Loading...
HomeMy WebLinkAbout2001-11-13 City Council (13)City of Palo Alto City Manager’s Report 15 TO:HONORABLE CITY COUNCIL FROM: DATE: SUBJECT: CITY MANAGER DEPARTMENT: UTILITIES NOVEMBER 13, 2001 CMR: 387:01 APPROVAL OF A RESOLUTION TO ADOPT COMMERCIAL TIME-OF-USE ELECTRIC RATES RECOMMENDATION Staff and the Utilities Advisory Commission (UAC) recommend that the Council approve Time-of-Use (TOU) electric rates as a rate option available to large commercial and industrial customers who use more than 500 kilowatts a month, effective January 1, 2002. DISCUSSION In California, air conditioning loads during the summer impose large power demands throughout the State. To meet these increased loads, wholesale market prices for electricity are generally higher during the hours between noon and 6pm on sumrner weekdays. In order to provide price signals to large power users during these peak use periods, many utilities charge Time-of-Use electric rates. TOU rates involve charging different prices during certain periods of the day and night to reflect the varying cost of power over a 24-hour period. To gain experience with this rate structure and the responsiveness of our customers to price signals, staff recommends that TOU be implemented in Palo Alto on a voluntary basis. With 2-3 years experience with this rate structure, staff will then be in a better position to predict demand responsiveness of our customers. In this regard, staff will evaluate TOU as a demand side management tool that can be of value post 2004 when Palo Alto is expected to purchase some portion of its power on the wholesale market. In the meantime, TOU can provide a rate option for our large customers. TOU will offer our largest power users an opportunity to exercise control of their electrical costs by shifting their loads to take advantage of lower electric rates during the mid-peak and off- peak hours. The proposed TOU rates are designed to have no significant impact on the CMR:387:01 Page 1 of 2 Electric Utility’s revenue or customer bills but some customers may experience a slight increase or decrease depending on their individual load profiles. The TOU rate option will be offered to non-residential customers who use more than 500 kilowatts per month. There are approximately 60 commercial, industrial, and instiiutional customers meeting these criteria. UTILITIES ADVISORY COMMISSION REVIEW AND RECOMMENDATIONS On October 3, 2001, the UAC unanimously approved staff’s recommendation to offer TOU electric rates to large electric customers. RESOURCE IMPACT TOU rates have been developed with careful consideration as to avoid any significant impact on the Electric Fund sales and revenues. POLICY IMPLICATIONS Approval of this rate option does not represent a change in current City policies ENWIRONMENTAL REVIEW The adoption of the resolution does not constitute a project under the California Environmental Quality Act; therefore, no environmental assessment is required. ATTACHMENTS A:Resolution B:Time Of Use Electric Service Rate Schedules E-4TOU and E-7TOU C:Utilities Advisory’s Report dated October 3, 2001 C:Minutes from UAC October 3, 2001 PREPARED BY:Lucie Hirmina, Manager, Utilities Rates DEPARTMENT HEAD: CITY MANAGER APPROVAL: ULRICH- Director of Utilities City Manager CMR:387:01 Page 2 of 2 RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO ADOPTING UTILITY RATE SCHEDULES E-4-TOU AND E-7-TOU OF THE CITY OF PALO ALTO UTILITIES RATES AND CHARGES PERTAINING TO MEDIUM COMMERCIAL ELECTRIC TIME OF USE SERVICE AND LARGE COMMERCIAL ELECTRIC TIME OF USE SERVICE The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION I.Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-4-TOU (Medium Commercial Electric Time of Use Service) is hereby added to read in accordance with Sheets E-4-TOU-I through E-4-TOU-4, inclusive, attached hereto and incorporated herein. Schedule E-4-TOU sets forth the unbundled rates for energy sales to medium commercia! customers under the time of use option. The foregoing Utility Rate Schedules, as amended, shal! become effective on January i, 2002. SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-7-TOU (Large Commercial Electric Time of Use Service) is hereby added to read in accordance with Sheets E-7-TOU-I through E-7-TOU-4, inclusive, attached hereto and incorporated herein. Schedule E-7-TOU sets forth the unbundled rates for energy sales to large commercia! customers under the time of use option. The foregoing Utility Rate Schedules, as amended, shall become effective on January i, 2002. SECTION 3.The Council finds that the revenue derived from the authorized adjustments of the several electric service rates shal! be used only for the purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto. // // // // // // // 1OllOll syn 0072110 SECTION 4. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act, California Public Resources Code section 21080, subdivision (b) (8). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Senior Asst. City Attorney Mayor APPROVED: City Manager Director of Utilities Director of Administrative Services 011011 syn 0072110 2 MEDIUM COMMERCIAL ELECTRIC TIME OF USE SERVICE Co UTILITY RATE SCHEDULE E-4 TOU APPLICABILITY: This schedule applies to demand metered secondary electric service for commercial customers with a demand between 500 kw and 1,000 kilowatts per month, who have sustained this level of usage for at least three consecutive months during the most recent 12 month period, and who have waived electric direct access eligibility. This schedule applies to three-phase electric service and may include service to master-metered multi-family facilities. In addition, this rate schedule is applicable for customers who did not pay power factor penalties during the last 12 months. TERRITORY: Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energ), Rates: Summer Period Commodity Distribution Per Meter Per Month Public Benefits Total Demand Charge (kW) Peak $1.80 Mid Peak 1.14 Off-Peak 0.65 Energy Charge (kWh) Peak $0.0631 Mid Peak 0.0323 Off-Peak 0.0247 $6.20 3.91 2.25 $8.00 5.05 2.90 $0.0229 $0.0016 $0.0876 0.0117 0.0016 0.0456 0.0089 0.0016 0.0352 Winter Period Demand Charge (kW) Peak $1.62 Mid Peak - Off-Peak 0.93 Energy’ Charge (kWh) Peak $0.0417 Mid Peak - Off-Peak 0.0243 $3.43 1.97 $5.05 2.90 $0.0159 $0.0016 $0.0592 0.0093 0.0016 0.0352 CITY OF PALO ALTO UTILITIES Issued by the City Council UTILITIES Effective 1 - 1-2002 Original Sheet No.E-4-TOU-1 MEDIUM COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-4 TOU (Continued) SPECIAL NOTES: 1.Calculation of Cost Components The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C. 2.Definition of Time Periods SUMMER (Service from May 1 to October 31): Peak:12:00 noon to 6:00 p.m.Monday through Friday (except holidays) Mid Peak:8:00 a.m. to 12:00 noon 6:00 p.m. to 9:00 p.m. Monday through Friday (except holidays) Off-Peak:9:00 p.m. to 8:00 a.m. All day Monday through Friday (except holidays) Saturday, Sunday, and holidays WINTER (Service from November 1 to April 30): Peak: Off-Peak: 8:00 a.m. to 9:00 p.m. 9:00 p.m. to 8:00 a.m. All day Monday through Friday (except holidays) Monday through Friday (except holidays) Saturday, Sunday, and holidays HOLIDAYS: "Holidays" for the purposes of this rate schedule are New Years Day, President’s Day, Memorial Day, Independence Day, Labor Day, Veterans Day, Thanksgiving Day, and Christmas Day. The dates will be those on which the holidays are legally observed. SEASONAL RATE CHANGE: When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the tota! kWh usage, kW demand, and the applicable rates thereto between the two seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. CITY OF PALO ALTO UTILITIES Issued by the City Council UTILITIES Effective 1-1-2002 Original Sheet No.E-4-TOU-2 MEDIUM COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-4 TOU (Continued) o o Demand Meter Whenever the monthly use of energy has exceeded 8,000 kilowatt-hours for three consecutive months, a demand meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon, at the option of the City, it may be removed. The billing demand to be used in computing charges under this schedule will be the actual maximum demand in kilowatts taken during any 15-minute interval in each of the designated Time periods as defined under Section D.2. Solar Energy Discount Upon approval by the City, a 10 percent (10%).discount will be applied to a customer’s electric bill if such customer has installed a qualifying solar energy system prior to April 1, 1987. Power Factor Penalty Time of Use customers must not have had a power factor penalty assessed on their service for at least 12 months. Power factor is calculated based on the ratio of kilowatt hours to kilovolt-ampere hours consumed during the month, and must not have fallen below 95% to avoid the power factor penalty. Should the City of Palo Alto Utilities Department find that the customer’s service should be subject to power factor penalties, the customer will be removed from the E-4-TOU rate schedule and placed on another applicable rate schedule as is suitable to their kilowatt demand and kilowatt-hour usage. Changing Rate Schedules Customers electing to be served under E-4 TOU must remain on said schedule for a minimum of 12 months. Should the customer so wish, at the end of 12 months, the customer may request a rate schedule change to any applicable City of Palo Alto full-service rate schedule. Qualified customers may request service under E-4, E-4-G1, E-4-G2, or E-4-G3. CITY OF PALO ALTO UTILITIES Issued by the City Council UTILITIES Effective 1-1-2002 Original Sheet No.E-4-TOU-3 MEDIUM COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-4 TOU (Continued) Primary Voltage Discount Where delivery is made at the same voltage as that of the line from which the service is supplied, a discount of 2 1/2 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the customer’s electrical requirements. The City retains the right to change its line voltage at any time after providing reasonable advance notice to any customer receiving a discount hereunder and affected by such change. The customer then has the option to change his system so as to receive service at the new line voltage or to accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVA size limitation. (End] CITY OF PALO ALTO UTILITIES Issued by the City Council UTILITIES Effective 1-1-2002 Original Sheet No.E-4-TOU-4 ho APPLICABILITY: LARGE COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-7 TOU This schedule applies to demand metered secondary service for large commercial customers with a maximum demand of at least 1,000KW per month per site, who have sustained this demand level at least 3 consecutive months during the last twelve months, and who have waived electric direct access eligibility. In addition, this rate schedule is applicable for customers who did not pay power factor penalties during the last 12 months. TERRITORY: C° Within the incorporated limits of the City of Palo Alto and land owned or leased by the City. RATES: Seasonal Demand and Energy Rates:Per Meter Per Month Summer Period Commodity Distribution Public Benefits Total Demand Charge (kW) Peak $2.57 Mid Peak 1.28 Off-Peak 0.64 Energy Charge (kWh) Peak $0.0429 Mid Peak 0.0358 Off-Peak 0.0297 $5.43 2.72 1.36 $8.00 4.00 2.O0 $0.0156 $0.0016 $0.0601 0.0130 0.0016 0.0504 0.0108 0.0016 0.042t Winter Period Demand Charge (kV¢) Peak $1.93 $2.07 Mid Peak - Off-Peak 0.97 1.03 Energy Charge(kWh) Peak $0.0352 Mid Peak Off-Peak 0.0292 $4.00 2.00 $0.0136 $0.0016 $0.0504 0.0113 0.0016 0.0421 CiTY OF PALO ALTO UTILITIES Issued by the City Council C!TY OF PALO AITO UTILITIES Effective 1-1-2002 Original Sheet No.E-7-TOU-1 LARGE COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-7 TOU (Continued) Do SPECIAL NOTES: 1.Calculation of Charges The actual bill amount is calculated based on the applicable rates in Section C above and adjusted for any applicable discounts. On a customer’s bill statement, the bill amount may be broken down into appropriate components as calculated under Section C. Definition ofTime Periods SUMMER (Service from May 1 to October 31): Peak:12:00 noon to 6:00 p.m.Monday through Friday (except holidays) Mid Peak:8:00 a.m. to 12:00 noon 6:00 p.m. to 9:00 p.m. Monday through Friday (except holidays) Off-Peak:9:00 p.m. to 8:00 a.m. All day Monday through Friday Saturday, Sunday, and holidays WINTER (Service from November 1 to April 30): Peak:8:00 a.m. to 9:00 p.m.Monday through Friday (except holidays) Off-Peak:9:00 p.m. to 8:00 a.m. All day Monday through Friday (except holidays) Saturday, Sunday, and holidays HOLIDAYS: "Holidays" for the purposes of this rate schedule are New Years Day, President’s Day, Memorial Day, Independence Day, Labor Day, Veterans Day, Thanksgiving Day, and Christmas Day. The dates will be those on which the holidays are legally observed. SEASONAL RATE CHANGE: When the billing period is partly in the summer period and partly in the winter period, the billing will be computed by prorating the total kWh usage, kW demand, and the applicable rates thereto between the two seasonal periods, according to the ratio of the number of days in each seasonal period to the total number of days in the billing period. CITY OF PALO ALTO UTILITIES Issued by the City Council CITY OF PAl O AI.70 UTILITIES Effective 1-1-2002 Original Sheet No.E-7-TOU-2 o o LARGE COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-7 TOU (Continued) Request for Service Qualifying customers may request service under this schedule for more than one account or one meter if the accounts are on one site. A site shall be defined as one or more utility accounts serving contiguous parcels of land with no intervening public right-of-ways (e.g. streets) and have a common billing address. Demand Meter Whenever the monthly use of energ2¢ has exceeded 8,000 kilowatt-hours for three consecutive months, a demand meter will be installed as promptly as is practicable and thereafter continued in service until the monthly use of energy has fallen below 6,000 kilowatt-hours for twelve consecutive months, whereupon, at the option of the City, it may be The billin~ demand to be used in computing charges under this schedule will be the actual maximum demand in kilowatts taken during any 15-minute interval in each of the designated Time periods as defined under Section D.2. Power Factor Penalty Time of Use customers must not have had a power factor penalty assessed on their service for at least 12 months. Power factor is calculated based on the ratio of kilowatt hours to kilovolt-ampere hours consumed during the month, and must not have fallen below 95% to avoid the power factor penalty. Should the City of Palo Alto Utilities Department fred that the customer’s service should be subject to power factor penalties, the customer will be removed from the E-7-TOU rate schedule and placed on another applicable rate schedule as is suitable to their kilowatt demand and kilowatt-hour usage. Changing Rate Schedules Customers electing to be served under E-4 TOU must remain on said schedule for a minimum of 12 months. Should the customer so wish, at the end of 12 months, the customer may request a rate schedule change to any applicable City of Palo Alto full-service rate schedule. Qualified customers may request service under E-7, E-7-G1, E-7-G2, or E-7-G3. CITY OF PALO ALTO UTILITIES Issued by the City Council C~TY OF PAIO AI TO UTILITIES Effective 1-1-2002 Original Sheet No.E-7-TOU-3 LARGE COMMERCIAL ELECTRIC TIME OF USE SERVICE UTILITY RATE SCHEDULE E-7 TOU (Continued) Primar3, Voltage Discount Where delivery is made at the same voltage as that of the line from which the service is supplied, a discount of 2 1/2 percent for available line voltages above 2 kilovolts will be allowed provided the City is not required to supply service at a particular line voltage where it has, or will install, ample facilities for supplying at another voltage equally or better suited to the customer’s electrical requirements. The City retains the fight to change its line voltage at any time after providing reasonable advance notice to any customer receiving a discotmt hereunder and affected by such change. The customer then has the option to change his system so as to receive service at the new line voltage or to accept service (without voltage discount) through transformers to be supplied by the City subject to a maximum kVA size limitation. {End} CITY OF PALO ALTO UTILITIES Issued by the City Council CiTY OF PALO A170 UTILITIES Effective 1-1-2002 Original Sheet No.E-7-TOU-4 MEMORANDUM TO: FROM: UTILITIES ADVISORY COMMISSION UTIITIES DEPARTMENT 2 DATE:OCTOBER 3, 2001 SUBJECT: VOLUNTARY COMMERCIAL TIME OF USE ELECTRIC RATES REQUEST This report requests that the Utilities Advisory Commission (UAC) recommends that the City Council approve the introduction of Time of Use (TOU) rates as a rate option available to large commercial and industrial electric customers effective January 1, 2002. BACKGROUND Historically, the cost of wholesale power to the City of Palo Alto Electric Utility (CPAU) remained fixed during the peak and off-peak electrical demand periods of the day and throughout the year. Such power is often referred to as non-time differentiated. CPAU secured most of its power requirements through fixed price long-term contracts with Western Area Power Administration (Western) and the Northern California Power Agency (NCPA) for delivery of power generated by the Calaveras Hydroelectric plant (Calaveras). In addition, this year CPAU entered into a fixed price contract with Enron for 25 MW, which will end in January 2005. Given this resource portfolio, the wholesale cost of power to CPAU continues to remain non-time differentiated. With the emergence of the wholesale marketplace in recent years and the on-going functioning of the NCPA power pool, CPAU participates on a daily and hourly basis in selling it’s contracted quantities of wholesale power at market prices. With the acquisition of the 3-year 25MW Enron contract, CPAU is expected to sell surplus power through the duration of the contract. Beyond 2004, the ideal supply portfolio strategy will likely include the purchase of some portion of its load requirements on the daily spot market. TOU can play a role in reducing future market wholesale power costs. If customers reduce power during the high cost peak periods of the day, it will enable CPAU to avoid purchasing relatively high cost wholesale power from the market or provide the opportunity to sell the saved energy in the spot market. -1- DISCUSSION To gain experience with this rate structure and the responsiveness of our customers to price signals, staff recommends that TOU be implemented on a voluntary basis. With 2-3 years experience with this rate structure, staff will then be in a better position to predict demand responsiveness of our customers and evaluate the value of TOU as a demand side management tool that can be of value post 2004. In the meantime, TOU can provide a rate option for our large customers. Therefore, aside from the role TOU can play in holding down purchased power costs in the future, it serves as a customer rate option that can increase customer satisfaction. On the long term, CPAU expects to move to a modified real time pricing. TOU will offer our largest power users an opportunity to exercise control of their electrical costs by shifting their loads to take advantage of lower electric rates during the mid-peak and off-peak hours. The proposed TOU rates are designed to have no significant impact on the Electric Utility’s revenue or customer bills but some customers may experience a slight increase or decrease depending on their individual load profiles. Based on a recent 12- month load research analysis of our largest power users (monthly demands greater than 500kW), about half the commercial and industrial customers would pay more under the proposed TOU rate schedules and about half would pay less. If all large power users were served by TOU, the proposed rates are revenue neutral to the Utility. On the other hand, if only those customers who would likely save on their power costs (since their power demands may be during the mid-peak periods) chose TOU as a rate option, such customers would reduce CPAU’s sales revenue by approximately $80,000 or one-tenth of one percent annually. The TOU rate option will be offered to non-residential customers who use more than 500 kilowatts per month. There are approximately 60 commercial, industrial, and institutional customers meeting these criteria. To be consistent with the time of use rating periods in the Northern California region, TOU rates will consist of three rating periods. They are peak, mid-peak and off-peak periods. 1) Peak period, Monday through Friday, will be from 12:00 noon to 6:00pm. 2) Mid-peak periods, Monday through Friday, from 8:00am to 12:00 noon and from 6:00pm to 9:00pm. 3) Off-peak period, Monday through Friday, from 9:00pm to 8:00am, Saturday, Sunday and holidays. The time periods are consistent with PG&E TOU rate periods but significantly different from wholesale market power blocks. TOU requires a special meter to record the kilowatt and kilowatt-hou) data during the three rating periods. These meters cost approximately $1,000 each and can also serve to provide the Utility with valuable customer load research data aside from billing TOU. In order to obtain load profiles of our largest commercial and industrial customers, CPAU began several years ago, installing such meters. Therefore, the installation and cost of TOU meters has been driven by the need for load research and does not weigh-in as an incremental cost to implement TOU for large customers. Also, to be eligible for TOU, a customer cannot -2- have had a power factor penalty assessed in the previous 12 months. The Customer Information System (CIS) is unable to bill TOU and simultaneously calculate a power factor penalty on the customer’s bill. Since power factor billing will not occur with TOU billing, TOU customers will be limited to those with acceptable power factors. Staff will monitor TOU customer power factor information through a separate CIS report to assure that penalty revenue is not forgone. Also, a customer who switches to TOU rates has to continue to be serviced under TOU for at least twelve months. Table 1 below indicates the proposed TOU rates by rating period. Staff developed these rates with careful consideration given to avoiding significant overall sales revenue impacts in the Electric Fund. The rates are designed to be revenue neutral. Accordingly, the customer bill impacts are less than 5 percent (Table 2). Table 1 Proposed Time of Use Rates Rating Period Peak Mid-Peak Off-Peak kW Summer $ 8.00 5.05 2.90 Large Commercial-Rate E’4T kW ~Vinter $ 5.05 2.90 kWh kWh Summer Winter $ 0.0876 $ 0.0592 0.0456 0.0352 0.0352 kW kW kWh Summer Winter Summer $ 8.00 4.00 2.00 Large Industrial-Rate E-7T IkWh Winter $ 4.00 $ 0.0601 0.0504 2.00 0.0421 $ 0.0504 0.0421 Monthly Customer Usage Commercial Summer ..(788,228 kwh) Commercial Winter (678,343 kwh) Industria! Summer (2,316,620 kWh) Industrial Winter ......(2,134,321 kwh) Table 2 TOU Monthly Bill Comparison Current CPAU Rates $ 58.225 41,861 165,155 122,828 Proposed TOU Rates $ 59,795 40,485 168,868 119,100 Current PG&E Rates (TOU) $118,278 76,806 351,870 228,316 (3%) 3% (2%) 3% % TOU Below or Above Current CPAU Rates % TOU Below PG&E Rates (49%) (47%) (52%) (48%) -3- UTILITIES STRATEGIC PLAN Offering TOU supports Objective 1, "Enhance customer satisfaction by delivering valued products and services" and Strategy 4, "Deliver products and services for competitive markets". RESOURCE IMPACT Sales revenue may decline by approximately $80,000 armually. With overall sales revenues approaching $80,000,000, offering TOU will not have a significant financial impact on the Electric Utility revenues. POLICY-IMPLICATIONS This recommendation does not represent any change to existing city Policies. ENVIRONMENTAL REVIEW These services do not constitute a project under the California Environmental Quality Act (CEQA). PREPARED BY:Lucie Hirmina, Manager of Rates DEPARTMENT HEAD: DIRECTOR OF -4- Bechtel: Mr. Dawes. --DRAFT-- Dawes: Just a question that a confusion on my part. Am I correct in assuming that the control area would be all of the munies including SMUD, the whole 6500 megawatts, so it wouldn’t be just NCPA doing theirs and SMUD doing theirs? Miller: Yes, it would be that the whole 6500 megawatts and the way it’s envisaged right now is Western Area Power Administration would be the control area operator. Western operates three other control areas now, so this is not a new function for them and the SMUD control center would function as the back up control area. You need to have a fully functioning back up control area. So those would be the two primary locations for performing the control operating functions. Dawes: And would their wires be part of this arrangement as well, the SMUD and the Western transmission physical assets? Miller: Yes. Bechtel: Thank you again. Let me just say something about, Bern talked about uncertainties in the future, but I think there is one certainty that there will be change and that change perhaps may be for the better and so thanks again for filling us in and we look forward to, I guess, 30 days or so, within the next month, every month we’re going to have a new milestone of one sort or another. So thank you for coming down to Palo Alto and have a.safe drive back home tonight. Miller: Thank you for the opportunity to be here. VOLUNTARY COMMERCIAL TIME OF USE ELECTRIC RATES Bechtel: Our next agenda item is Agenda Item #2, a Voluntary Commercial Time of Use Electric Rates. We can take a break. It’s 9:15. I have a timeline that this next item is projected to take 15 minutes and we can wrap up perhaps at 9:30 and take a break there. Commissioners, shall we move ahead to one more item? Let’s do so. This report requests that the Utility Advisory Commission recommends that the City Council approve the introduction of time of use rates as a rate option available to large commercial and industrial electric customers effective January 1st. And so Lucie has joined us at the table and Randy, so do we have presentation or would you like us to just start asking questions? Baldschun:In the spirit of saving some time, why don’t you just start asking the questions? Bechtel: Okay, very good. Mr. Dawes. UAC Minutes 100301.doc 26 --DRAFT-- Dawes: Good evening Lucie and Randy. This follows, as night follows day, the direction of electric rates and I’m delighted to see that we’re moving forward with it. My only question is the proposal talks about having large users obligated to be on the time of use rates sometime in the future and it makes clear that by proposing in the interim a voluntary progam that what will probably is going to happen is that anybody that can save some money moving to a voluntary system will and anybody who’s going to cost more won’t. Since we know what’s going to happen in the furore, why don’t we just do it now? Batdschun: I expect you’re referring to the real time pricing comment in the future. Dawes: Right. Baldschun: Well, that’s a question ~hat staff has gone over and between time of use rates is the first step before RTP. Our real time pricing involves a whole other range of issues and implementation. Dawes: Can you explain the difference? Baldschun: Okay. Time of use rates, which are quite common in the United States, they’ve been around for dozens of years, involve charging different prices based on different hours of the day. We would go to Council to approve a rate schedule that would have different prices for Noon to 6 and then from 6 to - there’s a mid-peak and an off- peak. And those prices are set by the Council and they are charged until the next time we have a rate change. The difference between TOU and real time pricing in my mind is that with real time pricing, typically you change the price a day ahead and you don’t notify the customers what the price is going to be or you do it on an even more timely manner, perhaps an hour or half a day ahead. And based on those price si~onals, customers make decisions on whether or not to shave load and that’s a good pricing signal. As you know right now, our cost are not time differentiated because of our fixed price contracts, so there’s no cost savings to the utility right now by entering into that kind of rate structure, but for the future, post-2005, to the extent real time pricing does make sense, then we might move to that, but there’s no guarantee that we will do that. First of all, we need some progress with time of use rates, which is by itself, a very innovative rate structure. Dawes: My recollection was that, and maybe I read it wrong; I can’t see where my highlighting is. Well I can’t locate it right now but it just seems to me that if we’re going to move in this direction that the voluntary nature, to me it doesn’t resonate and that we should just go to time of day pricing structure with a rate structure that’s approved the Council as this would be and as time goes on, those rates could be modified, changed if depending on how we see the results. Baldschun: Well it is a big change in the way customers are billed and I think we want to be sensitive to the customers’ bills themselves and not invoke or mandate this kind of rate structure for all customers because some customers frankly have legitimate reasons for using power on peak, don’t have the ability to shift and their bills can become quite UAC Minutes 100301.doc 27 --DRAFT-- onerous. I think what we’re going to do is gain some experience with this. We’ve got good load profile data for our system and with this experience, we can predict a lot better what kind of price elasticity’s involved with some of the rate changes that we’ll probably be invoking between now and 2005 and try to determine if it’s an effective DSM tool. I think the real answer to your question is that we want to walk before we run. Our TP is a very complicated, until you mandate it, it’s a very onerous rate structure just to have to mandate, especially given the fact that our cost- we can’t justify it. We can’t tell our customers that we’re going to charge you 5 times-or 3 times the peak price compared the off peak price, and oh by the way, our prices that we pay for power is under a 6 term contract. It doesn’t change by the price of day, so there’s a real disconnect between our justification to charge these rates to our customers and the actual cost that we’re incurring. Dawes: Yeah, I can Sympathize in particularly with the, I guess, strong probability now that our life will be the same between now and the end of 2004 as we have experienced. In other words, our contracts will remain in place and the same pricing. Beyond 2004, a different ball game and we’re starting to talk about our portfolio and how we’re going to structure that and we don’t have anything beyond 24/7 or at least a quarterly. We’re thinking about our quarterly buys. It just seems to me that it was inevitable and I thought I’d raise the questions. I will certainly support a voluntary program but seemed like a reasonable question to ask. Baldschun: And it’s quite reasonable and we have some reasonable staff here that have asked the same question. But I want to just remind us that you’re going to be looking at several strategies for our long term resources and each of those strategies will likely involve some part of buying of the market, a piece of that, because you’re not going to lock into fixed price contracts for sig-nificant amount above our estimated loads. So it’s really that piece that’s going to differentiate by the market. Everything else is going to be fixed. So I’m always thinking, well I have to justify the customer and why I’m going to charge them these rates given our cost profile. Bechtel: Thank you. Rick? Ferguson: Two questions. First leading off ,~ith your comment here. Have we talked with customers in this group and do we have a pretty clear picture of implementation, ease or difficulty with them and their willingness to play ball? I mean I like the experimental nature of it so I support that. And my second question, I’d just like a definition of what is a "acceptable power factor" you divided the world into power factor billing and TOU and how do you define that boundary line? Thanks. Hermina: Yeah, some customers actually asked for TOU and they’ve been asking for it for maybe the last 2 or 3 years. We don’t know whether, of course, they would participate once we see it. We did some analysis and some customers would benefit from signing up and taking this offer and some will not, so we don’t expect everybody, all our large customers, to sign up. UAC Minutes 100301.doc 28 --DRAFT-- Ulrich: I think it’s important to look at this from an acceptance standpoint as opposed to a rule that you have to follow that has all these negatives with it. When you go out and talk to customers, the biggest thing they plead for is the ability to shape their usage around what’s best for their business. And if you give them some time to do that and they think of their business process and the cost involved in doing it, they can work real closely with us on developing a rate schedule that gives them what they need and at the same time, gives it to us. So voluntary is far better. It starts out with a much better relationship. In ?? we have a relatively small number of customers that you can spend the time to work with on this as opposed to trying to come up with a rate schedule that fits whole bunch of people but satisfies very few. Baldschun: On the power factor, the rate schedules require a least 90% power factor and if you fall below 90% power factor, there’s a penalty. Ferguson: So we’re picking up with that traditional 90% figure? That’s our starting point on what acceptable power factor is? Okay. Yeah. I like this proposal. It’s like fiber to the home. It’s like green power. We’re responding to a special but real evidenced customer need and request. It’s part of our strategy. We’ll gamble a little money. We’ll take a few hits, but it’s worth giving a try to so I applaud the proposal. Thanks. Bechtel: Other questions? I have. Bern, go ahead. Dawes: Are we prepared to offer time of use meters to any other customers that now don’t have it but hear of the program and think they can save money and would want to have one? Hirmina: We actually are going to change them. The plan was to change the meters on the large customers over 500 kW to start with. Right now, we’re going to start with those customers that would be interested and getting on time of use first. Because we wanted to get more information on load data on the customers from you know over 500 kW. Dawes: So ifa customer under 500 kWs called up and said, I’d like to be a part of that. I have a lot of my use at night. And you just have to say no not at this time? Hirmina: For now, yes. Baldschun: I think that the answer is that this is like apilot program. We’ll get a lot of experience from this and we’ll understand the feasibility of extending it to smaller users, smaller commercial and maybe residential someday, but that’s a possibility if this thing is fairly doable to do, doesn’t send a big staff impact in terms of the metering and the billing issues and it’s cost effective to implement it as a voluntary or mandatory basis. In the future we’ll look at that. Bechtel: Bern. UAC Minutes 100301.doc 29 --DRAFT-- Beecham: You indicated that this should be revenue neutral. I assume that if in fact our load is reduced during peak cost periods and we’d lay off our 25 megawatt load a bit better shape, however that might work, that we’d make a little bit of money on this. So it’s maybe revenue neutral but not profit neutral. Would that be right? Baldschun: It’s my understanding that at least until the end of 2004, that we will be in a surplus situation so depending on the market price we could, if the market price goes above our margina! cost, we’ll make some money. Maybe Girish can respond to that if you choose. Balachandran: There is a profit opportunity. It depends on the market and if the market goes, if our load decreases, and we have surplus resources and the market price is high to the extent we have surplus, we’ll make a profit. So there’s an opportunity cost advantage that we could take advantage of. Beecham: I guess I’m not, I know we have a hard price on the 25 megawatts. I’m not expecting we’ll ever make money on that, but our profits will be higher the more we can sell into the market, the more money we make basically. Balachandran: That’s right. The point that Randy’s making is we are making more money selling it to our retail customers right now than we would make selling it outside the city. Beecham: So every kilowatt we save, we lose. And we want to go in this direction? Baldschun: This direction is really something we have to start for the world in 2005. I mean what are we going to stop pushing conservation? There you raise a question which I’m not sure what the answer would be. Ulrich: Well the answer is, we’re not making these decisions in the short run today you’re absolutely right. Two months ago, we would have had a different answer.. Any benefits that we would gain would be shared by all the customers. In the sense, when we go back at retail rate schedules and the opposite would also take place. There’s no reason why the cost of doing this program and test and all that can’t be added to the charges to the customers. Baldschun: I think one of the problems we’ve had this year. We’ve seen the mark all over the place and here we are trying to make decisions not for something that’s going to be here for a few days or a few weeks, but something that will probably last for a number of years and yeah right now, we lose some money on the loss of a sale because the retail revenue is higher than our cost, but if you took that point of view and just operated all your decisions over our next 4 or 5 years, I don’t know if we want to do that. I think we have to make some assumptions and the assumptions are that it’s in the long run better for us to have these kinds of programs that reduce demand. Look what happened this summer. We made how much? I won’t go there, but... UAC Minutes 100301.doc 30 --DRAFT-- Bechtel: Don’t go there. Maybe we can move on. Ulrich: I think maybe I can summarize this. What we’re doing is the right thing to do. Looking at the long-term relationship with our customers. Beecham: And I think I agee with that and I do realize now that the marginal cost, the marginal revenue of selling back on the wholesale market is less than what we would be receMng on our retail market so what we do lose on every kilowatt, we make up in volume. And thinking of that, do you have any limits on how many participants you’ll take in? Baldschun: Well we did a worse case analysis and out of 60 customers, some are going to be paying more and some are going to be paying less and if everybody who is going to save money actually took advantage of it, it would be less than $100,000 impact which is about 1/10th of 1% of our electric revenues so it’s not a revenue issue for us. I’m talking about losing some money but we’re not going to be losing much, at least that’s our projection. Beecham: And I assume that you are assuming that customers who would pay more money under this situation in fact won’t sign up. Baldschun: Correct. Beecham: Okay. Thank you. Bechtel: Any other questions? Otherwise, I’d like to, I’d entertain a motion to approve the staff’s recommendation that we recommend to the Council that we approve a TOU rate plan. Ferguson: So moved. Bechtel: Moved by Mr. Ferguson. Second? Carlson: Second. Bechtel: Second by Mr. Carlson. No lights? All in favor please say ’T’. All Commissioners: I Bechtel: All say ’T’ and motion passes unanimously. Why don’t we take a break at this point and then we’ll move to agenda Item 3 which is discussion of DSM and Public Benefits Plan. 5 minutes. UAC Minutes 100301.doc 31