HomeMy WebLinkAbout2001-04-23 City Council (12)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL 6
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:APRIL 23, 2001 CMR:199:01
SUBJECT:APPROVAL OF A BUDGET AMENDMENT ORDINANCE IN
THE AMOUNT OF $3.5 MILLION TO FUND THE
ELECTRIC UTILITY ACCELERATED ENERGY
EFFICIENCY PROGRAM
RECOMI~,= ENDATION
The Utiliti: ~ Advisory Commission and staff recommend that the City Council:
1. Ap[: "ove the Accelerated Energy Efficiency Program (AEEP) to provide
incc ~tives for Palo Alto residents and businesses to deploy targeted, cost-
eff¢ tive energy conservation measures before June 30, 2001.
Apl:,ove a Budget Amendment Ordinance::::(BAO) providing an
appr :~priation in the amount of $3.5 million from the Electric Fund Supply
Rat< Stabilization Reserve to the Electric Fund Public Benefit Program
operating budget. . :
BACKGROUND
The ~urrent energy crisis in California has resulted in skyrocketing wholesale
prices for electricity, steep retail rate increases, and rolling blackouts. The City is
not immune from these adverse consequences, and Palo Alto residents and
businesses will likely experience rising energy costs and rolling blackouts this
year and perhaps next year. While there is much uncertainty this year regarding
energy prices and supply, there is little doubt about the positive contribution that
is provided by energy efficiency in coping with this energy crisis. Statewide
conservation diminishes the need to procure power generation in a tight market.
CMR: 199:01 Page 1 of 4
Also, because the wholesale cost of power has attained unprecedented levels,
energy efficiency programs that were once marginally cost effective are now
extremely cost effective for both the Electric Utility and the consumer. Conserving
a kilowatt-hour priced at 7 cents retail enables the utility to avoid buying a
kilowatt-hour priced at 14-27 cents wholesale. Similarly, during the times of the
year when conservation results in Palo Alto having surplus power available from
its resource pool, the City can sell this power into the market and use the
additional revenue to offset its rising costs..This cost savings due to conservation
has a favorable impact on retail rates during this era of rising expenditures.
DISCUSSION
Despite the likelihood that wholesale power costs will begin to decline within a
year or two, there is a window of opportunity now for the City of Palo Alto to take
a leadership role promoting investments in energy efficiency. Staff has performed
a cost benefit analysis of a wide range of efficiency measures that can be installed
by customers easily and quickly. From this list, a subset of candidates surfaced
that meet the following criteria:
1.Measures must be installed by June 30, 2001. Due to limited staff resources,
measures will be installed by customers and contractors of the custo; aers.
2.Rebates will be tailored for all customer classes.
3.Priority will be given to measures that result in reduced energy cc~nsumption
between the summer peak hours of noon to 6p.m..
4. To get "the biggest bang for the buck", the primary, focus will l-~e directed
towards large industrial customers that can provide the largest drop in power
consumption in the shortest time frame. _
5.Priority will be given to measures with short customer payback periods.
6.Measures must provide a cost savings to the utility and be cost effective based
on wholesale prices declining from 27 cents per kilowatt-hour today to
approximately 7.5 cents per kilowatt-hour in 2003 and beyond. ¯
Based on these criteria, staff developed the AEEP. The energy efficiency measures
that will be targeted by/kEEP for rebates are:
¯Replacement of incandescent lights with compact fluorescent bulbs
¯Replacement of incandescent or mercury vapor lighting with electronic ballast
and fluorescent lighting
¯Motor, system controls, or chiller replacement for businesses
¯Reflective window film for businesses
¯Occupancy sensors, time clocks, and programmable setback thermostats
¯Variable frequency drive for HVAC fan
CMR:199:01 Page 2 of 4
¯Others to be determined that meet the cost benefit criteria described above
The program goal of AEEP is to accelerate energy efficiency programs this spring
and early summer and achieve a 5-megawatt demand reduction by June 30, 2001.
To meet this goal, AEEP may need to be modified. If customers do not respond to
the program as anticipated, staff will re-evaluate the program, including rebate
levels. If higher rebate levels appear to achieve the desired interest and
participation levels, staff may raise the rebate level for certain measures but in no
case will the rebate levels exceed the cost savings to the Electric Utility. On the
other hand, if the program proves to be highly successful and there are continuing
opportunities to achieve cost savings, the program deadline for installation of
measures may be extended beyond June 30. An example might be that, due to
circumstances beyond the control of the customer, a motor or light fixture cannot
be delivered by the manufacturer until July. AEEP complements Palo Alto’s
existing residential and commercial energy efficiency rebate programs. To the
extent an existing Palo Alto energy efficiency program provides rebates for the
same measure in AEEP, a maximum rebate per measure will be limited to the
higher of the two rebates.
UTILITIES ADVISORY COMMISSION RE ~VI.EW
On February 14, 2001 the UAC approved the development of a rebate program for
cost effective energy efficiency measures to reduce power demands and avoid
expensive spot market purchases (attached). On April 4, 2001, staff provided an.
oral presentation on the AEEP and the UAC unanimously passed a motion to
recommend the/kEEP for Council approval.
RESOURCE IMPACT
With a total program expense of $5.0 million, it is anticipated that $3.5 million in
AEEP funding requests will be processed in the current fiscal year 2000-01 and
$1.5 million in fiscal 2001-02. This item will include a proposed BAO upon its
return to Council, appropriating $3.5 million from the Electric Fund Supply Rate
Stabilization Reserve (SRSR) to the Electric Fund Public Benefit Program
operating budget. The additional $1.5 million has been included in the proposed
2001-03 budget, which will be reviewed by the Finance Committee in May.
For informational purposes, a summary of the BAOs approved to date in 2000-01
that impact the Utilities Rate Stabilization Reserves will also be attached when this
item returns to Council. This attachment also estimates future year ongoing costs
associated with BAOs approved to date to provide a projection for the future
resource needs from the Utility Funds for those programs approved after the
adoption of the 2000-01 budget.
CMR:199:01 Page 3 of 4
To the extent/kEEP qualifies for grant funds from the State or other sources, such
grants will be applied to AEEP as well.
ATTACHMENTS
A. Budget Amendment Ordinance (to follow when item returns to Council)
B. Summary of Budget Amendment Ordinances Impacting the Utilities Rate
Stabilization Reserves Approved to Date in 2000-01 (to follow when item
returns to Council) . .
C. Utilities Advisory Commission Report dated February 14, 2001
D: Excerpt of Finance Committee Minutes from April 17, 2001
PREPARED BY:
Assistarlt Director of Utilities, Adm.Svcs
/
DEPARTMENT HEAD
of Utilities
CITY MANAGER APPROVAL
EMILY HARRI~)N~t/Assistant City Manager
CMR: 199:01 Page 4 of 4
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR THE FISCAL YEAR 2000~01 TO
PROVIDE AN ADDITIONAL APPROPRIATION OF $3,500,000 FOR
ELECTRIC FUND PUBLIC BENEFIT PROGRAM OPERATING EXPENSE
WHEREAS, pursuant to the provisions of Section 12 of Article
III of the Charter of the City of Palo Alto, the Council on June 19,
2000 did adopt a budget for fiscal year 2000-01; and
WHEREAS, the current energy cris~s in California has resulted
in higher wholesale costs for electricity and potentially steeper
retail increases for customers; ~and
WHEREAS, rolling blackouts are predicted for Palo Alto this
summer and the City of Palo Alto Utilities (CPAU) seeks to minimize-
the magnitude and associated effects of rolling blackouts on the
community; and
WHEREAS, CPAU created the Accelerated Energy Efficiency
Program (AEEP) to provide incentives for Palo Alto Residents and
business to deploy targeted, cost effective energy conservation
measures; and
WHEREAS, targetedenergy efficiency programsto consumer and
business customers have been estimated to reduce local electric.
demand by 5 megawatts before June 30, 2001; and
WHEREAS, an estimated $3.5 million beyond the adjusted amount
budgeted is required for electric fund public benefit operating
expense.in the current fiscal year; and
WHEREAS, City Council authorization~is needed to amend the.
2000-01 budget as hereinafter set forth.
NOW, THEREFORE, the Council of the City of Palo Alto does
ORDAIN as follows:
SECTION I. The sum of Three Million Five Hundred Thousand
Dollars. ($3,500,000) is hereby transferred from the Electric Fund
Supply Rate Stabilization Reserve and appropriated to the Public
Benefits Functional Area of the Electric Fund.
SECTION 2. As specified in Section 2.28.080(a) of the Palo
Alto Municipal Code, a two-thirds vote of the City Council is
required to adopt this ordinance.
SECTION 3. The Council of the City of Palo Alto hereby finds
that this is not a project under the California Environmental
Quality Act and, therefore, no enw[ronmental impact assessment is
necessary.
SECTION 4. As provided in Section 2.04.350 of the Palo Alto
Municipal Code, this ordinanceshall become effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:
Senior Asst. City Attorney
City Manager
Director of Administrative
Services
Director of Utilities
City of P~oA~to
ATrACHMENT B
Budget Amendment Ordinances Impacting Utilities Rate Stabilization Reserves Approved To Date in 2000-01
Electric Fund
Estimated Electric Supply Rate St:~bilization Reserve (RSR
Balance
Public Benefit BAO
$28,750,000
($3,500,000)
Total BAOs
RSR Balance After BAO’s
$o $0 ($3,500,000)$0
$25,250,000
TO:
FROM:
AGENDA DATE:
SUBJECT:
~MORANDUM
Utilities Advisory Commission
Utilities Department , ,,
February 14, 2001
Electric Public Benefit Funding Choices Based On Avoided
Cost
REQUEST
This report requests UAC approval to dcvelop cost-effective "dcmonstmtion programs"
which, through rebates or other incentives, capture demand-side management (DSM)’
lcctricity reductions to avoid expensive spot market electricity purchases.
DISCUSSION
The attached report describes the ctirrent economics of selected energy conservation
oppormaitics compared to cith~ wholesale electric purchases or additional wholesale
leetric sales from our Calaveras hydroelectric plant. It concludes that the current
opportunity presented by strong customer ".interest in affordable new energy conservation
features can be urilir.ed to reduce Pale Alto’s acquisition of electric resources priced at
market and reduce Pale Alto’s electric rates. Staff proposes to expand some cxisling
cnergy efficiency programs where such expansion would have the economic impact to
reduce electric rates compared to not expau..ding the programs.
The Electric Utility currently has Council approval to operate a set of programs that were
designed in a very low cost wholesale power market (approximately 2 cents per kWh).
These programs are designed to increase customer energy efficiency and are sometimes
referred to as Demand Side Management (DSM) programs. Examples of current DSM
programs include residential appliance rebates, rebates or loans for residential building
shell improvements, rebates for individual commercial lighting, heating, ventilation and
air conditioning measures, and. rebates for complete "design/build" projects installing
multiple measures for Key Accounts.
However, the current high power market (approximately 10 cents per kWh through 200.4)
presents very large and compelling new opporttmities for expanding DSM program
activities. A number of unique pressures have come together for the first lime in many
years that can be well addressed by DSM. ~
1)Stat~wide power shortages leading to forced.rolling blackouts.
2)Bay Area transmission overload in the summer leading to fc~rced rolling blackotits.
3)High fuel costs for power plants leading to high power costs.
4)Lack of public aeeep.tanee of siting new generation in the Bay Area.
5)High customer interest in increasing efficiency to reduce costs and improve re,li.ability.
6)The pending end of the PG&E energy support contract leading to a Pale Alto energy
deficit.
7) The desire to sh~ the strength of cost based public power policies.
Pale Alto, once again., has an opporttmity to help lead other communities and the state
toward solutions on these pressures. Furthermore, due to the unprecedented market and
resource conditions it appears that Pale Alto may be able implement up to 20 Megawatts
of DSM that can help hold rates down even for non-participants. Potential opportunities
for "demonstration programs" for electric energy efficiency incentive programs include a
c0mpaet fluoreseent lamp program and customized efficiency rebates for Key Accounts
based on speed of implementation.
Staff proposes to establish the following guidelines for the expansion of DSMprograms
to reduce spot market purchases:
o
Identify and fund residential and commercial projects that have significantly
accelerated efficiency installations. With a scale:approaching $1,000,000 per
project depending upon the cost-effectiveness, funding requests will be made to
Cotmeil for use of combinations of both Electric Public Benefit budgets and the
Supply Electric Rate Stabilization Reserve (’RSR). If neeessm’y, part of the Public
Benefits revenue stream in future years may be used to replenish some portion of
the funds spent from the Supply RSR.
Evaluate and adjust DSM plans and programs during the annual budget process by
looking forward each year to integrate the volatile and rapidly changing energy
Supply markets.
Staff will inform the UAC and obtain Council approval for implementation of new
programs meeting the above guidelines.
ATTACHMENT
Preliminary Analysis of Electric Demand Side Management Economics
PREPARED BY: Tom Kabat, Senior Resource P1 ..ajmer
REVIEWED BY:’ G irish Balaehandran, Manager, Supply Resource Group
Tom Auzenne, Manager, Utilities Marketing Services
Randy Baldschun, Assistant Director
DEPARTMENT HEAD APPROVAL:
Preliminary Analysis of Electric Demand Side Management Economics
February 14, 2001
Prepared by Tom Kabat
Executive Summary
The recent wholesale electric market price rise followed by a projected de’cline
over the next few years present an enormous opportunity for utility Demand Side
Management (DSM) programs focusing on customer energy efficiency to help
avoid some of the need for near term retail electric rate. increases.
Method
Data was gathered including:
Wholesale electric marketer quotes
Palo Alto retail rate estimates
Energy efficiency measure costs, longevity, and annual energy savings estimates
The data was entered into a spreadsheet model (DSM 2001) that was developed to
examine each device’s contribution to utility reserves resulting from reduced
wholesale costs after netting out utility rebates and lost utility retail revenues. The
model calculates this for periods chosen between one and 20 years long. The
model calculates th,e dollar contribution to reserves for each device with any rebate
assumed. The dollar contribution to reserves is ~the difference between the utility
economics of the do-nothing case and the DSM ease wherein the utility pays a
rebate and gets the customer to install a measure before they would have gotten to
it without the rebate program. The following tables and graphs are from the model
Analysis
The Wholesale and Retail Prices table shows a forward estimate of wholesale
market rates that can be avoided by conserving electricity. It also shows the retail
revenues that would be forgone by the same conservation. Both wholesale and
retail rates are displayed as strips of one or more years in succession starting from
2001.
Also shown is a graph made of strips of wholesale and retail electric rates.
UAC 2/14/01
Preliminary Analysis of Electric Demand Side Management Economics PAGE 1 OF 5
Wholesale and Retail Prices
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010i
2011
2012
2013
Market
Prioe
Yearly
(Cents/kWhIWholesale
24,0
13,7
9.8
7,5
7.0
6.0
5,5
5,0
5,1
5.3
5,4.
5,5
5.7
Rate
Total
Yearl~
(Cents/kWh)
Retail Rate
6.6
6,3
6,3
6,7
7,4
7,8
8.0
8.2
8.4
8.6
8.8
9.0
9.2
Wholesale
minus
Yearly/
(Cents/kWhIEft,- Savings
17,4¯ 7.4¯
3,5
0,8
(0,4)
(1
(2,5)(3.2)(~.~)(3.3)
(3.4)
(3.5)(3.s)
Who!esale
minus
Retail Rate
Strip..
(Cents/kWh)
17.4
12.4
9,5
.7,3
5,7
4,5
3,5
2,7
2,0
1,5
1,0
.0,7
0,3
Value 0! F;ee Coneevvetlon ,tripe of Different Len,lha
!
!
The Graph entitled ."Value of Free Conservation Strips for different periods" has
bars whose height indicates wholesale rate strips and retail rate strips in cents per
kWh. The strips each start in 2001 and have the durations one through 15 years as
shown in the x-axis. The retail rate strips represent the lost utility retail revenue
UAC 2/14101
Pr~iimi"nary Analysis of Electric Demahd Side Management Economics PAGE 20it 5
associated with conservation that last for one to 1.5 years. The difference in the
Wholesale and Retail.rate Strips shows the value of energy efficiency in reducing
retail rates for all cUstomers-including non-participants. For example, the graph
shows that conservation is .projected to be most valuable for the strips of short
duration that start in 2001. Strips of conservation lasting on~ to four years, ac~.~ally
produce .gains in utility reserves that are even larger than the implementing
customer’s bill savings. Conservation strips lasting more than 15 years have a
slight upward impact on utility rates. The strips of conservation can be thought of
as either the conservation device life or the number of years by wkieh the program
accelerated the customer’s eventual implementation decision. The graph’s
information about the current utility market .conditions can be interpreted two
ways:
1)Utility reserves benefit most in this environment from short lived (2-5 year)
conservation devices,
2)Utility reserves benefit handsomely in this environment from accelerating
customer conservation decisions a few years in advance of when customers
would have implemented the same measures withoiit Utility assistance. This .
applies to short and long lived measures.
The second table shows an- analysis of representative commercial customer
efficiency measures evaluated for their full device lives in the top section and for
an assumed acceleration period of 3 years in the lower section of the table. The
Table showscustomer payback periods and utility benefit cost ratios for. the
incentives. The rebate’s-Benefit/Cost Ration to the utility is also shown and it
tends to be G-reatei" than 1:0 for short-lived devices or for 3 year accelerations of
lower Cost measures.
UA C 2/14/01
Preliminary Analysis of Electric Demand Side Manage~aent Econo~aics PAGE 3 OF 5 " .
Rebate Economlcs Durln
Measure
Compact Fluor. lights 4 -1.30
Compressed Air Optim.5 2.41
Air Balance & Flow red.5 3.33
Lighting -Retrofit 10i 2.66
Hood Var. Vol. Control 10 2;97
DX to Chilled Water 15 0.38
Chiller Decom. to Central ~,15 0.74
Tinted Window Film 10 4.10
Motor Replacements 15 1.20
Var. Vol. Pump Retro 15 3.24
Direct Digital controls 15 3.91
DX to Chilled Water 20 1.70
MultiZone to Var. Vol 20 2.85
20 kW Solar PV 20 15.00
Chiller Replacement 20 4.81
ect Full life
"Project Full Life Full Life
Life Measure Wholesale
Full Cost Energ.y Value
Ysa~s Cents/kWh Cents/kWh
Full Life
Measure
Rebate
Cents/kWh
13.75
12.40
12.40
8.89
8.89
7.81
7.81
8.89
7.81
7.81
7.81
.7,46
7.46
7.46
7.46
.1.30
0.80
1.10
0.88
0.98
0.13
0.24
1.35o.3~,
1.07
1.29
0.56
0.94
4.95
1.59
Rebate
Accel.
Rate Reduc.
B/C
5.04
’1L49,
4.70
1.17
1.05
(1.10)
(0.57)
0.87
(0.30)(o.13)(o.11)
(1.42)
(0.85)
(0.23)
(0.64) 1
Customer
Payback
w/Rebate
Years
1.2
1.7
r2.4
2.7
0.5
0.9
3.7
1.5
4.1
4.9
2.6
"4.4
23.4
7.5
Rebate Effect on Project Acceleration
Rebate Measure
Accel.Accel.
3 Full Cost
Measure Years Cents/kWh
Compact Fluor. lights 3 1.73
ICompressed Air Optim.,3:4.02
Air Balance & Flow red.,3 5.56
Lighting Retrofit 3 8.88
Hood Vat. Vol. Control 3 9.91
DX to Chilled Water 3 1.92
Chiller Decom. to Central 3 3.70
Tinted Window Fi!m 3 13.68
Motor Replacements 3 5.98
Var. Vol. Pump Retro 3 16.20
Direct Digital controls 3 19~54
DX to Chilled Water 3:11.30
MultiZone to Var. Vol 3 19.01
20:k,W Solar PV ¯3 100.00
Chiller Replacement 3 32.07
Wholesale Measure
Accel.Aocel.
Energy Value Rebate
Cents/kWh Cents/kWh
15.83 1.73
15.83 1,33
15.83 1.83
15.83 2.93
15.83 3.27
15.83 0.63
15.83 1.22
15.83 4.51
,15.83 1.97
15.83 5.35
15.83.6.45
15.83 3.73
15.83 6.27
Rebate
Accel.
Rate Reduc.
B/C
15.83 33.00
15.83 10.58
5.46
7.12
5.16
3.23
¯ 2.89
14.90
7.74
2.10
4.79
1.77
1.47
2.54
1.51
Customer
Payback
w/rebate
Years
0.29
0.89
1.3
1.8
2.8
3.1
0.6
1.2
4.3
1.9
5.1
6.2
3.6
6.0
31.5
10.1
The tool that developed this analysis can be updated with changing assessments of
forward electric wholesale rates, retail rates and efficiency device longevity, costs
and energy savings.
UA C 2/14/01
Preliminary Analysis of Electric Demand Side M~magement Economics PAGE 4 OF 5
The decision to induce a large
following risks:
1).
2)
amount of DSM energy efficiency faces the
The wholesale market rates could drop lower than forecast and reduc,,e.:the
savings achieved by the measures.
Palo Alto’s retail rates could rise more. than forecast thereby increasing the
revenue loss (eustomer.s~ivings) of the measures. This would reduce the
DSM dollar contribution to utility reserves.
Risk Mitigation
The f’trst risk of Wholesale market price collapse would be a nice problem to have
again and would Offset some of the risks faced by the utility in the supply side.
Therefore the DSM program savings create a natural hedge for the utility. The
DSM savings should be left un-hedged so it can hedge other opposite direction
e~posure the utility already has.
The second risk, that Palo Alto would raise its rates above the forecast used in the
analysis, can be dealt with by setting rebate or incentive levels low enough such
that there is a substantial share of. contribution to reserves. If higher rates do
occur, either through a larger fiat rate pass through or through more sophisticated
tiered pricing the rates themselves Would ~ve the customers more energy
efficiency investment’pri~e signals.
Conclusions
1) The wholesale cost of power has risen to levels that make improved energy
efficiency very cost effective.
2)The wholesale .market’s high and slowly-deelining prices make prompt.
implementation of DSM very economical compared to a slower pace.
3) ~- Accelerating cus~mers’ otherwise eventual efficiency improvement
decisions by one to eight years will make a significant contribution to utility
reserves.
4)A separate analysis of Palo Alto Energy load forecasts compared to the
Western energy entitlement showed room to save up to 15% of load without
bumping into the Western contract energy entitlement.
UA C 2/14/01
Preliminary Analysis of Electric Demand Side Management Economics PAGE 5 OF 5