HomeMy WebLinkAbout2004-05-10 City Council (7)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL 7
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:MAY 10, 2004 CMR:247:04
SUBJECT:POLICY AND SERVICES COMMITTEE RECOMMENDATION
COMPREHENSIVE FEASIBILITY STUDY ON LOCAL ELECTRIC
POWER GENERATION ALTERNATIVES
COMMITTEE REVIEW AND RECOMMENDATIONS
The Policy and Services (P&S) Committee voted on April 13, 2004 to support the staff
request to undertake a comprehensive study, as part of the Long-Term Electric
Acquisition Plan (LEAP), to explore the feasibility of constructing electric generation
facilities capable of serving a portion of Palo Alto’s total electric load. The Committee
voted unanimously to support the staff request with the amendment that dedicated
parkland was not to be used for electric power generation facilities.
ATTACHMENTS
A: CMR:206:04
B: April 13, 2004 Policy and Services Committee minutes
PREPARED B’~,~ ,-’~-~ /~
~>4 !~KARL E. ~APP
Planner -
DEPARTMENT APPROVAL: ~
D~or of Utilities ~
CITY MANAGER APPROVAL: ~~’~ ~/~
EM~Y H~SON
Assistant City Manager
CMR:247:04 Page 1 of 1
TO:CITY COUNCIL __
ATTENTION: POLICY AND SERVICES COMMITTEE
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:
SUBJECT:
APRIL 13, 2004 CMR:206:04
COMPREHENSIVE FEASIBILITY STUDY ON LOCAL ELECTRIC
POWER GENERATION ALTERNATIVES
REQUEST
Staff and the Utilities Advisory Commission (UAC) recommend that the City Council
direct the Utilities Department recomlnendation to undertake a comprehensive study, as
part of the Long-Term Electric Acquisition Plan, to explore the feasibility of constructing
electric generation facilities capable of serving a portion of Palo Alto’s total electric load.
The proposed study includes (1) developing the parameters that would be required for
feasible sites, (2) evaluating the technical, economic, and environmental feasibility of and
community support for such facilities, (3) identifying and contrasting potential Palo Alto
power generation sites with other alternatives and outside of Palo Alto, and (4) reporting
findings and recommendations to UAC and Council.
BACKGROUND
In order to develop a diversified electric supply portfolio that addresses the shortfall and
increased variability of electric energy supplies faced by the City starting in 2005, staff
has evaluated and Council has approved specific objectives, guidelines and
implementation plans (see "Policy Implications"). One portfolio strategy includes
evaluating development of new natural gas-fired electric generating facilities, which are
the cleanest, cost-effective dispatchable electric generation technology available today.
This effort is a key element of a multi-faceted portfolio approach to meet the City’s long-
term electricity needs, and complements increasing renewable energy resources to 20%
by 2015, diversified generic market resources, and energy efficiency investments.
CMR:206:04 Page 1 of 8
The configuration of the state’s electric transmission and generation network renders the
San Francisco Peninsula particularly susceptible to electric service interruptions and
significant increases in transmission costs. Also, electricity resources that can increase or
decrease output to follow the changing electric load are required to maintain a real-time
energy balance, or else face financial penalties from the California Independent System
Operator (CAISO). Locally-sited power generation would enable the City to address
these issues, enhance reliability, reduce transmission and CAISO charges, decrease
dependence on distant supply resources, and limit the export of environmental impacts to
another, area.
Available Bay Area generation alternatives were explored through CPAU participation in
a Request For Proposal (RFP) jointly with Northern California Power Agency (NCPA)
for thermal generation resources. Representatives from NCPA presented a summary of
the responses to the RFP to the UAC at the January 14, 2004 meeting. The presentation is
included in the attached February 11, 2004 UAC Report. The results indicate that there
are significant potential reliability and economic advantages of a modern gas-fired power
plant located within an NCPA member’s territory. NCPA staff recommended initiating an
internal Palo Alto decision process to evaluate such alternatives.
In order to make an inforrned recommendation with respect to the City’s best strategy
regarding power generation alternatives, staff proposes to conduct comprehensive
economic and environmental studies of power generation alternatives capable of serving
a portion of Palo Alto’s total electric load. The study will consider advanced state-of-the-
art technologies. It will contrast generation facilities located inside Palo Alto with those
outside of Palo Alto. The study will engage Council and the public early and throughout
the process. Staff will provide the results of these studies to Council for discussion and
possible action, depending on recommendations and alternatives resulting from the
analysis. The study will be conducted in two phases, with Council approval to progress to
Phase 2 depending on findings from Phase 1. This recommendation does not authorize
the utility to initiate or undertake generation facilities project development at any specific
site either inside or outside of Palo Alto.
Numerous evaluation criteria are already clearly defined in environmental review process
regulations such as CEQA and California Energy Commission generator certification, in
codes and regulations ranging from building code to zoning, and in City policies and
long-term plans for the City and for specific parcels within the City. This feasibility study
aims to educate the public on the reasons to consider local generation alternatives, to
thoroughly evaluate the advantages and issues of different approaches, and in turn to
educate staff and Council on additional community concerns about and comfort with
CMR:206:04 Page 2 of 8
possible solutions that open discourse with the community would provide. The results of
the feasibility study will be evaluated in light of the findings from these parallel efforts in
developing a recommendation for Council.
BOARD/COMMISSION REVIEW AND RECOMMENDATIONS
The comprehensive feasibility study recommendation was presented and discussed at the
February 11, 2004 UAC meeting. The presentation consisted of two parts. Part 1
described the need for and intent of the proposed feasibility study, presented by Utilities
staff. Part 2, presented by Paul Richins, Energy Facility Licensing Manager for the
California Energy Commission (CEC), described the process the CEC employs in
scrutinizing license applications for thermal generation facilities 50MW or greater in size,
for which the CEC acts as lead agency.
Key UAC questions and comments are summarized below, with responses from the
presenters.
1.What is the relationship between this effort and the NCPA thermal generation
RFP effort? Are they coordinated so that we can compare the results?
The Purpose of the NCPA RFP was to determine whether electric generation was
available in the greater Bay Area that could be utilized to meet a portion of Palo
Alto and othe NCPA member load requirements. The NCPA tLFP was open to all
possible theranal generation offers, leaving it open to respondents to propose
thermal generation, or its contractual equivalent, without limiting the location. The
RFP results indicate that local generation in any NCPA member’s service territory
appears significantly financially attractive to that member relative to the RFP
responses and relative to generic long-term market resources. The efforts are
intertwined, as the NCPA effort provides a calibrated benchmark against which
local generation alternatives may be compared. The information from the RFP will
serve as key information to contrast with local generation alternatives.
2. How much has been spent on the NCPA RFP?
Mostly staff time to develop and issue the RFP, review and analyze responses,
visit potential sites, and summarize the results. Staff costs, mostly NCPA staff
time, are estimated to be approximately $40,000.
CMR:206:04 Page 3 of 8
3. Do the market energy purchases currently being employed go away?
To the extent that power is available from thermal generation to serve Palo Alto
load, market transactions would get smaller, but would still be an active
component of the overall portfolio approach to secure supplies in time periods
where there are deficits, diversify resources, and manage risks.
4. Does CEC evaluate the business case?
(CEC REPSONSE): The CEC no longer has responsibility to determine need.
Financial evaluation is left to the entity proposing the project. The fundamental
CEC role is to ensure that thermal generation plants that are 50 MW or larger
comply with all applicable laws, ordinances, and regulations, and to act as lead
agency for CEQA for such projects.
5.What percent of applications result in success?
(CEC Response): The CEC representative provided an estimate in the meeting, but
offered to follow-up after the meeting. In thee follow-up response, CEC staff
explained that this question does not have a simple answer. Since 1998 (beginning
of deregulation), the CEC has approved 46 projects. Seven projects are currently
being reviewed by the CEC and four others have been suspended for several
months to a year at the request of the developer. An additional 23 projects have
been withdrawn by the developer for various reasons. Since 1998, no projects that
successfully completed the licensing process were denied or rejected by the CEC.
6.What are the issues arising from being located in the Bay Area relating to air
quality? How do emissions offsets work and how do they reduce air pollution?
As part of the CEC licensing process, a project proposer would also submit an
application to the Bay Area Air Quality Management District (BAAQMD) for a
license and it would begin processing that concurrently with the CEC’s process.
The two agencies coordinate very closely. The BAAQMD, in its process, ensures
that its regulations are followed and there are certain requirements such as the best
available control technology to control emissions to the lowest level possible; for
those emissions that remain, there is a requirement to purchase air quality offsets
so that there is no net increase in air pollution from the facility. The CEC and
BAAQMD staff employ sophisticated models to determine what control
CMR:206:04 Page 4 of 8
technologies are required and the quantity of offsets needed to mitigate ~he
project’s air emissions so that there are not significant impacts.
The BAAQMD maintains what it calls a bank of offsets that it has reviewed
having certified that are tradable or purchasable. Someone needing to secure
offsets would go to that bank and identify holders of those offset certificates and
enter into a negotiation process to purchase the adequate number of offsets for the
nitrogen oxides (NOx), sulfur oxides (SOx), particulate matter (PM-10) and other
emissions requiring offsets.
Each air district is required to develop and implement an improvement plan. These
are called a Federal Improvement Plan (FIP) and a State Improvement Plan (SIP).
Part of an Improvement Plan is to encourage the shutting down of dirty, inefficient
sources of emissions. The air districts have developed the protocol and process for
closing these emission sources and then ’"banking" those emissions. The idea is
that on an air district wide basis the air quality improves, due to slowly closing
down inefficient higher polluting processes and encourages the development of
new more efficient less polluting processes.
7. A recent Wall Street Journal article on power plants hints at cheap power plants.
Any whispering or discussions with investment bankers?
The article is entitled "Electrical-Plant Watchdogs Open Door to Private-Equity
Players (February 9, 2004). The article highlights the interest being exhibited by
large financial investors, "taking advantage of the industry’s capacity glut to buy
power plants and utilities across the U.S." The article suggests that "dozens of
power plants are expected to be up for grabs next year," and hints that the U.S.
may be reaching the bottom of a cycle on power plants and that attractively-priced
assets may be available at this time. However, at this time, most of the "bargain"
power plants are not on the west coast, and were not evident in the NCPA RFP
responses, which went to virtually every supplier in California.
8.What is the approach to conducting the feasibility plan? Will the work be
conducted by staff or by consultants, and how much in each phase?
The work will be conducted utilizing a combination of staff and industry expert
professionals. The proposed high-level plan is indicated in the chart below.
Estimated cost for Phase 1 is $100,000-$150,000, and for Phase 2 $200,000-
CMR:206:04 Page 5 of 8
$350,000.
The original estimated time schedule allowed approximately 6 months to complete
each phase, or 12 months overall. Further review of the initial plan indicates that
this estimate was optimistic. Given some of the expected lead times, time and
resources required to carry out this study as thoroughly and comprehensively as
possible, and allow for contingencies, staff estimates that the study will require 12
months for each phase, or 24 months overall. There is no change in the estimated
cost to complete the feasibility study, only the timeline.
9. Will this feasibility study effort detract from other work?
The feasibility study effort is a complement to, rather than competitor with the
other elements of LEAP, such as renewable energy procurement, energy efficiency
programs, diversifying credit and market risk, managing hydro risk, ensuring
reliable and cost effective transmission, or maintaining the portfolio independent
of Western. CPAU plans to leverage its own staff resources with expertise
provided by NCPA as well as assistance for leading experts in the field.
10. Where do the resources that used to be used for ’frming".the existing Western
contract go? Can PG&E offer the old services at an attractive price?
PG&E has expressed no interest doing further integration or extending the contract
between itself and Western. PG&E also did not respond to CPAU’s RFP to
establish standard Master Agreements, which would be needed for such a service.
Staff is always scouting for good opportunities, and should integration
opportunities arise that are attractively priced, staff will respond accordingly.
Resources utilized for firming are estimate to comprise -2% of California’s state
load, and those under PG&E’s control are likely to be used to meet PG&E load
requirements, and the rest to continue to be available on the market.
RESOURCE IMPACT
The initial comprehensive study is estimated to cost $300,000 to $500,000. The FY04-05
Utilities Department budget will be adjusted to include the initial comprehensive study
costs. At this time it is not known what percentage of this budget will be spent directly
by Palo Alto and what percentage will be spent through NCPA. Portions of the proposed
evaluation may be conducted as part of a Member Services Agreement, or Phase 2
agreement, with NCPA.
CMR:206:04 Page 6 of 8
POLICY IMPLICATIONS
Pursuing power plant investments is consistent with the Council-approved Utilities
Strategic Plan Key Strategy #2 to "Preserve supply cost advantage compared to market
prices" and the following elements of the Council-approved Long-Term Electric
Acquisition Plan ("LEAP") Objectives, Guidelines, and Implementation Plan (the LEAP
objectives, guidelines, and implementation plan are summarized in Attachment A):
¯ LEAP Primary Portfolio Planning Objectives:
o Objective 1" "Ensure low and stable electric supply rates for customers."
o Objective 2: "Provide superior financial performance to customers and the
City by maintaining a supply portfolio cost advantage compared to market
cost and the retail supply rate advantage compared to PG&E."
o Objective 3: "Enhance supply reliability to meet City and customer needs
by pursuing opportunities including transmission system upgrades and local
generation."
o Objective 4: "Balance environment, local reliability, rates and cost impacts
when considering renewable resource and energy efficiency investments."
¯LEAP Guidelines
o LEAP Guideline 1 - Electric Portfolio Dependence on Western: "...
manage a supply portfolio independent of Western beyond the Base
Resource Contract."
o LEAP Guideline 2b: "Diversifying to renewable and/or fossil generation
technologies;"
o LEAP Guideline 3b - Market Risk Management: "Targeting thermal plant
ownership/investment commitment at -25 MW, but in no event greater than
50 MW;"
o LEAP Guideline 5 - Local Generation: "Explore the potential of local
generation options to meet customer needs, improve local reliability,
minimize congestion and wheeling charges, and stabilize or reduce costs".
¯LEAP Implementation Plan
o LEAP Implementation Plan 5: "While continuing to monitor opportunities
for participation in gas-fired generation as they arise through staff’s
contacts in the market and at NCPA, prepare an RFP to formally announce
to the market Palo Alto’s interest in investing in thermal generation
resources or its "look alike" (i.e. tolling contracts)."
o LEAP Implementation Plan 6: "Monitor technology costs and
opportunities for smaller renewable technologies, cogeneration and gas-
fired generation that can be located within Palo Alto and/or at customer
CMR:206:04 Page 7 of 8
sites. A study funded by the California Energy Commission, Palo Alto, and
other municipal utilities is currently underway to identify sites within Palo
Alto that have high value to the electrical distribution system."
The Comprehensive Plan also contains Energy and Natural Hazards Goals and Policies
that are relevant to power plant investment. As natural gas is the cleanest currently
practical dispatchable supply resource, a gas-fired generation facility meets the directive
embodied in Goal N-9 (Energy): "A clean, efficient, competitively-priced energy supply
that makes use of cost effective renewable resources"; and is consistent with:
* Policy N-44: Maintain Palo Alto’s long-term supply of electricity and natural gas
while addressing environmental and economic concerns; and
*Policy N-46: Retain the ability to purchase supplemental gas and electric power
from other potential providers to remain competitive in the marketplace.
ATTACHMENTS
A:
B:
C:
D:
E.
Feb 11, 2004 UAC Report
Feb 11, 2004 Staff Presentation
Feb 11, 2004 CEC presentation
Minutes from UAC Meeting Feb 11, 2004
DRAFT Feasibility Study proposed schedule
PREPARED BY:
KARL E.
Senior Resource Planner
DEPARTMENT HEAD:
o fUtilities
CITY MANAGER APPROVAL:
,N
Assistant City Manager
CMR:206:04 Page 8 of 8
CMR:206:04 Att. A
MEMORANDUM
TO:UTILITIES ADVISORY COMMISSION
FROM:UTILITIES DEPARTMENT
SUBJECT:COMPREHENSIVE POWER PLANT ALTERNATIVES
FEASIBILITY STUDY
DATE:FEBRUARY 11, 2004
REQUEST
That UAC recon-m~ends to the City Council that it approve the Utilities Department
recommendation to undertake a comprehensive study to explore the feasibility of
constructing a power plant capable of serving Palo Alto, which will include (1)
developing the parameters that would be required for feasible sites, (2) comprehensively
evaluating the teclmical, economic, and environmental feasibility of and community
support for utilizing such sites, (3) contrasting potential Palo Alto power plant sites with
other alternatives, and (4) reporting findings and recommendations to UAC and Council.
EXECUTIVE SUMMARY
To develop a diversified electric supply portfolio that addresses the shortfall and
increased variability of electric energy supplies faced by the City starting in 2005, staff
has evaluated and Council has approved specific objectives, guidelines and
implementation plans. One feature of the portfolio includes evaluating development of
new natural gas fired electric generating facilities.
Working together with the Northern California Power Agency (NCPA) and other
municipal utilities facing similar challenges, the City has participated in an NCPA RFP
for thermal resources. CPAU and NCPA have also conducted high-level preliminary
screening studies for generation alternatives, including possible power plants located
within NCPA member territories, in close proximity, and elsewhere.
In order to make an informed recommendation with respect to the City’s optimal strategy
with regard to generation facilities, staff proposes to conduct comprehensive economic
and environmental studies of gas-fired power plants capable of serving Palo Alto. Staff
Item 2: Comprehensive Power Plant Alternatives Feasibility Study Page I of 7
CMR:206:04 Art. A
plans to engage Council and the public from the start, and provide the results of these
studies to Council for discussion and possible action, depending on recommendations and
alternatives resulting from the analysis.
BACKGROUND
The main sources of electricity to meet the City’s electric retail loads in 2005 and beyond
will be hydroelectric (approximately 45% of load met by hydroelectric power plants in an
average hydro year, 25% in a dry year, 65% in a wet year) and qualified renewable
resources (approximately 10% of load by 2008, and approximately 20% of load by 2015).
Approxinaately 9% of the load has been secured for the medium-term by purchasing
energy through a 25 MW fixed-price contract for delivery in 2005 through 2009 (first and
fourth calendar quarters). The figure below illustrates Figure 2 the variability of the
electric supply portfolio after 2004.
Renewables growing Market contract
to 10% target by 2008 through 2009
and 20% by 2015 Western contract
through 2024
/
Deficit
Deficit
56%
Long-term
Wet Normal facility
Remaining deficit to be a mix of
¯diversified market purchases,
¯ possible natural gas power plant interest,
¯ local distributed generation,
¯and/or additional renewables.
Figure 1. Illustration of electric supply portfolio variability
As indicated in the figure above, the City’s Long-Term Electric Acquisition Plan (LEAP)
incorporates a multi-faceted approach to filling the electric energy deficit (the Policy
Implications section of this report and Attachment A highlight relevant excerpts from
LEAP). Two key LEAP Guidelines involve utilizing thermal generation investments as
one component of the multi-faceted approach to managing the electric portfolio.
¯LEAP Guideline 3b - Market Risk Management:
Item 2: Comprehensive Power Plant Alternatives Feasibility Study Page 2 of 7
CMR:206:04 Att. A
o "Targeting thermal plant ownership/investment commitment at -25 MW,
but in no event greater than 50 MW;"
¯ LEAP Guideline 5 -Local Generation:
o "Explore the potential of local generation options to meet customer needs,
improve local reliability, minimize congestion and wheeling charges, and
stabilize or reduce costs".
A new natural gas-fired power plant would be able to meet an estimated 20-40% of the
City’s energy needs. Staff is also engaged in parallel efforts to secure renewable
resources to meet LEAP Guideline #6, as well as evaluating local distributed generation,
potential for combined heat and power (cogeneration), demand-side measures including
energy efficiency and demand response.
DISCUSSION
Natural gas-fired generation is the cleanest, .currently practical, dispatchable electric
supply resource available. A gas-fired generator provides a hedge to protect the City’s
electric portfolio value in dry years, when the City?s supply deficit is greatest. Gas-fired
generation also has the potential to successfully balance the benefits of several goals and
objectives, including enhanced reliability and security, local control, avoided
transmission costs and concerns, credit risk diversification, operational flexibility,
dependable electric capacity, local jobs, long-term fuel risks, outage risks, and
environmental concerns associated with operating such a facility. This balance is site-
dependent, and requires the more comprehensive proposed analysis to make an informed
recommendation.
Representatives from NCPA presented a summary of the responses to an RFP for thermal
resources, in which Palo Alto is participating, to the UAC at the January 14, 2004 meeting
(RFP and presentation attached as Attacl~nents B and C). The presentation included a proxy
for a generic gas-fired power plant located in an NCPA member’s territory for comparison
with the proposals. The conclusion from the analysis is that there are sufficient potential
advantages to a power plm~t capable of serving Palo Alto to recommend initiating an internal
Palo Alto decision process to evaluate such alternatives. The process will aim to engage
Council and the public early on and throughout the process, and to include other City
deparm~ents, committees, commissions, and County or regional entities as Council deems
appropriate. If the internal Palo Alto decision is to proceed, the subsequent steps would be to
conduct the in-depth environmental assessment process by filing a permit application with the
California Energy Commission (if 50 MW or greater), and to solicit joint participation by
other NCPA members.
Item 2: Comprehensive Power Plant Alternatives Feasibility Study Page 3 of 7
CMR:206:04 Att. A
NEXT STEPS
This proposed comprehensive study could take up to 12 months to complete. The study
will be conducted in two phases. Phase 1 will address, "Should staff be evaluating
specific sites in Pato Alto?" If the Phase 1 recommendation is "yes", and Council
approves going forward with the next phase, Phase 2 will address, "Are there sites in Palo
Alto that are suitable?" If the Phase 2 conclusion is "yes", staff will present a
recommendation as to whether to move forward with the permit application process for a
specific site to Council for action. The proposed comprehensive study would be
conducted as part of ongoing services provided by NCPA.
The first steps in Phase 1 are (1) to establish an interdepartmental con~’nittee to ensure
comprehensive review and oversight; (2) to establish and implement a public outreach
plan to educate residents, businesses, customers, community organizations, advocacy
groups, and other stakeholders; and (3) to solicit their input to gauge support and
concerns, and identifying approaches to accommodating the community in a
comprehensive manner. The education and outreach activities will include a description
of the impending energy deficit problem, the actions taken by Council so far in
developing a diversified portfolio approach to this problem, and the specific analysis
conducted so far in implementing Council actions.
If reconzrnended and approved, Phase 2 of the study, review for potential sites, would be
a collaborative effort with Utilities, Planning, Real Estate, Legal, and Finance each
having critical roles in the process. The study will encompass public education and
discussion, technical, environmental, and economic analysis, legal review, review of
consistency and fit with City policies, rules and regulations, and ongoing progress
reporting. The initial comprehensive study is intended to provide sufficient information to
allow Council to select a going-forward thermal generation investment strategy, and also
to facilitate the more comprehensive environmental and engineering evaluation of
potential gas fired generating facility sites that would be required for either the CEC (50
MW or greater) or CEQA (smaller than 50 MW) permitting process.
In parallel with the comprehensive study effort, staff will also continue to monitor and
evaluate complements and alternatives to the local electric generating facilities described
in this report, including local smaller-scale distributed generation and cogeneration,
contractual alternatives to a physical power plant, and additional supplies that may be
available through other LEAP implementation activities such as market resources,
renewable portfolio investments and electric energy efficiency investments. Short-term
solutions to address thermal generation components of the electric portfolio plan for the
next few years, resulting from the NCPA RFP, will also be brought to Council for
consideration in the next few months.
-Item 2: Comprehensive Power Plant Alternatives Feasibility Study Page 4 of 7
CMR:206:04 Att A
RESOURCE IMPACT
The majority of the proposed evaluation will be conducted as part of a Member Services
Agreement, or as part of a Phase 2 Agreement, with NCPA. Parts of the evaluation may
be conducted by Palo Alto. The initial comprehensive study is estimated to cost $300,000
to $500,000. The FY04-05 Utilities budget will be adjusted to include the initial
comprehensive study costs. At this time it is not known what percentage of this budget
will be spent directly by Palo Alto and what percentage will be spent through NCPA.
Should a suitable site be identified and approved by Council to move forward, costs for
project coordination, technical studies, environmental studies and permitting, and legal
fees are estimated to be in the range of $800,000 to $1.5 million over two years. The cost
to construct a power plant is $50 million to $150 million, depending on size, technology,
location-dependent special requirements.
POLICY IMPLICATIONS
Pursuing power plant investments is consistent with the Council-approved Utilities
Strategic Plan Key Strategy #2 to "Preserve supply cost advantage compared to market
prices" and the following elements of the Council-approved LEAP Objectives,
Guidelines, and Implementation Plan (the LEAP objectives, guidelines, and
implementation plan are summarized in Attachment A):
¯ All four LEAP Primary Portfolio Planning Objectives:
o Objective 1: "Ensure low and stable electric supply rates for customers."
o Objective 2: "Provide superior financial performance to customers and the City
by maintaining a supply portfolio cost advantage compared to market cost and the
retail supply rate advantage compared to PG&E."
o Objective 3: "Enhance supply reliability to meet City and customer needs by
pursuing opportunities including transmission system upgrades and local
generation."
o Objective 4: "Balance enviromnent, local reliability, rates and cost impacts when
considering renewable resource and energy efficiency investments."
¯LEAP Guidelines
o LEAP Guideline 1 - Electric Portfolio Dependence on Western: "... manage a
supply portfolio independent of Western beyond the Base Resource Contract."
o LEAP Guideline 2b: "Diversifying to renewable and/or fossil generation
technologies;"
o LEAP Guideline 3b - Market Risk Management: "Targeting thermal plant
ownership/investment commitment at -25 MW, but in no event greater than 50
Item 2: Comprehensive Power Plant Alternatives Feasibility Study Page 5 of 7
CMR:206:04 Att. A
o LEAP Guideline 5 - Local Generation: "Explore the potential of local generation
options to meet customer needs, improve local reliability, minimize congestion
and wheeling charges, and stabilize or reduce costs".
LEAP Implementation Plan
o LEAP Implementation Plan 5: "While continuing to monitor opportunities for
participation in gas-fired generation as they arise through staff’s contacts in the
market and at NCPA, prepare an RFP to formally announce to the market Palo
Alto’s interest in investing in thermal generation resources or its "look alike" (i.e.
tolling contracts)."
o LEAP Implementation Plan 6: "Monitor technology costs and opportunities for
smaller renewable technologies, cogeneration and gas-fired generation that can be
located within Palo Alto and!or at customer sites. A study funded by the
California Energy Commission, Palo Alto, and other municipal utilities is
currently underway to identify sites within Palo Alto that have high value to the
electrical distribution system."
The Comprehensive Plan also contains Energy and Natural Hazards Goals and Policies that
are relevant to power plant investment. As natural gas is the cleanest currently practical
dispatchable supply resource, a gas-fired generation facility meets the directive embodied in
Goal N-9 (Energy): "A clean, efficient, competitively-priced energy supply that makes use of
cost effective renewable resources"; and is consistent with:
¯ Policy N-44: Maintain Palo Alto’s long-term supply of electricity and natural gas while
addressing enviromnental and economic concerns; and
¯Policy N-46: Retain the ability to purchase supplemental gas and electric power from
other potential providers to remain competitive in the marketplace.
Because a local generating facility could provide emergency electric supply, it is in keeping
with Goal N-10 (Natural Hazards): "Protection of life and property from natural hazards,
including earthquake, landslide, flooding, and ftre"; and is also consistent with:
¯Policy N-49: Focus efforts to reduce exposure to natural hazards on those areas where the
greatest risks exist; and
¯Policy N-50: Implement public safety improvements, such as access roads and other
infrastructure, in a roamer that is sensitive to the environment.
ATTACHMENTS
A. LEAP Objectives, Guidelines, and Implementation Plan Summary
B. Request for Proposal for Power Supply Issued by NCPA on October 8, 2003
C. NCPA RFP UAC Presentation from January 14, 2004.
PREPARED BY: Karl E. Knapp, Ph.D., Senior Resource Planner
REVIEWED BY: Girish Balachandran, Assistant Director, Resource Management
item 2: Comprehensive Power Plant Alternatives Feasibility Study Page 6 of 7
CMR:206:04 Att. A
APPROVED BY:
JOHN ULRICH
Director of Utilities
Item 2: Comprehensive Power Plant Alternatives Feasibility Study Page 7 of 7
City of Pa3o A ]~D U ~ Long-Tern E ]ectr~c A ~ Plan Sum m azy
Approved onNovemberl3,200! (CM R :425:01)
Objective I: Ensme bw and ~]e ~ s~pply ~t~s fmr
Objective 2 :P~vJde saperbr ~cJal pe_rfmm~ance ~m
custmm exs and the C Jty by m ain~ a supply
portfmlJo oost advance oom p~ tm market
oost and the ~taJl s_~ply ~ advance
eom pamgd ~m PG & E.
Objective 3 :E~ce supply ~!Jabil~ ~m meet City and
custmmer needs by pun~Jng oppoz~mrJtSes
including ~ ~n sy~ upgmgdes and
~genexatbn.
0 bjective 4 :B a]ance envkmnm en< bcal ~_]Jabil~, ~_s and
cost i~ pact~ when considering ~new able
~muroe and enem!! efficiency Jnvestm ents.
A t~chm entA : Page I
C ~ of Pal3 AID U t~ Long-Te~n E]ectrJcA cq~ Plan Summ azy
ApprovedonOctmber21,2002 (CM R :398:02)
G uilelJne I : E ]ec~ Porti31i3 Dependence on W estern
w hi]e m aJnt~dnJng the flmd3~ ~m adoptfmvo~b]e ’custmm pm~lucts’ o~
by W estmu~, manage a supply portfDlJ@ JndependentofW ~ beyond the
Base R es3umse C ont~ct
G uide_lJne 2 : Hydro R isk M anagem ent
Manage hyd~m p~sductbn risk by:
A.P ]annJng fmr an avenm~e h~ year on a bng4mim basis;
B.D iv~g ~m ~new able and/or fm.q~] genem~tbn t~chno]cgJes;
and
C. M aJntaJnJng adequat~ supply ~t~ stabJlizatbn ~mxve.
G uilel%le 3 : M arket Risk M anagem ent
Manage m a~ketrisk by adopthg a portfmlb stringy fmre]ectrh supply
p~scumm~ entby:
A.D iv~g enem3y p~ ac~sss corn m im entdat~, start<latin,
dum~tbn, suppl~, pricing tm~n sand fuelssumses;
B.Talgethg add_~nalthelm alp]antow n~iSnvestm ent
o~mmimentat-25M W butinnoeventmo~than50M W ;
C. M aintagrJng a pzudentexposum~ ~m changing m aJ~etpr~ by:
@) P m~mming ~tumes at fixed prbe fmr atm ost 90 % of
expec~ [bad fDr2 orm oI~ yea/sou< assim ing ave~e
hych~ oond~ns; and
@9 P~Dcurhg ~umses at fixed prbe fmr atm ost 75 % of
exz3ectmd bad fmr5 orm o~ yea~s out~ assum ing avenmse
hychm eondii3ns; and
D.Avoiiing contmct4sased fixed prbe enem3ypurchasss (except fmr
osnt~cts fmr~ew ab]e ~_~oumses) fmrdu~atbns 9]~a~_rthan i0
yeals.
G uideline 4 : R elJab]e and C ostE ff~e Transm issiDn Services
Ensm~ the ~3Jabili~ of supply at faJrand ~ssnab]e tmns~ i~n costby:
A. Supporthg, th~mugh poland tmmhnicmladvocacy and/or~
Jnvestm ent~ the upg~g ofB ayA ~ tmms~ Jssi3n tm in p~Dve
~s!Jab~ and ~JL=ve osngestbn;
A t~chm entA : Page2
C jty of Paid A]D U d]JiJes L ong-T emm E ]ectrJc A oquJsitiDn Plan Sum m a_~y
B. ParthJpathg in tmrm~n issbn m a~ketdesijn to ensm~ thatm azket
desiin ~ ~]t~ in w oJeab]e osm petJiJ~e m azkets and sqrtgab]e cost
C. P~g the optbn of fmrn Jng and/or joining a Public Power
"T~nsn Jsmbn Con~a~IA ~a to in~ oonlmoloverlxansn issJon
opematbns and ~_]almd oosts; and
D.Ens~g PG & E honozs the S tan~s Com m J~m ents by p~mvJding
to usfim <~ansn i~n rights orequ~t
G uJde_lJne 5 : L ocalG eneratJon
M oni~mrthe pot~ntialof 3ocalgenem~tbn optbns to m eetcustom erneeds,
im p~Dve bcal~3iabilg~, m inim ize congestbn and w hee!Jng dzamses, and
G uJdelJne 6: R ene~ able P ortfmlb Investments
The C J~ shalleonthue to offmra ~new able ~_~3u~me4oasgd ~tail~at~ fmrall
custom eas who w antto voluntarily se_~an in~ contHntof ~ew abla
enemgy. In additbn to thevol]n~ypxx3~m ,the City i%allJnvestJn new
~_=new able ~=~otmees to m eet the C Jtf’s smstainabilJ~! goa]s whi]e ensmJng that
the ~tail~at~ im pactdoes notexceed 0 5 ¢ikw h on ave~e. Pum~me a target
]evelofnew ~newab]ep~ofl0% of~he ~portfmlJo 13adby
2008 and move to a 20% ~u~getby 2015, conthgenton eoonom Jc vJabilJty.
The contacts for J~vestm entJn ~new able ~~ am_= notto exceed 30 yeau~
G uJdelgle 7 : E ]ec~ Energy E fficiancy Investm ents
O ~qua~ Public B enefg~p~ s, utilizing funds co~ dumugh the
2 £5% Public B enefi~ chemge em bedded in e~ ~tail~a~_s, to m eetthe
~source effizJ~ncy needs of custom em~. A dditbnal funding for cost~ifactiue
pmx3~ s w illbe ~u=oom m ended as app~priat~. Pum~ue thes~ investments by:
A. P~vJding expertise, educatbn and incentives to supportcost~_ff~ct~e
B.D em onstxathg ~new abla and/ora~tiue genexatbn ~_hno]ogJes
and new efficiency ~t~es; and
C.P~mvJdJng ~at~ assistance and efficiency pmxszam s to low -Jneom e
custom eas.
A thachm entA : Page 3
C J%z of Paid A]D U tfitJes Long-Temm E ]ect~c A ~’ n Plan Sum mary
Approved onAugust4,2003 (CM R :354:03 ).
R ecom m ended !mp]am en~tbn P]an -Lonq-Term Portfmlb
Im plan en~mtbn of the Pab A ]tm G ~en p~, a ~ prbJng pmmluct
avaJ]ab]e on a vo]unt~erbasis ~m custmm exs who w Jsh ~m ptumhase a
gngatmr fzactbn ofg~n ~s~tur~. Thisp~ w as ~=vJew ed and
app~mved by the UA C atJts Febzua_q/2003 m eethg and w as app~ved
unanJm ouslyby the CouncilFinanoe Corn m Jt[~e ohM a~_/q 4,2003.
~ ~m go ~D the Council fmrapp~mvalon A pril21,2003
C onthue im plan enmtbn of Public B eneiJts p~3]~m s, which is funded
by c~]3ect~g a ~ equal~m 2 B5% ofthe e3ectrh ~mil~. These funds
am~ partinlly usgd tm de~ onstmt~ ~new able ~_s~ or~t~e
tm~hnobgJes and ~m assist mmstmm e~s in pu~uing effhJency
i~ p~Dve~n ents.
S~mffw illoonthue ~m ev-akm~ additbnalopportunJtJes f~rinvestm entJn
eff~iency Jm p~v~n ents. A s app~prJa~, additbnal funding fmr cost-
e~e efficiency p~m~3m~m s w illbe ~ m ended.
5. W b_i]e oonthuJng ~m m oni~roppo~ fmrpafdcJpatbn in gas-~
gene~tJon as they arise d~Dugh star’s oon~cts in them a~ketand at
NCPA ,p~am~ an RFP tm fm~n ally announoe ~m them arketPal3 A liD’s
in--in investing in thereto algenem~tbn ~rces or ~ts "13ok alke"
(ie. l]hg
A t~dzm entA : Page 4
C jtZ of Pa]o A]D U tm3JtJes Lc~g-Temm E ]ectrh A oquiskbn Plan Sum mary
6 .M oru%mr~chnolx~y eos~ and oppo~ forsm a]3erm~ne~ able
t~chno3ogJes, cogenexatbn and gas-fJ~ genexatbn thatcan be located
w ~ Pal3 A ]~D and/oratcustom er s~[ms. A study funded by the
C alifoznia E nexgy Com m iss~n, Pa]o A liD, and otherm unJcJpalu~
Js ~tly underw ay ~o identify sJ~sw 99dn Pab A ][D ~hathave high
va]ue ~o the ~dJstmbutJon system.
7. C onthue ~m discuss gas tmllJng optbns w J~h ~]Je~. G as finmncJal
Jnsmm~ entsw illa]bw smff~D m ost~ely use ~mllJng contracts,
~~~, staffw ill JnvestJga~ using ~hese p~Dducts and, if attmct~e,
w illpum~e app~3valf~m ~he C ouncil~D add these pmxi~cts ~m the ]Jstof
app~ved pm~lucts in the Enemjy R Jsk M ~rn entPolJcJe~.
8. Pum~ue any low ~ost~ high value p~mspects ~m acqui~ supply-~_]a~d
~ttrcesthatm ayarise fmmm ti~e~mtine. S~ffmoni~zsonan
ongoing basis any opportunit]es such as avaJlJ3il~ of additbnalbebw -
m aJ<ethyd~ pm)ductbn oraccess ~m additbnalpow eror
t~mnsm Jssi3n due ~m ow neng~ of ~g assets.
9. Refhe the analysis and oo]]ectadclJtbnalm arket Jnfmrn atbn ~ evaAmt~
~sw hen ~-arbus poYdmlb ~ entsw ott]d have value. S~ffw ill
s31JcJt~tm aJ<et Jnfm~n atbn on specific p~mducts such as hychD
hedges. A ddJti3nalanalysis w il! include ~ analysis and st~_ss
~sthg of the portfmlbs.
Ii. M aintmJn adequat~ ~erves by ~g the d~ of
ttn~ty the C Jty faces Jn ~he future. Evalmt~ m odifying the polty
orta_~gets ~m make ce_rtmJn thatthe Supply R at~ StmbilJzatbn R esezve Js
in the eventoft~ o dm!yea~s in a~mw.
A t~achm entA : Page 5
C j~ of Pa]o Aim U ~ Lmng-Texn E ]ectrh A oquJsithn P3an Sum m azy
R eoom m ended Im ]olin ent~tbn Plan -Short-and M edJum -Term Portfolio
To ~ce shore-tram oostvaiabil~ and to ladderthe p~
corn m im ents, whi]e leaving sufficient f]exabil~ to corn m itto bng4mnm
~_so~, thee fixediorice bbck p~ a~ ~ m ended for
execution in year2003 :
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bbck&0n-pk X x x X x x x
(2O05-0ff-pk x x x x x x x
2007)
B imzk 2 0n-pk x x x x
(20o5-off-pk
2006)
B 13ck 3 ompk x x x x x x x x x x x x
(2oo5)off-pk
A t~tm azketp~, the ~ eostof the fJm~tw o blocks of
pow erJs as folbw s:
a. about$16.4 m i]]i]n forB bck i (4 3 ¢/kW h) ;
b. about$4 5 m fil]ign forB lock 2 (5 57 ¢ikW h) ; and
c. about$6 3 m J]Ibn forB lbck 3 (5 A ¢/kw h). ThJsp~ w illbe
corn p]etmd as a tmmm tmmusactbn via the N oZahezn C a~zria Power
Agency ~q C PA ) underthe authority de~a~i to the C iy
M armugerby C ouncilto execut~ tmansactbns up to $20 m i~n per
fiscalyearin conforn anc~ w i~ the N C PA Pooling A gngem ent
(CM R-~35:03 onM arc_h 3, 2003).
2.Seek C ouncilapp~valof a setofm ast~ra9maem entsw ith supp~ by
sum m eror fmll2003 w ih the authori3y to ~ctfortm_rfl s ofup to 3
yea~s out_ Any t~gns~ctigns outsiie dis ]in itw illbe bnDughtto the
UA C and Councflforapp~vaL
3.D eve!op short4mxm hedging strategies and opematbnsp]answ ilu the
objacive of:
a. C i~ iiendf?dng and captming sapply needs and supply
pomfmlb isks;
b. W heneverpsmb3e, u~]izing si~ p3e tools to m anage ~and
u~]~.ing N C PA ~souxmes and eq3emdse; and
A t~ac_bn entA : Page 6
City ofPa3oA~D U ~ Long-Temm E]ectr~cA cquisJthn Plan Sum m azy
c. M anaging hhe e_]ectrb poztfmlb ~D a~e the poztfmlb obj~ctiues
w Jth ~ lined opem~tbns ~m m inkn Jze ovexhead eosts and ~m act
expeditbusly, whi]e m ain~dlJng the app~DprJa~ ]evelof ovexsJght
and cont.3_
4.Evai~, desfsn, and pibta custmm erdem and-~_sponse p~xg~m . If
such a p~ m akes sense, develop and i~ p]srn enta custmm er
dem and-~_~oons~ p~ ~m p~ctagaJnsthJgh congestion costs and
~D be partofne~ capacity ~rve ~quJ~rn ents thata~ l~ely ~m be
A t~drn entA : Page 7
CMR:206:04 - Att A - B
Northern California Power Agency
REQUEST for PROPOSALS
for
POWER SUPPLY
RFP Issue Date:October 8, 2003
Proposal Due Date:November 10, 2003
To meet their expected long-term power needs, the Members of the Northern California
Power Agency (NCPA) are interested in plant ownership, jointly pursuing the
development of plant(s), and/or signing a Power Purchase Agreement. The NCPA is
accepting proposals from interested parties capable of meeting the needs via:
¯existing power plants,
¯power plants in construction, ready for construction, or in a conceptual stage, or
¯those capable of supplying the needs with other methods (e.g. as power purchase
for an initial period with option for equity ownership and/or tolling arrangement).
Respondents whose proposals, in NCPA’s sole judgment, represent the greatest value to
the NCPA Members when compared with other electric supply alternatives available to
NCPA will be interviewed by NCPA. NCPA staff may select one or more parties and
request more comprehensive proposals for final evaluation. Final selection of one or
more parties to develop final contract(s) wilt be made by NCPA and the participating
Member(s). However, no commitment(s) is final until the contract(s) is approved by the
individual NCPA member governing bodies.
The issuance of this Request For Proposals (RFP) is not a co~mnitment by NCPA to
purchase such resources from any source. NCPA reserves the right to revise, suspend or
terminate this RFP and any schedule related thereto at its sole discretion without liability
to any Respondent.
1 DESCRIPTION OF NCPA
NCPA is a not-for-profit California joint powers agency established in 1968. Its
Members are: the cities of Alameda, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Palo
Alto, Redding, Roseville, Santa Clara, and Ukiah, the Port of Oakland, the Truckee
Donner Public Utility District, and the Turlock Irrigation District; and four Associate
Members: the Bay Area Rapid Transit District, Lassen Municipal Utility District, Placer
NCPA Power Supply RFP - BA
County Water Agency, and the Plumas-Sierra Rural Electric Cooperative. These electric
¯ utilities serve nearly 700,000 electric consmr~ers in Central and Northern California.
Attachment 3 displays the locations of each NCPA Member and jointly owned resources.
NCPA is the Metered Subsystem (MSS) Aggregator and the Scheduling Coordinator
(SC) for the cities of Alameda, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Palo Alto,
Roseville, Santa Clara, and Ukiah, the Port of Oakland, and the Plmnas-Sierra Rural
Electric Cooperative. The generating plants, briefly described below, are under the
NCPA SC; and as a group have been certified to provide all categories of Ancillary
Services to the CAISO. The NCPA SC schedules physical power to its Members using
the ISO Grid .and other existing transmission contracts. In addition, since these
generating plants are within the NCPA SC, they can be adjusted on a 10 minute basis to
follow the combined loads of the MSS members, under the NCPA MSS Aggregator
Agreement.
h~ fiscal year 2001-02, the operating utilities in the NCPA MSS met a combined peak
demand of 1,034 megawatts (MW) and supplied 5,974 gigawatt-hours (GWh) of energy.
To meet these loads, the operating utilities own and operate the following resources:
¯238 MW of geothermal generation located in the Geysers region of California,
¯454 MW of hydroelectric facilities,
¯220 MW of gas turbines located in six Members’ service areas,
¯54 MW of miscellaneous small projects (cogen & coal),
¯454 MW of finn Western Area Power Adininistration (Western) contracts for
capacity and associated energy, and
¯other 3rd party power supply contracts.
Each NCPA Member, participating in this RFP, operates its own electric system as an
enterprise and special fund. Each NCPA Member is obligated to establish and collect
fees and charges for electricity furnished through its electric system sufficient to pay any
and all amounts payable from electric system revenues, which include amounts of
capacity or energy, or both, furnished pursuant to an Agreement entered as a result of this
RFP. Fees and charges for electricity furnished through each NCPA Member’s electric
system are not taxes and are thus not subject to California tax and voter limitation
provisions such as Propositions 13, 62, and 218.
Each of NCPA’s Members has the exclusive authority to set retail rates sufficient to
cover power cost obligations. Power contracts between NCPA and third parties are not
subject to prudence review by state regulatory agencies and may be enforced in
accordance with their terms, which are recognized in California courts. The California
Public Utilities Cormnission is without any jurisdiction over the power contracts of such
NCPA Members. Contracts to be executed as a result of this RFP are intended as binding
legal agreements enforceable in the California courts.
NCPA Power Supply RFP - BA
2 DESCRIPTION OF REQUESTED POWER SUPPLY
NCPA Members currently participating in this P,_FP and their projected needs are shown
in the following table:
Member Location/Congestion
Area
City of East Bay
Alameda
City of Palo San Francisco
Alto Peninsula
BART East Bay/SF Peninsula
Total
2005
6 mw
25-50 mw
40-84 mw
71-140 mw
2010
13 mw
25-50 mw
40-87 mw
78-150 mw
2015
28 mw
25-60 mw
40-93 mw
93-181 mw
2020
34 mw
25-60 mw
40-95 mw
99-189 mw
The participating Members of NCPA realize that capacity additions cannot match exactly
the needs in the table and wish to be flexible in their consideration of proposals.
However, the listed needs should serve as a guide for the amount and location of
generating capacity desired. The evaluation of proposals will be based on many factors
(listed below).
3 PROPOSAL REQUIREMENTS
The Proposal Questionnaires (Attachinents 1 & 2) are due to NCPA by November 10,
2003. NCPA will conduct oral interviews as necessary to select one or more parties.
Those selected will be requested to submit comprehensive proposals.
RFP responses will be evaluated based on the following attributes:
1.The cost of the power plant or power purchase contract
2.Operational characteristics of the plant (heat rates, technology). A highly efficient
and reliable base load plant is preferred.
3.Versatility of plant (ramp rates, starmp & down time, reliability/redundancy)
4.Environmental impact of plant and proposed mitigations (eg land!water use,
emissions, etc.)
5.Location of plant (e.g. close proximity to one or more members will be preferred)
6.Stage of plant development (conceptual versus permitted versus an operational
plant with a proven record)
7. Track record of the developer and/or plant operator
8. Financial stability of the supplier and the contracting terms
NCPA Power Supply RFP - BA
¯ 4 GENERAL PROVISIONS
If any responding party requests in writing about confidentiality of the proposals, NCPA
staff will make reasonable efforts to comply subject to applicable laws and regulations.
Under no circumstances will NCPA, its Commission, managers, agents, contractors or
Member utilities, be liable for any damages resulting from any disclosure of
Respondent’s claimed confidential information during or after this RFP process.
NCPA shall not be responsible for any costs incurred by Respondent to prepare, submit,
negotiate, or participate in this RFP process.
All responses, questions and communications shall be directed or submitted to:
Northern California Power Agency
18O Cirby Way
Roseville, CA. 95678
Attn:Thomas S.W. Lee, P.E.
NCPA Power Supply RFP-BA
(916) 781-4220
NCPA Power Supply RFP - BA
ATTACHMENT 1
PROPOSAL QUESTIONNAIRE
GENERAL INSTRUCTIONS
Please provide answers to the following questions. Where appropriate, you may
reference other documents you have provided ha your proposal package to NCPA.
When referencing other documents, provide exact reference locations. (e.g. page
number, paragraph number, etc.)
1.GENERAL INFORMATION REGARDING RESPONDENT.
Provide a general description of the organization of the Respondent. This information
should include the name and address of the Respondent and principals in the
organization. If the Respondent is a corporation, identify its officers, state of
incorporation, and any parent corporation (if it is a subsidiary). If the Respondent is a
partnership (or other form of business organization, such as LLC, etc), identify the
general partner(s) and state(s) where partnership(s) filings have been made. Provide the
name, title, mailing address, email address and phone number of the appropriate contact
person(s) for this proposal.
2.QUALIFICATIONS OF RESPONDENT.
Provide a discussion and description of Respondent’s qualifications in providing power
to utilities. This discussion should include projects with which Respondent has
previously been involved, the location, size, technology, fuel type, role the Respondent
plays or played in each project and client references.
3.GENERAL DESCRIPTION OF PROPOSAL.
In general terms, explain the proposal being made to NCPA. Include, as appropriate,
the following information:
a. Project’s original co1~nercial (or projected) on-line date,
b. Proposal term (beginning and end dates),
c. Technology,
d. Energy source,
e. Location,
f. Environmental impacts and proposed mitigation measures,
g. Delivery point,
h. Status (e.g. existing project, contract commitments, permitting, site control,
construction, fuel supply, etc),
i. Timeline (e.g. permitting completion, construction start, on-line date, etc),
NCPA Power Supply RFP - BA
j. Business structure (e.g. Joint development, share of larger project, sharing of tax
credits, equity sale, sale of distressed or otherwise valuable property, contract
etc.) and,
k. Any other information necessary for NCPA to evaluate the proposal.
4.PRICING INFORMATION
Provide all information needed by NCPA to document or interpret the price provisions
of the proposal.
ao Price Summary - Price in $/Mo, $/KW-Mo and/or $/MWh at the Delivery Point.
(If an ISO Zone is defined as the delivery point and the ISO zone is modified, the
new delivery point shall be the zone, or other delivery point, most closely
resembling the current ISO zone, as determined by mutual agreement of the
parties.)
b. Other Information - As Appropriate, provide the following and/or all other
information necessary to interpret the Price Sun~nary information provided in 4.
a. above.
1.Escalators - If the proposed pricing is structured as a base price combined
with an escalator (rather than a fixed price schedule) identify and explain the
escalator. For example, the escalator associated with the cost of natural gas
might be composed of an inflation component, a real natural gas cost
component and a transportation component. Identify all components of
escalators and proposed indexes.
2. Price Provisions - Describe any proposed provisions for price floors, price
ceilings, or other fixed obligations.
3.Heat Rates - If the price being proposed is a function of a heat rate and a fuel
price, indicate the heat rate, the source of the fuel and expectations of fuel
price escalation. Provide heat rate curve for the high heat value.
4. Turnkey - if the project is being proposed as a turnkey project, indicate the
price, any adders, subcontractors, and expected operating costs of the project.
Indicate whether the Respondent prefers to provide O&M services and under
what conditions.
5. Rebates or Credits - If the project pricing includes Federal, State or other
grants, rebates, loans etc, provide sufficient information for NCPA to evaluate
pricing credibility.
5.DETAILED OPERATING CHARACTERISTICS
Provide all information needed by NCPA to document or interpret the operating
characteristics of the proposal.
NCPA Power Supply RFP - BA
a. Energy - Energy deliveries by year, month, and time of day.
b. Capacity - Capacity and/or rate of delivery by year, month and time of day.
c. Forced Outages - Expected forced outage rate. Explain the basis for the
estimate.
d.Maintenance Expected annual maintenance requirements, including the
duration, frequency, and scheduling flexibility. Explain the basis for the estimate.
e. Operational Requirements - Explain the degree to which the project can be
curtailed, dispatched, and/or scheduled. Provide information on minimum
operating levels (MW), maximuln operating levels (MW), ramp rates, capacity
factor, seasonal and daily output variability, and minimum down times. Explain
any environmental or other operating constraints or information necessary to
model how the project could be integrated into the NCPA system.
f.Other Capabilities - Define any other capabilities the proposal provides (e.g.
Ancillary Services).
NCPA Power Supply RFP - BA
ATTACHMENT 2
PROPOSAL QUESTIONNAIRE
1)CONTRACT PROVISIONS
a.
TO BE ADDRESSED.
For non-equity positions in a specific power plant, NCPA prefers a
contract termination provision that provides no termination payment to
the defaulting party.
b.Governing law shall be the law of the State of California,
c.Venue for dispute resolution shall be conducted in Sacramento County,
California.
d.The type of security or any other fomas of performance guarantee that
would be provided to NCPA. Such security would be used to mitigate
the risk to NCPA of a project failing to come on-line in a timely
manner or failing to fulfill its obligations for the term of the contract.
e.In light of NCPA’s ability to recover cost via retail rates of its member
utilities, NCPA should not to be required to post any collateral under a
mark-to-market procedure.
f.Scheduling the power supply to meet loads will be performed by
NCPA. Scheduling timelines will be consistent with the CAISO (or its
successor) tariffs, protocols, operating procedures and scheduling
practices.
g.Payment provisions that allow payments to be made at least 20 days
after the last day of the month in which energy was delivered.
2) MILESTONE SCHEDULE
If applicable, Respondent will provide a sufficiently detailed major milestone schedule
that includes at least the following:
a.Site control/acquisition schedule,
b.Schedule for acquisition of permits and licenses
c.Schedule for purchasing and receiving major equipment
d.Financing schedule
e.Construction schedule including anticipated testing and commercial
operation dates
f. Transmission and interconnection service schedule
3)PROVIDE THE FOLLOWING DOCUMENTATION
a. Describe any and all pending litigation that could affect the viability of
respondent’s proposal or respondent’s financial stability,
b.Describe any threatened or asserted claims against the Respondent or
the project offered in the proposal,
c. Provide copies of all currently held certificates, licenses, permits,
franchises or other governmental approvals associated with the
proposal and list all liabilities associated with these such as notices of
violation, litigation, etc.,
d. Describe regulatory proceeding issues that may impact the proposal.
NCPA Power Supply RFP - BA
4) CREDIT REVIEW DATA
a. Legal name of entity requesting credit evaluation:
b.Contact Person in regard to credit:
Tel.
c. Type of Entity (check one):
i.Federal or Foreign Governmental
2.State or Province
3.State Joint Action Agency
4.Municipal
5.Not for profit cooperative
6.Investor Owned Utility
a) Parent
b) Subsidiary
7.Power Marketer
a) Parent
b) Subsidiary
8. Other
d. Number of years in electric business (check one):
I.10 or more years in total; in California more than 3 years
2.10 or more years in total; in California less than 3 years
3.10 or more years in total; none in California
4.Less than 10 years
1.5 years or more
2.3 or4years
3.1 or2years
4.None
e. Years of doing business with NCPA (check one):
f. Status of generation and transmission (check one):
1.Own generation & transmission
2.Own generation
3.Own transmission
4.Transmission Rights
5.No ownership of either generation or transmission resources
g.Is your entity a WSPP Member? (Yes or No) __
h.Is your entity a signatory to the WSPP netting agreement? (Yes or No)
i. Credit Limit Requested with NCPA $
Are you requesting NCPA to act as your California ISO
Scheduling Coordinator?(Yes or No) __
If yes, please summarize your electric power business plan for next 12 months:
(1) Highest level of outstanding purchases for any one month in MWh
(2) Expected level of total purchases for the 12 mos. period in MWh
NCPA Power Supply RFP - BA
(3) Highest level of outstanding sales for any one month in MWh
(4) Expected level of total sales for the 12 mos. period in MWh
Collateral in order of preference (Number 1 through 5):
(1) Escrow fund deposits
(2) Parent company guarantee
(3) Bank irrevocable letter of credit
(4) Security Agreement from A.M Best rated insurance company
(5) Other
Credit & financial data submitted herein applies to:
(1) Entity requesting credit review
(2) Parent company
(3) Both
Web Site Address:
Credit Ratings (Provide copy of analyst report or web address to access each):
(1) Standard & Poors Access address
(2) Moodys Access address
(3) Fitch Access address
(4) Duff & Phelps Access address
(5) Shear Line Access address
Financia! Statements (Check one and provide copy or web address to access):
(1) Audited
(2) Unaudited
Provide a copy of Annual Financial Plan/Budget (Governmental Units/Entities Only):
(1) For all funds
(2) Electric enterprise fund only
Provide copies of most recent S.E.C. filings, i.e., IOK, IOQ, etc., or web site address where such
documents may be accessed
Attach list of names, addresses, contact persons and telephone numbers of your banking at least
three other credit references in the electric power industry.
s.Provide entity’s:1. Federal Tax Identification Number
2. DUNS number
NCPA Power Supply RFP - BA
CMR:206:04 At[ A-C
2003 NCPA
Power Supply R FP-B ay A ~_a
* Longqm_m~ Loadilk es3u_rc~ Ba]ance
¯ avexage and dry hydx) eondJtbns
¯ RFP Obj~-~iue and Focus
* RFP R~nse Summ ary
* F JnancJalEva]uatbn
* Envg~nm en~alC onshlexatbns
~ Findings & R eoom m endatbns
Lcng-tmrn Supply Requgzm end- Ave hydx31~gy
PoolALL Lc~d Horns underAVG Nlzi~ Ccndtbns
Pool ALL Load H ouxs under DRY Hy~ C ond~ns
PeakDayForPOOL Year= 2004andMon~h=7
PeakDayForPOOL Year= 2005andMon~h=7
Pe~DayForPOOL Year= 2004 ~dMon~= 12
PeakDayForPOOL Year= 2005andMondn=12
R FP-B ay A ~a Ptupose &
¯ Ptupose of ~quest=
¯ T o meet a portinn of eL=t-trJc enem/i needs w J~l gas-fired
genem~tbn iDca~ml Jn the Bay A ~a.
¯ Focus of ~quest:
¯ existhg pow erp]an~
¯ pow erpl~nts in c3~ctbn, ~ fDrconstructbn, or Jn
a cono~pt3el s~ge
¯otherm e~hods (e~.aspow er_mlmlmse fmran hJtibk-------~
pe_rigd w 9in optbn fDrequ~ ow nen~p and/orlml]Jng
R FP-B a~ ~ ~ Responses
Summ ary of Responses:
¯ 17 entJtJes~m~]onded (s~mewJ~hmu]t~]ep~mposg]s)
¯ M aj~r~ofp~z~pos~]s- Power~wJ~hfJxedprbe
or~mll~g ~g~n ~nts (scaled on natum~Igasprbe)
¯ 1 Jncl!ded~tJve[Dp~%~ythe Istl0 yeazs’c~pac~
¯ M ostPower~a~cDnt~ctslessth~n5 yea~
¯Low gasprbeis10% ]swerthantheexpe~PG&E CJ~Ga~pr~2e
¯H~h~p~25% ~~~PG&E C~G~p~
¯L~ ~p~~~~nm~of~NPl5
~p~a~of~PG & E C~Ga~p~,~
~ a~ ~a~of~ ~p~
’H ~h~p~~~~m ~of~N P15
~~a~of~PG & E C~G a~p~,~
~ a~ ~ a ~ of~ ~p~
Fo~w amJ E ]~trJc & G as Prioe S c~mmrJos
$7O
$60
Nora JnalM onth ~k, Electric and Gas Prices
D i~oa~__hab]e ~_s~ am~ needed tmm eet
M em_~d Sub-Sys~m ]c~d f~Ibw Jng ~ ent
Findings
ostof the p~posals ~e nemgy equJua]ent
to the m if[-~ange m af<etprk~ ~ ptbns.
¯S~tdatms forplant<DnthgentPow erP~
am~ latU~ 2006 or2007.
In~xnal construction offm~ 9m~mt~rovemg]l
benefit, not available until2 0 0 7.
¯D esfined [m p~DvJdeAncJ]]am! Services and Load
Follow Jng capabil~.
R FP-B ay A ~a Envimnm ental
C onsflemtbns
EnvJ~3nm en~al~n pac~ a~ sin ilarbutnot~dentJcalfmr
¯ 7 entJf_es- new gasp]an~
¯ g~nem~ m o~ ~t, new er~danolx/Jes and t~h~_rpmx~dul~d
¯5 ~dSes- existhg
¯g~ne~Lly ]es~ efFx=Jent~ m o~ ~nJentp~:medrmalc~nt~mls ~nd prom it
¯5 entities- ~ smnm~ ofpow er
¯G ~--_~c m aJ<etlmsmmr~s, unable ~D evaha~
¯ stile ~nd f~atu!~s cmn~D]3edby cmner, m
~d~nolDgJes and tJgh~rpmx~edu]~l ~xlt~D]s ~nd pern
¯M JtSgathn
0 therA ctiviies
¯ NCPA Renewab]eRFP
Summ ary #i
¯Pal3 A im’s bad w ill exceed supply be~g 2005.
¯A s a bad sexvJng entity, PA m ustm ~t the eneigy
needs.
÷ PA m ustm aJn~dn bcalzeli~bilib/.
¯ PA m ustkeep its ~[ms oom pedtive.
¯ PA m ustd~m ons~at~ envJ~Dnm entalstu=w amdiip.
Summ amy#2
¯PA m ustad~ bcaloongestbn &
tmns~ isshn ooms.
~’ PA mustad~tmnsn Jssi~n ~lJabil~.
¯ PA m ustm aJnmJn adequst~ ~_~ve m argins.
Summ ary#3
~PA shoull ai@ fmropeimtbnalf]~Ki~il~ and
eoonom ic di~atmh.
¯Enem3y M aJ<etrcdes oonthue tm change.
¯A rmlysis of the R FP ~ponses saggest~
¯ sim~Jntmmml~m PA o~seveisAadvan~ges.
Pab A Itm SivA dvan~es
Local~n pbym entand eoonom Jc devebpm ent
0 ppo~ edsts fmreoonom ical
devebpm ~ntgiven the low eostofm oney
oomof eguJpm
R ecom m ~d~on
CMR 206-04 Attachment B
Comprehensive Power Plant
Alternatives Feasibility Study
City of Palo Alto Utilities
Utilities Advisory Commission
Two-Part Presentation
Action:
Thermal Generation Progress Update
Girish Balachandran
Assistant Director
Resource Management Division
Information:
California Generation Permitting Process Overview,
including CEQA
Paul Richins
Energy Facilities Licensing Manager
California Energy Commission
Local generation evaluation process includes
several Council decision points.
Identify NeedI L~P Completed
PreliminaryAna/yais CompletedBusiness Case ThermalRFP
Community Case Phas~ 1
!~ropos~stu~ySuitable Location ~,..e 2
Design & Permitting
" CEC Application for Certification
CEC AFC or
Local Approvals
Financing
_.,,%Construction cont~cto~
Request
¯That UAC recommend the City Council approve the Utilities
Department recommendation to undertake a comprehensive
study to explore the feasibility of constructing a power plant
capable of serving Palo Alto. which will include:
(1) developing the parameters that would be required for feasible sites,
(2) comprehensively evaluating the technical, economic, and
environmental feasibility of and community support for utilizing such
sites,
(3) contrasting potential Palo Alto power plant sites with other
alternatives, and
(4) reporting findings and recommendations to UAC and Council.
The recommended study is needed to involve the
community early in making an informed thermal power
plant recommendation.
¯Phase 1:
Should staff be evaluating specific sites in Palo Alto?
¯Phase 2 (if approved):
Are there sites in Palo Alto that are suitable?
¯Estimated Costs:
Initial comprehensive study: $300 to $500 thousand
Thermal Generation Overview
1.The dynamic electric supply picture changes
dramatically in 2005.
2.The City developed LEAP: a diversified portfolio
approach.
3.Thermal generation is an important component of
the supply portfolio.
4. Moving forward is a Community decision.
,/ Staff requests Council approval to undertake a
comprehensive study of local generation
alternatives.
U,~C Mee~r,g ! I-FEB-2C-34
1.The dynamic electric supply picture changeidramatically in 2005.
The City developed LEAP: a diversified portfolio approach.
Thermal generation is an important component of the supply portfolio.
Moving forward is a Community decision.
Staff requests Council approval to undertake a comprehensive study of local
generation alternatives.
Big changes are coming in electricity supply.
Current (through 2004)
Market
Future (as of 2005)
Deficit
46%
Western contract lasted 40 years o New Western contract for 20 years
Minimal need for additional supply ¯ Substantial need for new supply
¯ Known quantity of energy- protection during "dry" resources, major deficit
years ¯ Variable quantity of energy, major
Relatively stable rates; known costs, few short-exposure during "dry" years: +_20% of load
term purchases needed ¯ Major changes likely in year-to-year costs
¯ One primary supplier ¯ Multiple suppliers
4
Price an supply risks are not necessarily
behind us.
Forward Prices for Northern Cal: On-Peak Electricity
150 - ii’,~c i i I" Market pdces for on-peak electricity for
.~- ~:,,- Forward prices for CY 2005 rose125 ...........~:---I~ ........~, .............4, .....steadily from a low in January 2002 to a [ ....
i i ~!i tpeak in mid-June 2003 and have leveled!
100 ~_L ...........i .............1 .....~ ....
.............. i ........Ca,i Year 2004 ......lCal. ¥.ea.,2005
50 ....."-~2s~’ - .........~ - - - -’~’~ - - -
25
9/1/00 311101 9/1/01 3/1/02 9/1/02 3/1/03 9/1/03
*This "strip" product is for energy delivered on all on-peak hours for a calendar year
I Electricity and gas prices are uncertain.
Nominal Monthly Electric and Gas Prices
$130 ;;;;::;:;:.;;;.;;.;;,,¯$20
$120 . $18
$11o ¯$16$100
$80 . $12
STO ~¯$1o$60
550 . $8
$40 . $6
$30 54$20 ...... .....:.--~---!---~-.~---~---~---~G~s.p~i~es;~$iMMB~---L---’" "---’-:-"
::::::::::::::::::::::::$10 ~ ................... t ............... :-’-t ....... :-"?’"1""~’÷’~ ....... :’-’~-’-~ ............... . $2
Low NPI5 Price --NP15 Price --H~h NP15 Price --LOw Gas Pnce --PGE Cily Gale Gas Prx;e --H~gh Gas Price
The dynamic electric supply picture is
changing soon.
Palo Alto’s supply
Must increase to meet load beginning 2005.
Variability increases in 2005.
Energy Market rules continue to change
Palo Alto must
meet the energy needs
maintain local reliability
keep its rates competitive
demonstrate environmental stewardship
address local congestion & transmission costs.
address transmission reliability.
maintain adequate reserve margins.
UAC Meeting 11-FE5-2004 11
1.The dynamic electric supply picture changes dramatically in 2005.
2. The City developed LEAP: a diversified
portfolio approach.
3. Thermal generation is an important component of the supply portfolio.
Moving forward is a Community decision.
Staff requests Council approval to undertake a comprehensive study of local
generation alternatives.
UAC Meebng 11-FEB-2C,34
Council is critical in plan development and implementation.
Council approval- 11/13/00 & 5/21/01, (CMR: 418:00 and
CMR: 223:01 )
UAC analysis presentations:2/14-15/01; Council approval
of dsk management policies, 2/20/01, (CMR: 103:01)
UAC/Council approval - 9/25/01 & 11/13/01, (CMR:
425:01)
UAC/Council approval - 10/3/01 & 12/3/01, (CMR:
421:01)
UAC/Council presentation - 1/9/02 & 3/18/02
(CMR:176:02)
UAC presentation/discussion - 6/5/02
UAC approved 8/7/02- Council approved 10/21/02
(CMR:398:02)
August 1, 2002 - Public Presentation: Energy Forum #,4
!imp~-em.~r~l~lSl~. : !I; .;}(CMR:354:o3)UAC/C°uncil approvaI June 2003 and August 4’ 2003
10. Specific Deal Approval Requests I To UAC/Council, when required 2003-2004
UAC Me=_~r~ 1 ~-FES-2r~4 13
The new supply picture is variable.
Renewables growing to Market contract
10% target by 2008 and through 2009
20% by 2015 Western contract
through 2024
Long-term
Normal facility
Remaining deficit to be a mix of
¯diversified market purchases,
¯ possible natural gas power plant interest,
¯ local distributed generation,
¯and/or additional renewables.
Dry
Thermal Generation is one component of the
LEAP portfolio approach.
Short-Term Portfolio:
Deficit partially being rilled with market resources.
LoadlResou~ce Balance - 2005-2007
UAC t,~eelJng It-FEB-2004 16
1.The dynamic electric supply picture changes dramatically in 2005.
2.The City developed LEAP: a diversified portfolio approach.
3. Thermal generation is an important
component of the supply portfolio.
4.Moving forward is a Community decision.
Staff requests Council approval to under’take a comprehensive study of local generation
alternatives,
UAC MesUng 11.FEB.2C04
Long-Term Base Supply Portfolio:
Deficit partially met with thermal generation.
Dispatchable resources are needed to meet Metered Sub-
System load following requirement.
Summer (July)
,=.I.L.;..:..’=.L;..,’..:..,’ : : : : : : : : : ~ : ’, ’. ~1
Winter (December)
NCPA RFP-Bay Area Responses
Summary of Responses:
17 entities responded (some with multiple proposals)
Majority of proposals - Power Purchase with fixed price
or tolling arrangements (scaled on natural gas price)
1 included alternative to prepay the 1st 10 years’ capacity
payments
Most Power Purchase are contracts less than 5 years
10
NCPA Bay Area RFP Evaluation Results
Benefit Cost Ratio (Market Total Cost / RFP Total Cost,
........Jnler~a[ o~im~s.
favorable
¯BC R~t~ LOw Gas Price ¯ BC R~tio AN, G~ Price II BC Ratio Figh Gas Price
Business Perspective: Benefits & Risks
Description of potential thermal resource
1.Base load power plant of 25-50. MW
2.Meets 20-40% of City’s loads
3.$25-$50 Million capital investments
4.$12-$25 Million/annum in fuel and O&M cost.
Benefits
1.Greater operational flexibility
2.Long term cost stability and reduced supplier credit exposure
3.Diversified portfolio
4.(Palo Alto plant) Increases local reliability
5.(Palo Alto plant) Avoids ISO charges, transmission
charges/congestion, valued at greater than $5/MWh (between $1-
$2 million/yr)
3. Risks
1.Uncertainty related to operational cost, plant outage, and.,,~i,plant/investment obscelescence will result.
~’~"5 2.Plant located within or close to Palo Alto may cost more.UAC M~e~ng ll.FEB-20,~22
11
The dynamic electric supply picture changes dramatically in 2005.
The City developed LEAP: a diversified portfolio approach.
Thermal generation is an important component of the supply portfolio.
Moving forward is a Community decision.
~ Staff requests Council approval to undertake
a comprehensive study of local generation
alternatives.
Local Gas-fired Generation Pros and Cons
Pros
Reliability, Reliability, Reliability
Dependable capacity
Security
Local control
Transmission -$2 MM$/yr
Local jobs, taxes, rents
Supply cost
Operational flexibility
Cons
Local environment
-Emissions
-Noise
-Habitat
-Aesthetics
Long-term natural gas fuel
risks
Unit contingency
Limited feasible sites
24
12
The recommended study is needed to involve the
community early in making an informed thermal power
plant recommendation.
Phase 1: Should staff be evaluating specific sites in Palo Alto?
Interdepartmental Committee
Public outreach plan
Outside professional services
Solicit public input
Overview of environmental issues
Report findings
Phase 2 (if approved): Are there sites in Palo Alto that are suitable?
Additional professional services
Site criteria
Technical and economic screening
Public meetings
Conceptual designs
Preliminary environmental review and mitigation plans
Estimated Costs:
Initial comprehensive study: $300 to $500 thousand
Design and AFC Development: $800 thousand to $1.5 million
Construction: $50 to $150 million
UAC Mee~ng 11-FEB+20¢~4 25
Request
That UAC recommend the City Council approve the Utilities
Department recommendation to undertake a comprehensive
study to explore the feasibility of constructing a power plant
capable of serving Palo Alto, which will include:
(1) developing the parameters that would be required for feasible sites,
(2) comprehensively evaluating the technical, economic, and environmental
feasibility of and community support for utilizing such sites,
(3) contrasting potential Palo Alto power plant sites with other alternatives,
and
(4) reporting findings and recommendations to UAC and Council.
UAC Meeling 11.FEB~2004 26
13
Local generation evaluation process includes
several Council decision points.
t identify Need I LEAP Completed
Business Case ]Preliminary Analysis CompletedThermal RFP
Proposed StudyCommunity Case P~ase 1
Proposed StudySuitable Location P~ase 2
I Design & Permitting!
" CEC Application for Certification
CEC AFC or
Local Approvals
FinancingConstructionContraclors
27
END
28
14
CMR 206-04 Attachment C
Energy Facilities Licensing Process
Paul C. Richins, Jr.
Energy Facility Licensing Program
Manager
February 11, 2004
¯Ensure a reliable supply of electrical energy
¯Protect public health and safety
¯Promote the general welfare
Protect environmental quality
Public Resources Code 25001
¯ Energy Commission permitting authority
- Thermal power plant 50 megawatts or greater
- Related facilities
¯ electric transmission lines
¯ water supply systems
¯natural gas pipelines
¯waste disposal facilities
¯access roads
¯Lead state agency for California Environmental Quality
Act (CEQA)
Determine if proposal complies with Laws, Ordinances,
Regulations, Standards (LORS)
Conduct engineering and environmental analysis
- analyze construction and operation of the project
- evaluate alternative technologies and sites
- analyze cumulative effects
- identify mitigation measures
- recommend conditions of certification
¯Air Quality
¯Alternative Sites
¯Alternative Technologies
¯Biological Resources
¯Cultural Resources
¯Hazardous Materials
Management
¯ Land Use
¯Public Health
¯Socioeconomics
¯Soils
¯Traffic & Transportation
¯Transmission Line Safety &
Nuisance
¯Visual Resources
¯Waste Management
¯Water Resources
¯Worker Safety & Fire
Protection
¯Efficiency
[]Facility Design
¯Geology
¯Noise & Vibration
¯Reliability
¯Transmission System Engineering
1.Prefiling meetings
2.Application filed and Data Adequacy
3.Staff Discovery and Analyses
-Data requests
-Publicly-noticed Workshops
-Staff Assessments
4.Evidentiary Hearings and Decision
- Committee holds evidentiary hearings
- Committee produces PMPD
- Goes before full Commission
¯ Energy Facilities Siting Regulations, Title 20, California
Code of Regulations, section 1704, Appendix B
¯ Executive Director’s Data Adequacy recommendation
in 30 days
¯Data Adequacy determination by the Commission in 45
days
¯Determine if proposal complies with Laws, Ordinances,
Regulations, Standards (LORS)
¯Conduct engineering and environmental analyses
-identify issues
-evaluate alternatives
-identify mitigation measures
-recommend conditions of certification
¯Facilitate public and agency participation
¯Hold publicly-noticed workshops
¯Staff products: Preliminary and Final Staff
Assessments
¯ The Public Adviser provides assistance on how to participate in the CEC’s public
process.
Staff works closely with local, state, and federal agencies:
- Local
¯City of Palo Alto, Santa Clara County, nearby cities and counties
¯Bay Area Air Quality Management District
¯Regional water quality control board
- State
¯Air Resources Board
¯California Department of Fish and Game
- Federal
¯US Fish and Wildlife Service
¯US Environmental Protection Agency
¯Army Corps of Engineers
[] Committee receives testimony from parties
[] Committee issues Presiding Members Proposed
Decision (PMPD)
- Recommends whether or not to approve the project
- Contains findings relating to:
¯environmental impacts, public health, engineering
¯project compliance with LORS
-Recommends conditions of certification
¯ Full commission makes decision
¯CEC monitors compliance with all conditions
certification, for the life of the project
of
Open Public Process
- Workshops and Hearings noticed 10-14 days in advance
- Mailing lists
- Public Advisor
Documents are available for public review at:
- Public Libraries in Palo Alto (a!so Sacramento, Los Angeles, San
Francisco, San Diego, Fresno, and Eureka)
- Energy Commission Library in Sacramento
- Energy Commission Web site: www.energy.ca.gov/sitingcases/
- Dockets Unit at the Energy Commission
1516 9th Street, MS - 4
Sacramento, CA 95814-5512
Application for Certification (AFC) filed -45
Executive Director’s recommendation on data adequacy -15
Decision on data adequacy at a business meeting*0
Staff files data requests 15
Information headng and site visit*30-45
Applicant provides data responses 45
Data response and issue resolution workshop*55
Local, state, and federal agency draft determinations 120
Preliminary Staff Assessment 150
Preliminary Staff Assessment Workshop*160
Local, state, and federal agency final determinations 180
*Publicly noticed hearings or workshops
Final Staff Assessment
Evidentiary hearings*
Committee files proposed decision
Conference on the proposed decision*
Addendum to the proposed decision
Commission Decision*
210
220-240
305
320
350
365
*Publicly noticed hearings or workshops
Paul Richins
Energy Facilities Licensing Program Manager
(916) 654-4074
www.energy.ca.gov/sitingcases/
Margret Kim
Public Adviser
(916) 654-4489 or (800) 822-6228,
e-mail: PAO@energy.state.ca.us
CMR:206:04 Att D
Rosenbaum: The council is not going to take a vote on a specific approval?
Roberts.: It is an information report and the actual would come during the budget process.
Rosenbaum: Fine. So it won’t be necessary for a representative from the UAC to be present then.
Ulrich: Yes. That’s correct.
Rosenbaum: Fine. Thank you. I think that finishes Item I. Lets move on to Item II. The
Comprehensive Power Plant Alternatives Feasibility Study.
Comprehensive Power Plant Alternatives Feasibility Study
Ulrich: Thank you. This evening is a next phase of look at replacement power for our Western Contract
which leaves at the end of 2004. As you know we have contracts that we are working on to replace some
of that power. But part of our LEAP or long range supply plant, we felt that it was important to look at
other alternatives including what we are discussing this evening is requesting recommendation from the
utility advisory commission to undertake a comprehensive study to explore the feasibility of constructing
a power plant capable of serving Palo Alto which will include developing the parameters that would be
required for feasible sites comprehensively evaluating the technical and economical environmental
feasibility and community support for utilizing such sites, contrasting potential Palo Alto power plants
sites with other alternatives and reporting findings and recommendations to the UAC and Council. I
made a point of reading the first portion of the report that we have given you so that it shows that we are
taking a comprehensive view in looking at the potential and the feasibility as opposed to jumping to a
conclusion that having a power plant is the best thing in Palo Alto. I think it would be pre-mature to
come to any of those conclusions or to the other \vay to dismiss that idea without having a study. This is
going to be very important to us. We need to look for a reliability of supply and for reasonable low cost
energy to replace the contract that expires with Western Area Power Administration. So we are going to
do this in a two parts. Girish Balachandran will give you more of the background for those folks that
need to have a better understanding how we are in this position and we are fortunate also to have this
evening with us Paul Richins who is the Energy Facility Licensing Program Manager from the California
Energy Commission and he will discuss the process for licensing a power plant and the regulatory process
that takes place if it comes to a conclusion that we would want to site an construct a thermal power plant
in Palo Alto that exceeded 50 megawatts in size. If it was less than that then the CEQA process would
take place. While that is also rigorous I think it is important to know the differences and what the process
would be if we find that feasibility study suggest and recommends that we build a power ptant in Palo
Alto. So I will turn it over to Girish and will allow plenty of time for questions.
Balachandran: Good evening Commissioners. Good evening Madam. I have with me also here Karl
Knapp. He was involved a lot in putting together the report and presentation and Paul has already been
introduced so just head on into this presentation here. Two part presentation. Here is an overview of
what we have done so far, what is coming up and what we want to focus on in today’s meeting. So
essentially we have identified the need for some kind of thermal generation business case for thermal
natural gas power generation has been completed. Had some preliminary analysis and we also we have
been part of the NCPA RFP for thermal generation. You have been updated on that at your last meeting.
Don Dame was here to provide you the results of that analysis.
UAC Minutes 2111/04 - Approved 3/3/04 Page 8 of 38
Dawes:: Girish I hate to interrupt up but I am confused about the relationship between John’s NCPA
effort and our effort and whether these are separate studies or they are coordinated so that we can compare
NCPA’s analysis and conclusions versus our analysis and conclusions. What’s the relationship here?
Balachandran: NCPA’s RFP basically looked at thermal generation outside the city. So it was basically
anywhere, it could be anywhere and it didn’t restrict the responses to natural gas by power plants they
also requested contracts, gas tolling contracts which have characteristics of natural gas power plants.
How this would be used? It will be used as a piece of information compared against sites that will be
studied in Palo Alto and that’s part of the normal environmental process too as we go forward with that is
what are your alternatives to a site in Palo Alto?
Dawes: Could our study be simply sort of one fraction of the NCPA study in other words they are
studying power plants economic sizing, location and it seem to me that if one of those locations is Palo
Alto it would be just sort of chapter II or III whatever of their study but that is not the case?
Balachandran:: There is some overlap. If you remember. Actually I will come to one of the slides which
talks about the results of the RFP of the NCPA RFP and NCPA also evaluated generic sites that could be
located within the member service territory and that was a high level screen analysis and actually the
results of that analysis showed that a power plant within one of the member sites are shown positive
economics compared to some of the responses that were received from the market.
Dahlen: Excuse me Girish. Can I just ask one additional question? How much have we spent on the
NCPA RFP?
Balachandran: Can’t give you the exact number. But not much. It is staff time essentially sending an
RFP out and getting responses. In terms of incremental cost there was some consulting dollars spent by
engineers kind of going out looking at different sites to get an idea what a generic plant would cause. It is
basically feasibility study kind of dollars very small.
Dahlen: So it would be correct to say that this is something that builds off the NCPA of work and this is
more comprehensive following that work or are the two unrelated?
Balachandran: I’d say it is. But it is more jumping off, there is some overlap but 1 think finally at the end
of this process we’d be looking at the results of both together and I think you are right. What we are
proposing to do here is much more detail than what has been done by NCPA. Way more detail.
D__ahlen: Thanks.
Balachandran: So the area in the box is essentially what we are talking about today. We are talldng about
a two phase study process. The first phase is essentially answering the question. Do we even want to
look at a site in Palo Alto? And if both the recommendation to Council, and if Council says Yep it makes
sense to do this and go ahead and look at a site then you go into Phase II where you actually look, see if
there are adequate sites in Palo Alto. At the end of Phase II we’d come back to the Council Nope there
weren’t any sites or there was one, two, three multiple sites and after Phase II if Council says Okay come
back to me with a recommended site that’s when we would do that and depending on the size of the
power plant at that point you’d go into the next step which is Design and Permitting. If it is greater than
50 megawatt plant you would go into the CEC process, permitting process if it is less than 50 megawatts
the City would be the lead agency on the CEQA. I just want to re-emphasize what John said that what we
are doing, what we are proposing today for action is the feasibility study, there are no decisions being
asked with regards to actually building a power plant, it is only a feasibility study that the results of which
UAC Minutes 2/11/04 - Approved 3/3/04 Page 9 of 38
will be provided to the Council and the Council will make the decisions as shown over here in the future.
So I have a couple of more kind of overview slides and then I will jump into more details. This is
essentially the request. You have seen it in your UAC report. I have gone through this what the two
phases of this study are going to look like and this is what the presentation is going to go over. There are
going to be four parts to the presentation and first look at how our supply picture is changing. Probably
you will be familiar with some of the slides there. What we have done so far? Basically we have
developed a diversified portfolio approach to meeting this deficit. Then talking specifically about one
area of this portfolio which is thermal generation and then rounding of with our recommendation. So the
first part you can see our deficit in an average here. On energy only would be about 46% our Western
Contract goes from about 91% of our load to about 35%. Over here this chart basically says that prices
still are variable, daily prices continue to fluctuate and this is a very long-term forecast from NCPA on
electric prices and gas prices under different market conditions. Over here. The some objectives for Polo
Alto. We must increase our supply to meet our load. We must maintain local reliability. Want to keep
our rates competitive, demonstrate environmental stewardship address local congestion cost, the
additional.transmission cost have been instituted by the ISO, address transmission reliability and maintain
adequate reserve margins. There are number, each of these are being discussed at different forums for
example right now on the reserve margins the CPUC is coming up with rules as to what kind of reserve
margins the IOU have to maintain and these are rules that used to exist in the past and through
deregulation many of these rules got tossed out of the window and they are coming back. So our response
to this deficit was to develop what we called the long-term electric acquisition plan and we used a
diversified portfolio approach. This slide basically goes through a lot of history of the different reports
that we brought to you for action and to the Council it shows that we built a very deliberate process right
up to now and we plan to follow that kind of deliberate process going in to the future to implement the
LEAP Plan. The slide talks about what our this diversified resource portfolio could look like. So this is
just one view of this diversified portfolio under different hydro conditions. The new renewables about
10% City Council has approved but 20% renewable portfolio standard by the year 2015 Karl started work
on negotiating wind and landfill contracts. You have seen basically the principles for this contract at the
last meeting. So the 10% buy is going to move to about 20% in the long-term. This simple chart over
here shows the connection between the LEAP Guidelines and the different parts of the Implementation
Plan. Basically saying that different parts of our hnplementation Plan affect different guidelines. And
what we are looking at today’s meeting is thermal generation. So the point I am trying to make in this
slide is a diversified approach. We are not looking at one way of satisfying this deficit. Should I move
on?
Rosenbaum: We might be willing to take your word for that without seeing a slide like this.
Balachandran: I can go through the details on this. 1 can give you the...there is actually a meaning
between the dot-ted lines and the solid lines but I will save that for the question part of the presentation.
Another view of our short term portfolio what we plan to do Council has approved us purchasing three
blocks of power for the next three years and there is still a deficit that exist and that will be filled with
short-term purchases. Again this is average year. Remember anything we do with the power plant if it
ever comes to fruition it is not going to happen before the hand of this slide it is going to be several years.
Dawes: Girish your underlying assumption on this whole power plant discussion is that we will continue
to buy these street blocks to fill the biggest parts of the holes and a power plant that participation or
ownership would address the deficit part that goes along at the top In other words this is a permanent
situation of buying blocks to fill holes.
UAC Minutes 2/11/04 - Approved 3/3/04 Page 10 of 38
Balachandran: It is not. The size of the blocks will reduce if a thermal power plant a base load plant is
actually if we buy it whether it is in Palo Alto or outside Palo Alto to the extent we get that resource we’d
buy less from the market. Does that answer your question?
Dawesi We still have the hydro facilities and the hydro facilities are very variable and if you look at the
top of the blue lines there you know we don’t need very much power effect. This is a normal year. Wet
years we are selling power without just through excess hydro power and so what I am getting at is given
the seasonality that our current supply is it would seem that we would still need to buy block power either
that buy block power or have our own base load plant which we only ran 100% for a few months of the
year and then we’d run it at 50% because we get cheaper hydro power during the peak times.
Balachandran: Sure. There is going to be an economic dispatch of the thermal plant just like the existing
NCPA plant. You build it based on your long-term forecast. Long-term forecast of your needs. Long-
term forecast of your natural gas supply. The actual operational decisions day to day, month to month
will be made on gas prices. So it is like what you said in certain years if you have excess hydro you have
low gas, you may not use your plant as much if there is a more economic alternative in the market. So
coming back to your point on block purchases, we have our thermal and we will be filling it to certain
extent with block purchases, and if there is a lot of hydro and we are surplus yeah we will be selling. So
that is going to be dynamic and there will be additional analysis provided as to what the sizing of the plant
is as we go along. So talking about this is another view of a long-term, again an energy view of what our
portfolio would like and over here right on the top of the chart we just added what this 25 megawatt
thermal base load plant would occupy. And this is again what location it is. Whether it is in Palo Alto or
outside Palo Alto. As you can see there is still a large deficit that needs to be filled. This is a chart
you’ve seen last time. It was presented by NCPA talking about, what the pool load looked like on one
particular day and what the daily and monthly exposure to the market looked like. Point of this slide is
there is the flexibility of the Western resource is lessened going post 05 and we do need a load following
units. This is a summary of the NCPA RFP. There were 17 entities that responded, majority of the
proposals were power purchase with a fixed price of tolling. I am going to flip to the next chart which is
more graphic. This is what I referred to earlier about the benefit cost ratio of all the different proposals
that came in and on the right hand side proposals 30.1, 2 and 31 are generic natura! gas plants within a
member service territory and as you can see that’s going through this chart it looks pretty favorable.
Looking over here business perspective of thermal resources and this slide talks about both whether in
Palo Alto and outside Palo Alto. The plant size could vary the plant capital cost could vary between 25 to
50 million dollars, 12 to 25 million dollar annual fuel and O&M cost. The benefits are greater,
operational flexibility reduce supply of credit exposure. It is a diversified portfolio and then the next
benefits refer to a plant within Palo Alto boundaries which will increase local reliability and avoid a
whole bunch of ISO charges and transmission charges. And currently the 5 dollar per megawatt hours is
kind of the middle of the road. It is pretty conservative number the number could be it could go as much
as nine dollar a megawatt hour depending on what PG&E’s reliability services charges run. So and the
risk and cons to having a power plant. One is there is uncertainty related to the plant itself whether it is
going to operate or not. The plant could basically suffer an outage. There could be new technologies that
come in which have a better heat rate and another cost issue the plant within Palo Alto may cost more
than a plant out in the Central Valley. Moving to the final part of this presentation we believe that
moving forward is a comlnunity decision and the different phases that we have.outlined in this proposed
study endeavors us to reflect that belief. Going back to specific pros and cons of a local generation
facility. Pros: Increase reliability, there is dependable capacity, local control, operational flexibility is
increased. On the Cons: There is a whole bunch of environmental issues that have to be dealt with. We
have just listed a few over here when Paul gives his presentation he will talk about I think there is 16
different factors, environmental factors that the CEC looks at in detail and all those would have be to be
acknowledged and dealt with any kind of feasibility or environmental study that we do. There is also a
UAC Minutes 2/11/04 - Approved 3/3/04 Page 11 of 38
long-term natural gas fuel risk, unit contingency and in Palo Alto as one can imagine limited feasible
sites. So little more detail on what Phase I and Phase II would entail. We talked about setting up an inter-
departmental committee, have a public outreach plan, solicit out public input. Have an open overview of
environmental issues, not going to dig too deep into it and report those findings to Council and if Council
at that point authorizes going forward with Phase the bullets on the Phase II tell, we are basically going to
go higher degree of detail and actually looking to see whether the specific sites in Palo Alto that would be
suitable. We have estimated the cost of the study to be about 300 to 500 thousand dollars. The design
and the AFC is application for certification which is not something we are not even talking about right
now but just to give you a sense of what it would cost. 800 thousand to about a million and a half that is
on the cheaper side. I believe Silicon Valley Power has spent much more than that. And construction of
course over here is much, the hundred and fifty million dollars is close as if you build a 150 megawatt
plant for example Santa Clara’s Plant cost about hundred sixty million for 147 megawatt plant. So this
may be a little higher than what we are actually looking at here. So I am going to close this presentation
before handing it over to Paul. Repeating the request and ending with just this graphic about what exactly
we are talking about in today’s what we are asking and in today’s item. With that 1 will hand it over to
Paul to finish his presentation and may be take questions on the item itself after that.
Rosenbaum: Paul let me first welcome you and thank you for taking the time to be with us to night.
Richins: Good evening. I appreciate the opportunity to come and talk with you about the Energy
Commission’s Licensing Process. We enjoy getting out and talking with the agencies, City Council’s
perspective projective developers to explain our process and I think there are lots of benefits that you
accrue when you do go through the Energy Commission’s process. So I will just go through on a slide
presentation. It is more detailed than I want to cover this evening. So I will skip over some of the slides
but you also have a handout up front there that has two slides per page. Elizabeth do you have a copy?
My name is Paul Richins and I am the Energy Commission’s Power Plant Licensing Program Manager
and I’d just like to go over some of the important aspects of the process. The Energy Commission was
formed in the mid 1970’s. The Energy Commission has a number of functions and responsibilities. We
do forecasting, we promote renewables, we promote research and development, energy efficiency, we
have a function of establishing a building and appliance standards and we do supply demand forecast by
10, 20 years out into the future and the part that I am going to talk about this evening is the Licensing
Process. So or Planning Agency with some regulatory responsibilities. On the second slide you can see
there that there are four bullets there out of the public resources code. What are kind of main purpose and "
the process of reviewing and licensing potential power plants. One is to ensure reliable supply of
electrical energy protect public health and safety and promote the general welfare and protect
environmental quality. As stated earlier the Energy Commissions’ responsibility is for all thermal power
plants 50 megawatts and greater. Natural gas power plant, Geothermal plant and so forth. A wind facility,
solar plant would not necessarily come under Energy Commission’s jurisdiction. Since the mid-seventies
we have reviewed more than 100 power plants in all parts of the state from the desert in the south to
Redding in the north including cities such as San Jose in the Metcalf project which you are probably
familiar with and projects in San Francisco. So we have a wide range of experiences dealing with public
participation, environmental issues, public health safety issues and a whole wide variety of issues that are
pretty much dependant on technology and the location that is selected. In our review, the review that we
do is we act as a CEQA lead agency for the State of California not only we do the environmental review
but if the project is approved and the environmental document is accepted you also receive a license or a
permit to construct. This is different than a normal CEQA process. A normal CEQA process is that you
would go through a CEQA review, CEQA analysis and certification of the CEQA document but then after
that you would re-require to get permits from local state and federal agencies. Our process is a one stop
process where we take all of those local and state federal permits roll them into one document and one
permit. Also I want to emphasize that the process is a public process and we have a unique feature and
UAC Minutes 2/11/04 - Approved 3t3/04 Page 12 of 38
that is we have a public advisor and the public advisor is appointed by the governor to assist the public
and interveners in accessing the process and understanding the process. And as a minimum we have at
least seven publicly noticed workshops, hearings and meetings where the public and any party that is
interested is notified 10-15 days in advance of those proceedings. In our process there are two basic
findings that the Energy Commissioners have to make and that is they have to determine that the project
meets all laws, ordinances, regulations and standards. That’s both local, state and federal and so each
technical discipline will have their own set of laws and those laws will be reviewed in the analysis and the
findings will be made whether the project conforms to all those standards. Second finding the
Commission has to make to approve a project is to determine that there are no significant impacts or if
there are significant impacts there are mitigation measures and adopted to reduce those impacts to less
than significant. However, if there are significant impacts Commission can decide to approve the plant if
there are benefits that exceed using the balancing approach exceeds these benefits. So during that process
the Energy Commission analyzes the construction and operation of the project. It analyzes the direct and
indirect cumulative effects, it evaluates alternative technologies it identifies mitigation measures that will
medicate any significant impact to acceptable levels and yet develop a set of recommendations and
conditions and certifications. It is not unusual for a license that is or certification that is granted by the
Energy Commission to have from a 150 to 200 conditions and certifications that the project developer
must follow during the construction and through operation. Another feature of the process is that once the
project has been approved then the Energy Commission monitors the project over its entire life so any
complains that are raised by the public, any non-conformance, non-compliance issues are handled by our
compliance unit in Sacramento. This next two slides just give you an idea of the areas we look at. We
look at just about any imaginable potential impact that might occur from a power plant and I am not going
to go through the list but you can see there is a list on this slide about 22 different disciplines that we look
at. One slide 7 I like to think of our process is a four step process. The first step is a very informal
process and it is a process pre-fiting meetings before an application is actually filed and this process is at
the request of the City, the County, the Power Plant Developer and that is what we are in now providing
information about our process so that if you do decide to go further with such a project then you will have
additional information on what to expect in the process. If the council makes decision to move forward
with an application, I would expect that we would have other working meetings with the staff to go over
what is required to be in an application so that any questions that your staff would have or your
consultants would have we would provide answers and assistance before you spend time and money on
putting together an application. So after an application is filed then the determination whether the
application is complete, whether there is enough information in it for us to begin our review then once
that determination that it is complete has been made then staff will do an extensive analysis of the project
as we looked at the previous slides we will take a look at all those technical areas and make
determinations as it relates to the laws and also environmental effects. It is a very public process. We
will hold workshops and hearings. They will be locally held so they will be held in a community, where
there is a large public involvement. Those subject areas will be held during the evening time so that the
public can attend if that’s their desire. The staff documents that we will produce will be a preliminary
staff assessment and then from that we will have workshops on that document and then produce a final
staff assessment. The final staff assessment then goes to the Commissioners. And on each case there are
two Commissioners out of the five that are appointed to oversee the sighting case and those
Commissioners will conduct evidentiary hearings on the project and they will take testimony from sworn
witnesses and then based on the evidentiary record make a decision on the project and if there are need for
certain conditions or certification to medicate impacts. Now we skip on to slide 14 a little bit of
information about our public process. It states that it is an open process, will hold numerous workshops,
hearings and so forth and they will be in the community. We also at th.e time of filing establish a mailing
list of property owners, federal, state and local agencies and any interested public that want to be involved
in the process and notices that the application has been filed, notices of workshops, notice of hearings will
be mailed to those people on the mailing list and also be advertisements taking out notices in the
UAC Minutes 2/11/04 - Approved 313/04 Page 13 of 38
newspapers and also the application will be send to the library or to the libraries here in Palo Alto and
then also around the state. The document will be on the Energy Commission’s website and in fact a
person can tract the performance and the process from their computer at home. And then if you turn to
slide 15 we are not going to go through the details scheduled there but I just want to say that we take the
12 months schedule quite seriously and do our best to maintain and keep with the schedule. So you can
that it is laid out here for 365 day decision. I think we do a pretty good job at meeting the schedule
although on an average it takes about 14 months not 12 months to process an AFC. Some go a little faster
than 12 months, some take a little bit longer. It is really driven by the issues in the case and the issues are
really driven by the location of the project and so each side will have its own set of issues and own. set of
impacts and so the selection of a site is very important. And on the last slide is just a contact. At this
stage the contact would be made at the Energy.Commission. I’d be glad to come down anytime and meet
with you, with the staff, with the City Council on anything. Also Margaret Kim is the Public Advisor
appointed by the Governor and she is the person that will assist the public in accessing the process. With
that I will open it up and entertain any questions you might have.
Rosenbaum: Thank you very much Paul. Do we have questions? George.
Bechtel: Paul do you look at the business case for that probably precedes the application. For example
we have projected our needs and our shortfall and so on. We look at the impact purchasing power and so
on our rates and so on. Does your staff look at that business case as part of the licensing process?
Richins: Not directly. The closest we would get to that is in the alternative analysis we are required,
CEQA requires that there be an alternative analysis where we look at alternative sites and alternative
technologies. So to the extent that your business analysis talks about or reviews different technologies,
different sites then that information would be provided in a narrative form in the application. But we
would not review that in depth as we would the actual project that is being proposed by the City.
Bechte!: In your experience have you seen faulty business cases made for making a license application
for a power plant whether it is either public or private?
Richins: We really don’t get into the business plan at all to make those determinations. Prior to
restructuring the Energy Commission had to have a finding of need. You are getting may be to that point
a little bit we are no longer by law are required to do a need assessment. But as I said in my opening
comments the Energy Commission does a forecast 5 year, 10 year, 20 year forecast for the supply and
demand of electricity based on certain prices for natural gas and other cost. We still do a forecast but
there is no requirement to make the linkage between a specific application and that forecast because we
have gone to a market driven structure whereas we aren’t we are no longer required to look at that.
However, I would just speak not as a member of the Energy Commission but just based on my past
experience and that is municipal utilities, irrigation districts such as MID, TID, SMUD, LIDWP have and
are in a good position right now to propose and bill power plants to help reduce some of their cost and to
help reduce, as you saw on other slides, those block purchases and avoid a lot of transmission cost. So
there are a lot of benefits for doing that but those are individual decisions of each particular entity. For
instance SMUD, The Sacramento Municipal Utility District went through our process and received
approval for a 500 megawatt power plant potentially a Phase II to add another 500 megawatts. TID,
Turlock Irrigation District and MID Modesto Irrigation District have gone through our process three times
on three separate projects. So we are seeing as a kind of second wave during this energy crisis of a
municipal and public utilities coming before us and proposing power plants. Because they feel that it
overall provides a benefit to their ratepayers and a benefit increasing relaibibity of their system.
Bechtel: Good. Thank you.
UAC Minutes 2/11/04 -Approved 313104 Page 14 of 38
Rosenbaum: Do we have other questions? Elizabeth.
Dahlen: I just had one question Paul and that was. What is the percentage of cases that come to you that
do not ultimately receive permitting?
Richins: That is a very good question and I didn’t bring the numbers with me and just of the top of my
head since 1997 the Energy Commission has approved approximately 44 projects and I would say
approximately 20 may be, may be that’s a little high may be 15 to 20 additional projects were not
approved for a variety of reasons and those reasons were mostly that the applicant withdrew the project
because of a variety of reasons. So I haven’t done a count recently but there is a good number that come
with a proposal that hasn’t been fully thought out and there are some unresolved issues that weren’t
adequately addressed and so they withdrew from the process.
Dahlen: So we could take it that the success rate is high if we come forward with a good proposal.
Richins: I think the success rate is high provided that you pick a good location and that you are willing to
spend a little additional money to mitigate impacts. Being in an environment like you a city environment
as opposed to a more rural there are going to be more sensitive receptors nearby and that it would cause
additional mitigation but it is not unreasonable cost and it can be mitigated using basic business practices..
Dahlen: Thank you very much.
Rosenbaum: Other questions? Paul let me ask one. Clearly some of the factors are location independent.
That is I assume will propose a generating facility using the very latest equipment and most likely other
people coming forward would do the same thing regardless where they are located. On the other hand air
quality is clearly location dependent. Can you please tell us little about the problems that being located in
the Bay Area relating to air quality and securing a permit.
Richins: Yeah. As part of our process you would also submit an application to the Bay Area Air Quality
Management District for a license and they would begin processing that concurrently with the Energy
Commission’s process. We coordinate very closely with them. And they, in their process, make sure that
their regulations are followed and there are certain requirements that you have to have the best available
control technology to control emissions to the lowest level possible and then for those emissions that
aren’t controlled then there is a requirement that you purchase air quality offsets so that there is no net
increase in air pollution from the facility. Either it is been controlled to the lowest possible level and
those remaining emissions are offset. So there are sophisticated models that our staff use, sophisticated
models that the air district uses to make determinations on what is required and how much offsets are
needed to mitigate the projects so that there are not significant impacts.
Rosenbaum: Could you comment on just what you mean by offsets and to what degree they are readily
available in the Bay Area?
Richins: I couldn’t tell you the inventory that is available but the Bay Area Air Quality Management
District maintains what they call a bank of offsets that have been reviewed by them, have been certified
that are tradable or purchasable and so you would go to that bank and identify holders of those offsets
certificates and enter into a negotiation process to purchase the adequate number of offsets for the knock
socks, pamcam and so forth the emissions that you would need to offset.
UAC Minutes 2/11/04 - Approved 3/3104 Page 15 of 38
Rosenbaum: And just to continue I am not familiar with this process. What is it that you are buying and
how does it reduce air pollution?
Richins: I am not an air quality specialist but I’ll give you ten thousand foot level kind of perspective that
I have on it and that is the air district. Each air district is required to come up with an improvement plan,
a State or Federal. They call it SIP or a FIP. Federal Improvement Plan and a State Improvement Plan.
Part of that Improvement Plan is to encourage the shutting down of dirty, inefficient sources of emissions.
So they have developed the protocol and a process for closing these emission sources and then taking
those emissions. Let us say you have a source that is emitting ten times of a certain pollutant. If that
facility is shut down then they are allowed to take a portion, I can’t tell you what portion but a portion of
that ten times and put it into the bank and so the ten times is now reduced to some number such as six
times and that is available for future growth and future development and so the increment that has been
realized by reducing the ten times down to six or five or whatever it is a growth factor or an improvement
factor for the district and so the idea is that on a air district wide bases a plant that slowly closes down or
inefficient processes and encourages the development of no more efficient less polluting processes.
Rosenbaum: So there is a transfer of funds here. We presumably would pay another party to buy these.
Who is the other party? The owner of the old inefficient polluting plant?
Richins: That is correct and it is not a power plant necessarily. More than likely it is not. It is any
manufacturing or any other facility that is required to get a permit from the air district and they have gone
through a formalized process to shut down that particular source, And so the permit is no longer valid
and they now receive a certificate for and the ability to sell that on the market.
Rosenbaum: Thank you very much. Are there any other questions for staff in general?
Dawes: Are these questions about this entire presentation or just about the CEC?
Rosenbaum: I think we are ready to open out to questions about the entire presentation. Dexter
Dawes: Okay. Why don’t you take somebody else. I have a number of comments but I am not organized.
Rosenbaum: Elizabeth.
Elizabeth: I’ll go quick. I had a question about and this goes back to your presentation Girish. On slide
Number 18. you showed a chart there of the long-term base supply portfolio. Is that for Palo Alto alone
or is that for the NCPA?
Balachandran: Just Palo Alto.
Dahlen: Just Palo Alto. Okay. So just to clarify. I think that this gets to the Commissioner Dawes’ point
with regards to the slide 16 am I correct. This is our overall deficit and in the future provided we the
overall deficit does not include the additional capacity we would have if we were to built the plant.
Balachandran: You are talking about slide 18
Dahlen: Yeah.
Balachandran: The slide 18 has the twenty five megawatt thermal resource right on top.
UAC Minutes 2/11/04 - Approved 3/3/04 Page 16 of 38
Dahlen: Ah Okay.
Dawes: That however doesn’t show the seasonality. That’s what really .is the base of the problem.
Dahlen’: Yeah. I thought this was answering that. But you are right.
Dawes: One is annual one is by the quarter.
Dahlen: Yeah.
Rosenbaum: Dexter are you ready?
Dawes: Yes. More ready. Let us put it that way. First a comment about an article in the Wall Street
Journal within the last week or so about plants power plants for sale and how we are reaching the bottom
of the cycle on power plants and of course buying cheap assets is something I am always very interested
in doing clue is not one for sale out in the Baylands some place which is a kind of a subject of our
situation here but if the price is right it is better to pay to bring it into the city than to do it an oval thing
whispering in the ear of an investment banker is normally type of thing one would do at this juncture and
the question to the staff is have we done any whispering to say that our interesting deals, deals we would
be interested in investing in if the price is right.
Ulrich: When we saw that article, that triggered our thoughts too. The only problem you got is the
location of it and what it is going to cost to get the transmission rights to move it into this congested area.
I think the whole equilibrium of all this is to have a !ocal power plant as close to Palo Alto as possible
with a minimum amount of transmission cost or having the ability of a government agency or someone to
control over time the cost changes to get that energy into Palo Alto. Of course if the price was right
enough we may overcome that.
Dawes: It definitely would overcome it if the price is right.
Ulrich: You can also believe it that many other California utilities who are closer to these sources can
also be quite interested in.
Dawes: Right. I think of my conversation with Jim Pope about their buying into gas, excuse me, co-
plants in Arizona and bringing power up to Santa Clara and diversifying their base and of course it is
complicated and so forth but there is some charm to have a further diversification of your base resources.
Ulrich: We would like to do and may be we can talk in more detail. But we are also planning a road trip
so that we can drive around the country and look at them.
Dawes: Right. And certainly advising our professional investment bankers that we could be interested is
a step that is easy to take get them excited and probability of it coming to fruition is probably in the low
single digits but one never knows and if you don’t put out the word you are guaranteed nothing will
happen.
Ulrich: Well you can. Closer to home we have had discussions with our brethren and part of the process
is to look at ways of sharing power plants and those that have already committed. Because some of our
other municipal utilities part of NCPA and others are long and they are in their power production or
plants. We had some discussion of that at the NCPA Strategic Planning Meeting.
UAC Minutes 2/11/04 -Approved 3/3/04 Page 17 of 38
Balachandran: Let me just add to the answer here. Most of that excess capacity was outside California,
the southeast is very surplus and as far as California surplus the NCPA thermal RFP went to every
supplier in Northern California who actually owned the plant, So open to Calpine and Duke and Muran
and the results of those responses are what you saw last month and earlier today.
Dawes: Another question. I wanted to talk about the proposed study itself. The 3 to 5 hundred thousand
dollar proposal which will have a motion on it in due course. Is this proposal to be done by the Palo Alto
staff or is this going to be a consultant pertain to do this and assuming that it goes forward where does the
money come from in terms of which budget and is there an ability to deal with it budget wise.
Balachandran: Well. It will come out of the electric funds budget. We put it into our proposed budget
which will come before you I think in a month or so. The total cost over here are both Phase I and Phase
II and regarding who will actually move forward with this. We managed this whole process. Parts of the
work of Phase I will be done by us others by consultants. It depends on to a certain extent on what
Council tells us to do. Council says here is exact. Make sure that in Phase I you do ABCD here. We will
evaluate how much that is going to cost. So the five hundred thousand dollars is based on e~timates of
what other cities have done but the actual expenditure would be highly dependable on what Council
instructs us to do. The level of details, the amount of outreach what initial environmental overview would
mean. What in Phase II when we talk about environmental screening. What that would mean so it is
going to be a combination of staff and consultants.
Richins: Thanks Girish.
Rosenbaum: George.
Bechtel: Girish, I am looking at in the staff report page 4, next steps. Basically it follows up on a
question that I would like to follow up on and get more information the exact way you are going to
conduct the study. In Phase I and Phase II is this going to be more or less a level spending plan or a
constant leve! of effort in each of these Phase I, less Phase II more have you thought out how this is going
to be.
Balachandran: Phase iI will definitely cost more than Phase I. If we get to Phase II it is just the way we
set it up Phase I answers a very broad question which is should staff be evaluating sites in Palo Alto? It is
a kind of threshold question and so we basically go out and describe the problem as we have been
describing to you in the last few years here is the change in the supply portfolio. We talked about the
problem we have done so far in going out with the NCPA RFP what council has done so far get
community feedback and report back to the council. So there will be some kind of environmental analysis
that is pretty high level. That is not going to take as much money as what we are proposing to do in Phase
II which is to answer the question of just read it out. Are there sites in Palo Alto that are suitable? When
you get to that point you start to get into more detail feasibility studies. You start to look at technical
aspects of transmission lines, gas lines, excess to water. You are going to look at many of the impacts
that Paul laid out the environmental side. And it highly depends what exactly Council asks us to do in
Phase II. That is why in each of these phases we are taking it to Council we hope we will have and we
expect to get specific directions of what exactly Council wants us to look for and the level of detail they
want us to examine different issues. There may be some environmental issues that may have a higher
priority for Council and depending on that the budget may change.
Bechtel: I think you are getting to what I am interested in. In the last paragraph you talk about parallel
efforts as well. You will continue to monitor and evaluate compliments and alternatives. And I would
like to see that diminished by focusing so much on the study because the LEAP had talked about local
UAC Minutes 2/11/04 - Approved 3/3/04 Page 18 of 38
generation that is just one option and many of the others. Dexter mentioned earlier trying to find
investment opportunities outside it could be much more beneficial if they were cost-effective without us
having to do something here. So I would like to make sure though that if all this studies is going on that
we continue an equal effort in other areas as well. So I guess if you are saying that in part of this the first
effort likely will be done mostly in-house perhaps and then but that it would also probably going to be the
same approach we would take for the alternatives is to use just yourself, your staff to look at those things.
So I guess bottom line is we still need to look at all fronts. Look at all tactical ways of solving our gap
problems.
Balachandran: I could put up that simple diagram I referred to you before if you want. To answer your
question. Yes. For sure we are going to be looking at all different aspects of the portfolio. We are all
going to come back later this year with programs which include. We are going to look at demand
response programs which basically help shave peak and high cost hours. Are we going to come back to
you with comprehensive energy efficiency goals which are going to be integrated across utilities. Are we
going to continue to look at block purchases what Commissioner Dawes and you said about taking
advantage of market opportunities are we going to do that. So rest assured we are committed to a
diversified approach. We think that’s the approach that is what Council approved, told us to do and that is
what we are doing. So we will continue to do exactly that.
Rosenbaum: Let me follow up on Dexter points. We all remembered that when PG&E went bankrupt
there were certainly financial implications particularly for stock holders but the rivers continue to run and
the generators kept spinning and as far as electricity was concerned it kept flowing. Now the end of 2004
the firming contracts goes away but the generators will still be there. What is going to happen and if we
thought of looking to buy firming from the people who been providing up to date.
Balachandran: You are talking about PG&E.
Rosenbaum: If they are the folks. Yes.
Balachandran: We don’t have an enabling agreement with them. They didn’t respond to our RFP. So we
most likely want buy those blocks, definitely those big blocks from them. As far as within the day
firming. NCPA is in charge of our book for less than a month. So if PG&E responds to what the
schedule is put out sure we wil! buy from them. Western is offering custom products, day ahead firming
and month ahead firming and if Council decides to enter into those contracts and by the way we will be
bringing those contracts for Council approval and if PG&E is a successful bidder on those products sure
we may do that. I am thinking if you are talking about the long-term replacement funding...
Rosenbaum I was thinking from the broader picture. Is all of this generation that was previously used for
firming is going to be thrown out into the market?
Balachandran: It is still being used. I mean right now that is what PG&E is trying to do. They are trying
to actually, they tried to pass on the cost of they have to incur to us. They tried to do over the years and
we successfully resisted that because the contract does not allow it. But after 04 they have no obligation
to provide at the prices that they provided to Western today.
Rosenbaum: I understand that but will they be interested in providing it at a price that we might think
attractive even though it’s greater than what we have been paying under the Western Contract.
Balachandran: I believe and may be Tom Kabat can help me out with this. What they haven’t actually
come up with any kind of comprehensive proposal. (1) PG&E doesn’t own the thermal generation that
UAC Minutes 2/11/04 - Approved 3/3/04 Page 19 of 38
they used to when they actually entered into 2948A and maintained that contract for years. They got rid
of all the thermal generation. So you will have to go to some one like an integrator and sign some kind of
integration contract could be a combination of DUKE, MURAN or whoever it is. Now when you look at
the large Western customers and what different folks have been doing, people have basically been taking
a portfolio approach and building their own generation. I think that reflects a sense of we don’t think that
it is in the offering. One of the guidelines that we provided was ’be inter-dependent on Western’. It was
not a total dependence on Western to address this exact issue. If there were integration opportunities that
came up which we felt was a good price sure jump on that band wagon. But as of now I don’t believe we
had that. Tom do you want to add anything?
Kabat: Yes. I am Tom Kabat with Utilities Department. My understanding from talking with Western
that today PG&E has expressed no interest in doing further integration or extending the contract. So as
Girish mentioned they have spun of quite a bit of their thermal generation over the past few years.
Rosenbaum: So somehow the demand that exist through 2004 is going to be absorbed in the market by
other buyers starting in 2005. There will not be a sudden plot on the market because of the end of the
integration contract.
Kabat: I think the amount of firming is probably something in the order of 2% of the state’s energy
loads. So it is just the 2% moving around it. It does not create a large grid.
Rosenbaum: Atright. Thank you. Do we have any other questions or comments? Or are we ready for a
motion?
Dawes: Are you ready for motion Mr. Chairman?
Rosenbaum: I am ready.
Dawes: UAC recommends to the City Council to accept the staff proposal of a study to implement a
power plant in the City of Palo Alto.
Roseau: Do I have a second?
Dahlen: I’ll second the motion.
Rosenbaum:. Alright. We have a motion by Dawes and a second by Dahlen to approve the staff
recommendation is there any further discussion? If not let us vote. All those in favor.
Ay, Aye.
Rosenbaum: That passes unanimously. Thank you very much and Paul thank you in particular for
coming to be with us.
Richins: Well, thank you very much. It has been enjoyable.
Ulrich: I would just like to add in. Thank you Commission for approval. Paul arrived much earlier today
and spent time with us and the staff and I want to thank him for coming down and giving u~ a lot of
insight into the process. I look forward in working with you.
Richins: And yes if you do decide to go forward with the plant we will definitely be down here working
with your staff and consultants. Thank you.
UAC Minutes 2/11/04 - Approved 3/3/04 Page 20 of 38
Beecham: And Chairman Rosenbaum before we get to the next item I will be departing.
Rosenbaum: Bye. Thank you very much for taking the time out of your busy schedule.
you want to take a short break now? Or should we go right on?
Bechtel IfI could ask, are we going to see 54 slides?
Rosenbaum: With that promise we will continue on. We will move to the III
Preliminary Gas Utility Long Term Plan Recommendations. John.
Colleagues do
Item which is the
Preliminary Gas Utility Long Term Plan Recommendations
Ulrich: Yes. Thanks and we put those in there so you would get your attention. Are you going to do this
Karla?
Daile2: Yes.
Ulrich: Karta Dailey will make the presentation. She should have a copy of it in front of you.
Dailev Hello, I am Karla Dailey. The presentation that I am going to give is greatly reduced from the
large 54 or 55 slides from the one that you have in front of you as backup material. But if you do have
questions about slides in the large presentation is I move through if you notice I am skipping over some of
you may have questions on please feel free to stop me and we can certainly answer questions on those.
Dawes: Karla, if you could just mention the page that you move to next so that we can follow along
without looking back would be great.
Daile¥: Okay. Certainly. I would also like to introduce two other folks who did a lot of work on this
before I get started. Bernard Ertich right there virtually did all the analysis on this project. So some
analytical questions I might defer to him. Also Shiva Swaminathan, I guess he is not here also did a lot
of work. On Page 2 quickly the presentation outline is I will go over. Oh no. This is the wrong. This is
different from .....
Dawes: It is the same number as on our chart.
Daile2: Ya there we go, here we go. Okay. Back to the short version again. The purpose. We will talk
about the purpose of why we are here. The analysis and the preliminary recommendations and the next
steps. On slide #3 our purpose this evening is to receive your feedback on the analysis framework and our
preliminary recommendations. In the context of the objectives, three objectives and guidelines that have
already been approved by the UAC and approved by the City Council. This report and analysis focuses
on two of the guidelines namely asset acquisition and management and gas energy efficiency. Slide #5
the analysis and recommendations that we will talk about are in five areas and each one of these is
associated with a recommendation. Namely, gas storage, gas pipeline capacity, gas reserve acquisition
prepay and gas efficiency. Slide #6. The first one of those assets that staff evaluated was gas storage.
Gas storage can be used for two potential things. One is for daily balancing. I’m sorry ....
Dawes: Our packet here is entirely different from the slides you are having.
UAC Minutes 2/11/04 - Approved 3/3/04 Page 21 of 38
Dailev: You have two packets. You have one that has 55 slides and you should have another that has 28
slides. No you didn’t receive that?.
Dawes: No
Daile2: I asked them to give them to you.
Dawes: Thank you.
Daileg: I’m sorry. So we are on slide #6. The first use of storage is for daily balancing and penalty
avoidance. Basically on days when the PG&E’s system has too much or little gas and at PG&E will
impose daily balancing requirements and if a customer uses more gas than they are bringing into the
system or vice versa on a hot day a penalty will be imposed. Storage can be used to inject gas on days
when a customer may have too much gas coming in for their needs and withdraw gas on a day that a
customer does not have enough gas coming into the system to meet their needs. So that is the first use.
The second use for seasonal price arbitrage.
Dawes: Excuse me. What is OFO and EFO mean?
Dailev: Sorry. That is Operational Flow Order and Emergency Flow Order. And that’s just the PG&E
lingo for a day that daily balancing requirements are imposed.
Dawes: Thank you.
Dailev: Seasonal price arbitrage is the traditional use of storage and all this means is that an owner of
storage may buy gas in less expensive periods and inject it into storage and then withdraw the gas during
the more expensive periods. In Slide #7 in order to evaluate a storage contract we needed to determine
what that contract would like. Storage is priced based on three basic parameters the size of the capacity,
the withdrawal rate and the injection rate that is designated in the contract. So in order to come up with
what a contract for Palo Alto would look like, we chose to model three contracts based on one in ten year
demand events, one in twenty year demand events and one in 50 year demand events. What this means is
that we would buy enough withdrawal and injection and storage capacity to meet both in one in ten year
cold day and in one in ten year warm day and you can see the various const of those contracts. 200,000
for the one in ten, 250 for the one in twenty and 650 for the one in fifty. The one in fifty gas year is
significant because that is the number that PG&E has thrown around as a possible standard for regulating
customers to hold enough capacity to meet that kind of an event. So we wanted to make sure that we had
a good handle on how much that would cost.
Dawes: I am still confused about what this really means. Does this really mean that the analysis assumes
that we will be withdrawing gas or injecting gas only once in ten, twenty or fifty years or is it 365 days in
a ten year period I just don’t know what it means physically tell me what is going on here.
Dailev: It means that we would hold a contract for capacity that would allow us to withdraw enough gas
to meet a one in ten day event. The contract is for a year, and so the capacity that we would hold would
allow us to cover our needs on an event such as one in ten year day.
Dawes: So when we contract we say we need 200; 2000 therms a day coming out of your pipeline and
that is kind of an average for everyday of the year or does the contract allow you to be seasonal. If you
describe the basic contract and how we can vary from it I think I just need to get the basic down to
understand.
UAC Minutes 2/11/04 - Approved 3/3/04 Page 22 of 38
Dailev: Let me make sure. Let me punt this to Bernard a little bit, But I believe that we did various
seasonally Is that right? That each month had a different injection withdrawal rate?
Erlich: Yes. That’s correct. The one in twenty, one in ten and one in fifty scenarios are specified for
each month. So the capacity that needs to be made available for injection or withdrawal in May is going
to be different than the capacity that is going to be made available in June or July.
Dawes: And what sort of just a sort of frame of reference. One in ten year variation would be what
percentage of that monthly requirement? In other words if it is hundred thousand therms in May would
the one in ten would be a ten percent variance, twenty, forty, sixty., a hundred percent just give me a ball
park.
Erlich: What the one in ten means is for any month only ten percent, there is a ten percent risk that the
requirement is going to be above the one in ten capacity. So it’s an event that would have happen in one
every ten year meaning that there is a ten percent chance that the capacity that is gong to be needed to
cover such an event is going to be let me see if I am explaining this right,.
Dailev: Do you have a feel Bernard for I know that one in fifty day event for instance is a cold January
day of a use of about 30,000 mbtus and our expected is around 17,000 a day for the month of January so
that gives you an idea of the order of magnitude of a one in fifty event.
Dawes: So that is about a factor 3.
Dailev: Right.
Dawes: Okay. That is a kind of thing I am looking for. Gives me a feel for it. Thanks.
Dailev: Slide #8 shows a historical look back that we did of what the total daily balancing cost would
have been had we done nothing on these days that PG&E required daily balancing. And how much
storage would have been worth for the use of daily balancing for the last four years and that is the time
period that PG&E has had these daily balancing rules in place. As you can see from these numbers in the
twenty thousand dollar range they are quite a bit less than the two hundred to six hundred thousand dollar
cost of storage. In other words it wouldn’t have been valuable for the City to have owned the storage
looking backwards for the past four years.
Dawes: The twenty thousand is per day and the two hundred thousand is for year.
Dailev: They are both per year.
Dawes: Oh. They are both per year.
Daile2: However history is not always a good measure to base decisions upon and so we did a stress test.
PG&E can impose up to a fifty dollar penalty for one cold day in January ifPalo Alto’s load for thirty two
thousand MMBtu and we had only expected usage of seventeen thousand and weren’t able to get that
extra gas either from storage or some other source to the city that could result in a 750,000 dollar penalty.
That’s for a one day event. A little less drastic case would is the second one down penalty of 25 dollars of
MMBtu which PG&E has imposed once in the past. Say it is a cold snap to last for days or usage is up
from 17 thousand to 22 thousand that results in a 500 thousand dollar penalty. So kind of puts the 20
thousand dollar number into a little better perspective that these penalties could get high. However, on
UAC Minutes 2/11/04 -Approved 3/3/04 Page 23 of 38
Slide 10 what we pointed out is that there are alternatives to storage for dealing with these daily balancing
requirements and it is the way in which we have been dealing with them for the past several years and that
is through contracts with the suppliers for the swing gas. And the cost for this service has been well
below the cost of storage.
Dawes: I take it that there should be a ~U’ in the by in the second line there.
Dailev: Yes. You are right. There should be. Thank you. We come to the second use of storage which
is seasonal arbitrage and the way we did this analysis is by looking at a typical storage year which is April
through March and the injection season being April through October and the withdrawal season being
November through March and we looked at the forward curves as of in periods of time leading up to April
through March time periods and found that although there were points in time when the seasonal price
differential was large enough that it could have overcome the cost of storage that on expected bases the
cost of storage was higher than the seasonal arbitrage benefit. Our conclusions regarding storage are as
follows. Supplier arrangements provide daily swing services are much more competitive than storage that
a summer gas price a dollar lower than winter would make storage attractive for seasonal arbitrage. The
current differential is about 30cents. Our recommendation is not to contract for natural gas storage at this
time. The second asset, sorry, go ahead.
Bechtel: Karla, before you leave us. Storage. I want to ask. The PG&E involvement. Is that because
they own the storage? Are there other alternatives to PG&E that would not be on one of these super cold
days we would not have to pay a penalty?
Dailev: There are alternatives to PG&E’s storage. The PG&E daily balancing rules are separate from the
idea of storage. How a customer deals with getting gas to themselves or getting rid of gas on a
oversupply day getting rid of gas is a separate issue. The PG&E daily balancing requirements are just a
reality of being on PG&E’s pipeline system as we are. There is storage available from PG&E. There are
also two other big storage companies. Lodi and Wild Goose, and Bernard I think we used kind of an
average of the cost of those companies is that true?
Erlich: Yeah. We used the average of the three storage contracts that were made available to us. One is
PG&E, the other is Lodi and the third is Wild Goose.
Bechtel: And may be a technical question. If we don’t have gas coming in does this just means pressure
drops throughout the system and so therefore whatever we have gas we might have pilot lights go out and
so on is that the hazard of exceed on a super cold day of not having enough?
Dailev: The reality for Palo Alto is that we are in the middle of the system. So we are not going to have
those problems, but folks who are in the outlying areas would for instance on a very cold day if gas prices
are really high and nobody wants to buy gas and put it in to the system because on a normal basis the
system is balanced monthly. So on any given day one doesn’t have to meet demand. But when too many
people start doing that on a system, the pressures drop and the folks that are on those outlying areas risk
not getting their gas. Moving on to the next asset that we looked at pipeline capacity and our objective
was to determine if the City should look into acquiring physical pipeline capacity. Basically the value of
a piece of pipeline is equal to the difference in the price of gas at the beginning of the pipeline and the end
of the pipeline. We looked at price differentials across many different pipelines that might be of interest
to Palo Alto and found that the tariff rates for those pipelines are across the board higher than the value of
those pipelines. And this is consistent with PG&E’s view and the current view that at least for the next 7
to 10 years the State of California has more than enough pipeline capacity coming into the State. So from
our perspective certainly a full tariff rates it just doesn’t make sense to make any sort of a long-term
UAC Minutes 2/11/04 - Approved 3/3/04 Page 24 of 38
commitment to pipeline capacity. The other thing that we looked at in this analysis was the correlation
between prices to see if there was any benefit to diversifying our purchasing points and we found that..
Dawes: I have a question on capacity first Karla. Couple of years ago during the height of the electric
crisis gas also went sky high and one of the big issues was the prices at the California border versus E1
Paso and Henry Hub and so forth and apparently El Paso natural gas company was had bought capacity
from their sister company and the charges for bringing gas into California were way out of whack I guess
they have now been restored. But just thinking in a much larger term is it worthwhile to buy capacity to
avoid such issues in the future or is t just assumed that there wont’ be such large disparities. My
recollection is that two or three dollars in difference between those two prices and that the pipeline
companies were really gouging the customers.
Dailev:Right. And that case did get settled recently with a lot of money coming back.
Dawes:
Dailev:
case.
Oh. They did.
Right. Do you remember the details of it?It was half a million dollars to Palo Alto from that
Dawes So that problem should not exist in the future.
Dailev: It should not That is correct.
Dahlen: One question on that. What about supply coming from Canada?
Dailex What’s the question?
Dahlen: Any concern with regards to the security of that supply and how could that affect us?
Daile2: The security as far as the reliability of it coming this way? Or I am not sure I understand your
question.
Dahlen: Yeah and just maintaining the volumes that are coming from Canada.
Daile2: Certainly. Canada has other outlets now that they didn’t have ten years ago. They have pipelines
to the Midwest and the Northeast so the days of Canadian gas being stranded and having nowhere to go
but California are over. The gas market is really pretty much a spider web at this point and all prices play
of each other. So there is no big advantage to Canadian gas anymore. It really kind of equals out at the
borders competing with gas coming from some of the Permian basins, San Juan basin. The place right
now that is interesting is the Rocky Mountains because some of that gas is still stranded and doesn’t really
have a good market to get to and that gas is trying desperately to get to California but can’t get here yet.
But I think when that happens it will just have an overall effect on all the border prices in California that
there is not going to be a great boom if you have direct access to Canadian gas or to Rocky Mountains gas
necessarily. It will just happen. Overall positive effect for consumers once it gets to California.
Dawes: Are there any currency effects here Karla in terms of Canadian dollar versus US or looking in the
future when we’re probably going to be having L&G coming in via Mexican ports does this play into the
cost factor at all?
Dawes: Not surely what the answer to that is. The Canadian dollar or peso exchange rate issue.
UAC Minutes 2/11/04 - Approved 3/3/04 Page 25 of 38
Dawes: Please proceed.
Balachandran: You are working on other issues not part of our diversified portfolio.
Dailev: Slide 15 has our recommendation on this. Another non-action do not acquire additional natural
gas line capacity at this time. Number 3 is a still more interesting I think. And this is something I know
that Commission has expressed interest in the past. It is our analysis on gas reserve acquisition. In this
particular study we were looking to understand the economics and the risks and rewards of reserve
ownership and we tried to accomplish this in three ways. One was from looking into what SMUD has
done in their fairly recent acquisition and another acquisition we heard about which was a group of
Nebraska Munis that acquired some reserves back in 1999 I think it was. We analyzed the relative merits
of reserve investments versus market purchases and we did a small amount of exploring potential market
opportunities. Slide 17 shows our main conclusion regarding reserves. And that is in acquiring reserves
one trades production cost uncertainty for market price uncertainty or vice versa. Get rid of market price
uncertainty and take on production cost uncertainty if reserves are around. We did not draw our
conclusion regarding relative expected price. In other words we are certainly not prepared to say that we
think by owning reserves that our price will be less than the market price but that we believe that a range
of uncertainty is smaller. Slide 18.
Dawes: I can’t read the descriptions on the right hand side of that chart. The blue and the red cost of well
and market cost is that what it is?
Dailev: Yeah. Right. The red spike in the middle is the cost of reserve ownership and the blue is market
cost. So the thing to draw from this graph is that there is much potentially much wider range for the
market cost than for the well head ownership. And I might add that this study the way Palo Alto did this
was based on SMUD’s project. SMUD’s recent acquisition. So a cold bed methane filled with the types
of declined rates that SMUD is expecting from their wells was really modeled after what SMUD acquired.
Slide 18 shows our findings from what we have done so far. The first one is that really each field is
unique and it is impossible to say whether acquiring a well head is economically beneficial or not without
having a particular property in mind to examine and evaluate. Just to give you an idea of the order of
magnitude purchasing production deserve approximately 30 percent ofPalo Alto’s load would require and
investment of 30 to 40 million dollars. We also learned that there is definite benefit when you are looking
at a larger amount of gas to buy and that those economy of scales would be achieve by partnering with
other Munis or non Munis. But certainly other entities. We also learned that in order for tax exempt
financing to apply that we would have to have physical transportation from the well head to Palo Alto and
that trading market price uncertainty for production and certainty would help meet our objective of low
and stable rates. We have the proposed project criteria for potential well head acquisition. The first is
that it must be a partnership with one or more other entities. The second is that the field must be proven
with a large number of wells. In other words we don’t want to go out wild catting. Just FYI SMUD’s
project was a percentage of proven field with 200-some wells on it. The gas must exist in US producing
region with physical pipeline access to California and that goes back to the tax exempt financing
requirement. That Palo Alto would not operate the field. That is not our area of expertise. That whoever
does operate the field needs to be a large experienced financial stabled company and that we would limit
our share to no more than 50 percent of our estimated annual load requirement. Sorry I forgot to take this
of. The steps we would go through in this kind of a project. For Palo Alto the first step would be to
identify consortiums since we have come to the conclusion that we wouldn’t be able to do this on our
own. The second step is to employ an Investment Bank to scope properties and based on what SMUD has
told us this runs about 200 thousand dollars. From that we would identify opportunities that were
attractive and then spend additional money studying the property and this includes reservoir engineering,
UAC Minutes 2/11/04 - Approved 3/3/04 Page 26 of 38
land people and environmental people, lawyers and that was about 800 thousand dollars in SMUD’S
project. Then the property is purchased and then after the property is owned there is asset maintenance
both physical asset maintenance as far as maintaining the wells and new drilling but also administrative
maintenance accounting, royalty payments etc. Our recommendation in this area is to pursue finding a
consortium for potential reserve acquisition and if we were to find something that fit into our Pato Alto
Plan that we could proceed in hiring an Investment Bank. We have a proposed budget in the FY 04-05
budget of 65 thousand dollars for this project and with the 200 thousand dollar requirement for hiring an
Investment Bank if there were 3 or 4 of us involved, this 65 thousand should be able to cover our share of
that. The fourth part of this analysis was to look at prepay contracts. You might remember back in the
late 90’s there were a lot of these going on and then the IRS put a stop to that activity and after several
years of studying the issue came out with an official regulation effective October 2003 that explicitly
allows prepayment for electricity and natural gas. The basic ideas that the City could leverage are
favorable cost of capital and return for a discount on the delivered gas. We think that this discount in the
range of 1 to 10 cents for a 10 year transaction with an AA supplier. We would need a large volume to
get the interest of suppliers which again lends itself to some sort of a consortium. We think that the deals
can be structured in such a way that Palo Alto’s only obligation would be to pay for the gas if it is
delivered and that we can structure a deal with minimal supply or credit risk. However, we have asked
our Risk Manager and some other folks in ASD to help us study this more and look at exactly how these
deals are structured and really get a handle on what our credit risk is or other risks that might be involved
with this kind of a deal.
Dawes: Am I reading this right that on this Nebraska thing that it would appear it is like a 2 ½% saving
of price break you call it which to me even with Municipal Finance would be hard pressed to cover the
interest cost on something like that. Am I reading this right? It doesn’t seem like hugely attractive
proposition.
Balachandran: Yes. It is lower than what we have seen in the past. And I think it reflects the lower
interest rates and I think we are doing our due diligence over here and looking at all the alternatives. The
areas over here which require a lot more analysis and so we are looking at that the savings jump look too
great and we weigh that against the credit risk and we come back to you with our recommendations.
Right now the recommendation is basically monitor I believe.
Dawes: It doesn’t jump out at you at least this example.
Balachandran: It doesn’t. That’s correct.
Ulrich: Well when you go into other Municipalities people are buzz about this. This is one of these
things that tickle with public gas. Organization is being working on it for sometime trying to get this
approved. And we understand that City of Nashville is doing a deal which is even bigger than one in
Nebraska so there is something worth evaluating.
Dailev: Yeah. It is fairly interesting because if you look at an organization like SMUD they as far as I
know, I don’t know what they are looking at but they have certainly haven’t done any prepay deals and
they are very happy with their reserve acquisition and looking to another one. When we talked to the
Nebraska Muni Aggregators they had very bad experience with reserve acquisition have no interest in
ever doing that again and they love prepays and they just did one and they are looking to do another. So it
is pretty interesting the cultural bias is to I guess that creep up within organizations once they have had
one experience versus another. But the Nebraska guys had a prepaid deal with Enron and they claimed
that when Enron deal went bad they lost nothing except a good opportunity. They stopped getting gas,
they stopped getting the discount but they were out no money. So it is really if the structure can be set up
UAC Minutes 2/11/04 - Approved 3/3/04 Page 27 of 38
that way and even if you only get 2 or 3 cents out of it. 2 or 3 cents is better than zero. So on Slide 23 is
our recommendation investigate prepaid activities by other Munis and explore deal structure and credit
issues and as I said by their final report that wilt come back to you we will have a section that has been
crafted by our friends in ASD to better understand this. The last aspect we looked at in this analysis was
gas efficiency and demand side management programs. Gas efficiency programs are not mandated by
state law but have been ordered by the Palo Alto City Council. The programs have targeted residential
end users with education and rebates and we have some evidence that these programs have helped to
levelize the city’s gas consumption. One interesting thing that we ran across in looking at this was comes
back to this idea of daily balancing requirements on PG&E’s system and thought it would be interesting
to look at whether or not there would be a mutual beneficial program for large customers with
discretionary load to reduce usage on days where there might be high penalty. Our overall
recommendation on Slide 26 is to develop a comprehensive demand size management goals and
implementation plan by the fal! of 2004. and this would cover all three of the utilities Gas, Water and
Electric. In the interim continue with the current plan which involves spending about 225 thousand
dollars on rebates for efficiency and end use technologies. In summary the five recommendations are on
Page 27. I won’t read through all of them again. But on 28 the next steps are to incorporate your input
into these recommendations and come back to you with a final report for your recommendation for
Council Approval. That’s all I had.
Rosenbaum: Do we have questions for Karla? George.
Bechtel: Karla, mine is I am assuming on Slide 28 the item was noticed as an action item. But I gather
that from Slide 28 you are only asking for inputs tonight. Is that correct?
Balachandran: Yes we are. But more in terms I guess the way, the reason we put it as an action item is
we wanted to phase the decisions so to speak. These are preliminary recommendations to incorporate
your feedback and take it to Council. So we will actually bring it back to the UAC I believe in April.
Daile2: Yeah. It will probably be April since this February meeting is late in the month and I am not sure
I can get it turned around quickly enough for the March meeting but I think in April.
Rosenbaum: Are you asking for a motion or you are not asking for a motion? I guess that’s the question.
Ulrich: What we would like is a feedback from you specific recommendations if you have enough
information; but we will be back to you before we go to the City Council.
Rosenbaum: Alright. Do we have any specific comments on any of the 5 preliminary recommendations
on Slide 27?
Bechtel: My only comment is it sounds like, it looks like a very thorough job 55 slides worth of analysis
and I don’t have any input. I mean you studied it all. You got good recommendations and we will just
wait to see the final product.
Rosenbaum: Dexter.
Dawes: I too would like to commend the staff. I have certainly surfaced questions about buying reserves
and I never had done one about prepays because I had never heard of them but I am delighted that was
included as well. So my kudos to staff and your analysis Karla and your team is real good and keep on
charging.
UAC Minutes 2/11/04 - Approved 3/3104 Page 28 of 38
Ulrich: I think we need to look at the pace of arbitrage though a little more.
Dawes: I think that is an excellent idea. But in a longer term this LNG thing is going to be a major
situation and you know we do have a we could dig out the harbor in Palo Alto and bring LNG tankers in
there and vow that’s subject for another discussion.
Ulrich: Are you suggesting that it should be in our recommendations?
Dawes: You can think about that John.
Rosenbaum: Immediately after the power plant. Alright I think basically what we are saying that we
appreciate all of the work that’s been done and we are happy with the preliminary recommendations.
Thank you.
Ulrich: Thank you. Thank you Karla and Bernard and Shiva. Thank You
Rosenbaum: Item IV. We will go right on the Utilities Quarterly Report.
Utilities Quarterly Report
Ulrich: This is our quarterly report and it is in the outline that you are familiar with and it covers
comprehensive information about each of the utilities and it is probably best have you ask us some
questions and if you would like to do it by commodity or it would be fine too.
Rosenbaum: Yes we will go through it in the order of water, gas and financial. Do we have questions on
the water information. Elizabeth.
Dahlen: Yes I have some question with regards to the water survey. Item 6. How many residents applied
to the survey?
Dawes: 838 it says on Page 7
Ratclwe What was your question again?
Dahlen: Is that right? Okay.
Rosenbaum: Did you get this copy?
Ulrich: Excuse me. Are you referring to specific page or item under the study?
Dahlen: No I was and my questions has been answered by Commissioner Dawes. Thank you.
Ratchve: We’ve gotten more responses since the writing of this report.
Dahlen: Is there going to be a more comprehensive analysis of the results of the survey?
Balachandran: Yes. It will be provided to you in March.
Dahlen Okay and that will take into account the timeliness when the survey went out with regards to
Hetch Hetchy being under construction at the time.
UAC Minutes 2/11/04 -Approved 3/3104 Page 29 of 38