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HomeMy WebLinkAboutAGENDA REPORT 2019 0619 REG CCSA ITEM 09ECITY OF MOORPARK, CALIFORNIA City Council Meeting of June 19, 2019 ACTION Approved Staff Reco mmendation. BY B.Garza E. Consider Temporarily Opting Out of Clean Power Alliance for Certain Electrical Accounts. Staff Recommendation: Authorize the City Manager to opt out of Clean Power Alliance for all accounts with the following rates: LS-1, LS-2, LS-3, OL-1 AL-2, and TOU-PA-2E, and direct staff to review the rates in one year once the streetlight acquisition and retrofit are completed, and return to City Council with a recommendation on whether or not to return to Clean Power Alliance. (Staff: Jessica Sandifer) Item: 9.E. MOORPARK CITY COUNCIL AGENDA REPORT TO: Honorable City Council FROM: Jessica Sandifer, Community Services Manager DATE: 06/19/2019 Regular Meeting SUBJECT: Consider Temporarily Opting Out of Clean Power Alliance for Certain Electrical Accounts BACKGROUND On January 17, 2018, the City Council voted to join the Los Angeles Community Choice Energy Authority, now the Clean Power Alliance (CPA). In October 2018, the City Council set the default rate tier for the Moorpark community to the Clean Power tier to provide 50% renewable energy to the Moorpark community. At the time that the default rate tier was set, staff had indicated that they’d return to the City Council to determine the rate tiers for the individual municipal accounts when the non-residential service began. Non-residential service began in May 2018, and the City began receiving power from the Clean Power Alliance at the Clean Power tier. When CPA began to set their electrical rates, the CPA board set specified discounts or premiums compared to Southern California Edison’s (SCE) rates. Lean Power, offering 36% renewable energy, was to set to be a 1% to 2% discount over SCE rates; Clean Power, offering 50% renewable energy, was set to be on par with SCE rates or a 1% discount; and Green Power, offering 100% renewable energy, was set at a 7% to 9% premium over SCE rates. During the first year of CPA operation, they have maintained these bill comparison targets. DISCUSSION CPA notified staff in May of potential rate increases, outside of the bill comparison targets, to select commercial accounts that CPA may have to enact pending rate changes requested by SCE and approved by the California Public Utility Commission (CPUC). On June 6, 2019, the Clean Power Alliance Board adopted increased electrical rates for all customers. The residential rates and most of the commercial rate tiers have remained within the CPA bill comparison targets. However, due to multiple Item: 9.E. 600 Honorable City Council 06/19/2019 Regular Meeting Page 2 SCE rate changes, a major structural change to time-of-use periods, the restructuring of the Power Charge Indifference Adjustment (PCIA), including a large increase in the Lighting PCIA charge, and a special PCIA increase to account for SCE’s $825 million revenue under-collection in 2018, staff at CPA has recommended that a small subset of commercial rate accounts exceed the bill comparison targets in order to ensure that the rates adequately cover the costs to serve these customers. The subset of accounts that affects municipal operations are generally outdoor lighting accounts. The rate increases adopted by the Board equate to an approximately 40% increase in costs for the affected accounts. The June 6, 2019, staff report to the Clean Power Alliance Board explaining the issues in more detail is attached. This impacts all municipal and governmental agencies that are members of the CPA. City of Moorpark accounts with the following rates are affected by these rate increases: AL-2-F, LS-1-Allnite, LS-2, LS-3, OL-1, and TOU-PA-2E. Five of these rates account for our outdoor lighting use, the most significant of these accounts is the LS-1 and LS-2 accounts, as these account for all our street lighting costs. These five rate classes account for 53% of the total municipal electricity use throughout the year. CPA staff has been very helpful in assisting its municipal member agencies with navigation of this issue. They have prepared a high level estimate of the impact of the rate increases to these affected accounts using the last 12 months of electrical usage data. Based on the average lighting load profile, the CPA rate changes would increase our electrical costs by approximately $62,000 per year at the Clean Power Tier (default tier) or $55,000 if we were to opt in to the Lean Power tier, though our actual increase may be higher or lower. Once the City acquires the streetlight poles, prior to the completion of the LED retrofit, the costs would increase by approximately $3,000 across both tiers. Currently, the City is in the process of acquiring our streetlights from SCE, but the transaction has not concluded. Until the acquisition and the retrofit of the streetlight project is completed, continuing with CPA, with these large rate increases, would significantly increase our electrical bills and decrease the Return on Investment (ROI) for the streetlight acquisition. Staff is recommending that we temporarily opt-out of Clean Power Alliance for the AL2- F, LS-1, LS-2, LS-3, OL-1, and TOU-PA-2E accounts until such time as the rates return to a more manageable level. Staff can revisit the issue in a year, once the LED retrofit project on the streetlights has been completed. It is important to note that SCE has enacted an average 3.4% rate increase, so rates will increase with SCE, just not at the level that CPA has had to increase their rates. Additionally, when considering the purchase of the streetlights, the financial analysis considered a 4% escalation of power costs when calculating the ROI for the acquisition and retrofit, so the current SCE increase is in line with that assumption. 601 Honorable City Council 06/19/2019 Regular Meeting Page 3 FISCAL IMPACT Opting out of CPA for the AL2-F, LS-1, LS-2, LS-3, OL-1, and TOU-PA-2E accounts will avoid an increase of approximately $62,000 in anticipated electricity costs over the next year. STAFF RECOMMENDATION Authorize the City Manager to opt out of Clean Power Alliance for all accounts with the following rates: LS-1, LS-2, LS-3, OL-1 AL-2, and TOU-PA-2E, and direct staff to review the rates in one year once the streetlight acquisition and retrofit are completed, and return to City Council with a recommendation on whether or not to return to Clean Power Alliance. Attachment: June 6, 2019 Clean Power Alliance Staff Report 602 Staff Report – Agenda Item 6 To: Clean Power Alliance (CPA) Board of Directors From: Matthew Langer, Chief Operating Officer Approved By: Ted Bardacke, Executive Director Subject: Adopt Resolution No. 19-06-010 to Approve 2019 Rates for Phase 1 & 2 Non-Residential Customers, Resolution No. 19-06-011 to Approve 2019 Rates for Phase 4 Non-Residential Customers, and Resolution No. 19-06-012 to Approve 2019 Rates for Phase 3 Residential Customers Date: June 6, 2019 RECOMMENDATIONS 1. Adopt Resolution No. 19-06-010 (Attachment 1) to approve adjusted 2019 rates for Phases 1 & 2 non-residential customers; 2. Adopt Resolution No. 19-06-011 (Attachment 2) to approve adjusted rates for Phase 4 non-residential customers; and 3. Adopt Resolution No. 19-06-012 (Attachment 3) to approve adjusted 2019 rates for Phase 3 residential customers. CONTEXT CPA has just completed its major enrollment year, which began in June 2018 and concluded this past May. CPA is now the largest CCA in the state. During this time, the organization has experienced several SCE rate changes, a major structural change to time-of-use periods, the restructuring of the PCIA and a special PCIA increase to account for SCE’s $825 million undercollection in 2018.1 1 SCE’s improper conduct during the undercollection process is now subject to a penalty phase at the CPUC. CPA Executive Director Ted Bardacke has provided sworn statements in the penalty phase. 31 ATTACHMENT 603 CLEAN POWER ALLIANCE BOARD OF DIRECTORS AGENDA ITEM 6 During this past year, CPA has kept intact both its approved bill comparisons with SCE and the environmental commitments embodied in its three rate offerings. Delivering on these commitments is important to CPA’s core value proposition of offering a choice to over one million customers of cleaner power at competitive rates. CPA’s low opt-out rates across all rate products reflects the strength of that value proposition and of the CCA business model. In the coming years, CPA intends to also achieve rate stability, with just one rate change per year, as is standard among CCAs in California. In the meantime, CPA staff is proposing to adjust rates for all customers in response to another SCE rate change, which SCE announced on May 29 and was implemented on June 1. This SCE rate increase was lower than expected. To ensure CPA maintains its strong fiscal position, CPA staff is proposing to both increase net energy revenues and to reduce energy costs. To increase net energy revenues, staff is proposing an additional rate adjustment for a small subset of large energy users that would take effect in October 2019. This will result in rates for these customers that fall outside the ranges previously approved by the Board. As previously communicated with the Board, absent corrective action, CPA’s residential and small business customers would be subsidizing these large energy users at an unsustainable level. Details on this rate adjustment proposal are provided later in this report. Addressing these subset customers is only one part of keeping CPA’s finances strong. Staff is also recommending to reduce energy costs by using unbundled Renewable Energy Certificates (RECs) in 2019 to meet a small portion of the RPS commitments for the Lean and Clean rate products. Staff estimates that unbundled RECs will make up less than 10% of CPA’s total energy mix and the Clean product will continue to have a lower GHG emissions content than SCE. The 100% Green product will not include any unbundled RECs. The lower cost of energy is reflected in the Proposed Budget in Item 7. 32 604 CLEAN POWER ALLIANCE BOARD OF DIRECTORS AGENDA ITEM 6 Together, the rate proposal to have large energy users cover their cost of service and the reduction of energy costs through the temporary use of unbundled RECs for the Lean and Clean rate products puts CPA on firm financial footing for the coming year. OTHER OPTIONS CONSIDERED In developing this pair of proposals, staff considered several other options. On the revenue side, it would be possible to implement a broad-based rate increase on all customers, above and beyond matching SCE’s June 1 rate increase. This option was not selected because: a) it would leave the subsidy of large energy users by residential and small business customers intact; and b) it is less disruptive to exceed CPA’s approved bill comparisons for less than 1% of CPA’s customers while they still have the opportunity to opt-out with no risk rather than implement an immediate rate increase outside of the approved ranges for all customers so soon after enrollment. On the cost side, staff considered the option of reducing renewable energy purchases across the board. This option was not selected because: a) it would have undermined the value of the 100% Green rate that customers are paying a premium for; and b) it would have pushed the renewable content of the Lean and Clean rate products to levels below those offered by SCE for its base product. Staff recognizes that CPA’s Joint Powers Agreement “discourages the use of unbundled renewable energy credits.” However, the two recommended actions enable CPA to maintain bill comparisons for over 99% of CPA customers, maintain RPS levels for Lean and Clean, keep the 100% Green rate product intact with no unbundled RECs, and place CPA on solid financial footing. RATE PROPOSAL On April 4, 2019, the Board approved Resolution No. 19-04-005 to adopt updated 2019 rates for existing non-residential customers (Phases 1 & 2), Resolution No. 19-04-006 to adopt 2019 rates for future non-residential customers (Phase 4), and Resolution No. 19- 04-007 to adopt updated 2019 rates for residential customers (Phase 3). Those rate 33 605 CLEAN POWER ALLIANCE BOARD OF DIRECTORS AGENDA ITEM 6 updates were driven mainly by SCE’s April 12 rate increase to all customers, in order to implement the “trigger” caused by its 2018 Energy Resource Recovery Account (ERRA) undercollection of $825 million. Staff is seeking Board approval to adjust rates for all CPA customers effective June 1. The proposed rate adjustment is driven by SCE’s implementation of its 2019 ERRA Forecast revenue requirement, which resulted in an increase of approximately 3.4% to the total average rate paid by SCE bundled customers, effective June 1. CPA staff is proposing to adjust its rates to follow this rate increase in order to maintain the stated bill comparison ranges for most customers and to continue to generate the revenue needed to cover costs. In addition, staff is seeking the Board’s approval to modify the rate comparison ranges for a small subset of commercial rate classes (“subset customers”) in order to ensure rates adequately cover the cost to serve these customers. SUBSET CUSTOMER IMPACT Over the course of 2019, CPA has adjusted rates for its customers each time SCE has changed its rates with the goal of having customers’ bills fall within specified discounts or premiums compared to SCE rates, depending on which rate tier a customer chooses: x Lean Power, which provides 36% renewable energy at a 1-2% discount x Clean Power, which provides 50% renewable energy at a 0-1% discount x 100% Green Power, providing 100% renewable energy at a 7-9% premium Given the combined effect of SCE’s many recent rate changes, CPA staff is presenting rates for Phase 4 customers that reflect adjustments to the rate tier discount/premium ranges for accounts in the TOU-8, TOU-GS-3, TOU-PA-2 and TOU-PA-3 2 rate classes. This group of customers represents less than 1% of Clean Power Alliance’s eligible customer base. For these accounts, CPA rates would stay within the three rate tier ranges 2 The TOU-8 rate covers the largest energy users; GS-3 covers medium-to-large energy users; PA2 and PA3 cover medium-to-large agricultural and pumping customers. 34 606 CLEAN POWER ALLIANCE BOARD OF DIRECTORS AGENDA ITEM 6 for the summer months (June-September) when energy rates are highest but be outside those ranges in the winter months (January-May, October-December) when energy rates are lowest. These higher winter rates will therefore not go into effect this year until October 1, allowing customers an opportunity to opt-out before the end of their 60-day post enrollment period, which ends in July for most Phase 4 customers. Staff is asking the Board to consider this change because matching SCE’s new rates for TOU-8, TOU-GS-3, TOU-PA2 and TOU-PA3 customers is expected to result in a significant revenue shortfall compared to the cost to serve these customers – particularly in the winter months. Sustaining such rates would require residential and small commercial customers to subsidize large commercial, industrial, and pumping and agricultural customers. The table below summarizes the proposed bill premiums for the Phase 4 subset rate types. Bill Premiums for Winter Rates (approximate) Bill Premiums for Summer Rates (approximate) Rate Type Lean Clean 100% Green Lean Clean 100% Green TOU-GS-3 16% 18% 19% -1% 0% 9% TOU-PA-2 21% 24% 24% -1% 0% 9% TOU-PA-3 32% 35% 37% -1% 0% 9% TOU-8-SEC 19% 21% 23% -1% 0% 9% TOU-8-PRI 23% 26% 27% -1% 0% 9% TOU-8-SUB 26% 29% 32% -1% 0% 9% The winter rate premiums above result in total annual revenue from each customer group sufficient to cover CPA costs including contributions to reserves. The relative increase to winter rates for 100% Green customers is smaller compared to that of Lean and Clean because their rates generate more revenue for CPA during the summer months. Therefore the amount by which their winter rates must be increased to recover their annual cost to serve is lower. 35 607 CLEAN POWER ALLIANCE BOARD OF DIRECTORS AGENDA ITEM 6 IMPACT TO LIGHTING RATES CPA staff has also reevaluated the rate tier discount/premium ranges for accounts dedicated to street and outdoor lighting in the LS-1, LS-2, LS-3, AL-2, and OL-1 rate classes.3 For lighting accounts on these rates, the new proposed CPA rates will fall outside of the three rate tier ranges year-round. This is because for most lighting types, there is no differentiation between summer and winter rates. The exception is AL-2 customers with accounts on time-differentiated lighting rates. Without this change, matching SCE’s new lighting rates would also result in a significant revenue shortfall for CPA, in part due to an 89,600% increase in the lighting PCIA. CPA staff is recommending that these lighting rate changes become effective July 1 to allow customers time if they choose to opt out before being charged the higher rates. Customers on TC rates (traffic control) will continue to be served by CPA at rates based on the previously approved rate ranges. The table below summarizes the bill impacts for the Phase 4 lighting rates year-round. New Bill Premiums (approximate) Previous Bill Premiums (approximate) Rate Type Lean Clean 100% Green Lean Clean 100% Green LS-1, LS-2, LS- 3, OL-1, and AL-2 (winter only) 37% 40% 47% -1% 0% 9% Bifurcation due to ERRA Trigger On January 31, the CPUC approved SCE’s request to recover part of its costs related to its $825 million 2018 undercollection from departing CPA customers through the PCIA. This retroactive cost recovery is known as the “trigger.” Implementation of the trigger by SCE resulted in a one-year increase to the PCIA for customers who enrolled in 2019. Phase 1 and 2 customers, because they enrolled in 2018, are charged a lower PCIA by 3 The LS-1, LS-2, and LS-3 rates cover street and highway lighting; AL-2 and OL-1 rates cover outdoor area lighting. 36 608 CLEAN POWER ALLIANCE BOARD OF DIRECTORS AGENDA ITEM 6 SCE than Phase 4 customers. This difference is accounted for in CPA’s rates so that all customers on the same rate schedule pay the same net rate after taking into account the PCIA. CPA will continue to “bifurcate” its commercial rates until the trigger goes away (currently expected in April 2020), which is the reason for separate Resolutions adopting rates for Phase 1 and 2 customers and Phase 4 customers. Demand Response Rate Pilot Staff is also presenting new commercial demand response rates for Board approval. CPA staff is requesting approval of these rates in order to administer a limited 5 month “Peak Management Program” on a pilot basis, similar in structure to the SCE Critical Peak Pricing program. Participating commercial customers would receive an incentive in the form of credits to offset their summer on-peak demand charges. During peak energy “events” CPA will apply a per kWh surcharge to customer bills. Events coincide with the peak time of use period (4pm – 9pm), when energy is most expensive, and can be called in response to high energy prices, grid emergencies, or during heat events. Participating customers will be notified of events by CPA a day in advance, so they can prepare to manage their electricity demand during the event period to avoid or lessen the energy surcharge. The pilot program will run from July 1 – November 30, 2019. The pilot program will be open to Phase 4 commercial customers on select rate types. The pilot will also offer bill protection to ensure that customers will not pay more on the new rate than they would have paid otherwise on their normal rate, thereby eliminating financial risk of participation in the pilot. The intent of the pilot will be to evaluate customer responsiveness during events, revenue impacts of such a program, and the customer experience, to better customize the program for CPA in anticipation of scaling up participation next year. Attachments: 1) Resolution 19-06-010 2) Resolution 19-06-011 3) Resolution 19-06-012 37 609