City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: June 9, 2025
Report #:2505-4611
TITLE
Approval of Proposed 10 Year Energy Efficiency Goals for 2026-2035 as Recommended by the Utilities Advisory Commission; CEQA Status – Not a Project.
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) recommend the City Council approve the proposed annual and cumulative Electric Efficiency Goals for the period 2026 to 2035 as shown in the summary table below.
EXECUTIVE SUMMARY
Palo Alto has long recognized cost-effective energy efficiency (EE) as the highest priority energy resource, given that EE typically displaces relatively expensive electricity generation, lowers energy bills for customers, and contributes to economic development and job creation. As required by state legislation, the City adopted its first set of 10-year energy efficiency goals in April 2007, and updated these goals in 2010, 2012, 2017, and 2021. The proposed 10-year EE goals shown in the summary table below were presented to the UAC on May 7th, 2025. After discussion of the purpose and methodology of developing these 10-year EE goals, the UAC voted 5 to 2 in favor of recommending the proposed goals for Council approval.
EE savings that can be counted towards these goals are restricted to those savings directly attributable to utility programs that are funded by a mandated public benefits charge (2.85% of electric retail revenue). EE upgrades that customers undertake without participating in utility programs as well as EE savings achieved through federal and state appliance and building standards currently cannot be counted towards the City’s EE goals. The savings reported here and targeted by these goals represent a subset of the actual energy efficiency upgrades taking place in Palo Alto. Over the past decade, building and appliance efficiency standards have become increasingly stringent. As federal and state efficiency standards increase, the energy savings attributable to utility programs decline.
For this current EE goals update, staff proposes annual EE savings targets of 0.24% in 2026, increasing to 0.55% in 2032 and holding stable through 2035, with a cumulative 10-year EE savings of 2.8% of the City’s projected electric load. These targets reflect the continued decrease in traditionally available EE savings as electrification projects become an increasing focus for consumers as well as utility programs, and stricter state codes and regulations shrinking the amount of claimable EE savings. Much of the upward trend between the 2028 and 2032 targets can be attributed to the expectation of a future conservation voltage reduction (CVR) program once Advanced Metering Infrastructure is in place.
Summary Table: Annual Electric Energy Efficiency Goals
(% of total City customer usage)
Electric
(%)
Electric
MWh
2026 0.24% 2,083
2027 0.24% 2,105
2028 0.31% 2,645
2029 0.36% 3,105
2030 0.42% 3,597
2031 0.48% 4,082
2032 0.54% 4,571
2033 0.55% 4,558
2034 0.53% 4,423
2035 0.53% 4,426
Cumulative1
10-year EE
Goal
2.80% 23,230
BACKGROUND
Council adopted the City’s first 10-year electric EE goals in April 2007. These goals targeted a cumulative reduction in the City’s electric usage of 3.5% by 2017. The goals met the state legislative requirements established by AB 2021 (2006) requiring publicly owned electric utilities to adopt annual electric efficiency savings goals over a 10-year period, with the first set of goals due by June 1, 2007 and every three years thereafter. These EE goals were used for the City of Palo Alto Utilities’ (CPAU’s) resource planning as well as for EE program budget planning.
In May 2010 City Council updated the 10-year EE goals to reduce cumulative electric load by
7.2% between 2011 and 2020. In 2017, new EE goals were adopted with cumulative 10-year 1 Cumulative EE savings are not equal to the sum of the annual incremental goals due to the differences in how long the electricity savings persist for different measures and different types of EE savings. For example, new hardware upgrades contribute savings over their expected lifetimes, perhaps 15 years, whereas electricity savings from changing thermostat set-points are assumed to contribute savings over a much shorter period of time.
electric savings of 5.7% between 2018 and 2027. The most recent set of 10-year EE goals was adopted by City Council in 2021, with cumulative 10-year electric savings of 4.4% between 2022 and 2031. AB 2227 (2012) changed the triennial energy efficiency target-setting schedule to a quadrennial schedule, beginning March 15, 2013 and every fourth year thereafter. The proposed 2026-2035 10-year EE goals have been provided to the California Energy Commission as a placeholder, understanding that final goals will be confirmed pending City Council approval.
Figure 1 provides a summary of the annual EE goals and achievements since Fiscal Year (FY) 2008. The figure shows that actual CPAU EE achievements met or exceeded goals for most years until 2020, where COVID began a downward trend in electric efficiency savings that has also been influenced by stricter state codes and electrification efforts.
Figure 1. Electric Efficiency Goals and Achievements for 2008-2024.
In 2015 California passed a landmark piece of energy legislation called Senate Bill 350 (SB 350) the “Clean Energy and Pollution Reduction Act of 2015”. SB 350 reinforces California’s position as a leader in clean energy and greenhouse gas reduction and codified Governor Brown’s ambitious “50/50/50” plan to procure 50% of electricity from renewable resources, reduce petroleum use by 50%, and double building efficiency in both electric and natural gas end uses
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0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Actual Savings
2008 - 2017 Goals
2011 - 2020 Goals
2014 - 2023 Goals
2018 - 2027 Goals
2022 - 2031 Goals
Percentages represent EE savings
by 2030. The statute lists a variety of programs to achieve the doubling of efficiency savings, including: 1) appliance and building standards; 2) utility programs that offer financial incentives, rebates, technical assistance and support to customers to increase EE; 3) programs that achieve EE savings through operational, behavioral and retro-commissioning activities; and 4) programs that save energy in final end uses through reducing distribution feeder voltage (i.e. conservation voltage reduction).
In 2021, the City Council set more conservative 10-year energy efficiency (EE) goals, about 40% lower than the previous targets. These revised goals accounted for the expected effects of COVID and a contracting EE market on potential electric efficiency savings in the years ahead.
With ongoing trends in electrification and increasingly stringent codes, even lower EE goals are now being proposed for the next 10-year cycle.
ANALYSIS
CPAU has offered energy efficiency programs since the 1970s. Its Long-term Electric Acquisition Plan (LEAP), approved by City Council in March 2007 and last updated in 2023 as the Electric Integrated Resource Plan (EIRP), affirmed cost-effective energy efficiency as the highest priority resource for serving load, with the goal of reducing average customer bills. The portfolio of EE programs has evolved over time. Originally the programs focused on rebates for customers administered by CPAU staff, but now include a combination of rebates and programs administered by third parties that provide EE audit and turnkey EE services to customers. CPAU has also been piloting multiple electrification programs over the last few years, including a full- service heat pump water heater program and a packaged rooftop heat pump HVAC program for commercial customers. These programs do not provide direct electric efficiency savings, but they do still provide overall energy efficiency savings as gas equipment is replaced by highly efficient heat pump technology. Palo Alto also has an ongoing Program for Emerging Technologies to evaluate, test and implement innovative emerging technologies that could help customers manage or reduce energy and water use.
Besides utility programs, Palo Alto continues pursuing energy savings through its local green building code and energy reach code. In December 2022, City Council adopted new reach codes that initially required all-electric new construction during the 2023-2026 code cycle. In 2024, in response to a decision from the Ninth Circuit Court of Appeals invalidating the City of Berkeley’s all-electric reach code, the City Council replaced its all-electric reach code with one that requires newly constructed buildings to meet stricter energy saving standards than those imposed by state law. The energy reach code has been in place since 2008 and has continued to evolve with California’s Building Standards (Title 24). As a reach code specific to only the City of Palo Alto, energy savings from this code can be counted towards these EE goals. However, as California state codes have become increasingly more stringent on energy efficient equipment, the claimable savings for Palo Alto programs has continued to shrink. As an example, California enacted Assembly Bill 2208 (AB 2208) in 2022 mandating the phase-out of fluorescent lighting starting in 2024. This bill will have a significant impact on CPAU EE program savings since nonresidential lighting projects have made up as much as 60% of total reported EE savings in recent years.
From a supply resource planning perspective, CPAU has incorporated both historic EE savings as well as forecast EE savings (from Council-approved EE goals) when forecasting the aggregate customer loads for a 10-year planning period. Cumulative EE from utility programs over the past 15 years is estimated at 5.7% of 2024 loads, i.e. without such programs, Palo Alto’s electrical loads would have been 5.7% (49,777 MWh) higher in 2024.
Proposed Electric Efficiency Goals
Staff proposes new annual electric EE targets at 0.24% of forecast electric load beginning in FY 2026, increasing to 0.54% in FY 2032 when the conservation voltage reduction program is fully implemented. These proposed goals reflect staff’s anticipation that savings levels have been impacted by state codes. The proposed goals are based on the results of an EE potential model that takes into account planned program offerings, expenditures, market saturation of energy efficient technologies, load forecast, and a planned conservation voltage reduction program following the city-wide deployment of Advanced Metering Infrastructure (AMI). Overall, these goals are much lower than the previous goals set in 2021 or 2017 (see Figure 2). The goals adopted in previous years were developed when state codes were less stringent2. Figure 3.
Historic EE Savings and Proposed Annual Electric EE Goals on an Energy Basis shows the actual historical EE savings and the proposed 2026 to 2035 EE goals.
Further, the City’s EE potential model estimates a market potential lower than the adopted 2017 and 2021 goals with low-cost energy efficiency technologies approaching market saturation. The proposed EE goals are also projected to be cost-effective based on both the model projections and past EE program costs.
Savings from EE can be reported on a net basis, meaning they exclude energy impacts from free-riders (program participants who would have installed EE in the absence of incentives), or on a gross basis, meaning they include impacts from program participants that are free-riders.
The goals in Figure 4 are based on “net” EE savings rather than “gross” EE savings.3 This means they do not include the energy savings that would have occurred in the absence of utility incentives, and therefore most accurately reflect the EE savings attributable to CPAU’s programs. CPAU also excludes savings attributable to the state’s building and appliance 2 EE savings attributed to state mandated codes and standards are excluded from the EE potential for CPAU, and therefore also cannot count toward meeting its EE goals.
3 The 2026 – 2035 Goals assumes free-ridership at the measure level using an average net-to-gross (NTG) ratio of 0.85 except for low income and conservation voltage reduction programs, where the assume is 1.0 (no free ridership). The NTG ratios are based on California statewide evaluation studies and are documented in Database of Energy Efficiency Results (DEER). Generally, mature, low-cost technologies tend to have higher free-ridership.
standards. In order to allow comparison with other utilities that set goals on a gross basis, the proposed annual goals in Figure 2 are shown as proposed (on a net basis without including codes and standards), as well as on a gross basis.
Figure 2. Comparison to Proposed 2021 Electric EE goals and 2017 Electric EE Goals.
Below, Figure 3 shows the reported EE savings as well as the proposed annual electric EE goals expressed in MWh. The big jump in 2012’s reported savings was due to the completion of a significant EE project at a large commercial site, which is unlikely to be replicable. The sharp drop in savings in 2020 was a result of delays in launching the direct install EE program targeting small to medium businesses, closure of the Home Energy Report program, and challenges related to COVID that stopped or delayed EE projects. Impacts of the economic recession have continued through the years after 2020, with fewer nonresidential customers
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201820192020202120222023202420252026202720282029203020312032203320342035 2026 - 2035 Goals (Gross)
2026 - 2035 Goals
2022 - 2031 Goals (Gross)
2022 - 2031 Goals
2018 - 2027 Goals
Percentages represent EE savings
relative to load
pursuing efficiency projects.
Figure 3. Historic EE Savings and Proposed Annual Electric EE Goals on an Energy Basis.
On a cumulative basis, the total EE savings from the proposed 2026 to 2035 targets represent
2.8% of the forecasted electric load in 2035. The cumulative impact of the annual targets for this 10-year period is shown in Figure 4. Notably, some EE savings have a longer lasting effect than others, as different EE measures have different useful lifetimes. Measure life for Light Emitting Diode (LED) bulbs can be up to 12 years, whereas behavioral and retro-commissioning savings last only a few years. Due to the differences in EE savings persistence, the cumulative EE impact over the 10-year period is not equal to the sum of the annual EE goals for the 10 years. 0 2,500
5,000
7,500
10,000
12,500
2008200920102011201220132014201520162017201820192020202120222023202420252026202720282029203020312032203320342035 MWh
Actual Savings
2026 to 2035 Goals
Figure 4. Proposed 2026-2035 Cumulative Electric EE Goals.
Strategies for Achieving the Proposed EE Goals
Achieving these EE goals will require the deployment of new innovative program designs, increasing awareness of existing programs, and developing other program approaches to reach previously stranded sections of the energy efficiency market potential.
While the proposed EE goals may appear lower than past goals and historical savings, the proposed goals will require tremendous program execution and successful AMI implementation prior to launching a conservation voltage reduction program.
Staff will need to carefully evaluate how the florescent lighting regulations will impact the existing Business Customer Rebate and Commercial and Industrial Energy Efficiency programs.
These programs have historically generated the bulk of energy efficiency savings, so understanding the future potential of lighting savings projects and exploring additional opportunities will be critical to the success of reaching these targets. 0 5,000
10,000
15,000
20,000
25,000
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0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Res Cumulative Market Potential Non-Res Cumulative Market Potential CVR Potential (If Claimed) Total Cumulative Potential as a % of Total Sales Cumulative Net Market Potential by Sector
All Sectors Energy Potential (MWh) and % of Sales
MWh
% of Annual GWh Sales
In addition, once the City implements an Advanced Metering Infrastructure (AMI) backbone of a smart-grid system, staff plans to launch a conservation voltage reduction program using the AMI infrastructure on primary feeders. This program could generate savings of up to 1% of city’s annual electricity load, with implementation expected to start in 2028. These plans are subject to Council review and approval.
CPAU will continue to evaluate the impact of electrification on future energy efficiency goals and reporting as it becomes an increasing priority for Palo Alto and other cities and utilities around the state. Staff anticipates continued discussions around how energy savings from building electrification projects will be measured and reported, and how these savings will contribute to the city’s EE goals.
This evolution of CPAU’s EE portfolio is consistent with the general consensus among utilities that new approaches are needed to reach EE targets as traditional EE programs approach market saturation and code limitations.
Projected Electric EE Program Costs
Funding for EE programs comes from a mandated Public Benefit (PB)4 surcharge of 2.85% of the electric utility bill for all customers. To meet the proposed EE goals, staff estimates an annual EE budget of $1.5M to $1.7M per year from 2026 to 2035. This projected EE program budget is anticipated to be fully funded by the annual PB collections.
Figure 5 shows the actual electric EE program expenditures for FY 2008 through FY 2024, an estimate for FY25, and the estimated annual EE budget between 2026 and 2035. 4 Locally owned municipal utilities like CPAU must collect Public Benefits funds as required by section 385 of the Public Utilities Code, to be used on cost-effective energy efficiency and conservation, low income programs, investments in renewable energy resources and technologies, and research and development.
Figure 5. Actual and Projected Electric EE Program Costs.
Retail Rate & Average Customer Bill Impact of the Proposed Electric EE Goals EE programs impact retail rates in two ways. First, a lower electric load means that fixed costs (capital investments and fixed operating costs to run the electric utility) must be distributed over a lower electric sales volume, thereby increasing the average electric retail rate. Second, the use of funds to support EE programs increases the revenue requirements for the electric utility. Increased charging of electric vehicles, electrification of natural gas appliances, and other electric load growth could mitigate the retail rate impact of the EE programs. While rates increase, total bills are expected to be reduced over the lifetime of the EE savings.
FISCAL/RESOURCE IMPACT
This report contains preliminary estimates of the costs of achieving the proposed electric EE goals. The detailed budget plan and staffing needs to meet the annual EE goals will be part of the annual City budgeting process. The annual budget will present the costs for both internally administered, as well as contractor supported, efficiency programs.
Adoption of the proposed electric 10-year EE goals will replace the 2021 10-year electric EE goals and will inform the EE program planning and load forecasting for the next four years. These goals $-
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2008200920102011201220132014201520162017201820192020202120222023202420252026202720282029203020312032203320342035 Millions
Actuals through 2024
Preliminary estimate 2025
will also be included in the Electric Utility Integrated Resource Plan, and the City’s Sustainability Implementation Plan. The proposed 2026 - 2035 electric EE goals are consistent with the Utilities Strategic Plan, and the City’s Sustainability and Climate Action Plan (S/CAP).
STAKEHOLDER ENGAGEMENT
The proposed 10-year EE goals for 2026-2035 were presented to the UAC on May 7, 2025 for discussion and recommendation for City Council approval. The commissioners raised questions and discussion points around the importance of energy efficiency as a tool to reduce peak loads, the impact of efficient electrification projects on energy efficiency savings and goals, the formulation of EE goals based on technical potential, and the alignment of program expenditures with EE potential across customer segments. After the discussion, the UAC commissioners voted 5 to 2 in favor of recommending Council approval of these 10-year EE goals. There were no follow-up action items requested of staff, but staff will continue to keep the UAC discussion and feedback in mind for future energy efficiency planning and reporting.
ENVIRONMENTAL REVIEW
The City Council approval of the 10-year electric EE goals does not require California Environmental Quality Act review, because the plan does not meet the definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), as an administrative governmental activity which will not cause a direct or indirect physical change in the environment.
ATTACHMENTS
None
APPROVED BY:
Alan Kurotori, Director of Utilities
Staff: Timothy Scott, Resource Planner