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HomeMy WebLinkAboutStaff Report 7967 City of Palo Alto (ID # 7967) City Council Staff Report Report Type: Consent Calendar Meeting Date: 6/5/2017 City of Palo Alto Page 1 Summary Title: Gas Utility Long-term Plan Update Title: Approval of Conforming Changes to the Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan to Reflect Prior Council Action From: City Manager Lead Department: Utilities RECOMMENDATION Staff recommends City Council (Council) approve the proposed conforming changes to the Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan to reflect prior Council Actions related to GULP. EXECUTIVE SUMMARY Resolution 9244 amending the GULP Objectives, Strategies, and Implementation Plan was approved by Council in 2012. Since then, there have been a number of Council-approved changes to policies and operations. The proposed changes reflect previously approved Council directives and do not represent any new initiatives proposed by staff. DISCUSSION GULP is the vehicle by which the gas supply portfolio is managed consistently, transparently, and with input from Council. As part of the recently-initiated Utilities Department strategic planning effort, staff is reviewing the positioning of the GULP relative to other plans and policy documents, and will accordingly make recommendations for modification in future updates. When first developed in 2003 (CMR 355:03), GULP was driven by the need to update the commodity purchasing strategy, the need to negotiate new transportation and storage agreements after Pacific Gas & Electric’s bankruptcy, and the need to react to new regulations impacting the gas utility. When GULP was updated in 2010 (CMR 106:11), a climate protection objective was added, and when GULP was updated in 2012, the stable rates objective was replaced with a market-based passed through rate objective. A copy of the proposed updated GULP is included in this Staff Report as Attachment A. City of Palo Alto Page 2 The proposed update does not include any new policy directions; it merely reflects the policies approved by Council in the intervening time period since the last update. The current and proposed changes to the GULP Objectives, Strategies, and Implementation Plan are described and shown in Tables 1 through 5 below. Market Price Transparency The 2012 GULP update included the change from a hedged portfolio to market-based retail gas rates. Those commodity rates have been in effect since 2013, therefore, a transition plan is no longer relevant with respect to implementation. Table 1: Market Price Transparency GULP Current Proposed Objective 1 Pass a market cost signal through to customers. No change Strategy 1 a. Purchase natural gas at monthly and daily market index prices. b. Change gas supply rate monthly to reflect market prices. No change Implementation Plan Item 1 Transition to market price-based, monthly adjusted gas supply rates by: a. Developing a new purchasing plan to be approved by the Director of Utilities; b. Designing a new monthly- adjusted gas supply rate; c. Revising the reserve guidelines for Council approval; and d. Conducting customer communication and outreach. Continue to implement market-based supply purchases and commodity rates. Supply Cost Management In 2014 Council adopted Resolution 9451 authorizing the City’s participation in a gas purchase agreement with Municipal Gas Acquisition and Supply Corporation (MuniGas) for the City’s entire load with no obligation to purchase more than the City’s demand. MuniGas sells discounted gas via an aggregated municipal gas supply purchased through a prepay transaction. The City executed all agreements and was placed on a wait list to purchase gas when the next prepay transaction occurs. Low gas prices and a narrow margin between corporate and municipal tax rates have been unfavorable for a transaction thus far. The following changes to the GULP Implementation Plan reflect the Council-approved steps taken to take advantage of the City’s low cost of capital to acquire discounted gas supply. City of Palo Alto Page 3 Table 2: Supply Cost Management GULP Current Proposed Objective 2 Lower delivered gas cost over the long term No change Strategy 2 Lower delivered gas cost over the long term by: a. Acquiring pipeline assets that yield supply costs below market and meet operational needs; b. Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c. Optimizing existing assets. No change Implementation Plan Item 2 Pursue cost-effective gas storage services by: a. Evaluating the pipeline capacity reservation options available; and b. Contracting with PG&E for any pipeline capacity with an estimated cost below the forecasted market value. No change Implementation Plan Item 3 Pursue opportunities for natural gas prepay transactions by: a. Hiring a consultant to help staff with: i. Identifying any internal policy changes needed including the policy on the use of financial instruments; ii. Identifying system and internal processes required; iii. Identifying opportunities; and iv. Evaluating opportunities and quantifying the benefits and costs; and b. Seeking UAC recommendation and Council approval regarding whether to proceed with a gas prepay transaction. Monitor the prepay market and prepare for implementation in preparation for a future MuniGas transaction. Energy Efficiency There are several changes to this section: City of Palo Alto Page 4  The ten-year gas efficiency goals are currently updated every four years (instead of three years) to align them with the schedule for the electric efficiency goals;  Previously, an assumed price for carbon was used when evaluating gas efficiency measures to account for the avoided costs associated with carbon reduction. The adoption of a carbon neutral gas portfolio as well as the gas utilities compliance obligation in California’s Cap & Trade Program now means that a carbon price is directly integrated into the Gas Utility’s costs, meaning that an assumed carbon price premium unnecessary. Electrification efforts are being driven by the Sustainability and Climate Action Plan (Staff Report #7304) and the Electrification Work Plan (Staff Report #5961), so these efforts no longer need to be reflected in GULP. Electrification efforts may reduce gas demand, so that impact is included in GULP. and  Program implementation language has been cleaned up and reporting practices clarified. Table 3: Energy Efficiency GULP Current Proposed Objective 3 Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures No change Strategy 3 a. Develop and implement a ten- year gas efficiency plan every three years that includes a reasonable carbon price premium for traditional gas supplies; and b. Consider the impacts (costs, benefits, and GHG emissions) of substituting electricity-using appliances for gas-using appliances and vice versa in the ten-year efficiency plan. a. Develop a ten-year gas efficiency plan every four years maintaining consistency with the electric energy efficiency goals update schedule; and; b. Consider the impacts of electrification on gas demand. City of Palo Alto Page 5 GULP Current Proposed Implementation Plan Item 4 Develop an implementation plan to meet the gas efficiency targets by summer 2011 including the: a. Evaluation of the cost- effectiveness of substituting gas- using appliance for electric-using appliances and vice versa and the greenhouse gas impacts of such substitutions; and b. Incorporation of any cost- effective substitution measures in the implementation plan to meet the gas efficiency targets. Implement gas efficiency programs to meet the gas efficiency goals. Implementation Plan Item 5 Track and report progress against adopted gas efficiency goals by: a. Providing quarterly updates on the gas efficiency program achievements to the UAC; and b. Providing annual updates on gas efficiency program achievements and overall cost effectiveness to the UAC and the City Council. Track and report on gas efficiency by: a. Providing quarterly updates to the UAC about the gas efficiency programs; and b. Providing annual updates to Council on gas efficiency achievements compared to the goals and overall cost effectiveness. Implementation Plan Item 6 Continue evaluating new gas efficiency technologies and undertake pilot studies where appropriate. No change Climate Protection Revisions have been made to Objective 4 to reflect that the Council-approved Carbon Neutral Natural Gas Plan. The proposed GULP has been aligned with Council’s December 2016 adoption of Resolution 9649 approving a Carbon Neutral Natural Gas Plan and approving termination of the Palo Alto Green Gas Program. The Carbon Neutral Gas Plan will achieve carbon neutrality for the gas supply portfolio by FY 2018 using high-quality environmental offsets with a cost cap of 10 ₵/therm. Council also directed staff to:  Develop an implementation plan for the Carbon Neutral Gas Plan;  Minimize cost to achieve carbon reduction within 10¢/therm rate impact cap; City of Palo Alto Page 6  Return to Council to determine an acceptable premium, if any, to be paid for a local offset project when a certified project is identified; and  Consult with stakeholders on potential methods to fund alternatives to offsets, including methods involving voter approval. Staff is also proposing removing the GULP Implementation Plan item to pursue non-fossil gas sources (such as biogas). In 2012, the Northern California Power Agency (NCPA) was evaluating some non-fossil fuel alternatives for their gas fired generation. Nothing resulted from that Natural Gas Purchasing Program (NGPP) effort. The Carbon Neutral Gas Plan does not include any non-fossil fuel resources at this time. Table 4: Climate Protection GULP Current Proposed Objective 4 Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan Reduce the carbon intensity of the gas portfolio in accordance with the Carbon Neutral Natural Gas Plan Strategy 4 a. Design and implement a voluntary retail program using reasonable priced non-fossil fuel gas resources; and b. Purchase non-fossil fuel gas for the portfolio as long as it can be done with no rate impact. a. Terminate the PaloAltoGreen Gas program established by Resolution 9405; and b. Design and implement the Carbon Neutral Gas Plan to achieve carbon reduction with no more than a ten cent per therm rate impact. Implementation Plan Item 7 Pursue reasonably priced non-fossil gas for a voluntary program through NGPP by: a. Reviewing the due diligence report to be provided to NGPP participants by the end of October 2010; and b. Based on the results, recommending whether to continue participating in the projects. Pursue potential modifications to the Carbon Neutral Gas Plan by: a. Determining an acceptable premium, if any, to be paid for a local offset project if and when a certified project is identified; and b. Investigating alternatives to offsets, including methods involving voter approval. Parity with PG&E There are no proposed changes to this section. Table 5: Parity with PG&E GULP Current Proposed City of Palo Alto Page 7 GULP Current Proposed Objective 5 At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers. No change Strategy 5 a. Participate in the regulatory and legislative arena when the potential impact on the City is aligned with the cost to intervene and the probability of success; b. Negotiate with PG&E for fair access to transportation and storage; and c. Explore potential joint action with other public agencies. No Change COMMISSION REVIEW The proposed changes to GULP were transmitted to the Utilities Advisory Commission as an informational item at their April 5, 2017 meeting. POLICY IMPLICATIONS Changes to the GULP Objectives, Strategies and Implementation Plan reflect policy decisions already made by Council. No new initiatives are proposed by staff in connection with this GULP update. ENVIRONMENTAL REVIEW Council’s approval of conforming changes to the GULP to reflect prior Council action does not require California Environmental Quality Act review, because the approval does not meet the definition of a project under Public Resources Code 21065. Attachments:  Attachment A: Proposed GULP Strategies and Objectives ATTACHMENT A Proposed Gas Utility Long-term Plan (GULP) Objectives, Strategies and Implementation Plan GULP Objectives: 1. Market price transparency – Pass a market supply cost signal through to customers. 2. Supply Cost Management – Lower delivered gas cost over the long term. 3. Energy Efficiency – Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures. 4. Climate Protection – Reduce the carbon intensity of the gas portfolio in accordance with the Sustainability and Climate Protection Plan. 5. Parity with PG&E – At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers. GULP Strategies: 1. Pass a market supply cost signal through to customers by: a. Purchasing natural gas at monthly and daily market index prices; and b. Changing gas supply rates monthly to reflect market prices. 2. Lower delivered gas cost over the long term by: a. Acquiring pipeline assets that yield supply costs below market and meet operational needs; b. Taking advantage of the City’s low cost of capital to acquire gas supply and assets; and c. Optimizing existing assets. 3. Ensure the deployment of all feasible, reliable, cost-effective energy efficiency measures by: a. Developing a ten-year gas efficiency plan every four years maintaining consistency with the electric energy efficiency goals update schedule; and b. Considering the impacts of electrification on gas demand. 4. Reduce the carbon intensity of the gas portfolio in accordance with the Climate Protection Plan by: a. Terminating the PaloAltoGreen Gas program established by Resolution 9405; and b. Designing and implementing the Carbon Neutral Gas Plan to achieve carbon reduction with no more than a 10 cent per therm rate impact. 5. At a reasonable cost, protect the City’s interests and maintain access to transportation on par with PG&E’s core customers by: a. Participating in the regulatory and legislative arenas when the potential impact on the City is aligned with the cost to intervene and the probability of success; a. Negotiating with PG&E for fair access to transportation and storage; and b. Exploring potential joint action with other public agencies. ATTACHMENT A GULP Implementation Plan: 1. Continue to implement market-based supply purchases and commodity rates. 2. Pursue below-market assets available through the Gas Transportation and Storage Settlement by: a. Evaluating the pipeline capacity reservation options available; and b. Contracting with PG&E for any pipeline capacity with an estimated cost below the forecasted market value. 3. Monitor the prepay market and prepare for implementation in preparation for a future MuniGas transaction. 4. Implement gas efficiency programs to meet the gas efficiency goals. 5. Track and report on gas efficiency by: a. Providing quarterly updates to the UAC about the gas efficiency programs; and b. Providing annual updates to Council on gas efficiency achievements compared to the goals and overall cost effectiveness. 6. Continue evaluating new gas efficiency technologies and undertake pilot studies where appropriate. 7. Pursue potential modifications to the Carbon Neutral Gas Plan by: a. Determining an acceptable premium, if any, to be paid for a local offset project if and when a certified project is identified; and b. Investigating alternatives to offsets, including methods involving voter approval.