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Home My WebLink About2000-02-25 City CouncilCity-of Palo Alto City Manager’s Report TO: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER FEBRUARY 25, 2000 DEPARTMENT: UTILITIES CMR:163:2000 BIANNUAL REPORT ON ELECTRIC AND GAS PUBLIC BENEFITS AND WATER DEMAND SIDE MANAGEMENT PROGRAMS This is an informational report and no Council action is required. BACKGROUND ~fficiency Pro~arns The City of Palo Alto Utilities Department has developed and implemented energy and water efficiency programs for over 15 years. From 1985 through 1994, efficiency programs, also known as Demand-side Management (DSM), were offered to conserve resources and to reduce customer costs. In April 1996, responding to customer rates that were too low for program designs to pass traditignal Utility cost-effectiveness tests, Council approved a new policy to fund electric, gas and water DSM programs (CMR:209:96). The goal of the new policy was to achieve customer satisfaction and retention while, fostering the commtmity’s environmental values. Programs were to be funded from the Electric, Gas and Water Funds using a range of from 0.75 to 1.25 percent of each commodity’s annual revenues. Electric Public Benefits Pro~ams In Augusf t996, the California State Legislature passed Assembly Bill 1890 (AB 1890) req~ring municipal Utilities to establish and collect a non-bypassable customer charge, beginning January 1, 1998, to be used for Electric Public Benefit Programs. Unlike investor-owned utilities, AB 1890 allowed mtmieipal utilities to retain local control of Public Benefits programs by requiting them to meet specific criteria established in the following four categories: ,Cost-effective Demand-side Management programs (DSM) ~,New investment in Renewable Energy resources ~"Research, Development and Demonstration programs.(RD&D) ~Low income services (such as the Rate Assistance Program). In July 1997, the City of Palo Alto Utilities unbundled the supply and distribution electric charges on customer utility bills, and established the electric Public Benefit Charge based on the minimum charge required by AB1890 at 2.85% of electric revenues. In May 1998, Council approved the CMR:163:2000 Page 1 of 4 conceptual design of several electric Public Benefit programs to utilize the greater funding level established by AB 1890 (CMR:237:98). In addition to the existing and proposed DSM ~nd Low Income programs, entirely new electric programs were created to qualify for the other Public Benefit categories such as Renewable Energy, and Research, Development and Demonstration (RD&D). Council also approved a Public Benefits Reserve in the Electric Fund to hold dedicated but unspent funds budgeted for Electric Public Benefits Programs (CMR: 194:98). On February 8, 1999, Council approved the most recent additions and modifications to the Electric Utility Public Benefit Programs (CMR: 136:99). Limitations to the Electric Public Benefits ProgralI1 While the City of Palo Alto currently retains local control over tile programs and services offered to their utility customers and others, the structure and definitions for each of the categories - comprising the Electric Public Benefits Program is embodied in State law and is rigid and fairly well well-defined. For "grayareas" regarding applicability or suitability, staff discusses such proposals with the City Attorney’s Office, which is familiar with the 200-300pages of the statuary history. Their reviews have consistently shown that the plain language of Section 385 of AB 1890 does hot authorize the use of Public Benefit Funds for non-energy-related uses. Accordingly, staffhas chosen not to pursue activities such as use of Public Benefit funds for expansion of fiberoptie service, promotion of non-electric appliances or the promotion of certain electric appliances wlaieh would result in on-peak load increases. Low Income Pro~am_s In 1993, Council, approved the Rate Assistance Program which offered a 15% discount on electric, gas and water rates to qualifying residents (CMR: 262:93). Under AB 1890, the electric portion of the Rate Assistance Program qualifies for funding support from the Public Benefit Charge. In February 1999, Council approved an increase in the electric portion of the Rate Assistance Program to 20% (CMR: 136:99). Natural Gas and Water P~ in the FY 1999-2000 Budget, the Utilities’ "Natural Gas Demand-side Management Program" was renamed ’’Natural Gas Public Benefits. Program" in anticipation of a future state-mandated Natural Gas Public Benefit Charge (similar to the electric) under California’s continuing natural gas industry deregulation process. Programs under the "Public Benefits" umbrella were restructured into the categories of DSM, Low Income, and Research, Development and Demonstration~ Water Demand-sideManagement will retain its current name and structure for the foreseeable future. Current Water DSM programs focus on the implementation of the Best Management Practices contained in the Memorandum of Understanding with the California Urban Water Conservation Council signed by the City of Palo Alto in 1991. The current funding levels for Natural Gas Public CMR: 163:2000 Page 2 of 4 City of Palo Alto C ty Manager’s Report Benefit and Water DSM programs are one percent of the fespeetive annual revenues of each Fund. This report provides an update on allofthe current Electric and Natural Gas Public Benefits and Water Demand-side Management programs. This report also provides Council with the summarized final report of the Review for Natural Resources Defense Council (NRDC) of City of Palo Alto Utilities’Public Benefit Programs,. dated November 25, 1999, by Pacific Energy Associates. Pro_re’am Accornplishment~ Attachment A lists the accomplishments-to-date for the current Electric and Gas Public Benefits and Water Demand-side Management programs. Attachment B lists the.expenditures and encumbrances to date in addition to the budget expected to be spent by June 30, 2000. The FY1999-2000 budget for all Public Benefit and DSM programs total approximately $2 million. Projected expenses total $2.3 million. Electric expenses exceeding budget will be met by Withdrawals from the Public Benefits Reserve in the Electric Fund, Review for NRDC ofCi .ty of Palo Alto Utilities Public Benefits The San Francisco-based, Natural Resources Defense Council (NRDC) was a major intervenor in the legislative development ofAB 1890. Concerned that the electric efficiency gains over the last twenty-five years, and future efforts, would be abandoned in the rush toward electric industry restructuring, they are actively tracking the expenditures of Public Benefit funding by the investor- owned and mtmieipal utilities. In April 1999, the NRDC, City of Palo Alto Utilities, and four other Northern California municipal utilities agreed to an independent review by the NRDC of utility Public Benefits programs to assess whether each municipal utility was fulfilling the legislative mandate of AB 1890. The review was performed by Pacific Energy Associates, on behalf of the NRDC, and a Final Report was prepared. The Final Report’s key finding was: "Palo Alto is making a sincere effort to meet the intent and letter of public-purposes legislation and the agreement with the N-RDC." Other Pacific Energy Associates comments were: "Program development, operations, and expenditures are lagging behind public-benefit revenues." "Palo Alto Offers an array of energy-efficiency programs and, from a management perspective, they may be at the limit of the number of programs that .they can oversee." "Palo Alto has begun cost-effectiveness testing for their programs, but needs to complete the process." ’’Palo Alto’s residential program offerings, while fairly limited, appear to’~e well conceived and should be well received by customers." "Palo Alto’s research; development and demonstration effort primarily consists of small-scale demonstration projects related to electric vehicles." "Palo Alto has developed demonstrations of photovoltaie power and plans a solicitation of CMR: 163:2000 .-Page 3 of 4 remote renewables. The complete report is available for review. Program implementation delays have occurred due to needed market research, the length of the intemal approval process (including the budget timeline) and vacancies among staff. There is now in-place a complete roster of programs in each of the Public Benefit eateg0ries for residential, commercial, industrial and institutional customers. Additional programs have used consultants for development,, when practical. The cost-effectiveness criteria are being refined to cover current and future program offerings. The solicitation (RFP) for remote renewables has been made and the evaluation and selection process is underway. Where applicable, staffhas completed, or is in the process of addressing the other issues identified in the report. RESOURCE IMPACT . ... Funds have been budgeted in the appropriate resource Fund during the annual budget process or are contained in. the Electric Public Benefit Reserve. POLICY IMPLICATIONS This report does not represe~it any change to existing City policies. ENVIRONMENTAL REVIEW This is not a project under the California Environmental Quality Act. ATTACHMENTS Attachment A: Electric and Gas Public Benefits and Water Demand SideManagement Progran~ Aceomplishment~ Table Attachment B: Electric, Gas and Water Program Expenditures Table ~ PREPARED BY:Lindsay Joye, Marketing Engineer Tom Auzenne, Manager, Utility. Marketing Services DEPARTMENT HEAD: ULRICH CITY MANAGER APPROVAL: ce: UAC CMR: 163:2000 Page 4 of 4