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HomeMy WebLinkAboutMinutes - September 29, 2015 SSLODI CITY COUNCIL SHIRTSLEEVE SESSION CARNEGIE FORUM, 305 WEST PINE STREET TUESDAY, SEPTEMBER 29, 2015 A. Roll Call by City Clerk An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday, September 29, 2015, commencing at 7:11 a.m. Present: Council Member Kuehne, Council Member Mounce, Council Member Nakanishi, Mayor Pro Tempore Chandler, and Mayor Johnson Absent: None Also Present: City Manager Schwabauer, City Attorney Magdich, and City Clerk Ferraiolo B. Topic(s) B-1 Changing Electric Utility Business Model (EU) Melissa Cadek, Rates & Resources Manager, provided a PowerPoint presentation regarding the changing Electric Utility (EU) business model. Specific topics of discussion included overview, traditional EU business model, new EU business model, solar installations, impact on utilities, revenue erosion cycle, fixed costs and revenues, utility solution - publicly -owned utilities, utility solution - investor-owned utilities, options and solutions for Lodi, other rate issues, and next steps. City Manager Schwabauer explained the challenge of comparing rate sheets with other utilities, stating that many utilities have a fixed charge added into the rate. Lodi does not have a fixed charge; instead, it has a minimum charge of $5.25, which is subsumed into the total amount of the bill and not added onto the rate. Council Member Mounce stated landlords will be displeased with a fixed-rate charge because they will have higher bills while the the power is on to upgrade vacant homes, adding that landlords will ultimately raise rates to cover that cost, which will harm renters and fixed-income individuals. In response to Council Member Mounce, Deputy City Manager Jordan Ayers stated the late fees collected by the City have been comparable from year to year. In further explanation, he stated the late fee revenues have increased over time, but it is flat year over year. Mr. Ayers confirmed the late fee revenue goes to the general fund and not to the utility account. Ms. Cadek explained, without a fixed charge, EU is collecting the fixed cost of the system from the upper rate tier users only, which is the reason behind balancing the inequities. Council Member Mounce addressed the inequity between utility users, stating high-energy users are subsidizing those that are not. She questioned if high-energy households typically consist of multiple bedrooms, high number of individuals, and a swimming pool, to which Ms. Cadek responded in the affirmative. Council Member Mounce stated she believed there was an inequity in making low-income households and those who conserve energy pay for users with large homes and pools. Mr. Schwabauer added another high-energy user profile includes renters and those living in poor conditions, to which Ms. Mounce reiterated it is unfair to penalize them along with those with swimming pools. Mr. Schwabauer stated that, if the City made the change that the Public Utilities Commission is forcing PG&E to make by flattening tiers, the renters in homes with poor electric infrastructure and those that are high-energy users would have a softened affect on the rate. Council Member Mounce stated her concern is that those who live modestly and are saving electricity will be penalized, while low-income individuals and those living beyond their means could see a reduction in their rates. In response to Council Member Kuehne, Mr. Ayers stated half of the $70 million EU budget represents fixed costs and, in order to cover those costs, each of the 25,000 utility customers would need to pay a fixed charge of $128 per month. Mr. Schwabauer stated it is not solely solar customers who are not paying the cost to maintain the system; it is everyone. Mr. Schwabauer explained demand charges take into account the maximum amount of energy used at one time in a household, versus how much is used over a day, because the grid must be sized appropriately to meet the maximum demand when needed. Ms. Cadek added many utilities are considering residential demand charges, but the City does not have the infrastructure to provide that option at this point and the concept is complicated to explain to customers. In response to Council Member Mounce, Ms. Cadek stated the technology exists for residential meters to capture use per time of day, but the cost would be significant to change out the residential meters. In further response, Mr. Schwabauer stated the current meters are not smart meters and, at the time when the meters were replaced, there was litigation against PG&E as to whether the new technology was reading correctly or not and the City opted against the smart meters because of this uncertainty and lawsuits. In response to Council Member Nakanishi, Mr. Schwabauer stated smart meters are the current trend, and Electric Utility Director Elizabeth Kirkley stated there would be a significant cost to upgrade the system and infrastructure to handle smart meters. Ms. Cadek added the billing system would also need to be adjusted if the meters were upgraded. In response to Council Member Kuehne, Ms. Cadek stated the current one-way communication AMR (automated meter reading) meters would have little to no re -sale value because most utilities are moving in the direction of the smart, two-way communication AMI (advanced metering infrastructure) meters. She stated the lifespan of the current AMR meters is 10 to 15 years and the City is not yet at the point that it needs to replace them. In further response, Electric Utility Superintendent Charles Berry stated the smart meter technology is still fairly new and he could not estimate their lifespan because he was unaware of any utility that has had to replace them. Mr. Berry confirmed new subdivisions are equipped with the AMR meters. In response to Mayor Johnson, Mr. Berry stated the future is heading toward smart meters, but he could not predict when the State legislature will mandate utilities to begin using them. Ms. Cadek added legislation will likely not require installation of smart meters; rather, it may require a time - of -use option in the rate structure, which would result in the need for smart meters. Council Members Kuehne and Mounce discussed the pros and cons of installing AMI meters in new subdivisions now, even though they cannot be utilized, versus later when it may be more costly to replace all of the meters. Ms. Kirkley pointed out the technology of smart meters may evolve greatly between now and then and any meters installed today may be outdated by the time the City is ready to move to AMI meters. Mr. Schwabauer stated the City faced a similar issue with the water meters and opted to postpone installing meters until it was time to begin phasing in sections of town, adding that those meters are now outdated because the new meters are remotely readable. In response to Council Member Mounce, Mr. Schwabauer confirmed the infrastructure was put into place for the water meters early on, but the meters themselves were not. Council Member Mounce stated she believed it was sensible to build the smart meter infrastructure and adjust the billing system first before buying and replacing the meters. Council Member Mounce requested a follow-up Shirtsleeve Session on the impact the various rate options would have on customers. Mr. Schwabauer stated staff requested the rate consultant provide examples of what would happen to various levels of users for options such as flattening the rate structure or requiring a minimum bill, while assuming the same net revenue raised for the system. In response to Mike Lusk, Ms. Kirkley stated utilities, by law, are required to have the same rate for customers, whether it is solar energy or not. Mr. Lusk expressed concern that revenue collected from late fees is deposited into the general fund rather than back to the utility and 2 suggested those monies be handled similarly to how City departments pay the utility back for services provided to the department. He stated he believed the late fee revenue should return to the utility to help reduce rates. Pat Patrick, with the Lodi District Chamber of Commerce, questioned whether the solar industry will increase, since it is only at 1 percent currently, and suggested that adjusting the tier rates is a short-term solution. Ms. Cadek stated California installed more solar systems in 2014 than the remainder of the country from 1970 to 2011 and solar activity will likely decrease once the rebate is eliminated. She further stated restructuring the tiers is not a short-term solution because is does not solely address solar; it also addresses larger inequities in the five -tier rate system. Myrna Wetzel suggested there may be an add-on installation kit to upgrade the current meters to smart meters, rather than replacing the units entirely. Mayor Johnson summarized that staff will return to Council with more data and scenarios for the various options that will help Council better define its direction. Council Member Nakanishi expressed concern that any rate adjustments will harm low-income utility customers, which will not sit well with the public. Ms. Kirkley reminded that low-income individuals can be both low- and high-energy users. Council Member Mounce suggested other options may be a surcharge for homes with pools or a decrease in the minimum bill amount so the burden is lessened on those individuals who are on a fixed income or are conservative with their energy. C. Comments by Public on Non-Aaenda Items None. D. Adjournment No action was taken by the City Council. The meeting was adjourned at 8:11 a.m. ATTEST: Jennifer M. Ferraiolo City Clerk AGENDA ITEM CITY OF LODI • COUNCIL COMMUNICATION TM AGENDA TITLE: Changing Electric Utility Business Model MEETING DATE: September 29, 2015 PREPARED BY: Electric Utility Director B -I RECOMMENDED ACTION: Receive report on the changing electric utility business model. BACKGROUND INFORMATION: The business models of electric utilities are changing. Under the traditional model, utilities were the sole providers of electricity to meet a customer's power requirements. Customers now have the option to install generation on their premises, typically solar. In addition, on-site energy storage technology is becoming available to the general public. With the traditional model, all costs associated with providing electricity to customers are recovered through various rate structures based on the manner in which residential and non-residential customers use energy. The revenues recovered through a utility's rates are then used to pay for the generation, transmission, distribution system, and other operational and regulatory expenses incurred. From an operational standpoint, distribution systems were designed to meet standard customer requirements under the traditional electric utility business model. With the advent of customer -owned generation, however, distribution systems are now being taxed with customer solar generation as well. As such, it has become necessary for utilities to evaluate the impact of these changes so that the utility recovers necessary costs and ensures one group of customers is not benefitting at the expense of another. EES Consulting and staff will present a report to Council on the changing electric utility business model and discuss possible options for addressing these challenges. FISCAL IMPACT: Not applicable. FUNDING AVAILABLE: Not applicable. f Eli eth A. 46&6y Electric Utility Director PREPARED BY: Melissa Price-Cadek, Rates & Resources Manager EK/MPC/Ist APPROVED: 1, L Step chwabaue , ity Manager Lodi Electric Utility a Changing Electric Utility Business Model September 29 , 2015 A registered professional engineering corporation with offices in the Seattle and Portland metropolitan areas Telephone (425) 889-2700 Facsimile (425) 889-2725 www.eesconsulting.com II&= Consulting 0 Agenda ■ Traditional Electric Utility (EU) Business Model ■ NEW EU Business Model ■ Distributed Generation ■ Lodi Solar Installations ■ Impact on Utilities ■ Revenue Erosion Cycle ■ Fixed Costs and Revenues ■ Utility Solution ■ POUs and IOUs ■ Options and Solutions for Lodi ■ Summary/Conclusions ■ Next Steps ■ Questions 0 Traditional EU Business Model ■ Utility provides power to meet customer's total need ■ Power supply ■ Delivery of power ■ Customer service ■ Utility is sole provider ■ Customers differ by usage, but otherwise fairly similar ■ Distribution system designed to meet standard customer requirements 0 NEW EU Business Model ■ Distributed Generation ■ Solar ■ Costs decreasing ■ Economic incentives available ■ Generous net metering policies / minimal fixed charges ■ Environmental benefits ■ Battery Storage ■ Way of the future — not there yet ■ Tesla home battery ■ Still costly for average homeowner 0 Lodi Solar Installations ❑ Systems installed: 426 0 388 residential 0 38 commercial ❑ Installed capacity: 3.5 MW ❑ Approximately 5,250,000 kWh/year 0 1.2% of load o Net loss of ^'$600,000 ■ 0.92% of sales revenue A Impact on Utilities ❑ Solar customers need grid when sun isn't shining o Steep ramping needs o Over -generation risk ❑ Net generators compensated at rate higher than cost of power o Fixed costs fall on non -solar customers ❑ Potential inequity across income levels o Cost of maintaining grid assigned to those who can't afford CAISO Net Load — 2012 through 2020 27AN 25900 23.000 —1012 21,000 —1013 2014 —2A 15 —2019 2017 17AN 2018 —1019 ss'= —2020 13,ao9 11AM 0 1 2 3 4 5 5 7 9 9 10 11 13 13 14 25 25 17 18 19 20 21 22 23 0 Revenue Erosion Cycle Rate Increase to Collect Sufficient Revenues 00" Revenues Decrease Increasing Energy Efficiency and Distributed Generation Energy Sales Decrease w 80 1�0 Average Residential Bill 2014 Usage Charge $/kWh Min. Bill Charge 2015 LEU Fixed Vs, Variable Costs 11/12 12/13 13/14 14/15 Utility Solution —Publicly Owned Utilities (POUs) AM $ 20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $ 8.00 $6.00 $4.00 $ 2.00 POU Monthly Fixed Charge ($/Month) Lodi Palo Alto Alameda Modesto ID Redding SMUD Turlock ID Roseville Note: Lodi has a minimum bill of $5.25 Utility Solution —Investor Owned Utilities (IOUs) ❑ Approved Glidepath for Tier Consolidation ❑ Change from 4 tiers to 2 tiers by 2017 o Pricing differential of 25% o Transition to 3 tiers by 2016 ❑ Surcharge for high users ❑ $10 minimum bill ❑ New net metering program by 2017 o Compensation based on value of solar ❑ Time -of -use rates by 2019 Options &Solutions for Lodi ❑ Status Quo o Pro: ■ No changes for customers o Con: ■ Inequities between users ❑ Minimum Bill o Pro: ■ Ensure some collection of fixed costs from solar customers o Con: ■ Unless set high, recovers minimal amount of revenue Options &Solutions for Lodi (cont.) ❑ Fixed Monthly Charge o Pro: ■ Ensures collection of fixed costs from solar customers ■ Could reduce energy charges in tiers o Con: ■ Could discourage solar installations ■ May increase costs to low users Options &Solutions for Lodi (cont.) ❑ Decoupling o Pro: ■ Ensures collection of all costs o Con: ■ Does not ensure collection of fixed costs from net -metering customers ■ Counterintuitive for those striving to conserve ❑ Demand Charges o Pro: ■ Provides accurate price signal to customers ■ Based on cost -causation o Con: ■ Can impact customers significantly depending on load factor ■ Current meters don't register demand ■ Challenges with fixed network/billing system Other Rate Issues ❑ Time -of -Use (TOU) Rates o Pro: ■ Provides accurate price signal to customers ■ Provides energy efficiency incentive o Con: ■ Does not ensure collection of system costs from net -metering customers ■ Must be very targeted or customers will not shift energy use ■ Metering infrastructure not equipped to handle ■ Would require custom programming ❑ Tier Reduction o Pro: ■ Better aligns costs and charges ■ Ensures collection of some fixed costs from solar customers ■ Simplifies rate structure o Con: ■ Does not collect sufficient fixed costs from solar customers ■ May increase costs to low users Summary/Conclusions ❑ Changes in average use will materialize slowly o Takes time to fund and implement energy efficiency measures and distributed generation ❑ Utilities need to review rate setting principles if average usage decreases over time ❑ Increasing only the variable rate components is a popular approach to increasing revenues o Utilities need greater increases in fixed rate components in order to stay on top of changing consumption characteristics o Increasing basic charges may be unpopular with customers, but it is a valuable risk mitigation strategy ❑ Moody's (November 2014) — "action by utilities ... to refine utility cost recovery models to stay ahead of a potential industry transformation involving widespread adoption of DG lessens the threat of disruption." Next Steps ❑ EES to conduct review based on Council preferred option(s) ❑ Impacts to various customers to be brought back to Council ❑ Council to consider rate structure changes Questions? Consulting Anne Falcon, Senior Associate EES Consulting