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HomeMy WebLinkAboutStaff Report 3454 City of Palo Alto (ID # 3454) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/11/2013 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Electric Demand Response Pilot Program Extension Title: Utilities Advisory Commission Recommendation that Council Approve a Three Year Extension of the Demand Response Pilot Program for Large Commercial Electric Customers From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the City Council approve a three-year extension of the demand response (DR) pilot program for large commercial electric customers. Executive Summary Providing appropriate incentives to customers through DR programs can help utilities reduce electricity usage during high-demand periods, thereby reducing capacity costs as well as limiting production from inefficient and polluting electric generation resources across the state. The City’s DR pilot ran during the summers of 2011 and 2012 with the objective to evaluate the cost-effectiveness and customer appeal of DR incentives in Palo Alto. However, mild weather in both summers resulted in the need for few DR events, which created a lack of sufficient data to evaluate the program. A three-year extension of the pilot is proposed to further explore the benefits of DR in Palo Alto. At its January 9 meeting, the UAC voted unanimously to recommend the three-year pilot program extension. Background The Energy Policy Act of 2005 required utilities to offer customers time-based rate options such as time-of-use pricing, critical-peak pricing, real-time pricing, and peak load reduction credits. In June 2008, staff communicated these requirements to Council, but recommended against implementing such options based on the estimated low level of community benefit, constraints on the City’s automated customer information and billing system software (SAP), and City of Palo Alto Page 2 insufficient metering capability (CMR: 215:08). Subsequently, the 2010 Ten-year Electric Energy Efficiency Plan (CMR: 218:10) identified cost-effective DR as a City of Palo Alto Utilities (CPAU) initiative. In March 2011, Council approved a two-year small-scale DR pilot program designed to work with current systems that would yield valuable insight at a relatively low cost (Staff Report 1450). Benefits of DR in California Electric utilities increasingly rely on DR and time-based retail rates to reduce supply costs and encourage efficient energy use. Large investor-owned utilities in California have implemented DR programs that offer incentives to customers for energy use reduction during high-use periods and for investing in automation technology. Utility providers generally base the amount of energy reduction credits offered on their estimated avoided costs. Typically, large national service providers manage these DR programs for the utility providers. In addition to reducing costs to the utility and providing a financial incentive for participating customers, DR may reduce the need for new power plant construction and reduce air pollution by limiting production from inefficient and polluting electric generation resources in California and the Bay Area. Furthermore, new applications may improve electric transmission grid reliability and prove to be a useful tool to address the supply peaks and valleys caused by intermittent renewable energy sources such as wind and solar. Program Results to Date CPAU’s DR pilot program was limited to two years (summers of 2011 and 2012) and two megawatts (MW) of peak energy use reduction. CPAU compensated participating customers at the cost-neutral rate of 50 cents for every kilowatt-hour (kWh) of energy reduced below a specified baseline. Baseline usage was calculated for each customer based on prior usage patterns. Most of CPAU’s commercial customers have limited flexibility to curtail their electric usage, but potential avenues for usage reduction include limiting non-critical lighting and pre- cooling buildings early in the day. In the first summer of the pilot, 3 customers participated and only one test event occurred. In the second summer, 7 participants registered for the program, 3 received compensation totaling $1,749.50, and a reduction of 1.2 MW was achieved, representing about 0.8% of the total City peak that day. The results are shown in the table below: Pilot Program Year Summer 2011 Summer 2012 Total Participants 3 7 Number of Test Events Held 1 1 (May 31) Number of Actual DR Events 0 1 (July 11) City of Palo Alto Page 3 Participants in Actual DR Event 2 Demand Reduced in Actual DR Event 1.2 MW Compensation Paid Out $1,749.50 A graphical representation of the load reductions achieved on July 11, 2012 is shown below. The chart shows hourly load profiles for one of the customers who participated in the 2012 DR event. An algorithm based on the customers’ previous days’ usage was used to determine what the customer load would have been during the DR event from hour 15 through hour 17. Discussion Accomplishments of the 2011/2012 Pilot Some valuable experience was gained during the 2011/2012 DR pilot. First, the framework of a DR program including the terms and conditions and the participant application were successfully deployed, and a small number of participants’ targeted energy reductions were shown to be possible. Second, by grappling with the metering issues that arose for certain customers, staff is now more prepared and will know what to look for when additional customers enter the program. Third, a new and improved forecasting model was developed in- house which will provide a more accurate prediction of peak demand days. Another important accomplishment was the innovative use of cloud-based technologies to semi-automate CPAU’s DR process. Web-based communication software developed by Autogrid, a Palo Alto start-up, was used to manage all DR-related communications and financial calculations. Notifications about events were sent out via the system. The system keeps track City of Palo Alto Page 4 of DR events, participation, performance and payments due to participants. User-friendly graphical representations of DR event results are accessible to participants and utility staff. Some important lessons regarding active versus passive responses from customers, and system improvements are underway as a result. The semi-automation provided by this system or something similar will provide scalability to the program as it expands. The participation of the City Hall building in the second year of the pilot afforded many learning opportunities. City staff worked inter-departmentally and with City Hall’s Building Management System (BMS) and lighting contractors to ready the building for DR. The process for programming the building control systems was educational for all involved staff. In addition, a communication plan to notify City Hall occupants of pending DR events was developed and shared with the facility managers of other pilot program participants. Reasons for Extending the Pilot Staff proposes extending the pilot program for three additional summers for the following reasons: (1) mild weather resulted in insufficient data about DR potential; (2) metering and BMS technical problems restricted the participation of some customers; and (3) there may be synergies between a full-scale DR and a future commercial advanced meter pilot program. The objective of CPAU’s two-year pilot program was to assess the magnitude and dispatchability of DR on hot summer days. However, both summers (within the program dates of May 1 through September 30) were unusually mild. While the City’s peak load is expected to be about 185 MW, a peak of only 170 MW was reached on September, 20 2011 and a peak of only 174 MW on October 1, 2012 (the day after the DR pilot expired). Because the weather was so mild, CPAU did not declare any DR events in 2011. The two customers who participated in the event achieved their targeted energy reductions, but there is not enough data to determine the reliability of demand reduction through a DR program without greater customer participation in more DR events. Second, metering and BMS problems were challenging in the first two years of the pilot. For several participants, CPAU had issues obtaining the 15-minute interval data needed to monitor usage for DR. While staff eventually resolved the metering issues, several participants were not able to participate in the one event that occurred in 2012. Likewise, several participants experienced BMS programing delays causing them to forego participation. Again, the result was incomplete data, although both customers and staff learned from the experiences. Lastly, effective DR may be enhanced by advanced metering solutions, and coordinating the timing of full-scale DR implementation with other related CPAU efforts may be prudent. CPAU launched CustomerConnect, a residential advanced meter and customer engagement pilot, in City of Palo Alto Page 5 2013 (Staff Report 3330). A commercial customer version of such a program will likely be implemented by 2015. By 2016, CPAU may be in a position to integrate advanced metering programs with full-scale deployment of commercial DR if synergies between those two programs become clear. Proposed 2013-2015 DR Pilot Extension The proposed extended DR pilot is substantively the same as the original pilot. Compensation remains $0.50 per kWh with no penalty for non-performance. The compensation rate was calculated by quantifying the benefit to the electric supply portfolio of peak demand reduction. CPAU’s cost of supplying additional megawatt of peak demand is approximately $20,000 per year. These savings accrue mostly from reducing the costs associated with the requirement to retain sufficient reliability reserve capacity required by the California Independent System Operator (CAISO). The compensation rate for the pilot program was designed to pass on all the savings to the participants. This strategy may change in a full roll-out of the program when the savings may be shared between the utility and participants, but for the pilot program, the participants will be getting the full savings as they are helping CPAU establish the DR program. For 2013, staff proposes to accept up to 15 participants. This number may be expanded in 2014 and 2015 depending on customer interest. Given that 1.2 MW of demand reduction was achieved by just two customers responding to the July 11, 2012 event, the maximum demand reduction target for the extended program will be raised from 2 MW to 4 MW. Because the 2012 peak occurred in October, the end of the DR season has been extended to October 15. Attachment A contains the terms and conditions of the proposed 2013-2015 pilot DR program. The table below highlights the changes from the original 2-year pilot. Program Attribute 2011-2012 DR Pilot Proposed 2013-1015 DR Pilot Compensation $0.50 per kWh $0.50 per kWh Penalty none none Maximum Peak Reduction 2 MW 4 MW DR Season May 1-September 30 May 1-October 15 Goals for Extended Pilot Over three summers, it is hoped that enough evidence will be gathered to prove or disprove the effectiveness of DR as a reliable resource in CPAU’s electric portfolio. The experience gained will assist CPAU in determining if a CPAU DR program could be designed to effectively participate in emerging market opportunities related to grid reliability. Another goal is to test the “Open Automated Demand Response (ADR)” platform, and at least one customer has expressed an interest in this. Open ADR is a communication protocol that allows a utility’s DR communication program to “talk” directly to the participant’s BMS. The BMS is pre-programmed to accept the DR event notification signal, and energy reduction City of Palo Alto Page 6 measures are taken automatically. Of course, there is a process for a human to override the system and opt out of a DR event. Staff intends to work closely with any participants interested in pursuing this opportunity, and while no incentives for automation are proposed at this time, the benefits will be evaluated and a proposal may be brought to the UAC and Council in the future. Electric vehicles (EV) present another interesting DR opportunity. CPAU has a professional services contract with a Palo Alto start-up that plans to aggregate EVs for the purpose of DR. The technology allows the potential aggregator to “talk” directly to the participating EV and cause it to reduce or stop charging during a DR event. CPAU plans to test the ability of the aggregator to meet the minimum demand reduction of 50 KW. Next Steps The future of DR in Palo Alto may extend beyond peak demand reduction. As CPAU’s electric portfolio consists of greater amounts of renewable resources, using DR to balance supply with demand may provide additional economic value to CPAU and its customers. Other synergies may exist with the City’s Emerging Technology Demonstration Program which invites organizations to partner with CPAU to showcase and test new innovative products. Staff expects to gain experience and better understand customer interests over the pilot program period and will report back to the UAC and Council in the Fall of 2015 on proposed next steps for a full-scale DR program. Results from this pilot will also assist in better defining an Automated Metering Infrastructure (AMI) or smart grid deployment plan for commercial customers throughout the City. Staff is currently investigating the value of incentives to encourage customers to install building equipment to enable automated DR. Board/Commission Review and Recommendations At its January 9 meeting, the UAC voted unanimously (6-0 with Commissioner Waldfogel absent) to recommend that the City Council extend the DR pilot for three years. There was no discussion. Resource Impact Total compensation per customer will vary depending on the energy reduction undertaken by the participant and the number of times that CPAU calls for energy reductions. If the program results in a 4 MW reduction of the City’s annual peak load, the resulting annual savings is $80,000, an amount equal to the potential total compensation to participants. The compensation payments are available in the existing supply procurement budget since program participation will cause CPAU’s electric supply cost to be lowered by a similar amount, making the program cost-neutral. Since the payments to participating customers will be processed outside the automated customer billing system, no billing system upgrades or SAP software modifications will be required. City of Palo Alto Page 7 The program administrative budget is estimated to be $15,000 per year for the web-based DR management system. The funds needed for program administration are available in the existing local generation evaluation budget. Staff resources needed to administer the program total 0.25 FTE and include staff from Resource Management and Utility Marketing Services. Policy Implications Demand Response programs were contemplated in the Council-approved 2010 Ten-Year Electric Energy Efficiency Plan (CMR: 218:10). No new policies are established with the extension of the DR pilot program. Environmental Review The extension of the pilot DR program does not meet the California Environmental Quality Act’s definition of a “project” under Public Resources Code 21065, thus environmental review is not required for this project. Attachments:  Attachment A: Demand Response Pilot Program Terms and Conditions (PDF)  Attachment B: Excerpted Draft UAC Minutes of 1-9-13 (PDF) Attachment A Page 1 of 4 Demand Response Pilot Program Terms and Conditions The Demand Response Pilot Program (Program) is designed to help participating customers earn incentives for reducing their electricity use on days when demand is high, which helps reduce Palo Alto’s annual peak electricity demand. The Program’s incentive payments share the anticipated savings between the utility and Program participants. Through the Program, CPAU will provide monetary incentives to participating customers who are able to reduce their electrical usage when called upon by CPAU during high load periods in the summer of 2013. Participation will be limited to 15 commercial customers and four MW, or about 2% of the City’s annual peak load. Demand Response Pilot Program Terms and Conditions are outlined below. Interested Participants must file an application by April 15th, 2013 in order to be eligible to participate in the Program on its start date of May 1st, 2013. 1. Defined Terms: 1.1. Adjusted Baseline: The Baseline multiplied by a Morning-of Adjustment Factor to capture the anticipated change in the Participant’s Baseline usage on the day that CPAU calls for a reduction in energy usage. 1.2. Baseline: A Participant’s typical hourly energy usage in the absence of a PLR Event, calculated from the average hourly usage of the previous ten the last ten weekdays, excluding PLR Event Days, weekends and Program Holidays. 1.3. Bonus Payment: An annual additional payment of $2 per kW of Peak Load Reduction to a Participant who completes Full Performance for all PLR Events during either of the Program Years. 1.4. CPAU: The City of Palo Alto Utilities Department. 1.5. Estimated PLR Quantity: The amount of load that a Participant promises to curtail during a PLR Event, specified in kWs, which is set by a Participant on their application form. 1.6. Full Performance: A Peak Load Reduction equal to or greater than the Estimated PLR Quantity for the full PLR Event Duration. 1.7. Program Holidays: Memorial Day, Independence Day and Labor Day. 1.8. Kilowatt (kW): Electricity capacity measurement unit. 1.9. Kilowatt-hour (kWh): A unit of energy in which one kW of power expended for one hour results in one kWh of energy usage. 1.10. Morning-of Adjustment (MoA): A ratio of (a) the average load in the first three of four hours before the PLR Event, to (b) the average load of the same hours from the last 10 weekdays, excluding PLR Event Days, weekends and Program Holidays. The MoA factor is limited to + 20% of the Participant’s Baseline. Attachment A Page 2 of 4 1.11. Meterlinks: The CPAU program used to record electricity usage in 15-minute interval data format that can be retrieved and displayed in graphical or tabular format by the customer or by CPAU staff. 1.12. Non-Performance: Failure of a Participant to respond to a PLR Event Notification by 10 a.m. Pacific Standard Time on the day of PLR Event, or a Peak Load Reduction equal to less than half of the Estimated PLR Quantity. 1.13. Participant: CPAU commercial customer participating in the Demand Response Pilot Program. 1.14. Participation Period: For Program Year 2012, from Wednesday May 1, 2013 through Tuesday October 15, 2013. The Participation Period excludes weekends and Program Holidays. 1.15. Peak Load: Participant’s electrical load during the hours of noon to 6:00 p.m. during the Participation Period, specified in kWs. 1.16. Peak Load Reduction (PLR): The decrease in a Participant’s Peak Load during a PLR Event equal to the difference between a Participant’s Adjusted Baseline and its Peak Load on a PLR Event Day, specified in kWs. 1.17. PLR Event: A CPAU request for Participants to reduce their load the following day for the hours specified by CPAU. PLR Events will typically be called for hot summer days when CPAU’s load is projected to approach the annual peak. 1.18. PLR Event Day: The calendar date for which a Peak Load Reduction is requested. 1.19. PLR Event Duration: The number of hours that each PLR Event lasts in any given day. 1.20. Program: Demand Response Pilot Program that will be administered by CPAU in 2013, 2014, and 2015. 1.21. Program Year(s): The calendar years 2013, 2014, and 2015 during which the Program is in effect. 2. Participant Eligibility 2.1. Participant must be an electric customer of CPAU in good standing. 2.2. Participant must be enrolled in Meterlinks. 2.3. Participant must be able to commit to an Estimated PLR Quantity of at least 50 kW and identify and document associated loads. 2.4. Participant may adjust the Estimated PLR Quantity after the first PLR Event. 2.5. Participant may not use backup generation to reduce metered load during a PLR Event. 2.6. Participant, at its own expense, must have access to email and telephone during normal business hours. 3. Parameters of a PLR Event and PLR Event Duration 3.1. A PLR Event may occur up to 15 days per year during the Participation Period. 3.2. A PLR Event may occur between the hours of 12 noon and 6 p.m. during the Participation Period. Attachment A Page 3 of 4 3.3. The PLR Event Duration may not exceed five hours. 3.4. CPAU may call no more than one PLR Event per day and no more than 10 PLR Events per month. 3.5. The sum of all PLR Event Durations may not exceed 75 hours per Program Year. 4. Notification of a PLR Event 4.1. CPAU, or its designated agent (the Northern California Power Agency), will notify the Participant by email by noon Pacific Standard Time, on the business day prior to the PLR Event Day. If Monday is a PLR Event Day, CPAU will notify Participants by noon on the Friday immediately preceding the PLR Event. This notification will contain the following information: 4.1.1. Date of the PLR Event; 4.1.2. PLR Event Duration; and 4.1.3. Participant’s Estimated PLR Quantity. 5. Participant’s Response to a PLR Event Notification 5.1. Participant must inform CPAU (via phone, email, or CPAU’s DR management system) by 10 a.m. Pacific Daylight Time on the day of the PLR Event that (1) the PLR Event Notification was received, and (2) the Participant’s intent regarding meeting its Estimated PLR Quantity for the full PLR Event Duration. 6. Quantification of PLR Response of Participant with Adjusted Baseline 6.1. CPAU will base all Program calculations on data from Meterlinks. 6.2. CPAU will compute a Baseline for a Participant’s electricity usage based on an hourly average of the 10 days immediately prior to the PLR Event Day excluding weekends, Program Holidays and PLR Event Days. 6.3. CPAU will compute the Participant’s MoA factor. 6.4. CPAU will compute the Participant’s Adjusted Baseline for each PLR Event. 6.5. Within 2 business days after each PLR Event, CPAU will provide the Participant with the resulting Participant Peak Load Response. 7. Payments and Penalties for Peak Load Reduction 7.1. There will be no payments or penalties for Non-Performance. 7.2. Payment for Peak Load Reduction will be made at a rate of 50 cents per kWh up to a maximum of the Estimated PLR Quantity as determined by CPAU by November 30th of each Program Year. 7.3. Participants who exhibit Full Performance on all PLR Events during a Program Year will be provided a Bonus Payment for that Program Year, to be paid as determined by CPAU by November 30th of each Program Year 7.4. If there are no PLR Events in a Program Year, Participants will receive neither a Peak Load Reduction Payment nor a Bonus Payment . Attachment A Page 4 of 4 8. Exiting the Program 8.1. Participant may leave the Program at any time, by providing five days prior written notice to CPAU, provided via e-mail to the CPAU address provided on the Program Application. 8.2. CPAU may terminate a Participant’s involvement in the Program at any time by providing five days prior written notice, provided via email sent to the address provided by the Participant on its Program Application. 9. Program Administration and Termination CPAU reserves the right to modify or terminate the Program and any of its Terms and Conditions at any time, for any reason. If CPAU terminates the Program, it will provide all Participants written notice by email and first class mail sent to the address provided by the Participant on its Program Application of CPAU’s intent to terminate the Program on a set date. CPAU agrees to pay any amounts earned by Participants under the Program within ninety (90) days of the date of Program termination. EXCERPTED DRAFT MINUTES OF THE JANUARY 9, 2013 UTILITIES ADVISORY COMMISSION MEETING ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that City Council Approve a Three-Year Extension of the Demand Response Pilot Program for Large Commercial Electric Customers Senior Resource Planner Karla Dailey stated that she was available for questions, if any. No commissioners had any questions on the report or recommendation. ACTION: Commissioner Melton made a motion that the UAC recommend that Council approve a three- year extension of the Demand Response pilot program for large commercial electric customers. Commissioner Chang seconded the motion. The motion carried unanimously (6-0) with Commissioner Waldfogel absent.