HomeMy WebLinkAboutStaff Report 3700 City of Palo Alto (ID # 3700)
City Council Informational Report
Report Type: Informational Report Meeting Date: 5/6/2013
May 06, 2013 Page 1 of 2
(ID # 3700)
Title: Utilities Policies and Plans
Subject: Utilities Resource Management Operating Policies and Plans
From: City Manager
Lead Department: Utilities
Recommendation
This report is provided to the City Council for its information only.
Executive Summary
Several key policies and plans provide direction to staff on resource acquisition and
management. However, after adoption of the policies and plans, there has not been a single
document where they are located and can easily be reviewed. Therefore, staff prepares a
compendium of the relevant high-level plans and policies and provides them to the UAC and
Council annually. The plans and policies included in the document are as follows:
1. The equity transfer policy, which describes the adopted methodology for making the
equity transfer from the Gas and Electric Funds to the General Fund;
2. The policies for management of certain Utilities financial reserves, including:
a. Emergency Plant Replacement Reserve for the Electric, Gas, Water, and
Wastewater Collection Funds;
b. The Rate Stabilization Reserves for Electric Supply, Electric Distribution, Gas
Supply, Gas Distribution, Water, Wastewater Collection, and Fiber; and
c. The Electric Special Project Reserve;
3. The latest Council-approved Legislative Policy Guidelines, which provide direction on the
City’s positions on legislative initiatives;
4. The long-term plans for resource acquisition and management including the Long-term
Electric Acquisition Plan (LEAP), the Gas Utility Long-term Plan (GULP), the Water
Integrated Resource Plan (WIRP), and the Carbon Neutral Plan for Electric Supply;
5. The Utilities Strategic Plan; and
6. The long-term goals for water and energy efficiency programs.
There are other relevant plans and policies, but they are broader than Utilities or are reported
to the UAC and Council separately. These policies and plans include the Energy Risk
Management Policy, the Urban Water Management Plan, and the Demand-Side Management
Implementation Plan.
May 06, 2013 Page 2 of 2
(ID # 3700)
The changes from last year’s version of this document include:
1. Changes to LEAP were approved by Council in April 2012 to clarify the rate impact limit
and other details of the LEAP strategy related to the Renewable Portfolio Standard.
2. Changes to GULP were approved by Council in April 2012 to align GULP Objectives and
Strategies towards discontinuing the laddered purchasing strategy and implementing
monthly-varying, market-based natural gas supply rates.
3. Council approved updated Utilities Legislative Policy Guidelines for 2013 in January
2013.
4. The 10-year gas and electricity energy efficiency (EE) goals were updated by Council in
December 2012.
5. Addition of the Carbon Neutral Plan for Electric Supply, which was adopted by Council
on March 4, 2013.
The parts of the document that did not change from last year include:
1. The Utilities Strategic Plan, which was approved by Council in July 2011.
2. The equity transfer policy, which was approved by Council in June 2009.
3. The long-term water efficiency goals, which are incorporated in the Council-adopted
2010 Urban Water Management Plan.
Attachments:
Attachment A: Resource Management Operating Policies and Plans (PDF)
Exhibits to Attachment A (PDF)
Attachment A
i
Resource Management Operating Policies and Plans
April 2013
Table of Contents
1. Introduction ............................................................................................................... 1
Purpose ......................................................................................................................... 1
2. Utilities Strategic Plan ................................................................................................ 1
3. Equity Transfer Methodology ..................................................................................... 1
Background ................................................................................................................... 1
Approved Equity Transfer Methodology ...................................................................... 5
4. Legislative Policy Guidelines ....................................................................................... 5
2013 Legislative Policy Guidelines ...................................................................................... 5
Background ................................................................................................................... 5
Approved Guidelines ..................................................................................................... 5
5. Financial Reserves ...................................................................................................... 5
Emergency Plant Replacement Reserves ............................................................................ 5
Background ................................................................................................................... 5
Approved Guideline: ..................................................................................................... 6
Rate Stabilization Reserves ................................................................................................. 6
Background ................................................................................................................... 6
Approved Guidelines ..................................................................................................... 6
Electric Special Project Reserve (formerly the Calaveras Reserve) .................................... 7
Background ................................................................................................................... 7
Approved Guidelines ..................................................................................................... 8
6. Resource Plans ........................................................................................................... 8
Long-term Electric Acquisition Plan (LEAP) ......................................................................... 8
Gas Utility Long-term Plan (GULP) ...................................................................................... 8
Water Integrated Resource Plan (WIRP) ............................................................................ 9
Long-term Efficiency Goals ................................................................................................. 9
Water ............................................................................................................................ 9
Electricity ....................................................................................................................... 9
Natural Gas ................................................................................................................. 10
Carbon Neutral Plan .......................................................................................................... 11
7. List of Exhibits .......................................................................................................... 11
1. 2011 Utilities Strategic Plan .................................................................................... 11
2. 2013 Legislative Policy Guidelines .......................................................................... 11
3. Long-term Electric Acquisition Plan (LEAP) ............................................................. 11
4. Gas Utility Long-term Plan (GULP) .......................................................................... 11
5. Water Integrated Resource Plan (WIRP) ................................................................ 11
6. Carbon Neutral Plan ................................................................................................ 11
Attachment A
1
Resource Management Operating Policies and Plans
April 2013
1. Introduction
Purpose
This document is meant to collect all the Council-approved policies and plans that guide the
management of the Utilities water, gas, and electric commodity resources. The document will
be updated when new policies or plans are adopted, or existing ones are changed. Since a new
Council is seated in January every two years, the document will be provided to Council in April
annually so that the new Council will be aware of Council policy. This practice will afford the
Council with an opportunity to review and direct revisions of any of the commodity resource
management policies and plans on an ongoing basis.
2. Utilities Strategic Plan
On July 18, 2011, Council adopted the 2011 Utilities Strategic Plan. The 2011 plan replaced the
prior plan, which was approved in 2005. The UAC reviewed the plan many times during its
development and established a subcommittee in April 2010 to assist staff in developing the
plan. Following a recommendation from the UAC subcommittee, staff interviewed key
stakeholders to assist in the development of an overall vision for CPAU.
The adopted 2011 Utilities Strategic Plan (provided in Exhibit 1) identifies strategic objectives,
performance measures and targets under each of the four perspectives:
1. Customer and community;
2. Internal business process;
3. People and technology; and
4. Financial.
The UAC and Council receive semi-annual updates on the 2011 Utilities Strategic Plan.
3. Equity Transfer Methodology
Background
As a result of the initial investment made by the City and its citizens, Palo Alto’s residents and
businesses have enjoyed favorable rates and utility services provided by the City’s municipal
utility. The services provided by the Gas and Electric Funds provide a return on investment to
the General Fund in the form of Utility Fund transfers, as established in the City’s Charter.
Article VII, Section 2 – Public utilities revenue, of the City Charter states:
The revenue of each public utility shall be kept in a separate fund from all other
receipts and shall be used for the purposes and in the order as follows:
Attachment A
2
(a) For the payment of the operating and maintenance expenses of such utility,
including the necessary contribution to retirement of its employees.
(b) For the payment of interest on the bonded debt incurred for the construction
or acquisition of such utility.
(c) For the payment of the principal of said debt, as it may become due.
(d) For capital expenditures of such utility.
(e) For the annual payment into a reserve fund for contingencies, of an amount
not to exceed ten percent of the expenditure for capital outlay for the year,
exclusive of bond fund expenditures. The total accumulated in this reserve
for contingencies shall at no time exceed five percent of the book value of the
utility's capital in service. This reserve fund shall be available for use by the
utility, only for replacements or emergency repairs and after special
appropriation by the council.
(f) The remainder shall be paid into the general fund by quarterly allotments.
The methodology of calculating the equity transfer has changed over the years. In July 1982,
the City executed a contract with Price Waterhouse to evaluate and determine the
appropriateness of the method utilized for determining the transfer from the Utilities Funds to
the General Fund. The Price Waterhouse study noted that the City had a practice for its 82-year
history of generating net income based on the provisions of the City Charter cited above. As
part of the study, Price Waterhouse conducted a survey of how cities determine an appropriate
transfer to their General Funds. This survey concluded that many methods were in use, but that
cash transfers from proprietary funds to the General Fund are a common and accepted practice
for cities in California and other states. The most common method was based on a percentage
of revenues. The most common method for investor-owned utilities was the Utility Enterprise
Method (UEM) that bases the equity transfers upon a rate of return on the asset base. The
method links the transfer to the total investment made in the utility.
In January 1983, Council was provided with the Transfers to the General Fund Study completed
by Price Waterhouse [CMR: 143:3]. The study recommended the use of the UEM in which the
proprietary enterprises (water, gas and electric) are viewed as taxpayers’ assets that should yield
a reasonable return on the assets dedicated to the systems. Using the UEM, the transfer to the
General Fund is calculated by multiplying the net plant assets of each utility by the rate of
return. The study also recommended the City Council consider a “range of reasonableness” in
determining the appropriate transfer to the General Fund.
The recommended “range of reasonableness” included a lower and upper boundary on the rate
of return to be used in the UEM calculation. The lower end of the range used a rate of return
equal to the current rate on Treasury bonds, a long-term, risk-free investment. The upper end
of the range would be based on the rate equal to that used by the California Public Utilities
Commission for investor-owned utilities, such as PG&E.
In 1996, a landmark electric utility deregulation bill (AB 1890) was passed by the California
legislature. It allowed, as of March 31, 1998, customers to choose their electric commodity
Attachment A
3
supplier. In addition, the Utility Infrastructure Improvement Program (UIIP), which began in FY
1991, had led to increased funding of Capital Improvement Program (CIP) projects, increasing
the asset bases of the Water, Gas, and Electric Funds. Since the UEM is based on the asset base,
the UIIP led to an increase in the level of transfers to the General Fund.
The combined effect of customers potentially “leaving” the Palo Alto system in order to be
served by an alternate commodity supplier and the upward pressure on rates caused by rapidly
increasing transfers to the General Fund led staff to review the equity transfer methodology.
Responding to these conditions, in 1997, the City Council froze transfers from the Gas, Water
and Electric Funds to the General Fund at FY 1997 levels of $11.835 million annually.
In 1999, the City selected R. W. Beck to evaluate methodologies for Utility Fund transfers to the
General Fund. The study’s scope included the review of existing transfer methodologies,
identification of alternative methodologies, and the development of recommendations.
The R. W. Beck study, completed in March 2000, concluded that the current UEM transfer
methodology is viable if it undergoes certain modifications to recognize the risk associated with
the electric and gas supply business. The analysis performed in 2000 resulted in a
recommendation that the City adopt an equity transfer policy similar to the UEM that had been
adopted by the City after the 1982 Price Waterhouse study. The final recommendation
contained in R.W. Beck’s 2000 report was not ultimately adopted by the City.
The UAC reviewed the R. W. Beck Utility Funds Transfer Study in March 2000 and concurred with
staff’s recommendation to change the transfer methodology as follows:
For the Water Fund, increase the transfer at an annual rate of 3 percent per year.
For the Electric Fund, calculate the transfer based on 14.5 percent of Adjusted Sales
Revenue (ASR), where ASR is defined as the metered sales revenue less the Capital
Improvement Program (CIP) expenditures.
For the Gas Fund, use the same basic methodology, but use 15 percent of ASR in the
calculation.
Include in the methodology a sharing arrangement in case of a loss faced by one of the
utility funds.
In April 2000, the City Council approved the recommended methodology for the equity transfers
[CMR: 223:00] beginning in FY 2001. However, the new UEM-based methodology was only in
use for one year. In FY 2002 the equity transfer from the Electric and Gas Funds was changed so
that the equity transfers increased by 3% from the previous year’s transfer amounts as was
being done in the Water Fund.
The City hired the firm of Black and Veatch in 2008 to review the Water Fund equity transfer.
After examining the water equity transfer methodology study and the practices of other public
agencies, the City ceased the equity transfer to the General Fund from the Water Fund
beginning in FY 2010. In addition, R. W. Beck was engaged in early 2009 to review its
Attachment A
4
recommendations from 2000 and to again evaluate alternate equity transfer methodologies for
the Gas and Electric Funds. R. W. Beck completed its review of the electric and gas equity
transfers in February 2009, identifying alternative methodologies and recommending a
methodology for the future that it considered fair and reasonable.
R. W. Beck recommended that the City employ a Return on Rate Base method similar to the
UEM utilized in the past by Palo Alto. The method requires the annual calculation of the “rate
base” for the Electric and Gas Funds. The rate base contains the following components that are
added together:
Net asset value of the utility assets as of the latest audited fiscal year. This is calculated
every year by the Administrative Services Department. The net asset value is adjusted
every year by that year’s capital additions and reductions for depreciation, which is
based on the life of each asset. The latest audited net asset value will be found in the
City’s Comprehensive Annual Financial Report (CAFR);
Working capital for the supply purchases for the upcoming fiscal year. This is calculated
by multiplying the budgeted cost for supply purchases by 1/12 since the City needs to
reserve sufficient funds for one month of these costs;
Working capital for the non-energy supply operating costs for the upcoming fiscal year.
This is calculated by multiplying these costs by 1/8 since there is approximately a 45-day
lag from customer usage of the energy deliveries and payment received for the energy
deliveries;
Additional capital projects budgeted during the current fiscal year. This is equal to the
additional budgeted capital improvements minus the expected customer funded
improvements; and
Depreciation for the current fiscal year. This is the estimated depreciation on the utility
assets for the current fiscal year, which will result in a reduction of the asset base.
The rate base is then multiplied by an appropriate return on equity to calculate the equity
transfer. R. W. Beck recommends using an adjusted return on equity based on the return on
equity allowed by the California Public Utilities Commission for PG&E. R. W. Beck
recommended methodology has two adjustments to PG&E’s allowed return on equity to
account for differences between an investor owned utility (IOU) like PG&E, and a municipally
owned utility. The first adjustment is a tax adjustment and the second is a risk adjustment.
The tax adjustment compensates for the fact that the City of Palo Alto Utilities is a tax-exempt
entity and the City does not pay taxes on its collected return. The tax adjustment is 30%, which
is reflective of the total tax rate for taxable entities. The risk adjustment is based on the concept
that an investment in a municipal utility is less risky than an investment in an IOU. R. W. Beck
advised that the difference in yield between corporate bonds and municipal bonds cannot be
entirely explained by the tax adjustment alone. R. W. Beck recommends a 15% factor for this
risk adjustment.
The calculation of the return on equity appropriate for Palo Alto, then is equal to PG&E’s
approved return on equity multiplied by 0.70 (1-.30, the tax adjustment) multiplied by 0.85 (1-
Attachment A
5
.15, the risk adjustment). As an example, using PG&E’s current approved return on equity of
10.4%1, the total return for Palo Alto would be equal to 10.4% times 0.7 times 0.85, or 6.19%.
When this return on equity is multiplied by the rate base, calculated as described above, the
answer is the equity transfer for the Electric and Gas Funds.
Approved Equity Transfer Methodology
Council adopted the current equity transfer methodology, based on R. W. Beck’s
recommendation on June 15, 2009 with the FY 2010 budget.
4. Legislative Policy Guidelines
2013 Legislative Policy Guidelines
Background
The utility industry is a high profile and heavily regulated industry that is subject to copious
legislative action at both the state and federal level. Such legislation can influence, among
other things, the reliability and security of the supply and distribution infrastructure,
commodity procurement practices, customer service and billing, program design, rate design,
and activities and costs associated with climate protection. Representatives of the City (elected
officials and staff) participate in Federal and State legislative forums to advocate positions on
energy and water-related issues that facilitate the City’s Utilities Department’s key objectives of
providing valued utility services to customers and dependable returns to the City, and
employing balanced environmental solutions. The City’s Utilities Department also participates
in joint action efforts to advocate for goals and objectives shared by other publically owned
utilities.
A set of policy guidelines is developed each year that identifies the goals and priorities for the
Utilities Department to be applied by staff when evaluating legislation. While the guidelines are
used by staff for evaluating legislation, any advocacy positions taken in alignment with these
guidelines will be subject to the approval of the Utilities Director or City Manager per the City’s
legislative advocacy process.
Approved Guidelines
Council approved the 2013 Legislative Policy Guidelines by Resolution on January 28, 2013
[Staff Report #3408]. The 2013 Legislative Policy Guidelines are provided as Exhibit B.
5. Financial Reserves
Emergency Plant Replacement Reserves
Background
The Emergency Plant Replacement (EPR) Reserve was established by Article VII, Section 2(e) of
the City Charter for the Electric, Water, Gas, and Wastewater Collection Funds for unplanned
1 In December 2012, the California Public Utilities Commission changed PG&E’s allowed return on equity from
11.35% to 10.40%.
Attachment A
6
emergencies (or “contingencies”) only. The City has rarely used the Electric, Gas, Water, or
Wastewater Collection EPR Reserves. The last time any of these EPR Reserves was tapped was
in 1998 when the Electric EPR Reserve was used to cover the cost to replace a blown
transformer. The introduction of the minimum guideline level in February 2007 [CMR: 143:07]
was made in recognition of the City’s property loss insurance policies.
On June 15, 2009, the Council modified the minimum guideline level of the EPR Reserves [CMR:
281:09] to ensure that the EPR Reserves can cover the deductible amount to be equal to the
liability insurance coverage deductible amount (currently $1 million). This would ensure that
the full amount needed would be available for any unforeseen emergency where equipment
needed to be repaired or replaced in order to ensure that the distribution systems continued to
operate.
Approved Guideline:
Currently, the minimum guideline level for the Electric, Water, Gas, and Wastewater Collection
Emergency Plant Replacement Reserves is equal to the City’s liability insurance coverage
deductible amount.
Rate Stabilization Reserves
Background
Council established Rate Stabilization Reserves (RSRs) in May 1993 [CMR: 263:93] for the
Water, Electric, Gas and Wastewater Collection Funds. The purpose of the RSRs is to stabilize
rates by ensuring funds are available to cover short-term situations when expenditures exceed
revenues, to provide a depository of excess funds when expenditures are less than projected or
revenues are higher than budgeted, and to plan for certain known future occurrences that are
of a one-time nature, or to ramp up if the expense is of an ongoing nature. Over time, the RSR
guidelines have been changed to respond to changing needs.
The approved guidelines include a requirement approved by Council in February 2007 [CMR:
143:07] that the development of an assessment of the risks facing each fund be undertaken as
part of the annual budget and retail rate development and approval process. This short-term
risk assessment has been performed annually starting with Fiscal Year (FY) 2008.
The last time Council changed the RSR guidelines was on June 15, 2009 [CMR: 281:09] when the
minimum and maximum guideline levels for the Electric Distribution RSR, Gas Distribution RSR,
Gas Supply RSR, Wastewater Collection RSR and Water RSR were changed. The Electric Supply
RSR was last adjusted by Council in February 2007 [CMR: 143:07].
Approved Guidelines
1. All RSRs: The target level of the RSRs for each budget year to be established following an
annual evaluation of risks to each fund as part of budget preparation.
2. Electric Distribution RSR: Minimum guideline level = 15% of sales revenue, maximum
guideline level = 30% of sales revenue.
Attachment A
7
3. Electric Supply RSR: Minimum guideline level = 50% of supply purchase cost, maximum
guideline level = 100% of supply purchase cost.
4. Gas Distribution RSR: Minimum guideline level = 15% of sales revenue, maximum
guideline level = 30% of sales revenue.
5. Gas Supply RSR: Minimum guideline level = 25% of supply purchase cost, maximum
guideline level = 50% of supply purchase cost.
6. Wastewater Collection RSR: Minimum guideline level = 15% of sales revenue, maximum
guideline level = 30% of sales revenue.
7. Water RSR: Minimum guideline level = 15% of sales revenue, maximum guideline level =
30% of sales revenue.
These guidelines are summarized in the table below.
Reserve Minimum Guideline Levels Maximum Guideline Levels
Electric Distribution RSR 15% of sales revenue 30% of sales revenue
Electric Supply RSR 50% of supply purchase cost 100% of supply purchase cost
Gas Distribution RSR 15% of sales revenue 30% of sales revenue
Gas Supply RSR 25% of supply purchase cost 50% of supply purchase cost
Wastewater Collection RSR 15% of sales revenue 30% of sales revenue
Water RSR 15% of sales revenue 30% of sales revenue
Electric Special Project Reserve (formerly the Calaveras Reserve)
Background
In 1983, the City Council established the Calaveras Reserve in the Electric Fund to help defray a
portion of the annual debt service costs associated with the Calaveras Hydroelectric Project,
which was put in service at that time. As originally established, the Calaveras Reserve policy did
not provide for a target balance and depletion of the reserve was anticipated by 2002.
California Assembly Bill 1890 was adopted in 1996, which provided for the deregulation of
California’s electric industry effective January 1, 1998. A key element of deregulation was the
provision for Direct Access, which would allow electric customers to choose their electric
commodity supplier. The City of Palo Alto Utilities (City), along with other California utilities,
were faced with the prospect of losing customers and load to Direct Access and being saddled
with expensive generation assets purchased or built to serve these customers. In response,
Council changed the purpose of the Calaveras Reserve in 1996 [CMR: 214:96] and authorized
collections from electric ratepayers to cover the amount that certain electric assets’ costs were
projected to be higher than their market value in the future (i.e., stranded cost). In 1999,
Council ceased collecting funds for these stranded costs and established the Calaveras Reserve
Target and Guidelines with a schedule to draw down the funds through the end of FY 2033.
In 2001, the California electric industry faced an energy crisis triggering wholesale power price
spikes and rolling blackouts throughout the state. The crisis was blamed on poor deregulation
market design and market manipulation by energy suppliers. As a result, Direct Access was
suspended in California for the investor-owned utilities and, subsequently, the City suspended
its Direct Access program. Further, as a result of changing market conditions and the
Attachment A
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assignment of certain electric assets, the estimate of the City’s stranded cost is lower now than
when stranded cost collections stopped in 1999. In June 2008, the City permanently assigned
away its share in the Seattle City Light Exchange. Further, a 15-year assignment of the City’s
share in the California-Oregon Transmission Project (COTP) was executed in January 2009. The
assignments of the COTP and Seattle City Light Exchange effectively eliminate stranded costs
associated with these two electric assets.
On July 15, 2009, Council adopted updated Calaveras Reserve Guidelines [CMR: 275:09] which
required annual calculations of short- and long-term stranded costs and established the
minimum annual transfer from the Calaveras Reserve to the Electric Supply Rate Stabilization
Reserve equal to the short-term stranded cost. The guidelines also directed staff to work with
the UAC to recommend projects that would benefit electric ratepayers for the use of any funds
available in excess of long-term stranded costs.
On November 1, 2011 [Staff Report 2160], Council changed the name of the Calaveras Reserve
to the Electric Special Projects (ESP) Reserve and adopted guidelines for the ESP Reserve.
Approved Guidelines
1. The purpose of the ESP Reserve is to fund projects that benefit electric ratepayers
2. ESP Reserve funds are to be used for projects of significant impact;
3. Projects proposed for funding must demonstrate a need and value to electric
ratepayers. The projects must have verifiable value and not be speculative, or be high
risk in nature;
4. Projects proposed for funding must be substantial in size, requiring funding of at least
$1 million;
5. A goal is to identify preferred projects for the ESP Reserve by end of fiscal year (FY)
2015;
6. Any uncommitted funds remaining at the end of FY 2020 will be transferred to the
Electric Supply Rate Stabilization Reserve and the ESP Reserve will be closed; and
7. Funds may be used for analysis and pilot projects which would be the basis for planned
large projects.
6. Resource Plans
Long-term Electric Acquisition Plan (LEAP)
The LEAP Objectives and Strategies were last approved by Council on April 16, 2012 [Staff
Report 2710]. The changes since the prior year included updates to LEAP Strategy #3
(Renewable Portfolio Standard) to clarify the intent of the rate impact limit.
The approved LEAP Objectives, Strategies and Implementation Plan are provided as Exhibit 3.
Gas Utility Long-term Plan (GULP)
A major update to the GULP Objectives and Strategies was approved by Council on March 7,
2011 [Staff Report 1317]. At its November 1, 2011 meeting, the Council directed staff to
Attachment A
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develop market price-based, monthly-adjusted gas supply rates [Staff Report #2106]. The
transition to market-based gas supply rates required revisions to GULP Objective 1, GULP
Strategies 1 and 2, and GULP Implementation Plan Items 1 and 3. On April 23, 2012, Council
approved those changes [Staff Report #2552].
The approved GULP Objectives, Strategies and Implementation Plan are provided as Exhibit 4.
Water Integrated Resource Plan (WIRP)
The WIRP Guidelines were adopted by Resolution by the City Council on December 8, 2003
[CMR:547:03]. The approved WIRP Guidelines are provided as Exhibit 5.
Long-term Efficiency Goals
Water
The 2010 Urban Water Management Plan (UWMP) approved by Council on June 13, 2011 [Staff
Report 1688]. State law requires urban water suppliers to prepare, or update the UWMP every
five years to ensure adequate water supplies are available to meet existing and future water
demands over a 20-year planning horizon. In the 2005 UWMP, water savings from efficiency
measures was expected to be 4.3% by 2030, while the 2010 UWMP forecasts water efficiency
savings to account for 13% of projected water demand by 2030. The City plans to use new
measures to achieve the significant increase in water conservation savings when compared to
the 2005 UWMP. The water efficiency goals from the 2010 UWMP are shown in the table
below.
2010 UWMP Water Savings Summary
2010 2015 2020 2025 2030
Total Water Savings MGD) 0.37 0.97 1.47 1.62 2.02
Total Wastewater Savings (MGD) 0.21 0.57 0.85 0.91 1.05
Total Outdoor Savings (MGD) 0.16 0.40 0.62 0.71 0.97
Cumulative Savings as a Percent of
Water Demand 2% 7% 10% 11% 13%
Electricity
State law (AB 2021, 2006) requires municipal electric utilities to develop ten-year electric EE
plans and submit them to the California Energy Commission (CEC) every three years. Consistent
with state law, the City Council approved the 2007 Ten-Year Electric EE Plan in April 2007. The
2007 Electric EE Plan’s goal was to meet 3.5% of the electric energy needs of the City by energy
efficiency by the end of the 10-year planning period.
On May 3, 2010, Council approved the 2010 10-year Electric EE Plan with a goal to save 7.2% of
the electric needs of the City by 2020 [CMR: 218:10]. The updated goal is more than double the
savings goal in the 2007 Plan. On December 17, 2012, Council approved updated annual and
cumulative Electric Energy Efficiency Goals for the period 2014 to 2023 [Staff Report 3358] as
shown in the table below.
Attachment A
10
Fiscal Year Annual Incremental Electric EE Savings
(% of total City customer usage)
2014 0.6%
2015 0.6%
2016 0.6%
2017 0.6%
2018 0.6%
2019 0.6%
2020 0.65%
2021 0.65%
2022 0.7%
2023 0.7%
Cumulative 10-year EE Goal 4.8%
The cumulative 10-year Electric EE goal of saving 4.8% of the City’s electric usage is lower than
the 2010 goal primarily due to the significant savings that are attributable to changes in
building codes and appliance standards, which can’t be counted for the City’s EE program
savings.
Natural Gas
In 2007, Council approved the first ten-year gas energy efficiency (EE) goal—to reduce gas
usage by 3.5% by 2017. On April 11, 2011, Council approved an updated ten-year gas EE goal to
reduce gas usage by 5.5% by 2020 [Staff Report 1532]. On December 17, 2012, Council
approved updated annual and cumulative Gas EE Goals for the period 2014 to 2023 [Staff
Report 3358] as shown in the table below.
Fiscal Year Annual Incremental Electric EE Savings
(% of total City customer usage)
2014 0.5%
2015 0.5%
2016 0.5%
2017 0.55%
2018 0.55%
2019 0.6%
2020 0.6%
2021 0.65%
2022 0.65%
2023 0.65%
Cumulative 10-year EE Goal 2.75%
Attachment A
11
The cumulative 10-year Gas EE goal of saving 2.75% of the City’s electric usage is lower than the
2010 goal primarily due to the significant savings that are attributable to changes in building
codes and appliance standards, which can’t be counted for the City’s EE program savings.
Carbon Neutral Plan
The Carbon Neutral Plan for the Electric Supply Portfolio was adopted by Resolution by the City
Council on March 4, 2013 [Staff Report 3550]. The approved Carbon Neutral Plan is provided as
Exhibit 6.
7. List of Exhibits
1. 2011 Utilities Strategic Plan
2. 2013 Legislative Policy Guidelines
3. Long-term Electric Acquisition Plan (LEAP)
4. Gas Utility Long-term Plan (GULP)
5. Water Integrated Resource Plan (WIRP)
6. Carbon Neutral Plan
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
1
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
Customer and Community Perspective
C1. “I receive
safe and reliable
service.”
Customers expect that Utilities services are provided on a continuous
basis, without interruption. In addition, customers expect that the
Utilities delivery systems are safe and will not harm them or put them
in any danger. We will listen to our customers and seek to
understand their reliability and safety concerns and implement
programs and projects to address them.
Average time to
restore service per
interrupted
customer
Less than 90
minutes
Number of
electric system
interruptions per
year for average
customer
Ranks in the top
quartile
nationwide (less
than three)
C2. “Be
responsive to all
my utilities-
related service
needs.”
We understand that the customer wants clear, accurate bills with easy
methods of payment; access to usage history and enough
understanding to efficiently manage usage; to feel quickly and
completely “taken care of” when they have concerns, questions or
requests and to be communicated with effectively both as individuals
and as CPAU’s owners. One of the ways to achieve this is to elicit
feedback from customers to help improve service.
Customer
satisfaction scores
on annual surveys
for overall value.
Ranking in the
top two utilities
statewide
By the end of 2011,
establish mechanisms
to elicit customer
feedback on their
satisfaction with all
interactions with
CPAU.
C3. “I expect to
pay a reasonable
bill”
We understand that customers expect their bills to be comparable to
those in surrounding communities and do not expect to pay more than
PG&E customers. Customers believe it is reasonable to pay slightly
more in exchange for increased reliability, safety and protection of
the environment. However, customers’ overall bills for Utilities
services must remain reasonable and be reasonably stable and should
not increase significantly in any one year. Customers also want their
bills to provide useful information about their consumption of
resources in addition to the rate so that they can understand how they
The average
combined
residential
customer bill for
electricity, water,
gas, and
wastewater
services
Less than the
average of bills
for comparable
services in nearby
communities
(MP, MV, SC,
Hayward, RC,
Roseville, and
Alameda).
Reassess the design
and delivery of the
Utilities bill to
improve
understandability and
implement the changes
by 2012.
Reassess the gas
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
2
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
can influence their total cost for Utilities services. For natural gas
service, Palo Alto’s supply cost has been relatively stable due to a
laddered gas portfolio purchasing strategy; however, this strategy
needs to be re-evaluated as gas prices are currently low and are
projected to stay low for the foreseeable future. Although, the
average bill for all services should be comparable to those in
surrounding communities, staff will continue to monitor and report
the bills for each service separately on a quarterly basis.
Annual rate
change
Maximum of
10% per year for
electric and
wastewater
services.
Maximum of
20% per year for
water service.
portfolio laddering
purchasing strategy
(GULP initiative) and
develop a rate change
performance measure
for gas service.
C4. “Care for
our
environment”
Our community wants its customer-owned utility to offer choices for
them to manage their resource use in ways that reflect their
environmental values. Utilities will improve existing programs and
develop new programs to meet customer needs and allow customers
to manage their own environmental footprint.
Percentage of
customers
participating in
the PaloAltoGreen
program
Top rank
nationally
Redesign the
PaloAltoGreen
program by June 2012
(LEAP task).
Internal Business Process Perspective
Safety and Reliability
BP1. Ensure a
reliable supply of
utility resources
We will implement strategies that ensure the reliable supply of utility
resources to meet present and future needs. To provide opportunities
for economic development within Palo Alto, we must provide
sufficient resources that meet the short and long-term needs of our
customers. To achieve this we will maintain the utility system
components, and provide for adequate utility resource supplies to our
current and future customers. We will also develop new
management practices and organizational structure to ensure
compliance with regulatory requirements.
Duration of
electric system
interruption per
year for average
customer
Ranks in the top
quartile
nationwide (less
than 60 minutes
per customer)
Develop a plan to
complete a new
electric transmission
interconnection by the
end of 2011.
Response time to
water and
wastewater leaks
Under 30 minutes
BP2. Operate
the utility
systems safely
We will continue to ensure the safety of our customers, employees
and the community by the ongoing implementation of a safety
programs. Protecting customers and employees from injury and
customer’s property from damage is essential for delivering quality
utility services to our customers. The safety programs will be
AGA (American
Gas Association)
Incidence Rate
Less than
industry (APPA,
APGA, AWWA)
average with a
goal of 0
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
3
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
implemented by updating safety procedures, educating customers via
outreach materials and workshops, correcting system deficiencies,
operating in accordance with existing safety rules, and ensuring that
products delivered to customers are safe.
Customer
awareness of gas
safety issues
90% of customers
responding to
annual gas
customer safety
awareness survey
BP3. Replace
infrastructure
before the end of
its useful life
We will continue to implement a long-term strategy for replacing
infrastructure before the end of its useful life. Reliable delivery of
electric service to our customers is critical for the success of business
and the quality of life for our residents. To accomplish this, we will
focus on reducing the backlog and replaces infrastructure systems in a
manner that spreads the expense across multiple years resulting in
program with even expenditures patterns in future years.
Backlog of
infrastructure
elements whose
age is beyond its
useful life.
Zero
Customer Service Excellence
BP4. Serve
customers
promptly and
completely
We will provide customers with the highly responsive service they
desire. We will do this by reviewing and improving our processes for
managing accounts, handling payments, resolving billing issues,
responding to information and field service requests and notifying
customers during service disruptions. We will identify ways to
streamline these processes and implement changes. Specifically, we
will review, document and improve business processes that have been
identified as having long customer response times.
Average phone
wait time
Less than 90
seconds
Number of billing
adjustments
10% reduction
from number in
2009.
BP5. Communic
ate clearly and
pro-actively with
all our
stakeholders
We will proactively communicate with all our stakeholders, including
all customer groups, civic leaders, community groups and the press.
To achieve this objective we will provide the information needed for
our stakeholders to effectively access, understand and utilize all
utilities services and programs. In addition, we will design
communication vehicles and dissemination processes that will enable
our residents to be educated owners of their municipal utilities
system. For example, Palo Alto’s gas rate stability is something
customers should be educated about as it differentiates CPAU from
PG&E.
Time until
informing the
public and local
media of a
disruption
affecting at least
500 customers or
any sensitive
major customers
Less than 90
minutes after
becoming aware
of a disruption
Prepare a Utilities
Communications Plan
by June 2011 that
incorporates increased
use of neighborhood
and business
organizations and
schools to disseminate
program and
educational
information.
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
4
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
BP6. Offer
programs to meet
the needs of
customers and
the community
We will assist customers to lower their cost of utilities services and
support the environment. We will assist customers facing economic
hardship by offering bill payment assistance programs. We will
educate customers on the reasons for and their means of compliance
with our safety and regulatory requirements. We will also identify all
customer groups, identify any gaps in service provision to those
customers, and propose new programs or changes to existing
programs to close those gaps.
Participant*
satisfaction with
Utilities programs
(*rebate
recipients,
workshop
attendees, callers,
etc.)
At least 90% of
program
participants
satisfied with
their experience
Reduce Costs
BP7. Negotiate
supply contracts
to minimize
financial risk
We will continue to negotiate supply contracts to acquire supply
resources while managing supply portfolio cost uncertainty to meet
rate and reserve objectives and following sound risk management
practices. To ensure that we are buying commodities at as
competitive prices as possible, we will negotiate contracts with new
counterparties to continue to have a sufficient set of credit-worthy
trading partners. We will continue to develop long-term acquisition
policies and plans (LEAP and GULP) and update those plans at least
every three years. We will also determine all that is necessary to
execute a gas prepay transaction as that is one clear way to lower the
cost of gas supply resources.
Number of
competitive bids
received for each
fixed-price
transaction.
Minimum of
three
Pursue gas prepay
transactions to
leverage the City’s
low cost of capital and
tax-exempt status to
acquire lower cost gas
supply resources
(GULP Strategy).
BP8. Reduce
cost of delivering
service through
best management
practices
We will reduce the cost of delivering service to customers. We will
identify opportunities to better coordinate between Utilities and other
City departments to improve efficient delivery of services. We will
perform benchmarking studies to identify potential modifications to
procedures, practices, materials, and plans and to ensure that we are
following best practices. One best practice is to increase calibration
and replacement schedules for gas and water meters since the meters
slow over time so that the actual usage is under-recorded, resulting in
lost revenue.
“lost and
unaccounted for”
volumes of gas
and water
80% of 2009
levels.
Actively participate in
Citywide efforts to
improve the
procurement process.
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
5
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
BP9. Maximize
value of existing
generation assets
Palo Alto owns significant supply resource assets including a portion
of the Calaveras Hydroelectric Project, a contract with the Western
Area Power Administration, a permanent allocation of water from the
regional water system managed by San Francisco, and allocated
capacity on a gas transportation pipeline. We will seek out both daily
and operational and long-term opportunities to optimize the value of
these assets to enhance revenue and/or to reduce costs. We will work
with joint-owners of our resource assets to leverage those resources
and advocate to maintain or improve the value of existing resources
into the future (LEAP and GULP strategies).
Value harvested
from Redwood
gas pipeline
capacity
100% Evaluate and
implement
opportunities to
maximize the value of
the Calaveras project
in the new electric
market framework.
BP10. Manage
implementation
of strategic plan
Completing the strategic plan is only the beginning of getting value
from the strategic planning process. Ongoing management of the
strategies and initiatives and reporting on progress of those initiatives
is essential to achieving positive results from the strategy. We will
report to the UAC and Council on plan progress twice annually and
we will review and revise the objectives and develop new initiatives
on an annual basis.
Number of
strategic
initiatives
completed
100% Develop a program to
ensure that the
strategic plan is
pursued and that
objectives and
initiatives are
managed
Environmental Sustainability
BP11. Increase
the
environmental
sustainability of
all Utilities
activities
Adding sustainable resources to the supply portfolios will help the
City meet its Climate Protection Plan goals by reducing the carbon
footprint of the utility services provided to our customers. We will
achieve this by acquiring renewable resources and promoting the
development of local renewable resources within the rate objectives
in the Long-term Electric Acquisition Plan (LEAP). Sustainable
practices will be pursued not just for the supply portfolios, but across
all the Utilities day-to-day operations.
Carbon intensity
of the electric
portfolio
80% of baseline
(2005) level
BP12. Promote
efficient use of
resources
Resource efficiency programs meet our customers’ desire for
environmental solutions that save money as well as contributing
towards the Climate Protection Plan goals. We will promote resource
efficiency by dedicating the tactical staffing and budgetary resources
Actual electric
energy efficiency
achievement
At least as high
as goals set in
May 2010
By June 2011, develop
implementation plans
to achieve the long-
term water and energy
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
6
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
necessary to reach maximum deployment of economically feasible
resource efficiency. We will revise and document our long-term
efficiency strategies by updating our 10-year Energy Efficiency goals
every three years and updating our water efficiency goals every five
years in the Urban Water Management Plan. To maximize the
savings potential for new development, coordinate with the City’s
Economic Development Manager to ensure that new developments
incorporate energy saving features in the design phase.
Actual gas energy
efficiency
achievement
At least as high
as goals set in
January 2011
efficiency goals and
implement programs
as outlined in the
implementation plans.
People and Technology Perspective
PT1. Be an
attractive place
to work
We will create a positive values-based work environment which
attracts and retains qualified staff. To achieve this objective we will
try to better understand employees desires and incentives, and will
articulate our values both internally and as we recruit.
Employee
satisfaction rating
Improvement
from baseline
level
Implement an annual
survey to determine
employee satisfaction
levels and establish the
baseline satisfaction
level for 2011.
PT2. Obtain,
develop and train
employees to
ensure an
adequate and
qualified
workforce
A properly sized, trained and certified workforce is essential to our
effectiveness. We will identify skill and staffing gaps at the
individual and organizational levels and seek to fill those gaps
through the effective use of opportunities including hiring,
mentorship programs, role rotations, knowledge transfer
opportunities, long-term developmental assignments and both internal
and external training opportunities. We will plan for workforce
succession and provide cross-training opportunities for employees to
improve employee satisfaction and build a more robust work force
Percentage of
operations
personnel that has
appropriate
certification and
training required
for working in all
areas they may be
assigned
100% Develop a 5-year
succession plan for
each division.
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
7
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
PT3. Ensure
employees have
adequate tools to
perform job
duties
As major users of technology assets, we must have access to quality
and timely delivered IT services. We must build and maintain an
effective relationship with the City’s IT division that includes clear,
frequent communication as well as productive coordination. We will
collaborate with IT to identify barriers to providing support for
technology projects and remove them. In those instances in which
our immediate technology needs cannot be addressed by the City’s IT
division in a timely or sufficiently-comprehensive fashion, we will
utilize external expertise.
Technology needs
being met
100% for all
Utilities work
groups
Develop a Utilities-
specific IT strategic
plan.
PT4. Investigate
and adopt
innovative
technologies
Our customers value Utilities embracing new technologies that will
help reduce costs and/or meet Climate Protection Plan goals. We will
innovate by researching technologies and cultivating relationships
with entrepreneurs and academics to identify new cost-effective and
environmentally sustainable technologies to consider adopting. The
smart grid strategic plan will be complete by the end of FY 2012 and
new technologies, programs, and projects identified in the plan will
be implemented.
Number of new
technologies
evaluated per year
by an in-depth
study or pilot
project
Three Develop a process to
evaluate and
implement new
technology through
targeted programs and
consider creating a
fund for innovative
projects and pilots.
Financial Perspective
F1. Maintain
financial strength
Maintaining a high credit rating reduces the cost of borrowing if
needed for capital projects. We will continue best practices for
financial management, adhere to energy risk management policies
and guidelines to minimize financial risk, and maintain sufficient
reserves to cover debt obligations as required to retain CPAU’s
current favorable bond rating so that the cost of capital is low for any
bond funded capital projects.
Credit rating At least AA as
determined by
Fitch Ratings or
Standard and
Poor’s or at least
Aa3 as
determined by
Moody’s
Exhibit 1 to Attachment A
Utilities Strategic Plan – Strategic Objectives
Approved by Council on July 18, 2011 (Staff Report #1880)
8
Strategic
Objective
Objective Statement Performance
Measure
2015 Target Strategic
Initiative
F2. Maintain
adequate
reserves
Maintaining adequate cash reserves contributes to maintaining our
overall financial health and retaining our current favorable bond
rating. We will maintain Rate Stabilization Reserves levels within
Council-approved guidelines and sufficient to provide rate stability as
desired by ratepayers. During the annual budget and rate setting
process, the risks that each Utilities fund is exposed to will be
identified along with the trajectory of costs and revenues to allow
Council to determine appropriate reserve levels and rate adjustments.
Rate Stabilization
Reserve levels
Adequate to
cover cost
uncertainties over
a two-year period
while meeting
rate stability
objective
Re-evaluate the need
for and purpose of the
Calaveras (stranded
cost) Reserve by the
end of 2011.
F3. Implement
rate structures
that balance cost
of service and
resource
conservation
Retail rates should be designed so that the revenues from a customer
group match the cost to serve those customers. Rates consist of fixed
charges and volumetric charges, which are based on usage. Fixed
costs consist of customer-related costs (meter reading, billing, etc.)
and costs related to capital projects and operations while variable
costs include the cost of buying supplies (water, gas, or electricity).
When fixed costs are recovered through charges based on usage,
costs will not be recovered if customers reduce usage more than
projected. To address this problem we will examine alternate rate
structures that strike a balance between the two competing objectives
(cost of service and resource efficiency) to ensure that certain fixed
costs are recovered with a fixed charge, but other costs are recovered
with charges that vary depending on usage (volumetric charges).
By the end of 2011,
evaluate the
appropriate fraction of
fixed costs that should
be collected by fixed
charges versus
volumetric charges.
F4. Provide a
fair return to the
City
CPAU provides an equity transfer to the City of Palo Alto’s General
Fund which provides a return on the City’s original investment in the
Utilities and reflects the City’s ultimate responsibility for Utilities
operations. Council approved the current equity transfer method in
May 2009. The equity transfer is used by the General Fund as
determined by the City Council and supports activities such as fire,
police and library services to the City residents and businesses. This
benefit, along with favorable rates and utility services, is a key value
provided to the community from municipal ownership of Utilities.
Equity transfer to
the City’s General
Fund
100% of the
transfer as
calculated by the
Council-approved
equity transfer
methodology and
permitted by law.
9
Maintain adequate
reserves
Maintain financial
strength
Implement rate structures that balance cost of
service and resource conservationFinancial
Resources
People and
Technology
Be an attractive
place to work
Obtain, develop and train
employees to ensure an
adequate and qualified workforce
Ensure employees have
adequate tools to
perform job duties
Values: Honesty and Integrity Teamwork Accountability Quality of Service
“Be responsive to all
my Utilities services-
related needs”
“I receive safe and
reliable service”
“I expect to pay a
reasonable bill”
“Care for our
environment”
Vision: We Deliver Extraordinary Value to Our Customers
Strategic Destination: We will earn the high satisfaction of our customers with our cost-
competitive provision of safe, reliable and environmentally sustainable utility services
Customer
Operate the
Utilities systems
safely
Reliability and Safety Customer Service
Excellence
Manage Cost Environmental
Sustainability
Serve customers
promptly and
completely
Offer programs to meet
the needs of customers
and the community
Communicate clearly and
proactively with all our
stakeholders
Negotiate supply contracts
to minimize financial risk
Reduce cost of delivering
service through best
management practices
Internal Business Processes
Increase the
environmental
sustainability of all
Utilities operations
Promote efficient
use of resources
Investigate and
adopt innovative
technologies
Ensure a reliable
supply of utility
resources
Replace infrastructure
before the end of its
useful life
Maximize value of existing
generation assets
Manage implementation
of strategic plan
Provide a fair
return to the City
Exhibit 2 to Attachment A
1
Utilities’ Legislative Policy Guidelines for 2013
Adopted by Council on January 28, 2013 (Staff Report 3408)
Advocacy positions taken in alignment with these guidelines will be subject to the approval of the
Utilities Director or City Manager as per the City’s legislative advocacy process
ALL UTILITIES
Goals
1. Preserve/enhance local accountability in the control and oversight of matters impacting utility
programs and rates for our customers while balancing statewide climate protection goals.
2. Support efforts to maintain or improve the reliability of the supply, transmission, storage and
distribution/collection infrastructures.
3. Support legislation that makes bold progress in cost effectively reducing greenhouse gas (GHG)
emissions, and recognizes early voluntary action.
4. Maintain the City of Palo Alto Utilities’ (CPAU’s) ability to provide safe, reliable, sustainable, and
competitively‐priced utility services.
Legislative Policy Guidelines Venue Goals
1. Local
Accountability
2. Reliability
&
Infrastructure
3. Climate
Protection
4. Service
& Cost
Control
1. Advocate goals through active
participation in joint action efforts.
Federal,
State, and
Regional
2. Communicate the City’s record on
environmental and energy efficiency
programs with Legislature, California
Energy Commission (CEC), California
Air Resources Board (CARB), and
Natural Resources Defense Council
(NRDC) via California Municipal
Utilities Association (CMUA),
Northern California Power Agency
(NCPA), and the Bay Area Water
Supply and Conservation Agency
(BAWSCA).
State
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 2 of 13
1. Local
Accountability
2. Reliability
&
Infrastructure
3. Climate
Protection
4. Service
& Cost
Control
3. Support legislation that will result in
the most cost‐effective reduction of
GHG emissions, recognition of early
action, and inclusion of more efficient
solutions, fuel switching, and demand
control programs, in integrated
resource plans.
Federal,
State, and
Regional
4. Promote utility legislation and
regulations that support reasonable
reliability standards and compliance
requirements, and effective and
consistent reporting requirements,
customer communications, and goal‐
setting.
Federal,
State, and
Regional
Reliability
Councils
5. Oppose cost shifts from Federal or
State budgets and California Public
Utilities Commission (CPUC)
jurisdictional utilities through active
participation in CMUA and NCPA
legislative activities.
Federal,
State, and
CPUC
6. Advocate for State and Federal grants
for local and regional applications of
energy efficiency, conservation,
renewable resources, fiber,
wastewater collection systems and
recycled water projects.
Federal
and State
7. Maintain right of way access for utility
infrastructure.
Federal
and State
8. Protect the value of existing assets
and contracts and local regulatory
approvals of same.
Federal
and State
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 3 of 13
ELECTRIC
Goals
1. Preserve/enhance the ability of municipal utilities to exercise local accountability and oversight over
matters impacting customer service, programs (such as demand side efficiency and conservation
programs), and rate structure.
2. Preserve/enhance the reliability and security of infrastructure.
3. Support legislation that makes bold progress in cost effectively reducing greenhouse gas emissions
and encourages early voluntary action.
4. Preserve just and reasonable utility rates/bills.
Legislative Policy Guidelines Venue Goals
1. Local
Accountability
2.
Reliability
3. GHG
Reduction
4. Cost
Control
1. Advocate goals through Northern California Power
Agency (NCPA), California Municipal Utilities
Association (CMUA), American Public Power
Association (APPA), Transmission Agency of
Northern California (TANC), and Bay Area
Municipal Transmission Group (BAMx) with
support from Palo Alto staff to speak with a
coordinated voice.
Federal
and
State
2. Support NCPA in its continued efforts to
streamline the state regulatory reporting
responsibilities, to eliminate duplicative data and
report submittals to multiple state regulatory
agencies, including the CEC, CARB, and the
California Independent System Operator (CAISO).
State
3. Advocate for legislation/regulations that provide
local control and support for:
cost‐effective clean distributed generation and
cogeneration projects, and standards for
connecting such resources to the local
distribution system;
cost‐effective electric efficiency programs;
implementation of renewable portfolio
standards;
cost‐effective storage integration;
direct access requirements;
smart meters and smart grid design and
implementation, and
public benefit funds (as allowed in AB1890
Federal
and
State
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 4 of 13
1. Local
Accountability
2.
Reliability
3. GHG
Reduction
4. Cost
Control
(1996)).
4. Support cap‐and‐trade market designs that:
protect consumers from the exercise of market
power;
allocate allowances that help mitigate impacts
to Palo Alto customers while providing
incentives for utilities to move to lower GHG
emission portfolios;
provide flexible compliance mechanisms such
as banking and borrowing of allowances; and
allocate funds generated from cap‐and‐trade
markets to GHG related activities, not as a
revenue source for state or federal general
funds.
Federal
and
State
5. Support legislation for renewable portfolio
standards that:
promote the 33% goal for the state;
maintain local compliance authority;
allow utilities to pursue low cost alternatives by
utilizing existing transmission system to access
out‐of‐state resources, including use of
Renewable Energy Certificates (RECs);
prevent double jeopardy in the assessment of
penalties for non‐compliance; and
restrict extension of CEC jurisdiction over
Publicly Owned Utilities.
Local
and
State
6. Support/encourage transmission, generation, and
demand‐reduction projects and solutions including
advocating for financing or funding
solutions/options for projects that:
enhance/ensure reliability;
ensure equitable cost allocation (including
protection against imposition of state‐owned
electric contract costs on municipal utility
customers);
improve procurement flexibility (e.g. resource
adequacy rules that ensure reliability and
provide flexibility in meeting operational
requirements or flexibility in meeting State
renewable portfolio standards);
improve market transparency (particularly
transparency of IOU’s transmission and
procurement planning and implementation
activities); and
Local,
State,
and
Federal
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 5 of 13
1. Local
Accountability
2.
Reliability
3. GHG
Reduction
4. Cost
Control
lower the environmental impact on the Bay
Area and the Peninsula.
7. Advocate for Congressional, legislative, or
administrative actions on matters impacting costs
or operations of the Western Area Power
Administration such as:
support of Congressional Field Hearings to
explore modernizing flood control strategies,
river regulation and generation strategies at
Central Valley Project (CVP) plants to enhance
generation, water delivery, flood control and
fisheries;
protection of the status of Western Power
Marketing Administration and cost‐based rates;
provisions for preference customers’ first take
at land available with economic potential for
wind farms;
balancing efforts for competing environmental
improvements in rivers and Delta conditions
with water supply and hydropower impacts;
and
Achieving the grid modernization goals of
Secretary Chu’s March 16, 2012 memo without
compromising the primary mission of Western
and recognizing the achievements already
made in California without adding duplicate
costly efforts.
Federal,
State
and
Regional
8. Advocate for Congressional, legislative, or
administrative actions on matters relating to
overly burdensome reporting and compliance
requirements established by the North American
Reliability Corporation (NERC), the Federal Energy
Regulatory Commission (FERC) or the Western
Electricity Coordinating Council (WECC).
Federal,
State
and
Regional
9. Support fair and reasonable assessment of grid
reliability established by NERC, WECC, or FERC and
seek Congressional remedies (if needed) for
punitive application of fees and fines.
Federal
and
Regional
10. Work with California Independent System
Operator (CAISO) or through FERC:
to give buyers of renewable intermittent
resources relief from imbalance penalties; and
to promote financial and operational changes
Federal
and
State
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 6 of 13
1. Local
Accountability
2.
Reliability
3. GHG
Reduction
4. Cost
Control
that result in timely and accurate settlement
and billing.
11. Monitor cyber security issues to ensure that CPAU,
which currently does not have critical cyber assets,
is not subject to NERC cyber security standards
and support NCPA to protect it and its member
agencies from unnecessary cyber security
regulations.
Federal
and
Regional
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 7 of 13
GAS
Goals
1. Preserve/enhance the ability of municipal utilities to develop their own demand side efficiency and
conservation programs, alternative gas supplies, and rate structure.
2. Increase the security and reliability of the gas supply and transmission infrastructure. This includes
retaining access to intra‐ and interstate gas transmission systems to reliably serve customers.
3. Support efforts to reduce greenhouse gas emissions and protect the environment.
4. Preserve just and reasonable utility rates/bills.
Legislative Policy Guidelines Venue Goals
1. Local
Authority
2. Reliability of
Infrastructure
3.
Environ
‐ment
4. Cost
Control
1. Advocate most of these goals mainly
through the American Public Gas
Association (APGA) with minor support
from Palo Alto staff.
Primarily
Federal with
minor advocacy
at State level
2. Work with Northern California Power
Agency (NCPA) and California Municipal
Utilities Association (CMUA) to the extent
that the City’s goals as a gas distributor
align with generators’ use of natural gas.
Federal and
State
3. Support increased production/incentives
for renewable gas supplies from in or out of
state.
Federal and
State
4. Advocate for financing or funding for cost‐
effective natural gas efficiency and solar
water heating end uses.
Federal and
State
5. Support market transparency and efforts to
eliminate market manipulation through
reasonable oversight
Federal
6. Support municipal utilities’ ability to enter
into pre‐pay transactions for gas supplies.
Federal
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 8 of 13
1. Local
Authority
2. Reliability of
Infrastructure
3.
Environ
‐ment
4. Cost
Control
7. Support efforts to improve pipeline safety.
Work with partners to discourage extension
of CPUC regulatory authority over
municipal gas operations. Oppose
legislative proposals resulting in
unreasonable costs for Palo Alto’s
customers.
Federal and
State
8. Support cap‐and‐trade market designs that:
protect consumers from the exercise of
market power;
allocate allowances that help mitigate
impacts to Palo Alto customers while
providing incentives for natural gas
utilities to move to lower GHG emission
portfolios;
provide flexible compliance mechanisms
such as banking and borrowing of
allowances; and
allocate funds generated from cap‐and‐
trade markets to GHG related activities,
not as a revenue source for state or
federal general funds.
Federal and
State
9. Advocate for the fair application of Clean
Water Act rules and other existing
environmental rules on the practice of
hydraulic fracturing or “fracking” for natural
gas development.
Federal and
State
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 9 of 13
WASTEWATER COLLECTION
Goals
1. Support ability of municipal utilities to develop and manage their own conservation and efficiency
programs and retain authority over ratemaking, including the imposition of non‐volumetric
customer meter or infrastructure charges for wastewater collection service.
2. Increase the reliability of the local wastewater collection systems.
3. Maintain the provision of an environmentally sustainable, reliable high quality wastewater collection
service at a fair price.
4. Support equal comparisons of wastewater collection systems by regulatory agencies in order to
minimize and reduce onerous, costly and time‐intensive reporting requirements and improve value
and accuracy of information reported to the public.
Legislative Policy Guidelines Venue Goals
1. Local
Authority
2. Reliable
infrastructure
3. Maintain
service
4.Valuable
Reporting
1. Advocate goals through active
participation in the Association of Bay
Area Governments (ABAG).
Local,
Regional
& State
2. Advocate to ensure that legislative
actions regarding the comparison of
wastewater collections systems for future
regulations include the following
requirements:
timely rebuilding of the local
wastewater systems;
maintains the quality of delivered
wastewater collection service;
minimizes any increase in the cost of
wastewater collection service;
creates no additional exposure to
more frequent or severe wastewater
overflows;
supports the existing wastewater
collections systems and their
operation.
Local,
Regional
& State
3. Support provision of sufficient resources
for ABAG to enable it to advocate for:
environmentally sustainable, reliable
wastewater collection service at a fair
price;
regional comparisons of wastewater
Local and
Regional
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 10 of 13
1. Local
Authority
2. Reliable
infrastructure
3. Maintain
service
4.Valuable
Reporting
collection projects for future state
grant funding.
4. Support infrastructure security and
reliability including equitable allocation of
funds for increasing the security of
infrastructure.
Regional,
and State
5. Advocate for funding and local
regulations for wastewater collections
system projects and requirements that
reduce overflows and improve collection
system efficiency.
Regional,
State and
Federal
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 11 of 13
WATER
Goals
1. Support ability of municipal utilities to develop and manage their own conservation and efficiency
programs and retain authority over ratemaking, including the ability to optimize volumetric and
fixed charges to balance the goals of revenue certainty and water use efficiency.
2. Increase the security and reliability of the regional water system owned and operated by the San
Francisco Public Utilities Commission (SFPUC).
3. Support efficiency and recycled water programs in order to minimize the use of imported supplies.
4. Maintain the provision of an environmentally sustainable, reliable supply of high quality water at a
fair price.
Legislative Policy Guidelines Venue Goals
1. Local
Authority
2.
Reliable
infrastructure
3.
Minimize
imports
4.
Supplies
at fair
cost
1. Advocate goals through active participation in
the Bay Area Water Supply and Conservation
Agency (BAWSCA) and California Municipal
Utilities Association (CMUA), with support from
Palo Alto staff for BAWSCA and the San
Francisco Bay Area Regional Water System
Financing Authority (RFA).
Local,
Regional
& State
2. Participate in California Urban Water
Conservation Council (CUWCC) Best
Management Practice (BMP) revisions and
development to ensure that aggressive and cost‐
effective efficiency goals are incorporated and
operating proposals are reasonable, achievable,
and cost‐effective.
State
3. Advocate to ensure that legislative actions
regarding the Hetch Hetchy Reservoir and
conveyance system include the following
requirements:
timely rebuilding of the regional water
system;
maintains the quality of delivered water;
minimizes any increase in the cost of water;
creates no additional exposure to more
frequent or severe water shortages;
supports the existing water system and its
Local,
Regional
& State
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 12 of 13
1. Local
Authority
2.
Reliable
infrastructure
3.
Minimize
imports
4.
Supplies
at fair
cost
operation.
4. Advocate for interpretations or implementation
of Water Code provisions (such as those enacted
by AB 1823 (2002), AB 2058 (2002) and SB 1870
(2002)) that maintain or reinforce the authorities
and protections available to the City and
BAWSCA members outside of San Francisco.
Local,
Regional
and
State
5. Support provision of sufficient resources for
BAWSCA to enable it to advocate for:
an environmentally sustainable, reliable
supply of high quality water at a fair price;
preservation of Palo Alto’s existing
contractual water allocation and
transportation rights on the SFPUC Hetch
Hetchy system;
regional planning for conservation, recycled
water, and other water supply projects.
Local
and
Regional
6. Advocate for:
actions that preserve Palo Alto’s existing
contractual rights
supporting actions that preserve local
control over water use and limit
encroachment from outside jurisdictions
Local
and
Regional
7. Support infrastructure security and reliability
including an interconnection between the
SCVWD West Pipeline with the SFPUC’s Bay
Division Pipelines 3 and 4.
Regional
and
State
8. Support notification requirements that aid
residents/customers but do not inflict undue or
unobtainable requirements on the utility.
State
9. Support local control of public benefit funds
funding levels and program design.
State
10. Support beneficiary pays methodologies to
prevent taxes or fees, in particular those
imposed on SFPUC customers, to fund
infrastructure improvements and costs of other
water sources such as the Delta.
State
11. Advocate for financing or funding for water
conservation programs and recycled water
projects that meet end‐use needs and conserve
State,
Regional
and
Utilities Legislative Policy Guidelines for 2013 Exhibit 2 to Attachment A
Page 13 of 13
1. Local
Authority
2.
Reliable
infrastructure
3.
Minimize
imports
4.
Supplies
at fair
cost
potable water and oppose legislation that would
reduce such funding.
Federal
12. Support infrastructure security and reliability
that includes equitable allocation of funds for
increasing the security of infrastructure and that
protects the City from unnecessary regulations.
Local,
State,
and
Federal
Exhibit 3 to Attachment A
1
Long-term Electric Acquisition Plan (LEAP)
Objectives, Strategies and Implementation Plan
Approved March 7, 2011 (Resolution No. 9152)
Modified by Council March 19, 2012 (Staff Report No. 2581)
Modified by Council April 16, 2012 (Staff Report No. 2710)
LEAP Objectives:
1. Meet customer electricity needs through the acquisition of least total cost energy and
demand resources including an assessment of the environmental costs and benefits
2. Manage supply portfolio cost uncertainty to meet rate and reserve objectives.
3. Enhance supply reliability to meet City and customer needs by pursuing opportunities
including transmission system upgrades and local generation.
LEAP Strategies and Implementation Plan Steps:
1. Resource Acquisition – Pursue the least total cost resources including an assessment of
environmental costs and benefits to meet the City’s needs in the long term by:
a. Evaluating each potential resource on an equal basis by evaluating rate impacts and
establishing costs and values for location, time of day and year, carbon, value of
renewable supplies and any secondary benefits attributed to the resource; and
b. Including all resources – conventional energy, local and remote renewable energy
supplies, energy efficiency, cogeneration, and demand reduction – in the evaluation.
Implementation Plan Items for Strategy #1 – Resource Acquisition Estimated
Completion
1. Adjust planning and portfolio models to include an integrated and least cost
planning perspective which evaluates demand and supply side resources in an
integrated manner and includes time of delivery, locational and
environmental costs and benefits.
Dec. 2010
2. Evaluate the impacts of energy efficiency, demand reductions and electric
vehicle penetration in Palo Alto in the annual development of the electric
load forecast.
Dec. 2010
2. Electric Energy Efficiency and Demand Reduction – Fund programs that maximize the
deployment of cost-effective, reliable and feasible energy efficiency and demand
reduction opportunities as the highest priority resources by:
a. Every three years, preparing a ten-year energy efficiency plan that identifies all cost-
effective energy efficiency opportunities;
b. Using the cost of long-term renewable energy resources adjusted for time of day
factors and location as the avoided cost when evaluating cost effectiveness of energy
efficiency measures;
c. Designing and making energy efficiency programs available to all customers; and
Exhibit 3 to Attachment A
2
d. Considering the impacts (costs, benefits and GHG emissions) of substituting
electricity-using appliances for natural gas-using appliances and vice versa in the ten-
year energy efficiency plan.
Implementation Plan Items for Strategy #2 – Electric Energy Efficiency and
Demand Reduction
Estimated
Completion
3. Provide quarterly updates on electric efficiency program achievements
including tracking against 10-Year Energy Efficiency goals to the UAC and
annual updates to the City Council.
quarterly
4. Develop Energy Efficiency Implementation Plan for the 2010 10-Year Electric
EE Plan addressing certain items identified in the May 2010 Council
Colleagues Memo and identification of resources and funding needed to
achieve EE goals.
Apr. 2011
5. Evaluate fuel switching energy efficiency measures and include them, if cost-
effective, in the Electric and Gas EE Implementation Plans.
Feb. 2011
6. Develop a pilot Demand Response Program for large commercial industrial
customers for implementation in summer 2011.
Apr. 2011
7. Assess the feasibility and cost-effectiveness of using current and potential
thermal energy storage (TES) systems to shift load from on-peak periods to
off-peak periods, for use in a demand response program, or for meeting any
energy storage needs. Coordinate with task 21 to develop targets, if
appropriate.
Sep. 2011
3. Renewable Portfolio Standard (RPS) – Reduce the carbon intensity of the electric
portfolio by acquiring renewable energy supplies by:
a. Pursuing a minimum level of renewable purchases of at least 33% of retail sales by
2015 with the following attributes:
i. The contracts for investment in renewable resources shall not exceed 30 years in
term.
ii. Pursue only renewable resources deemed to be eligible by the California Energy
Commission (CEC).
iii. Evaluate use of Renewable Energy Certificates (RECs) to meet RPS.
b. Ensuring that the retail rate impact for renewable purchases does not exceed 0.5
¢/kWh on average; and
c. Performing an ongoing evaluation of the Palo Alto Clean Local Energy Accessible Now
(CLEAN) program.
Proposed Implementation Plan Items for Strategy #3 – Renewable Portfolio
Standard (RPS)
Estimated
Completion
8. Fully integrate the effects on energy efficiency in the long-term electric load
forecast.
Nov. 2010
9. Evaluate the merits of implementing a feed-in-tariff (FIT) and the potential to
meet RPS goals through local renewable resources.
Jan. 2011
Exhibit 3 to Attachment A
3
Proposed Implementation Plan Items for Strategy #3 – Renewable Portfolio
Standard (RPS)
Estimated
Completion
10. Seek UAC recommendation and Council approval of the policy elements of a
FIT to encourage local renewable resource projects.
May 2011
11. Continue working with NCPA to identify opportunities, including joint-
ownership, for developing qualifying renewable resources.
On-going
12. Evaluate the use of renewable energy credits (REC) to meet a portion of the
City’s RPS goal and/or greenhouse gas emission reduction goals and monitor
the regulations and requirements regarding the use of RECs to meet RPS
goals.
On-going
13. Evaluate a proposed geothermal project being considered by NCPA, including
a pre-pay option and the benefit, costs, and risks of a pre-pay structure.
June 2011
14. Conduct a Request for Proposal for eligible renewable resources including
RECs and evaluate alternative renewable resource technologies and
contracting mechanisms.
RFP in June
2011
4. Local Generation – Promote and facilitate the deployment of cost-effective local
resources by:
a. Using the renewable market price referent (MPR) adjusted for time of day factors
and location as the avoided cost when evaluating cost effectiveness of local
resources;
b. Considering energy delivery cost uncertainty and strategic value options when
evaluating opportunities;
c. Evaluating a Feed-in-Tariff to promote locally sited renewable resources;
d. Evaluating cost-effective energy storage resources; and
e. Evaluating the feasibility of developing a 25 to 50 MW generating facility connect to
the City’s distribution system.
Proposed Implementation Plan Items for Strategy #4 – Local Generation Estimated
Completion
15. Provide an update of past local generation feasibility studies and actions to
UAC and Council
Dec. 2010
16. Assess the potential for and feasibility of small local distributed and non-
distributed, renewable and cogeneration projects, including using a FIT to
encourage these projects.
Jan. 2011
17. Assess the potential, benefits and costs of developing and/or joint ownership
of a 25 to 50 MW gas-fired power plant located in or near Palo Alto to meet
load, reliability and local capacity needs.
Jun. 2011
18. Evaluate the City’s PLUG-In Program to encourage cogeneration including
rules, regulations, and buy back rates and recommend modifications as
needed.
Dec. 2011
Exhibit 3 to Attachment A
4
Proposed Implementation Plan Items for Strategy #4 – Local Generation Estimated
Completion
19. Following receiving Council direction from Implementation Plan Initiative #10,
develop a FIT proposal including rate, rules, regulations, standard contract
form and limits.
To be
determined
20. Assess the economics and potential of the anaerobic digester as a local
generation resource for CPAU
Sep. 2011
21. Assess the need for and value of energy storage to support local renewable
distributed generation resources. Determine any appropriate energy storage
targets to be achieved by December 31, 2016, and December 31, 2021.
Report back to the Council regarding what procurement targets, if any, are
deemed to be appropriate so that the Council may adopt such procurement
targets, if determined to be appropriate, by October 1, 2014.
Jun. 2012
5. Climate Protection – Reduce the electric portfolio’s carbon intensity by:
a. Supporting the City municipal government’s climate protection goals;
b. Promoting the use of technologies (e.g. incentives for cogeneration systems,
promotion of EVs, in-home energy displays) and programs that will reduce the
community’s carbon footprint at a cost of up to the City’s value of carbon;
c. Continuing to offer a renewable resource-based retail rate for all customers who
want to voluntarily select an increased content of non-hydro renewable energy; and.
d. Evaluating quantitative goals for possible future implementation.
Proposed Implementation Plan Items for Strategy #5 – Climate Protection Estimated
Completion
22. Promote the City’s Plug-in program to encourage development of
cogeneration systems.
On-going
23. Analyze electric vehicle (EV) charging patterns and evaluate rates to incent
nighttime EV charging.
Jun. 2011
24. Meet AB32 mandated annual reporting requirements to California Air
Resources Board on annual volumes of electricity purchases by resource.
Annually,
next in Jun.
2011
25. Track and report annually on 6 major greenhouse gas emissions (CO2, CH4,
N2O, SF6, HFCs, PFCs) for all of the City’s municipal operations and calculate
electric portfolio’s overall emissions coefficients (lbs of CO2, CH4, and N2O
per MWh of purchases).
Annually,
next in Sep.
2011
26. Evaluate the costs, benefits and impacts of the implementation of an electric
portfolio carbon neutral policy and the setting of quantitative goals (e.g.
carbon intensity, total GHG emissions).
Jan. 2012
27. Evaluate PaloAltoGreen program design and recommend modifications, as
appropriate, including constructing PaloAltoGreen to assist in meeting
Renewable Portfolio Standard goals.
Jun. 2012
Exhibit 3 to Attachment A
5
6. Hydro Resource Management – Actively monitor and manage cost uncertainty related
to variations in hydroelectric supply and maximize value of hydro resources by:
a. Planning for an average hydro year on a long-term basis;
b. Utilizing cost effective hydro resource management products; and
c. Implementing opportunities to maximize benefits and reduce costs of the Western
Base Resource and Calaveras hydroelectric resources.
Proposed Implementation Plan Items for Strategy #6 – Hydro Resource
Management
Estimated
Completion
28. Evaluate potential rate adjustment mechanisms that would adjust electric
rates based on hydrologic year type and develop a recommendation for a
rate.
Apr. 2011
29. Assess the value related to Palo Alto’s participation in the CAISO’s Metered
Subsystem Agreement and the use of the Calaveras hydroelectric project for
load following.
On-going
30. Identify long-term opportunities to maximize the value of the Calaveras
hydroelectric project as an energy storage resource.
On-going
31. Work with NCPA to seek opportunities to increase the efficiency of the
Calaveras hydroelectric project and implement operational value maximizing
strategies.
On-going
7. Market Price Exposure Management – Actively monitor and manage operational,
counterparty and wholesale energy price risk in the short-term (up to three to five years)
by:
a. Maintaining an adequate pool of creditworthy suppliers; and
b. Diversifying supply purchases across commitment date, start date, duration,
suppliers and pricing terms in alignment with rate stability objectives and reserve
guideline.
Proposed Implementation Plan Items for Strategy #7 – Market Price Exposure
Management
Estimated
Completion
32. Evaluate a block purchase of up to 25 MW to meet base load needs for Jan-
Mar and Nov-Dec for a term of up to 5 years.
Feb. 2011
33. Conduct an RFP for new electric master agreement counterparties. Dec. 2011
34. Explore opportunities with NCPA, other municipal utilities and/or third party
suppliers to reduce scheduling and/or operating costs.
On-going
35. Continue to implement a 3-year laddering strategy to manage market price
uncertainty.
On-going
8. Transmission and Reliability – Pursue the reliability of supply at fair and reasonable
transmission and delivery costs by:
a. Actively participating through collaborative efforts with other entities, in local,
regional, statewide and federal regulatory and legislative forums;
Exhibit 3 to Attachment A
6
b. Participating in transmission and reliability market design forums to ensure that
adopted market designs result in adequate reliability, workably competitive markets
and equitable cost allocation;
c. Evaluating interconnection options to the City to increase service reliability and
lower delivery costs; and
d. Exploring transmission opportunities and strategies to meet long-term renewable
portfolio objectives beyond 2020.
Proposed Implementation Plan Items for Strategy #8 – Transmission and
Reliability
Estimated
Completion
36. Investigate transmission connection voltage upgrade from 115 to 230 kV, and
the potential for a transmission reliability connection to west side.
On-going
37. Explore transmission opportunities and strategies to meet long-term
renewable portfolio objectives beyond 2020.
On-going
38. Evaluate joint efforts for power plant ownership opportunities or long-term
agreements to meet the City’s Resource Adequacy Program requirements.
On-going
Exhibit 4 to Attachment A
1
Gas Utility Long-term Plan (GULP)
Objectives, Strategies and Implementation Plan
Approved by Council on April 23, 2012 (Staff Report 2552 – Resolution 9244)
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 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 and implementing a ten-year gas efficiency plan every three years that
includes a reasonable carbon price premium for traditional gas supplies; and
b. Considering the impacts (cost, benefits, and GHG emissions) of substituting
electricity-using appliances for gas-using appliances and vice versa in the ten-year
gas efficiency plan.
4. Reduce the carbon intensity of the gas portfolio in accordance with the Climate
Protection Plan by:
a. Designing and implementing a voluntary retail program using reasonably priced non-
fossil fuel gas resources; and
b. Purchasing non-fossil fuel gas for the portfolio as long as it can be done with no 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;
Exhibit 4 to Attachment A
2
a. Negotiating with PG&E for fair access to transportation and storage; and
b. Exploring potential joint action with other public agencies.
GULP Implementation Plan:
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.
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. 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.
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.
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 to the UAC and
the City Council.
6. Continue evaluating new gas efficiency technologies and undertake pilot studies where
appropriate.
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.
Exhibit 5 to Attachment A
1
Water Integrated Resource Plan Guidelines
Approved by the City Council on December 8, 2003 (CMR:547:03)
Guideline 1 – Preserve and enhance SFPUC supplies: With respect to the City of Palo Alto
Utilities’ (CPAU’s) primary water supply source, the San Francisco Public Utilities Commission
(SFPUC), continue to actively participate in the Bay Area Water Supply and Conservation Agency
(BAWSCA) to assist in achieving BAWSCA’s stated goal: “A reliable supply of water, with high
quality, and at a fair price.” Objectives in support of that overall goal include:
A. That the regional water system gets rebuilt cost-effectively and that BAWSCA
monitor implementation of AB 1823 – San Francisco should safeguard the water
system against damage from earthquakes and other foreseeable hazards. BAWSCA
will monitor progress on the system repairs and on completing the requirements of
the legislation that the BAWSCA agencies supported to oblige San Francisco to repair
and rebuild the regional system.
B. That the cost of improvements is fairly allocated – San Francisco should commit to
maintaining cost-based pricing, with the costs of the wholesale water system shared
between the City and its wholesale customers based on their proportionate share.
C. That future water needs can be met – San Francisco must evaluate the ability of the
regional system to meet future supply and capacity requirements and must use the
BAWSCA agencies’ long-term water demand forecasts as the basis for regional water
demand projections.
D. That there are adequate supplies during droughts – San Francisco should arrange
back-up supplies for dry years and should “drought proof” the entire service area,
not just San Francisco itself. If rationing becomes necessary, San Francisco should
use a system that allocates available water between San Francisco and wholesale
customers in a way that (1) is fair and (2) avoids penalizing long-term conservation
efforts and/or development of alternative supplies, such as recycled water.
E. That communities prepare for potential water outages – San Francisco should
coordinate with the BAWSCA agencies to develop a crisis management plan.
F. That agencies implement cost-effective water conservation activities – San Francisco
should provide agencies enough information so that they can prepare for possible
outages, including the provision of conservation programs for their communities.
BAWSCA can act as coordinator for these programs to improve the cost-
effectiveness of agencies offering such programs.
Exhibit 5 to Attachment A
2
G. That water received must meet drinking water standards – San Francisco should
continue to protect the purity of Hetch Hetchy water and commit to provide its
wholesale customers with water that meets EPA and California drinking water
standards.
H. That the Master Contract is properly implemented and a new Master Contract is in
place prior to 2009 – San Francisco should commit to maintaining cost-based pricing,
with the costs of the wholesale water system shared between the City and its
wholesale customers based on their proportionate share.
I. That there is ongoing support of efforts to protect health, safety and economic well
being of the water customers and communities – BAWSCA should maintain the
support of the many allies who supported the legislative effort to ensure San
Francisco repairs, rebuilds, and maintains the regional system.
Guideline 2 – Advocate for an interconnection between SFPUC and the District: Work with
the Santa Clara Valley Water District (District) and the SFPUC to pursue the extension of the
District’s West Pipeline to an interconnection with the SFPUC Bay Division Pipelines 3&4.
Continue to re-evaluate the attractiveness of a connection to an extension of the District’s West
Pipeline.
Guideline 3 – Actively participate in development of cost-effective regional recycled water
plans: Re-initiate discussions with the owners of the Palo Alto Regional Water Quality Control
Plant (PARWQCP) on recycled water development. In concert with the PARWQCP owners,
conduct a new feasibility study for recycled water development. Since the feasibility of a
recycled water system depends upon sufficient end-user interest, determine how much water
Stanford and the Stanford Research Park would take.
Guideline 4 – Focus water DSM programs to comply with BMPs: Continue implementation of
water efficiency programs with the primary focus to achieve compliance with the Best
Management Practices (BMPs) promoted by the California Urban Water Conservation Coalition.
Guideline 5 – Maintain emergency water conservation measures to be activated in case of
droughts: Review, retain, and prioritize CPAU’s emergency water conservation measures that
would be put into place in a drought time emergency.
Guideline 6 – Retain groundwater supply options in case of changed future conditions: Using
groundwater on a continuous basis does not appear to be attractive at this time due to the
availability of adequate, high quality supplies from the SFPUC in normal years. However, SFPUC
supplies are not adequate in drought years and circumstances could change in the future such
that groundwater supplies could become an attractive, cost-effective option. Examples of
changing circumstances could be that the amount of water available to CPAU from the SFPUC
for the long-term is reduced. This could occur if regulations or legislation require additional
water to be made available to the Tuolumne River fisheries. In addition, in the future
Exhibit 5 to Attachment A
3
allocations or entitlements to SFPUC water may be developed. If those allocations are based on
the dry-year yield of the system, allocations to all the users of the system, including CPAU,
could be well below their current and projected future needs. CPAU should retain the option of
using groundwater in amounts that would not result in land surface subsidence, saltwater
intrusion, or migration of contaminated plumes.
Guideline 7 – Survey community to determine its preferences regarding the best water
resource portfolio: Seek feedback from all classes of water customers on the question of
whether to use groundwater during drought to improve drought year supply reliability. At the
same time, seek feedback on the appropriate level of water treatment for groundwater if it
were to be used in droughts. Survey all classes of water customers to determine their
preferences as to the appropriate balance between cost, quality, reliability, and environmental
impact.
Note: WIRP Guidelines approved with the proviso that when determining the economic
feasibility of alternative water sources relative to SFPUC water, consideration will be given to
the possibility that SFPUC water may have a fixed cost component independent of usage, which
may be unavoidable when SFPUC water use is reduced.
Exhibit 6 to Attachment A
1
Adopted by City Council on March 4, 2013 (Staff Report 3550)
City of Palo Alto Utilities
Electric Supply Portfolio Carbon Neutral Plan
1. Carbon Neutral Definition
A carbon neutral electric supply portfolio will demonstrate annual net zero greenhouse gas
(GHG) emissions, measured at the Citygate1, in accordance with The Climate Registry’s Electric
Power Sector protocol for GHG emissions measurement and reporting.
2. Carbon Neutral Plan Objective
Reduce the City of Palo Alto’s overall community GHG emissions by achieving carbon neutrality
for the Electric Supply Portfolio starting in calendar year 2013 within an annual rate impact not
to exceed 0.15 cents per kilowatt-hour (₵/kWh) primarily through the: 1) engagement of
customers to increase energy efficiency; 2) expansion of long-term renewable resource
commitments; 3) promotion of local renewable resources; 4) continued reliance on existing
hydroelectric resources; and 5) meeting short-term balancing requirements and/or neutralizing
residual carbon through the use of short-term purchases of renewable resources and/or
renewable energy certificates (RECs).
3. Resource Strategies
a. Energy Efficiency
i. Continue to pursue energy efficiency strategies as identified in the Council-
approved ten-year Energy Efficiency Plan.
b. Long-term Renewable Resources
i. Continue to pursue the City’s Renewable Portfolio Standard (RPS) goal to
purchase renewable energy to supply at least 33% of retail sales by 2015 while
ensuring that the retail rate impact of these purchases does not exceed
0.5₵/kWh.
ii. Continue to pursue local renewable resources through the Palo Alto CLEAN and
PV Partners programs.
iii. Pursue additional RPS-eligible, long-term renewable resources (beyond the RPS
goals) to achieve a target of 100% carbon-free resources based on average year
hydroelectric generation.
c. Short-term Renewable Resources and Renewable Energy Certificates
i. For calendar years 2013 through 2016, procure short-term renewables, if the
price is comparable to that of an un-bundled REC;
1 Citygate is the location of the City’s main meter where the City interconnects to the Pacific Gas and Electric
transmission system. Emissions associated with of the output of the locally sited fossil gas fired combustions units
(COBUG), while not measured at Citygate, will be neutralized.
Exhibit 6 to Attachment A
2
ii. For calendar years 2013 through 2016, procure RPS-eligible, un-bundled RECs as
needed to achieve carbon neutrality based on actual load and resources;
iii. Neutralize anthropogenic GHG emissions associated with renewable resources
with unbundled-RECs, which may or may not be RPS-eligible.
d. Banking and Truing Up
i. In the event that there are surplus renewables beyond the load in a particular
year, bank as many RECs as allowable under the TCR EPS protocol from
qualifying renewables from that year to minimize the need for purchasing RECs
in subsequent years.
ii. Neutralize emissions associated with market purchases resulting from deviations
between expected and actual load and renewable and hydroelectric generation
resources with unbundled-RECs, which may or may not be RPS-eligible.
4. Hydroelectric Resources
a. Continue to preserve and advocate for existing carbon-neutral hydroelectric generation
resources that provide approximately 50% of average year resource needs.
b. Plan for and acquire carbon neutral resources assuming average hydroelectric
conditions going forward.
c. Under adverse hydroelectric conditions, procure unbundled-RECs, which may or may
not be RPS-eligible, to achieve carbon neutrality up to the 0.15₵/kWh rate impact limit
and seek Council direction if carbon neutrality cannot be achieved within the rate
impact limit.
d. Under favorable hydroelectric conditions, where carbon neutral resources are expected
to be surplus to needs, even after allowable banking, then pursue selling short-term
renewable energy, or the renewable attributes, associated with one or more carbon-
neutral resources in the portfolio.
5. Financial and Rate Payer Impacts
a. In addition to the RPS annual rate impact limit of 0.5₵/kWh, the cost of achieving carbon
neutrality shall not exceed 0.15₵/kWh based on an average hydro year.
b. Revenues collected from surplus energy sales related to hydroelectric resources under
favorable conditions (e.g. wet years), will be maintained within reserves to adjust for the
cost of achieving carbon neutrality under adverse hydroelectric years.
c. To the extent available and allowable, revenues from the auction of cap-and-trade
allowances may be used to fund resources acquired to meet the carbon neutrality goals.
6. Reporting and Communication
a. Develop a communication plan for stakeholders to inform them of the City’s efforts
towards achieving a carbon neutral electric supply.
b. Submit an annual, verified report of the carbon content of the electric supply portfolio
to The Climate Registry.
c. Provide customers a report of the electric supply portfolio’s carbon content to
supplement the mandated Power Content Label.
Exhibit 6 to Attachment A
3
d. Inform large commercial and/or corporate customers of the City’s carbon neutral
portfolio and its relevance to their individual corporate sustainability goals.
7. Implementation Plan
The tasks that need to be completed in the next two years pending Council approval of the
Carbon Neutral Plan in February 2013 are listed in the table below.
Item Timeframe
1. Modify electric supply portfolio models and Energy Risk
Management Policies, Guidelines and Procedures to account for
Carbon Neutral objectives, balancing, banking of renewable
attributes, reporting and financial impacts.
By April 2013
2. Modify the Long-term Electric Acquisition Plan (LEAP) to include
the carbon neutral objective
By June 2013
3. Develop communication plan to inform customers and
stakeholders of Carbon Neutral Plan and efforts.
February to April
2013
4. Based on response to the Fall 2012 request for proposals, seek
approval of new renewable power purchase agreements to meet
the City’s RPS up to approximately 100% of the long-term resource
needs in average hydro years.
December 2012 to
June 2013
5. Determine resource needs for CY 2013 through CY 2016 and
develop plan to acquire short-term renewable resources.
By June 2013
6. Determine long-term renewable purchase volumes for beyond CY
2016 and develop plan to acquire long-term renewable resources.
By September 2013
7. Procure RECs as needed to neutralize carbon emissions based on
actual load and resources for CY 2013.
By May 2014
8. Along with annual Power Content Label, produce and report to
customers the carbon intensity of the electric supply portfolio.
May/June 2014 and
annually thereafter
9. Produce and submit Electric Power Sector (EPS) and Local
Governments Operation Protocol (LGOP) reports to The Climate
Registry (TCR) for CY 2013.
July and October
2014 and annually
thereafter
10. Get independent verification of TCR reports and submit audited
reports to TCR.
By December 2014
and annually
thereafter
11. Redesign the PaloAltoGreen program according to Council
direction.
By December 2013