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HomeMy WebLinkAboutStaff Report 7026 City of Palo Alto (ID # 7026) City Council Staff Report Report Type: Consent Calendar Meeting Date: 6/27/2016 City of Palo Alto Page 1 Summary Title: Net Surplus Electricity Compensation Rate Title: Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution Amending the Net Surplus Electricity Compensation Rate (E-NSE-1) From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the City Council adopt a resolution (Attachment A) amending the Net Surplus Electricity Compensation Rate Schedule (E-NSE). Executive Summary Electric utilities must offer Net Energy Metering (NEM) to eligible customers under specific conditions set by state law. One such requirement is that electric utilities establish a Net Surplus Electricity Compensation Rate Schedule to compensate eligible customer-generators for electricity produced in excess of on-site load at the end of each twelve-month period. In December 2010, the City adopted the Net Surplus Electricity Compensation Rate Schedule (E- NSE) rate effective January 1, 2011, to compensate eligible customers for their net surplus electricity at a value of 5.841 cents per kilowatt-hour (kWh), and the rate has remained unchanged since. Staff proposes to update the valuation methodology supporting the E-NSE rate to reflect the City’s avoided cost of local solar from the prior calendar year, updated annually. Using this methodology and 2015 data, the proposed E-NSE rate is 7.21 cents per kilowatt-hour effective July 1, 2016. Staff expects the total cost of energy purchases under the proposed 7.21 cents/kWh rate will be $15,000 to $20,000 a year at full NEM program capacity of 9.5 MW, or $5,000 more per year compared to the current E-NSE rate. The proposed E-NSE rate is a cost-justified rate that meets statutory requirements set out in State law and applies only to NEM customers. Background Assembly Bill (AB) 920 (2009) modified the California Public Utilities Code’s terms and conditions for Net Energy Metering (PUC Section 2827, et. seq.). AB 920 required the City City of Palo Alto Page 2 Council to establish a Net Surplus Electricity Compensation Rate Schedule effective January 1, 2011, to compensate eligible customer-generators for electricity produced in excess of on-site load at the end of each twelve-month period. The Net Metering Net Surplus Electricity Compensation rate (Utility Rate Schedule E-NSE-1) was adopted by Council in December 2010 (Resolution 9124). Eligible customer-generators may choose to receive their Net Surplus Energy compensation as a monetary bill credit or as cash. Settlement periods are twelve months and are deemed to start when the utility receives the customer’s completed and signed election form. If the customer fails to make an election, electric utilities are not obligated to offer compensation or carry forward the net-surplus electricity; PUC Section 2827(h)(3) requires the City to claim the surplus as its own. State law (PUC Section 2827(h)(6)) also requires that the net surplus electricity purchased by the electric utility counts toward the electric utility’s renewables portfolio standard (RPS) annual procurement targets. In December 2010, the City adopted the E-NSE rate to compensate eligible customers for their net surplus electricity at a value of 5.841 cents/kWh, which is based on the average cost of the City’s renewable portfolio standard (RPS)-eligible supply contracts in FY2010. This value includes the value of the electricity and renewable attributes, and excludes the value of avoided costs for transmission and losses. The valuation methodology was chosen because of its simplicity and because it does not shift costs between eligible customer-generators and other bundled service customers, in compliance with PUC 2827(h)(5). As of April 30, 2016, the City has 885 eligible NEM customers with a total generating capacity of 7.6 MW. Total net surplus generation over the past four calendar years is shown in Table 1. The aggregate amount of net surplus generation is minimal compared to the City’s total energy purchases1, and predominantly from the residential customer class. The number of net surplus generators is small compared to the overall number of solar customers. Customers may end up producing electricity beyond their on-site needs because of a variety of reasons, including: 1) the customer sized the solar system larger than the current load in anticipation of adopting an electric vehicle, but has not done so yet, 2) the customer decreased load significantly after adopting a solar installation, due to energy efficiency measures or reduced family size, or 3) the solar system was mistakenly sized to be larger than the customer’s on-site needs. 1 Net Surplus compensation paid to customers in 2015 totaled $10,605.09, or less than 0.02% of total electricity purchases. City of Palo Alto Page 3 Table 1: Historical annual net surplus generation by customer class Customer Class Annual Net Surplus Generation (kWh) 2012 2013 2014 2015 Residential 211,445 238,192 349,857 391,025 Small Commercial 168 212 1,946 4,680 Medium Commercial 0 3 3 0 Total 211,613 238,407 351,806 395,705 Discussion Public Utilities Code Section 2827 describes the terms and conditions of net energy metering, including the requirements for the net surplus electricity compensation rate. Pertinent sections of the PUC Section 2827 are copied below. PUC section 2827 (h) (5) (A): The net surplus electricity compensation valuation shall be established so as to provide the net surplus customer-generator just and reasonable compensation for the value of net surplus electricity, while leaving other ratepayers unaffected. The ratemaking authority shall determine whether the compensation will include, where appropriate justification exists, either or both of the following components: (i) The value of the electricity itself. (ii) The value of the renewable attributes of the electricity. PUC section 2827 (h) (5) (B): In establishing the rate pursuant to subparagraph (A), the ratemaking authority shall ensure that the rate does not result in a shifting of costs between solar customer- generators and other bundled service customers. Staff proposal Staff proposes increasing the net surplus electricity compensation rate to 7.21 cents per kWh, shown in Figure 1, which is calculated based on a historical short-term avoided cost of local solar for calendar year 2015. The value would take effect July 1, 2016, and would be updated annually. The value of 7.21 cents per kWh was determined utilizing historical data and takes into account the value of the energy and congestion, avoided capacity charges, avoided transmission and ancillary service (AS) charges, avoided transmission and distribution (T&D) system losses, and renewable energy credits (RECs), or environmental attributes. The energy component to the overall credit rate is calculated by taking historical wholesale monthly round- the-clock market price data for northern California, and weighting them based on the typical generation profile of rooftop solar PV systems in Palo Alto and the hourly profile of market prices in northern California. In this way, the valuation methodology accounts for the fact that solar energy is often generated at times of peak system demand. Avoided transmission and AS charges are calculated based on the actual charges that the City pays to the California Independent System Operator (CAISO) for these services. The value of the environmental City of Palo Alto Page 4 benefits is based on historical market price indicatives for the value of a “Bucket 1” REC. The valuation methodology is consistent with the 2016 electric cost of service analysis (COSA). Figure 1: Value of net metering net surplus electricity rate (E-NSE) The proposal uses an updated valuation methodology for two primary reasons. First, the proposal is consistent with the valuation model used to calculate the proposed NEM successor credit rate for energy exports (proposed Utility Rate Schedule E-EEC), which is also a short-term avoided supply cost of local solar. The only difference in the application of the valuation methodology is that the NEM successor credit rate is a forward-looking value that uses input data for the upcoming fiscal year (FY 2017) and the NEM net surplus electricity compensation rate is a backward-looking value that uses input data from the prior calendar year (CY 2015)2. Second, the prior valuation methodology adopted in 2010 utilized RPS-eligible renewable energy costs, which are all long-term energy contracts, many of which span multiple decades. The proposed valuation methodology is a short-term avoided cost based on market purchases, which is more consistent with how CPAU balances small amounts of energy (such as that from net surplus electricity generators) when managing the electric supply portfolio. 2 Net surplus compensation is for generation in excess over the past 12-month period so it uses data from the past year. The NEM successor credit rate (E-EEC) is for energy that will be generated in the future, which is why it uses forecasts for the input data for the next fiscal year. City of Palo Alto Page 5 Alternatives There are alternative valuation methodologies that could be used to calculate the net surplus electricity compensation rate that also fulfill statutory requirements. Using the same valuation methodology as that adopted in 2010 (average cost of RPS-eligible renewable energy supply excluding transmission), the value of the rate would be 6.835 per kWh for FY 2017 (based on FY 2016 costs). Staff does not recommend this alternative because it does not take into account a variety of avoided costs of local generation and it is inconsistent with the proposed valuation methodology to calculate the NEM successor rate for electricity exports. A second alternative would be to adopt the same value as the proposed NEM successor credit rate for energy exports (proposed Utility Rate Schedule E-EEC), which is 7.485 cents per kWh. Staff also does not recommend this methodology since, although the underlying valuation model is the same, the E-EEC rate is forward-looking and based on input data for FY 2017, whereas net surplus compensation is by definition backward-looking and based on input data from CY 2015. Committee Review and Recommendation The UAC reviewed the recommendation at its June 1, 2016 meeting. After hearing that the rate affected only a few customers whose annual on-site generation exceeds their annual usage, that the methodology change was made to be consistent with the methodology for the NEM successor program and that the rate was increasing from 5.841 cents/kWh to 7.21 cents/kWh, the UAC supported the proposal. The UAC voted unanimously (6-0 with Chair Cook, and Commissioners Ballantine, Forssell, Johnston, Schwartz and Trumbull voting yes and Vice Chair Danaher absent) to recommend that Council amend the surplus electricity compensation rate as proposed. The excerpted draft minutes of the UAC’s June 1, 2016 meeting are provided as Attachment C. Resource Impact Staff anticipates the resource impact of updating the cost-based net surplus electricity compensation E-NSE rate from 5.841 cents/kWh to 7.21 cents/kWh for eligible customers will be negligible. Based on the historical levels of net surplus electricity and trends in customer elections discussed above, staff expects the total cost to be approximately $15,000 to $20,000 a year at full NEM program capacity of 9.5 MW. The rate change will result in an additional $5,000 per year cost to the electric fund. Policy Implications This recommendation does not represent a change to current City policies. The proposed revisions do not have any policy implications. Environmental Review Council’s adoption of the proposed net surplus electricity compensation rate is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates City of Palo Alto Page 6 these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. Attachments:  Attachment A: Resolution Adopting Electric Rate E-NSE (PDF)  Attachment B: Net Surplus Energy Compensation Rate Schedule E-NSE-1 effective 07-01- 2016 in redline format (PDF)  Attachment C: Excerpted Draft UAC Minutes of June 1, 2016 Meeting (PDF) Attachment A NOT YET APPROVED 160531 jb 6053781 Resolution No. ______ Resolution of the Council of the City of Palo Alto Amending Electric Rate Schedule E-NSE-1 (Net Metering Net Surplus Electric Compensation). R E C I T A L S A. Net Energy Metering (NEM), is a billing arrangement that provides credit to customers for the full retail value of the electricity their system generates. B. State law, California Public Utilities Code Section 2827 et. seq., requires all electric utilities to offer NEM to eligible customers and to establish a Net Surplus Electricity Compensation Rate to compensate eligible customer-generators for electricity produced in excess of on-site load at the end of each twelve month period. C. In December 2010, the Council adopted the City’s first E-NSE rate to compensate eligible customer-generators for their net surplus electricity at a value of 5.841 cents/kWh (Resolution 9124), based on the average cost of the City’s renewable portfolio standard-eligible contracts in FY 2010. D. Staff has developed, in conjunction with the FY 2016 electric cost of service analysis, an updated E-NSE-1 compensation rate to reflect the City’s avoided cost of local solar for calendar year 2015. The updated E-NSE-1 compensation rate is based on historical data, taking into account the value of the energy and congestion costs, avoided capacity charges, avoided transmission and ancillary service charges, avoided transmission and distribution system loses and renewable energy credits. E. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and charges. The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-NSE-1 (Net Metering Net Surplus Electric Compensation) is hereby amended to read as attached and incorporated. a) Utility Rate Schedule E-NSE-1, as amended, shall become effective July 1, 2016. b) The Net Metering Net Surplus Electric Compensation rate adopted by this resolution is based on a detailed analysis of historical data, the value of energy and congestion costs, avoided capacity charges, avoided transmission and ancillary service charges, avoided transmission and distribution system loses and renewable energy credits, and was developed in coordination with the City’s 2016 electric cost of service analysis. Attachment A NOT YET APPROVED 160531 jb 6053781 SECTION 2. The Council finds that the revenue derived from the adoption of this resolution shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. SECTION 3. The Council finds that the fees and charges adopted by this resolution are charges imposed for a specific government service or product provided directly to the payor that are not provided to those not charged, and do not exceed the reasonable costs to the City of providing the service or product. SECTION 4. The Council finds that the adoption of this resolution changing electric rates is not subject to the California Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all attachments presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services NET METERING NET SURPLUS ELECTRICITY COMPENSATION UTILITY RATE SCHEDULE E-NSE-1 CITY OF PALO ALTO UTILITIES Issued by the City Council Effective 7-1-1-20112016 Sheet No.E-NSE-1 A. APPLICABILITY: This schedule applies to eligible residential and small commercial net meteringNet Energy Metering Customers who, at the end of an annual settlement period, as defined bydescribed in Rule 29, are net surplus customer-generatorsNet Surplus Customer-Generators of electricity and who elect to receive monetary compensation as such preference is indicated on the net surplus electricity election form. This schedule only applies to Customers who participate in Net Energy Metering, and does not apply to Customers that take service under the City’s Net Energy Metering Successor Rate, as each of these terms are defined in Rule and Regulation 2. B. TERRITORY: Applies to locations within the service area ofThis rate schedule applies anywhere the City of Palo Alto provides electric service. C. RATES: Per kWh Net energy compensationSurplus Electricity Compensation rate $0.058410721 D. SPECIAL CONDITIONS 1.Net surplus compensation eligibility will be determined as specified in Rule 29. The determination of a Customer’s net surplus electricity measured in kWh will be based on a twelve-month settlement period. The twelve-month settlement period starts on the date of Interconnection of the facility, or for Customers with dates of Interconnection of their facilities prior to February 1, 2010, on the day after CPAU’s receipt of the Customer’s net surplus electricity election form.Net Surplus Electricity Compensation Rate eligibility shall be determined as specified in Rule 29. Net surplus electricity, as specified in Rule 29, if applicable, will be multiplied by the above compensation rate to determine the Customer’s annual net surplus electricity compensation stated in dollars. This compensation will be provided to the Customer as a credit applied to the Customer’s Utility account. 2.If the Customer does not provide CPAU with an election form selecting a compensation option, the Customer will be deemed to not make an election as required by law, and no compensation will be provided to the Customer for net surplus electricity. 3.In the event a Customer terminates Service prior to the natural expiration of the twelve-month period, the net surplus electricity status will be evaluated at that time. Compensation, if applicable, will be provided in accordance with D.2 above. 4.2.For all otherAdditional terms, conditions and definitions please refer to Rule 29,govern Net Energy Metering Service and Interconnection, as described in Rule 29. {End} ATTACHMENT B EXCERPTED DRAFT MINUTES OF THE JUNE 1, 2016 UTILITIES ADVISORY COMMISSION MEETING ITEM 4. ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that the City Council Amend the Net Surplus Electricity Compensation Rate (E-NSE-1) Chair Cook asked that the staff presentation on the item be kept to a minimum as he understands that this item is administrative in nature and has a very small dollar impact on the utility. Assistant Director Jane Ratchye confirmed that this rate affects a very small group of customers and that the annual impact is quite small. She said that basically the proposal is to increase the rate for surplus generation to use the same methodology that is used for the Net Energy Metering (NEM) successor rate and only impacts those customers who generate more energy on-site than they use on-site over a 12-month period. For most NEM customers are not affected by the change since they usually generate less energy than they use over a 12-month period. Acting Rates Manager Eric Keniston stated that the proposal is to increase the Net Surplus Electricity Compensation Rate (E-NSE-1) from 5.841 cents per kilowatt-hour (kWh) to 7.21 cents/kWh for the amount of energy that is generated that is surplus to a customers’’ needs over a 12-month period. The methodology is changed from the current rate, which is based on the cost of renewable supplies, to be consistent with the NEM successor rate, except that it looks back 12 months using actual costs, while the NEM successor rate looks forward 12 months using projected costs. Commissioner Johnston asked how this program is different from the Palo Alto CLEAN program. Ratchye explained that the CLEAN program pays for 100% of the solar generation at the established price for the contract term, but that for customers with net energy metering, the majority of the generation is used onsite to meet the customer’s energy usage and this rate is only for buying the generation that exceeds the customer’s usage over a 12-month period. Chair Cook said that has a PV system on his roof and does not have surplus energy generation, but may in the future and asked the City Attorney if there would be a personal conflict of interest since he could be a beneficiary of this rate. Deputy Assistant City Attorney Jessica Mullan recommended that any potential conflict of interest be discussed in advance of the meeting. She said that the considerations include whether the actions would have an impact on a commissioner’s personal finances and whether that impact would be foreseeable and material and whether you would be impacted differently from any member of the public. ATTACHMENT C ACTION: Commissioner Schwartz made a motion that the UAC recommend that Council amend the Net Surplus Electricity Compensation Rate Schedule (E-NSE-1) as proposed. Commissioner Ballantine seconded the motion. The motion passed unanimously (6-0) with Chair Cook, and Commissioners Ballantine, Forssell, Johnston, Schwartz and Trumbull voting yes and Vice Chair Danaher absent.