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HomeMy WebLinkAboutStaff Report 2409-3452CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, February 10, 2025 Council Chambers & Hybrid 5:30 PM     Agenda Item     6.Approval of Contract Amendment Number Three to Contract Number C21177024 With Veolia Sustainable Buildings USA West, Inc. to Extend the Contract Time Through August 14, 2026 With No Change in the Amount Not-to-Exceed of $1,985,000 for the Commercial & Industrial Energy Efficiency Program. CEQA - Not a Project City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Utilities Meeting Date: February 10, 2025 Report #:2409-3452 TITLE Approval of Contract Amendment Number Three to Contract Number C21177024 With Veolia Sustainable Buildings USA West, Inc. to Extend the Contract Time Through August 14, 2026 With No Change in the Amount Not-to-Exceed of $1,985,000 for the Commercial & Industrial Energy Efficiency Program. CEQA - Not a Project RECOMMENDATION Staff recommends that the City Council approve and authorize the City Manager or their designee to execute Amendment No. 3 to Contract C21177024 with Veolia (Attachment A) for a contract extension of 18 months through August 14, 2026 to continue providing energy efficiency services including optional additional services offerings for the Commercial and Industrial Energy Efficiency Program. This amendment does not revise the not-to-exceed (NTE) amount of $1,985,000 from the original contract. BACKGROUND The Commercial & Industrial (C&I) Energy Efficiency Program (CIEEP), administered by Veolia (formerly Enovity), has supported the City of Palo Alto Utilities’ (CPAU) largest commercial customers since its launch in 2009. This program is CPAU's sole initiative for these key customers, who account for almost 80% of the City’s electric sales (this includes master metered multifamily properties and multifamily common area electricity usage). Veolia (service provider) has effectively delivered CIEEP services through marketing, outreach, and technical assistance, playing a critical role in helping CPAU meet its energy savings goals. Excluding green building code savings and electrification project savings, Veolia and other Small Medium Business (SMB) commercial sector contractors contributed approximately 96% of CPAU’s gross electric savings, as detailed in the annual SB1037 Status Report1. 1 SB 1037 Status Report, Annual Report 2022. https://www.cmua.org/files/2022%20POU%20Energy%20Efficiency%20Report%20Final.pdf City Council has adopted several policies to support funding programs that maximize the deployment of cost-effective, reliable, and feasible energy efficiency (EE) measures as outlined in the City’s 10 Year Energy Efficiency Goals (Staff Report # 120682 Updated 10 Year Energy Efficiency Goals2) adopted by Council in 2021. To achieve these energy efficiency goals, the City has partnered with third-party service providers since 2006, expanding services to C&I customers. These partnerships have led to a variety of successful projects, such as building energy management systems, retro-commissioning, lighting upgrades, HVAC system improvements, and industrial process optimization. C&I customers have deliver the most cost- effective EE savings within the City’s portfolio and in 2023, the annual EE energy savings delivered by Veolia’s C&I program totaled 372,193kWh, or 59% of all Gross Energy Savings. In 2022, Council adopted the ambitious goal of reducing the community’s greenhouse gas (GHG) emissions 80% below 1990 levels by 2030 (“80x30” goal) as part of the City’s initial Sustainability and Climate Action Plan, Implementation Work Plan (2023 – 2025) framework3. To meet the '80x30' goal, the City must reduce natural gas use by prioritizing the electrification of commercial rooftop packaged heating, ventilation, and air conditioning (HVAC) systems. Additionally, the City is focusing on electrifying its buildings and operations. There are significant barriers to electrification of commercial buildings, including customer uncertainty about electric technology, shortage of knowledgeable engineers and contractors, high upfront costs, and complexities related to electric service upgrades. Despite these challenges, CIEEP remains essential for supporting C&I customers and achieving the City’s EE and sustainability goals, particularly in the transition off of natural gas to meet S/CAP targets. ANALYSIS Council approval of the proposed amendment will enable the City to continue to pursue aggressive energy efficiency and electrification projects with C&I customers extending services through August 14, 2026. The proposed amendment includes a provision for continued services which can provide several benefits including: 1. Project initiation support, including comprehensive decarbonization assessments, engineering designs, and electrification roadmaps; and 2. A mechanism for ongoing support and optimization, which can help drive customer engagement and project adoption. 2 Staff Report #12068 Updated 10 Year Energy Efficiency Goals https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2021/id-12068.pdf 3 Sustainability Climate Action Plan, Implementation Work Plan (2023 – 2025) https://www.cityofpaloalto.org/City-Hall/Sustainability/SCAP Veolia services assist in ensuring CPAU meets state-mandated energy savings and CO2 reduction goals. They deliver certified professional services and in-person assessments that our internal staff cannot provide. The service provides certified energy managers who conduct thorough on-site evaluations, recommend tailored equipment upgrades, and deliver custom reports that drive energy-savings. Beyond traditional recommendations, an emphasis is placed on electrification measures, focusing on replacing aging gas equipment to align with current decarbonization priorities. Retro-commissioning services and post-installation inspections ensure energy-saving projects are executed accurately, with data loggers enabling precise savings calculations. The expertise and tooling required for these services exceeds staff qualifications. This contract, executed in August 2020, was significantly impacted by COVID-19, as in-person visits are essential to its success. Participation has rebounded, with 20 active projects in the pipeline. Although staff suggests extending the contract term, we do not recommend increasing the original budget or hourly rates. The total contract value is intentionally high to accommodate large-scale projects, which can cost hundreds of thousands of dollars and take years for full implementation. The budget reflects the irregular size and timeline of projects in this sector, and the remaining contract budget is not expected to be fully used. Veolia has demonstrated exceptional project management skills, ensuring that all projects are executed efficiently and effectively with positive feedback from customers. Notable Projects Completed with Veolia: Customer Name Installed Project Total Project kWh Savings Total Project Therm Savings Stanford Medicine Cancer Center Air Handling Unit Controls Upgrade 264,700 64,000 Lucile Packard Children’s Hospital Lighting Project 33,500 1,700 The Westin Hotel Ozone Laundry System 14,000 18,000 *The average California household consumes approximately 6,700kwh of electricity and 360 therms of gas annually. If Council does not approve the proposed amendment, staff will still work to initiate an Request for Proposal (RFP) however, during this time the program for C&I customers would be suspended while a new contract is negotiated. The next RFP will focus on enhancing project workflows and ensuring smooth coordination between Development Services permitting, and Electrical Engineering reviews. A streamlined process will be critical in driving successful electrification implementation. FISCAL/RESOURCE IMPACT The funding for this contract is available in the FY 2025 Utilities budget and allocated within the existing CIEEP program and funded by Public Benefits4. Council approval of the proposed amendment will have no additional financial impact as the total NTE contact amount of $1,985,000 remains unchanged from the original contract executed on August 16, 2021. As of October 2024, there is approximately $1,580,000 remaining in the original contract C21177024. STAKEHOLDER ENGAGEMENT Since August 2021, following the implementation of a contract for a Commercial & Industrial (C&I) program with Veolia, staff and Veolia have actively engaged with customers to gauge their interest in electrification. Initially, customer interest in electrification was low, and this feedback proved invaluable in designing targeted rebates to support equipment electrification. In October 2021, staff presented an overview of non-residential electrification to the S/CAP Ad Hoc Committee. When City Council identified the conversion of rooftop gas pack units to heat pump HVAC systems as a cost-effective and high-impact measure, staff developed a program tailored to this need, which was presented to the S/CAP Working Group in September 2023. Since then, staff has conducted workshops for commercial customers and hosted facility manager meetings and trainings, featuring successful electrification projects, electric alternatives, and equipment manufacturers. Staff has also collaborated with neighboring Community Choice Aggregations and utilities, which face similar challenges in the electrification of commercial buildings. ENVIRONMENTAL REVIEW The proposed amendment is categorically exempt under the California Environmental Quality Act (CEQA) n under Section 15301 (Existing Facilities) and Section 15304 (Minor Alterations to Land). ATTACHMENTS Attachment A: Veolia Contract C21177024, Amendment No. 3 APPROVED BY: Alan Kurotori, Utilities Chief Operating Officer Staff: Jesus Prado, Key Accounts Representative 4 Public Benefit: he City of Palo Alto Utilities (CPAU) receives public benefit funds through a combination of state and federal programs, grants, and utility ratepayer contributions. These funds are allocated to support various programs and services aimed at promoting energy efficiency, renewable energy, and assistance for low-income residents including programs for business customers such as CIEEP.