PURPOSE

Staff seeks City Council approval of the attached 2006 Integrated Resource Plan � Electric System (IRP) for Burbank Water and Power (BWP). Granting the authorization sought herein will allow the General Manager of BWP to implement the draft 2006 Integrated Resource Plan � Electric System  for BWP.  The Burbank Water and Power Board has reviewed and approved the IRP at its meeting held on April 6, 2006.

The IRP�s immediate purpose is to review the electric energy needs of Burbank and the alternative means of meeting these needs while maintaining its commitment to the environment. Its ongoing purpose is to provide support for the decisions that must be continually made in order to provide a reliable supply of electricity at competitive rates.  Additionally, federal regulations require the City to submit an IRP to the Western Area Power Administration, the federal agency that operates Hoover Dam, in connection with the City�s interest in the Hoover Dam generation station.

BACKGROUND

Since the completion of the 2002 IRP, BWP has completed the following resource-related accomplishments:                                                                                                                            

• A sharp increase in BWP�s programs for energy efficiency measures, with conservation now meeting about one-half of our projected load growth;                                                   

• Upgrades to several distribution circuits and substations, providing for increased reliability and reduced energy and peak capacity losses;

• Completion of the Lake power plant, a 47 megawatt peaking unit, in 2002, providing a highly reliable low-emission replacement for three obsolete generating units;

• Completion of the Magnolia Power Project, a 250 megawatt combined-cycle generating unit, jointly owned with five other municipal utilities.

All of these have been accomplished without increasing electric rates in Burbank since the 2000-2001 power crisis forced rate hikes in 2001.   These are no small accomplishments.

Where We Go From Here

The most pressing resource planning issue facing BWP is the challenge of meeting the City�s commitment to development of energy efficiency and renewable energy resources economically, while continuing to integrate recent and renewed energy generation.  The majority of the analysis in this IRP addresses these issues.

BWP plans to meet substantially all of its load growth requirements over the next 20 years with a combination of energy efficiency measures and renewable energy supplies.  BWP�s dependence on fossil fuels is expected to be stable or declining, even though we expect the number of customers we serve and the amount of electricity they require to continue to increase.

The challenges for the immediate future include:

• Identifying the most cost-effective energy efficiency options to allow BWP customers to reduce their total cost of energy service;                                                                         

• Identifying and acquiring the most cost-effective renewable energy resources to meet the City�s commitment to meet 20% of our load with renewable energy sources by the year 2017;

• Finding the most economical way to meet our electric generation reliability reserve obligations � providing backup generating plants that can immediately provide relief in the event that one of our primary units suddenly goes offline at a time when loads are at their highest levels of the year.

This IRP addresses each of these issues in greater detail.  In each case, the plan identifies a combination of immediate actions and study elements that will facilitate BWP moving forward quickly on each of these challenges.

Load Growth

Consistent with our experience in the past decade, BWP expects that its peak demand and energy requirements will continue to grow slowly, around 1% per year.  The limited amount of developable land in Burbank means that nearly all new customer growth results from redevelopment � removing existing buildings and replacing them with newer, larger but more energy efficient facilities. 

Existing Resources

BWP power needs are met with a combination of generating facilities some local some located throughout the Southwestern U.S.  These include coal, natural gas, nuclear, and large hydro resources.  The principal resources meeting our needs currently include:

Renewable Resources

Burbank has adopted a policy that BWP meet 20% of its power supply energy needs with renewable resources by the year 2017, subject to acceptable impacts on rates and reliability.  BWP is planning to meet this commitment by acquiring a combination of wind, solar and geothermal energy resources. 

To the extent that these resources are more expensive than the cost of operating existing power plants, there is likely to be upward rate pressure.  If these resources can also meet BWP�s peak demand requirements, they may displace otherwise needed investment and this will help to offset the upward rate pressure.

The most promising renewable resources appear to be located a considerable distance from Burbank.  This poses the additional challenge and cost of obtaining transmission to bring the power to Burbank.

Energy Efficiency Programs

Since the last IRP, BWP has steadily increased its funding of energy efficiency programs that enable our customers to meet their energy requirements while consuming less electricity.  The IRP explores in detail the programs we are currently funding, and identifies opportunities for increased commitment to energy efficiency options. 

This IRP, for the first time, quantifies the peak capacity savings that we have achieved through past investments in distribution system efficiency improvements.  BWP has upgraded circuits, lines, and transformers in recent years and the generating capacity savings from these activities are significant. 

In addition, BWP has improved the power factor of its system dramatically.   This has major impacts on BWP�s peak capacity requirements and minor impacts on our energy supply needs.  Our system power factor was about 90% two decades ago, meaning we needed 10% more generation and distribution capacity than the real power demand of our customers, due to erratic usage patterns, primarily by motors that did not synchronize perfectly to the grid.  Installing capacitors and providing financial incentives for customers to stabilize their usage, means that we need about 20 megawatts less peak capacity to meet the same level of customer power requirements which is about a 7% reduction in our peak demand requirements.  

This IRP examines the remaining potential on the system for distribution system efficiency improvements to help meet future power needs. 

Demand Side Management

Measures which focus on reducing peak period energy consumption are referred to as Demand Side Management, or DSM.  Burbank has several options in this regard, each of which would require customers make a sacrifice that they are not currently accustomed to making.  This IRP explores utility�imposed interruption of customer load and implementation of �critical peak pricing� rates for our largest customers as a means of providing customers with a strong price incentive to reduce usage during a limited number of hours per year when the system is under stress.

Each of these has the potential to reduce peak demand and help meet the peaking capacity requirements of the utility.  All of them impose a burden on consumers that may or may not be welcome.  Hence, this IRP includes study recommendations to explore the customer acceptance of these types of measures to determine if they are viable options. 

POWER SUPPLY RESOURCE ISSUES

This IRP explores several power supply resource planning issues including:

• Hedging and Fuel Management - BWP is quite dependent on natural gas as a fuel.  It provides nearly half of the electricity we sell.  The price of natural gas can be extremely volatile and has varied over a range of $2 to $20 per million British Thermal Units (BTUs) over the past six years.  Therefore, a major challenge to BWP is to plan, anticipate and manage our exposure to this volatility. This IRP discusses a systematic approach to hedging natural gas to manage our exposure to volatile fuel prices.  After a catch-up phase, BWP will initiate a programmatic buying program and take advantage of opportunistic purchases when the market is attractive.

• Reserve Planning -  BWP is a component of the Los Angeles Department of Water and Power (LADWP) grid, known as a �control area� and is required by the regulations of the Western Energy Coordinating Council (WECC) to maintain generation reserves at all times equal to our largest single contingency.   Maintaining these operating reserves involves a significant commitment of capital and consumption of expensive fuel.  This IRP examine several alternatives to meet this obligation such as reserve-sharing with another utility, purchasing reserves, selling or swapping a share of Magnolia, non-generation alternative like load management, and joining the California ISO.                                                 

• Transmission - BWP generally does not plan to acquire additional transmission assets in the next five years, with the potential exceptions as required to bring renewable energy resources to our service territory and participation in an upgrade of the Southern Transmission System.  BWP generally believe that our existing transmission rights to the Pacific Northwest and to Utah can provide most of the need, but certain segments may need reinforcement.                                                          

• Joining the California ISO - For a variety of reasons but primarily related to issues involving loss of control of resources and forced service interruptions to BWP�s customers, BWP has not joined the California ISO.  This IRP re-examines joining the ISO and concludes that transmission benefits previously estimated would likely not be realized eliminating the main reason to join.  This is due to potential exclusion of certain BWP transmission assets from the ISO pricing scheme and planned investment by other utilities in several transmission assets that would be included in the ISO pricing system.  The result would be convergence of ISO and BWP transmission costs.  Currently, the principal attraction to joining the ISO would appear to be reserve sharing.  This IRP does not recommend pursuit of membership in the California ISO.

Resource Adequacy

Based on the resource assumptions in this IRP, Burbank Water and Power will meet all of its load growth and will displace a significant amount of generation from natural gas by investing in energy efficiency and renewable resources over the period 2006 � 2011.  A total of about 22% of the BWP peak electric demand is projected to be met with these environmentally preferable resources.   The following figure shows the capacity balance for the system.  By 2011, it consists of 44 megawatts of capacity provided by efficiency measures installed prior to 2006, 20 megawatts of capacity provided by new efficiency measures, and 24 megawatts provided by renewable resources.

Similarly, the focus on efficiency and renewable resources will reduce BWP�s reliance on fossil fuels to meet our energy requirements.  A total of 21% of our system electricity requirements in 2011 will be met with environmentally preferable resources.  The following figure shows the energy balance for the system over the next five years according to the base scenario of this IRP.  This is projected to include 78,000 megawatt-hours of efficiency acquired prior to 2006, 47,000 megawatt-hours of efficiency acquired over the next five years, and 151,000 megawatt-hours of renewable resources.   By 2011, our conventional resources will be supplying a smaller absolute and percentage share of our customer�s energy requirements than is the case today.

The rate impacts of this scenario are projected to be measurable, but manageable.  BWP estimates that this level of acquisition of preferable resources, together with our current level of effort acquiring energy efficiency resources will increase our customer rates by no more than about 6% compared with using existing power supply resources to meet our load growth.  This is based on a range of estimates of the cost of fuel and conventional power resources. 

FISCAL IMPACTS

Because energy efficiency investments increase the utility�s costs and decrease its revenues, these programs can have an adverse impact on utility rates.  This may occur even where the programs are cost-effective and reduce customer bills.  Further, the addition of increased quantities of renewable energy into our energy portfolio could also increase customer rates.  This IRP finds that the combined effect of increased investment in energy efficiency and renewable energy options are likely to increase BWP rates 4% to 8 % over the term of the IRP.  Resource options that have significant rate impacts may create political challenges for a locally regulated utility like BWP and will tend to compete with our acquisition of renewable energy resources.  The trade-off between these options may be the most challenging decision that this IRP poses.

Principal Study and Action Items for This IRP

The summaries touch on the most significant action items for BWP to complete and are described in much greater detail in the text of the Plan.

This IRP identifies the following action items for BWP to complete in the next two years:

• Implement a long-term reserve sharing agreement for Magnolia, or pursue one of the alternatives identified in this IRP;                                                                            

• Acquire renewable resources to meet at least 10% of our system energy requirements not later than 2011 as progress toward a goal of 20% by 2017;                                             

• Implement a multi-year fuel hedging program for natural gas;                             

• Continue to implement system efficiency improvements to reduce distribution losses;     

• Maintain or augment our current energy efficiency programs;                                         

• Study the feasibility of relicensing the Olive 3 and 4 units for emergency use, or reserves.

This IRP identifies the following significant study elements for BWP to examine in the two to five-year horizon:

• Resolve issues relating to our future entitlement from the IPP generating unit, in order to more effectively plan for energy and capacity needs;                                                      

• Explore with customers the potential impacts of a critical peak pricing program on curtailing loads during periods of extreme stress;                                                 

• Inventory the large HVAC demand in our service territory for potential use for capacity interruption for reserves;                                                                                               

• Explore the cost of installing a system for remote interruption of customer loads for reserve purposes;                                                                                                    

• Explore with customers the option of interruption of customer loads and/or critical period pricing to constrain loads during times of extreme system stress;                                      

• Inventory the number of oversized transformers on the BWP distribution system, and estimate the costs and benefits of right-sizing these units;          

• Examine the possible additional loads that would develop if electric heat pumps were promoted in homes where central air conditioning is installed, and if plug-in hybrid electric vehicles (PHEVs) become common.

• Review the rate and bill impacts of increasing the BWP commitment to energy efficiency with our customers and the Burbank City Council, to determine if the level of effort should increase.

SUBMISSION OF IRP TO WESTERN AREA POWER ADMINISTRATION

As mentioned, the City has a long-term contract for 20.125 MW of energy and capacity from the Hoover Dam generation station.  Hoover Dam is owned by the federal government and operated by the Western Area Power Administration (�WAPA�), one of four federal power marketing agencies that market and transmit hydroelectric power.  Federal regulations, found in Title 10, Part 905 of the Code of Regulations, require every party to a contract with WAPA to prepare and submit an IRP to WAPA in the form presented with this staff report.  Section 905.11 of the regulations provides that the IRP must include discussion of six specific topics (resource options, an action plan, environmental effects, public participation, load forecasting and measurement strategies) and further provides that the City must confirm that this requirement has been met.  Both staff and the City Attorney�s Office are of the opinion that the IRP satisfies this requirement.  It is important to emphasize, however, that the IRP drafted by staff is much broader in purpose and intent than the federal regulations would otherwise require.

RECOMMENDATION

Staff recommends the City Council approve the proposed 2006 Integrated Resource Plan � Electric System for Burbank Water and Power.

If the Council concurs, the appropriate action would be a motion to adopt the Resolution entitled: �A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK APPROVING THE 2006 INTEGRATED RESOURCE PLAN FOR THE ELECTRIC SYSTEM OPERATED BY BURBANK WATER AND POWER.�

RD:FF:BJ

Attachments

COUNCIL STAFF RPT, 2006 IRP, 04-25-06

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