proposed. Commissioner Eglash seconded the motion. The motion passed unanimously (6-0) with Commissioner Berry absent. ATTACHMENT F UTILITIES ADVISORY COMMISSION - MEETING EXCERPTED DRAFT MINUTES OF NOVEMBER 3, 2010 ITEM 4: ACTION: Proposed Long-term Electric Acquisition Plan (LEAP) Implementation Plan Senior Resource Planner Monica Padilla provided a brief presentation on the LEAP, noting that the UAC recommended approval of the LEAP Objectives and Strategies at its September 2010 meeting. She noted that the proposed Implementation Plan consists of 38 steps that were identified to implement the policy objectives in the LEAP Objectives and Strategies. Chair Waldfogel agreed that the UAC’s consideration of the LEAP Implementation Plan was perfunctory as they had already provided the policy direction in the development of the Objectives and Strategies. Commissioner Eglash indicated that he supported the plan, but expressed concern about the workload that the 38 implementation items represented. He added that he hoped that the resource requirements to complete the tasks in the plan would not increase costs or the need for additional personnel. Ratchye explained that the tasks differ in level of effort and that some required much less work than others. ACTION: Commissioner Cook made a motion to recommend Council approval of the LEAP Implementation Plan. Commissioner Eglash seconded the motion. The motion carried unanimously (7-0). 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