COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON TRANSPORTATION AND PUBLIC UTILITIES - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 5, 2010 1:20 p.m. - - - PRESENT: COUNCILMAN CURTIS JONES, JR., CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN WILLIAM GREENLEE COUNCILMAN JACK KELLY COUNCILMAN BRIAN J. O'NEILL COUNCILMAN DARRELL CLARKE BILL 100163 - An ordinance authorizing the City of Philadelphia to organize an authority to be known as The Philadelphia Energy Authority, pursuant to the terms of the "Municipalities Authorities Act," of 2001, June 19, P.L. 287, No. 22, as amended, under certain terms and conditions. - - - 2
Good afternoon. Seeing a quorum present, we are going to call the Committee on Transportation and Public Utilities to order. This is a public hearing to hear Bill No. 100163. Here's our prime sponsor. To my left I have Councilman O'Neill, for the record. I also have Councilman Greenlee. I have Councilman Kelly, and I have the prime sponsor of the bill, Councilman Clarke. Will the Clerk officially read the bill into the record.
Bill No. 100163, an ordinance authorizing the City of Philadelphia to organize an authority to be known as The Philadelphia Energy Authority, pursuant to the terms of the "Municipalities Authorities Act," of 2001, June 19, Public Law 287, No. 22, as amended, under certain terms and conditions.
In opening 3 5/5/10 - TRANSPORTATION - BILL 100163 these hearings, I'd like to say that when the prime sponsor, Councilman Clarke, brought this idea to myself and the Committee, my personal reflections were, how timely. As we review our budget and the economic picture for our City, as we start to look for ways to have savings, what better way, but what better way to tighten our belts in the area of public utilities. We make a huge expenditure. Some departments report it as high as $45 million a year. If we start there and begin to make steps in the right direction, we can control our costs, predict our costs and move ourselves into a more financial solvent situation. I'm happy to hear the testimony and gather information on these ideas that are being proposed by this bill, and I'd like to offer the prime sponsor, Councilman Clarke, an opportunity to speak to it. 4 5/5/10 - TRANSPORTATION - BILL 100163
Thank you so much, Mr. Chairman, and thanks to members of the Committee. First, I'd like to thank all of the people who we've had the opportunity to have dialogue during the course of -- from the inception of the introduction of the ordinance up and to this day. I want to say that all of that conversation has been fruitful. It has given me personally a much broader insight into this whole issue. I can honestly say that I clearly was not an expert, nor am I now, on this issue, but I'm much more knowledgeable about this whole issue and the potential of this particular opportunity, as I like to call it. I'd like to thank the Administration, because I must say when we initiated the path towards creating an Authority, there was certain levels of concern that we weren't necessarily preparing ourselves as a city to position ourselves to take advantage of any 5 5/5/10 - TRANSPORTATION - BILL 100163 opportunities for our citizens and for the City of Philadelphia as it relates to the cap coming off, the deregulation. One of the things that I found in my conversations with the Administration is that they have in fact been engaged in a very dramatic and aggressive way in ensuring that Philadelphia is placed properly, particularly the City Administration and all of the publicly owned facilities, is positioned to take advantage and make sure that there are no pitfalls associated with our ability to be involved and engaged in this issue. But I also found out that there were a number of things that were happening that this Council was not involved in that concerned me to a degree. So when we reached out to the Administration, letting them understand that we as Council as a part of the government need to be engaged and involved in a meaningful way, fortunately 6 5/5/10 - TRANSPORTATION - BILL 100163 the response was a positive one. It is our hope that as we move forward in the creation of not only this authority but as it relates to policy in this emerging industry, that we do it in a cooperative spirit, and to date, that response has been very positive. And I would also like to thank members of the various industries that have come in and have voiced their concern. Understandably, this is something that they've been engaged in for a long time and have an upstart. City Council proposing an Energy Authority is, understandably, of some concern. I think that the amendments that will be offered at this particular hearing should address most, if not all, of those concerns. I can say personally this Councilperson, the last thing that I want to be is responsible for a nuclear facility or any other type of energy plant. We're having a difficult enough time putting together our Fiscal '11 7 5/5/10 - TRANSPORTATION - BILL 100163 budget. So it's clear that people who do this for a living should continue to be the ones that do this for a living, but I do think that it's important for the Council, the Administration to be capably placed in a position that will allow us to take advantage of all opportunities and also look at all of the various creative opportunities that exist within the industry of creating power sources throughout not only the City but in the nation. So it is my hope that this Committee will allow us to move forward on this. The other thing, there will also be an amendment that will basically -- the creation of the Authority will place Councilmembers in a process that will simply amend the Authorities Act to include City Council, with the Administration as the incorporators of the Authority. So the particular appointments to that Authority will be done jointly, one by nomination 8 5/5/10 - TRANSPORTATION - BILL 100163 by the Administration in concurrence by the Council. So we will have full involvement in terms of setting up that Authority on that basis. So with that, Mr. Chairman, I'd just like to thank you all.
Thank you so much for allowing me the time to make these opening statements, and I think that we will be in a place hopefully in the next couple of years of moving this city and being first instead of simply looking at what other cities have done as it relates to creating these opportunities in this emerging industry. So I just want to thank you so much.
Again, thank you for bringing this important issue forward. Would any of the Committee members like to comment? Councilman Kelly.
Yes. Thank you, Mr. Chairman. I would just like to ask the 9 5/5/10 - TRANSPORTATION - BILL 100163 sponsor if creating this Authority, is it going to require the hiring of a director as well as a staff, and, if so, how are these people going to be getting paid?
Thank you for asking that question. In the amendment in the bill, first of all, the members of the Authority will be non-compensated, as are a number of the various committees. So we can basically, given our budget constraints, not be concerned about that. You will hear in some of the testimony from the Administration about the point -- who will be running the point as it relates to establishing policy for the City. That will essentially be members of the Administration and potentially members of Council. So we don't -- the last thing that we need to do is create a significant additional cost associated with this. If there is a minimal cost 10 5/5/10 - TRANSPORTATION - BILL 100163 associated with the operations, I think that the ability to save money simply by virtue of aggregating opportunities for power supply will more far surpass that, but we don't anticipate any substantial cost associated with the operation of the Authority.
Would the Clerk bring forth and read who the first witness will be.
J. Barry Davis and Lance Haver. (Witnesses approached witness table.)
Good 11 5/5/10 - TRANSPORTATION - BILL 100163 afternoon, gentlemen.
Who is going first? Would you please state your name for the record and pull the mike close to you.
My name is J. Barry Davis. I am a Chief Deputy City Solicitor in the City's Law Department. I'm here today on behalf of Deputy Mayor Rina Cutler. She could not be here today and I'm going to read testimony that she has reviewed. Good afternoon, Chairman Jones and members of the Committee. I am Barry Davis, Chief Deputy City Solicitor for Regulatory Affairs in the City's Law Department. I am testifying today on behalf of Deputy Mayor for Transportation and Utilities, Rina Cutler, who is unable to be here today. The end of the PECO rate caps in 2011 will have impacts on electricity 12 5/5/10 - TRANSPORTATION - BILL 100163 costs for residential customers, commercial enterprises and public agencies. We do not yet know what the full impact will be, but for most customers, it will mean a rate increase. Full deregulation of the energy markets in our region will provide both challenges and opportunities for the City. A Municipal Energy Authority could be an effective complement to the initiatives of the City's Energy Office in meeting those challenges and taking advantage of opportunities. Therefore, the Administration supports the creation of a Municipal Energy Authority with amendments to this bill to more clearly articulate the intended responsibilities of the Authority. The current State law limits the capacity of Pennsylvania municipal authorities to engage in certain aspects of energy development, services and supply. Authorities may not compete with private enterprises except for those 13 5/5/10 - TRANSPORTATION - BILL 100163 activities that are specifically authorized by the Municipal Authorities Act. The proposed amendments clarify the activities that are authorized by Bill 6 100163, but do not limit the ability of the City to add additional projects or responsibilities to the Authority should they be authorized by State law and deemed appropriate by City Council and the Mayor. In order to state the intentions of the City in forming the Authority, it is proposed that additional "whereas" clauses be added to provide more background, identify opportunities and acknowledge that municipal authorities have limits under the State law. The authorized opportunities for the Municipal Energy Authority include development or facilitation of energy-generation projects, the development or facilitation of energy-efficiency projects and the purchase or facilitation of energy supply 14 5/5/10 - TRANSPORTATION - BILL 100163 and energy services on behalf of the City of Philadelphia, other government agencies, institutions and businesses. A major advantage of the municipal authorities is the ability to enter into long-term contracts to pursue these opportunities. Long-term contracts are usually necessary for the purchase of electricity from alternative energy projects like wind or solar and for Energy Service Company agreements to upgrade City buildings with energy-efficiency features. A Municipal Energy Authority with Board members having experience in the energy field would provide the City with an agency partner that adds value to the review and implementation of projects. The amendments also propose the following structure for appointments: one member appointed by City Council and four members nominated by the Mayor and subject to confirmation by City Council. Deputy Mayor Cutler promised 15 5/5/10 - TRANSPORTATION - BILL 100163 City Council during recent budget testimony to have a draft business plan for the electricity procurement by the City ready at the end of May. She asked that I provide you with a brief preview of that today. The Mayor's Office of Transportation and Utilities has been working with City departments to develop a comprehensive electricity procurement strategy. The City has recently entered into an agreement with a competitively selected consultant to provide electricity procurement advice and services.
Following the best practices established by other large municipalities, public institutions and private firms, the City intends to develop a strategy for purchases of electricity for 2011 and beyond that will limit risk and take advantage of the best market pricing. This summer, the City is conducting a pilot program to reduce 16 5/5/10 - TRANSPORTATION - BILL 100163 energy use during the peak summer periods. If successful, this program will not only result in energy savings, it will pay the City a premium for those energy reductions. Peak reductions will also be an important part of the City's energy strategy, and this pilot program will help inform the City's future energy purchases. Overall reduction of City energy use is also a key part of the strategy, and the City is developing a program of both requirements and incentives for City departments to reduce the energy consumption at the buildings that they occupy. Additionally, the Mayor's Office of Sustainability and the City's Commerce Department are developing a Request for Information for an Energy Broker to offer energy supply procurement and contract management services to small and medium businesses in the City of Philadelphia. It is the City's intention to identify one broker for the City's 17 5/5/10 - TRANSPORTATION - BILL 100163 active support and to reevaluate that relationship on an annual basis. This RFI, or Request for Information, is modeled after a very successful program for small businesses in the City of Boston. Thank you for the opportunity to testify today in support of Bill 10 100163, and I would be happy to answer any questions you may have. I would also like to add at this time that I'm very thankful to the Chairman and also to Councilman Clarke for the extensive conversations, discussions that we've had with regard to the formation of a Municipal Energy Authority. They've been very, very fruitful discussions.
Well, I definitely agree. And it is important that Councilman Clarke insisted on our involvement. It's not like we're buying pens or pencils. We're talking about a major purchase, and the more eyes, the 18 5/5/10 - TRANSPORTATION - BILL 100163 more involvement, the more transparency, the better, and I think it's a fruitful engagement that we're beginning to do. Would we like to do questions or can we wait for the whole panel?
Good afternoon, Mr. Chairman, members of City Council. My name is Lance Haver. Thank you for this opportunity to testify. I'm the Director of the Mayor's Office of Consumer Affairs. I'll be giving you my analysis of what the proposed Energy Authority would do, its potential benefits to the City, which would manage the Authority through the Energy Office, as well as to local businesses and the environment. In general, an Energy Authority, working with the Energy Office, would have the ability to do six things. It would allow the City to 19 5/5/10 - TRANSPORTATION - BILL 100163 aggregate its power purchase when it makes sense. It would help small businesses, non-profits, including houses of worships, access the emerging markets for electricity. It would allow the City to harness renewable and innovative energy sources. It would allow for conservation and other energy savings to be financed over a period longer than four years, which is all that is allowed under the City Charter. Perhaps just as important as what the Authority would do is what it would not do. It would not replace PECO. PECO will continue to deliver electricity, bill and be the supplier of last resort to our region. The Authority would not build or operate a single power plant. It would not replace a single business, but instead make it easier for businesses to find ways to work with the City. To understand the challenges and opportunities we face in this new 20 5/5/10 - TRANSPORTATION - BILL 100163 energy environment, it helps to have some background. Prior to 1996, our electric rates were set by the Public Utility Commission, and our bills combined the cost of generating the electricity, transmitting it to our area and distributing it to our home. Electricity was a rate of return industry where a utility justified what it had spent and then was guaranteed a rate of return on its investment. In the 1990s, the country began an experiment in deregulation and Pennsylvania joined with other states to deregulate the 17 electric industry. At the time, the State Legislature believed that deregulating the generation of electricity would drive down the cost of a kilowatt hour. The transmission and distribution of power remained a regulated rate of return industry. To protect municipal governments, small businesses and 21 5/5/10 - TRANSPORTATION - BILL 100163 consumers from rate shocks, there were rate caps put on the price of each kilowatt. On December 31st of 2010, three things will happen in respect to electricity in our region. First, the price caps will come off and we'll buy power at the market price, which is likely to be much higher than what it costs now. Second, PECO compensation and the transition charges will end, thus lessening the effect of the rise in generation costs. And, third, we will enter a new energy era where not only will kilowatts be sold, but so will capacity and other services. That is the background for the hearing today. In the months to come, consumer businesses, municipal government, non-profits and houses of worships will be faced with decisions they have never had to make before. Hopefully I have provided a 22 5/5/10 - TRANSPORTATION - BILL 100163 crash course in what we will be facing when the rate caps come off. I'll now explain how I believe an Authority would help address some of these issues. An Authority would be a powerful tool for the City's Energy Office, which is a central point for the Administration's thinking about planning energy usage and purchases. Using an Energy Authority as a tool, the City's Energy Office would be able to create a large buying pool that levels municipal demands, making it less necessary to purchase reserve capacity. This would allow us to lower our costs, save taxpayers' dollars and make it easier for suppliers to bid on our business.
An Authority would be able to enter into public-private partnerships that have been developed by the Energy Office to harness the renewable energy resources, develop low-cost co-generation for economic development and help provide a vehicle for renewable energy projects. 23 5/5/10 - TRANSPORTATION - BILL 100163 An Authority, unlike the City itself, would be able to enter into agreements for energy efficiency or renewable energy projects that exceed four years. Since there may be savings that could be achieved over a longer period, having the option to enter into longer agreements creates more possibilities. Managing the energy use and thinking about how to generate renewable resources will become a greater and greater challenge for the cities in the future. If we rise to the occasion, we can use our collective buying power, our inherent advantages and our existing infrastructure to create a brighter and cleaner future. Thank you very much. I'd be happy to answer any questions.
Thank you, Mr. Haver. I have a few questions for both of you. How many accounts, electric 24 5/5/10 - TRANSPORTATION - BILL 100163 accounts, does the City of Philadelphia actually have?
What is our approximate usage of electricity and what does that cost us annually?
The electricity usage I don't have an exact figure on. There are distinct kinds of energy purchases that we make, some of which are -- where the actual kilowatt hours are the bulk of the cost and others like street lighting where the fees that we pay for the connection to the PECO grid are actually the most expensive component. For example, the City pays -- well, let's say the total energy bill for the City, including the General Fund, the Water Fund and the Aviation Fund, is about $65 million a year. Of that, about $20 million is for City facilities and about $15 million is for street, traffic 25 5/5/10 - TRANSPORTATION - BILL 100163 and alley lighting. The remainder of that is the usage by the Water Fund and the Aviation Fund.
Electric alone is approximately, under the various accounts, $65 million, which exceeds our entire CDBG allocation from the federal government, for the record. In your estimation -- and one of the things I'll say that for PECO, I'm fascinated to find out what deregulation actually means, and I think it might be helpful for members of the Committee who may not know -- they're senior members, so they probably do, but for the public out there, what does deregulation actually mean?
Well, I think Lance explained it pretty well. For customers really what it means is that you're going to have two components of your bill. One is all the things that PECO does for you, which is to get the power to your property. The remainder of that is going 5/5/10 - TRANSPORTATION - BILL 100163 to be the energy generation or the energy supply cost. If you look at your bill right now today, you'll see that it's divided into components that are very similar to what we'll see in the future. There is a component for energy generation. There's a component for local transmission and distribution. There's also something that Lance referenced, which is a cost associated with the transition from a regulated utility to a deregulated utility. I think the best way to think about this is that approximately for most customers about a third of their energy bill would likely be coming from the PECO services. This is really for residential customers, because for commercial customers it's really too hard to sort of figure that out. But for residential customers, probably about a third to PECO and about two-thirds to the generation, the supply of the electricity. 27 5/5/10 - TRANSPORTATION - BILL 100163 The way that this will affect customers in the year 2011 is that PECO, through the direction of the State Legislature and the Public Utility Commission, is going to continue to provide power -- that's the generation -- to any customer who wants it as what we call the provider of last resort. That means that if you elect as a customer not to go out and look for someone else to provide that generated power, you can still get it from PECO. And PECO is purchasing that electricity in a very regulated way. There are rules for the procurement of that electricity, and so it's happening in a very transparent way. But that's the impact for 2011 on residential customers, and as I said, for commercial customers, it would be a lot different depending on how much energy they actually use.
Well, there are a 28 5/5/10 - TRANSPORTATION - BILL 100163 few things. One, there are very real possibilities in the future that we don't have now. There will be a number of new companies entering the marketplace. I think the other thing we can be sure of is, there's going to be a tremendous amount of confusion, as people really for the first time in their lives will be asked to pick a different generation company. I don't think most of us really think about electricity in terms of generation separate from transmission and separate from distribution.
I think that's an important point, however, because many people in the public think PECO generates electricity. They broker and provide the distribution for electricity, and there's a clear distinction between the two.
In other areas of the State where the rate caps have come off, the consumers, the residential 29 5/5/10 - TRANSPORTATION - BILL 100163 consumers, have seen relatively large rate increases. In the PP&L area, which is adjacent to ours, the rates went up by 30 percent. Even people who shop saw a percent increase. 7 Now, it might sound strange 8 coming from me, but PECO has actually 9 done a much better job of buying power, 10 and the rate increase at this point in 11 our territory will probably be closer to 12 20 percent - 10 percent rate increase on 13 the transmission and distribution and a 14 10 percent rate increase on the 15 generation. 16 The reason I say "probably" is 17 because nobody can really tell you what 18 the cost of power is going to be in a 19 free market. If for some reason the oil 20 spill in the Gulf pushes up the price of the generation of electricity -- and oil prices and natural gas prices right now are not coupled, but historically they have been. If for some reason that creates an energy shortage for oil and 30 5/5/10 - TRANSPORTATION - BILL 100163 major buyers switch to natural gas, the price of electricity when PECO goes out to bid, through no fault of its own, PECO ends up paying substantially more than what they paid in the last round. So it's really a very risky area, and what we would like to do, I'm sure, for our residents is find power at the lowest cost price. We'd like to help our businesses and we'd like to help the City's budget. And that's really what the Authority as a tool for government can be. Public policy should be driven by democratically elected institutions by government. Authorities are tools of government that can take advantage of things so that we can have the type of environment that brings entrepreneurs to the table, allows them to help us plan for the future and really does everything we can to keep costs down.
Are there any questions from members of the 31 5/5/10 - TRANSPORTATION - BILL 100163 Committee? Councilman O'Neill.
Thank you, Mr. Chairman. Mr. Davis, you mention the -- I'm not sure I got the term right, but it's the energy purchasing consultant?
The contract for those services was signed in April. There was a Request for Proposals that was -- I think it was December that was posted. There were a large number of firms that responded to that. And I just want to be clear, the consultant is advising the City on a strategy for how to go forward and buy in a deregulated marketplace.
The company is called EnerNOC. 32 5/5/10 - TRANSPORTATION - BILL 100163
They are a national company. They don't have a local office. They are -- the unit that we're working with is based in the Baltimore area.
The reason that they were selected primarily is that they instituted in a very innovative way of working in the deregulated marketplace with a consortium of governments in Maryland, in the Baltimore area, so county governments and city governments working together. There was an existing cooperative buying group there, and when deregulation occurred, they looked to try to maximize their ability to keep costs down there. What EnerNOC did was to devise a way of allowing municipalities to purchase in the wholesale marketplace and avoid paying a lot of the premiums 33 5/5/10 - TRANSPORTATION - BILL 100163 associated with how you might buy from other suppliers.
Is there any chance that we would going forward, at least in this region possibly with this Authority, be trying to find partners in other counties or jurisdictions? You mentioned in Maryland that they had that strategy.
Yeah. I mean, I think that that's a real possibility that there may be some advantages. Certainly that was the case in the Baltimore area. I think that the City of Philadelphia -- my impression right now is that we would really want to get our own house in order and figure out how we can best do this and then offer that opportunity to other governments and other agencies after we have a better handle on how this works. I think we would not want to -- I think we'd want to have some experience ourselves with this.
So that 34 5/5/10 - TRANSPORTATION - BILL 100163 might be further down the road?
Thank you, Mr. Chairman. I just hope that Mr. McBride of PECO gets over the shock of your complimentary comments that you made about PECO, Lance.
Councilman, I did warn him before I came in that I was going to say something nice about PECO.
Thank you, Mr. Chair. I actually just wanted to piggyback on the question by Councilman 35 5/5/10 - TRANSPORTATION - BILL 100163 O'Neill with respect to the adjacent counties and then Barry's response to that. In a recent conference call with members of the PUC, one of the members actually suggested that we seriously investigate the possibilities, because the ability to aggregate power at that level would enhance our ability to get much cheaper supply of energy and all of the other opportunities associated with it. So that was actually recommended by members of the PUC.
Thank you. Are there any other questions for this panel? (No response.)
If not, we'll recognize the second panel. Thank you, gentlemen, for your testimony. 36 5/5/10 - TRANSPORTATION - BILL 100163
Christopher Booth, Bob Kearns and Rob Stuart. (Witnesses approached witness table.)
Thank you. If we have written testimony that is being handed in, we can paraphrase some of it for brevity, but sticking to the important points. State your name for the record and please begin your testimony.
Thank you. Mr. Chairman, members of the Committee, again, my name is Christopher Booth. I'm Vice-President of the Midatlantic territory for Taylor Consulting and 37 5/5/10 - TRANSPORTATION - BILL 100163 Contracting. Taylor is a national energy procurement and utility management company. We are certified by the Commonwealth of Pennsylvania as a woman-owned business and are based in Northeast Pennsylvania with a satellite office in Boston and a Philadelphia office scheduled to open later this summer. The core of our services is threefold. We provide a state-of-the-art utility management software system for use by small to large businesses and non-profits, a reverse energy auction platform for the purchase of electricity and natural gas, and deep market experience in energy procurement, management and aggregation. I'll skip ahead and talk about our program in Boston. In late 2009, Taylor was selected as the consultant to Mayor Menino to launch the city's Boston Buying Power program. The Boston Buying Power 38 5/5/10 - TRANSPORTATION - BILL 100163 program is an innovative initiative designed to assist small and medium-sized businesses as well as non-profit organizations in the procurement of electricity and natural gas through a citywide energy buying group. Unlike in Philadelphia, Boston had been operating in a mature deregulated market for some time, meaning businesses and non-profits were free to select their energy supplier. Notwithstanding this choice, the Boston businesses were confused and overwhelmed by the numerous suppliers and solicitations harking for their business, which essentially caused them to throw up their hands and give up. The result was that businesses and non-profits were paying too much for energy, which was hurting their operations and mission. As one customer described it, deregulation started to mean unregulation, and the businesses would toss the mailers into the trash and refuse the calls from the 39 5/5/10 - TRANSPORTATION - BILL 100163 telemarketers. Accordingly, Boston decided to create a program that provided the small and medium-sized businesses and non-profits with the same energy procurement tools and consultation services typically only available to large institutions, and, most importantly, the city had to create a credible, effective program that its businesses and non-profits could trust. As the Mayor said, Boston Buying Power was specifically designed to give its hard-working business sector peace of mind that comes from long-term price certainty and budget security, including access to the city's energy-efficiency programs. This is how Boston Buying Power was born and why it continues to grow. In a year's time, over 2,300 commercial, industrial and non-profit companies joined the program. 5 million, and savings have ranged from 4 percent to nearly 30 percent. 41 million. This Friday we 9 are going to the wholesale markets again 10 for another aggregation for 2011, which 11 will generate further savings for yet 12 another buying pool. 13 Taylor is able to generate 14 these savings while maintaining its 15 commitment to purchasing renewable energy sources. In fact, ten percent of the aggregate purchases in 2010 were from renewable sources. For 2011, we are increasing that percentage to percent. 20 All of our customers receive a certificate stating that they have bought green energy, and this program has gone a long way into supporting the city's overall sustainability goals. Additionally, all of the 41 5/5/10 - TRANSPORTATION - BILL 100163 customers that enroll in the pool receive access to a utility module, which tracks energy budgets, expenses, savings and cost projections for the customers' utility accounts. In a deregulated market, as Mr. Haver stated, customers must truly stay on top of their energy contracts and modify their behavior around energy. The impact of those savings cannot be overemphasized.
As one homeless shelter in Boston stated, they operate on an extremely tight budget and are obsessive about saving money. Any money saved goes directly to its mission in serving the homeless. After several months in the program, the organization was able to save $7,500 off its energy bill. The Executive Director stated that these savings meant that four additional homeless people could be enrolled in the job training program, receive counseling and housing assistance and moved out of their homeless situation. To them, 42 5/5/10 - TRANSPORTATION - BILL 100163 saving money literally meant saving lives. Naturally, this organization was eternally grateful to the city for generating the savings. Philadelphia is actually in a better position to implement its own Philly Buying Power program than in Boston. Before the rate caps are lifted at the end of the year, Philadelphia has the opportunity to nip the incoming confusion from suppliers and brokers in the bud. Where many Boston businesses and non-profits were already stuck in bad deals, Philadelphia has the opportunity to create confidence in the marketplace before the confusion sets in. Moreover, the City's councilmanic districts, which include the respective business improvement districts, offer a built-in mechanism for marketing the program and maximizing participation in the program. Even more profound is that Philadelphia can assist small and medium-sized businesses and non-profits 43 5/5/10 - TRANSPORTATION - BILL 100163 with their energy costs without putting any stress on its budget. As in Boston, the Philly Buying Power has the potential to essentially be a City-endorsed program that does not necessarily require a staff to administer or budget appropriation. Rather, Taylor will handle the administration of the program with direct reporting to the City for data points, results and customer satisfaction. The City may, through the Administration and each of the Councilmembers, market the program in their respective areas very effectively and create savings for their resident businesses and non-profits. In these tough economic times, any break will help the small businesses or the non-profit community. Taylor has a proven track record of success. We know what works. We designed the program, and stand ready, willing and eager to assist the City of Philadelphia in addressing this impending and critical issue. 44 5/5/10 - TRANSPORTATION - BILL 100163 Thank you for your consideration and allowing me to provide this statement to this distinguished body.
Thank you, Mr. Booth. We're going to hold questions until the entire panel speaks. Who would like to go next? State your name for the record.
I would like to remind everybody the entire written testimony will be a part of the record. You can paraphrase. Feel free.
Certainly. I'll do my best, though my written testimony is fairly succinct. I'm pleased to be here in support of this legislation. As President of Evolve Strategies, Evolve Strategies promotes sustainable policies, initiatives and businesses through advocacy and new media production here in 45 5/5/10 - TRANSPORTATION - BILL 100163 the City. I've personally been working on an energy policy since the 1980s, and I've followed with interest the confluence of events and advances in technology that brings us to what I believe is a historic time and opportunity to provide clean and affordable energy throughout our city. Providing reliable, safe and non-polluting renewable power for our city makes economic sense. In the wake of the tragic deepwater horizon well explosion, it is clear that we cannot drill ourselves to energy security either in foreign countries or domestic waters. No. The only way to gain true energy security is for our city to use energy more efficiently while generating and storing renewable power through solar, wind and geothermal technologies. While the whole environmental impact of the deepwater disaster won't be known for decades, the good news is that the sun shines on Philadelphia most every 46 5/5/10 - TRANSPORTATION - BILL 100163 day and the wind blows up and down our rivers all the time. This natural energy can be tapped with new technologies such as vertical windmills and horizontally mounted thin film solar modules to ultimately provide all the power the City needs. Renewable power is episodic. More sun shines in the three summer months than in the rest of the year combined, but new technologies allow this excess energy to be stored as hydrogen and tapped through fuel cells when we need power in the winter. Councilman Jones, I think you may remember that we visited such a hydrogen home more than two years ago or just about two years ago that demonstrates that this technology exists now. I believe with the establishment of the Authority, we can promote hydrogen homes and blocks where we demonstrate that true energy independence is possible right here in Philadelphia. 47 5/5/10 - TRANSPORTATION - BILL 100163 I think the Authority would be helpful for some of the other projects that we're involved in, particularly supporting local businesses, like Al Brown's Komplete Welding at 19th and Girard to construct renewable energy component parts, such as mounting systems for solar systems. Investing in the construction of urban micro grids such as we envision to power the Schuylkill River Waterscreens, a combination of vertical wind turbines and solar sound barriers that we hope will generate 750 kilowatts per year. This renewable energy demonstration project would provide more than enough power to supply the loads of water pumps and projection systems, and we hope that will be a new gateway and nighttime attraction in west Center City. Replacement of inefficient and potentially hazardous streetlights, as we discussed already a bit, with new LED lights manufactured in the City. As 48 5/5/10 - TRANSPORTATION - BILL 100163 Councilman Kenney's recent resolution 3 that was passed by the Council unanimously pointed out, replacing existing streetlights could save the City more than $5 million in energy costs and millions more in replacements, because LEDs use half the power and last twice as long. The best is that we can manufacture these new environmentally safer lights right here in Philadelphia, creating new jobs and tax revenue. We also could be supporting the development of new community-based CDCs that work with blocks of neighbors who are willing to support the installation of renewable energy systems if they do not have to invest the upfront costs right away and instead pay for the system like a mortgage. The time for the City to act is now.
Over the last two years, the federal and State government have created excellent incentive programs to make installation of renewable energy very 49 5/5/10 - TRANSPORTATION - BILL 100163 attractive, but a key ingredient has been missing, a true commitment by the City to help push this transition to an energy independence forward. It's time to rethink how Philadelphia gets and uses its energy, and with an Authority in place, we believe that Philadelphia could develop the types of partnerships that could utilize City properties and land to install more micro grids and urban solar farms. We could take action to move all City buildings from a reliance on an inefficient steam line while investing in new geothermal and other efficient gas technology systems, and we can explore the use of green hydrogen as both an emergency storage strategy and additive for PGW to sell. As Germany has demonstrated for more than 20 years, hydrogen mixed with natural gas called Hythene could make our gas more efficient while reducing our carbon footprint significantly. We could also be powering our street and service vehicles with our 50 5/5/10 - TRANSPORTATION - BILL 100163 own renewable power. In conclusion, I want to thank Councilman Clarke and all the other members who have sponsored this legislation. It truly is exciting to think about the possibilities and the rewards of having a Municipal Energy Authority in place and how it would bring the City forward to meet our energy security in the future. I look forward to working with you as this legislation moves forward and be happy to answer any questions.
Good afternoon. My name is Bob Kearns. I'm the President of Municipal Energy Managers. We're a company that specializes in energy management for municipalities and have a 51 5/5/10 - TRANSPORTATION - BILL 100163 niche market of street lighting. We represent more clients' streetlights than actually PECO has or the City of Philadelphia. We have a great deal of experience in the PUC and tariffs, and I'd like to bring that experience and some of that knowledge to you as you come back. A number of different topics that you addressed earlier, and you've read my testimony, but we'll go off script here for a minute. You have about $15 million that impacts your street lighting and traffic signals, and from that, I'm sure that you've had endless amounts of consideration within energy savings saying products, much products, to reaffirm what Rob had talked about with LED opportunities. That is just energy savings. The key component to what it is that should be looked at from an Authority standpoint is identifying a transparency to show the clients, meaning 52 5/5/10 - TRANSPORTATION - BILL 100163 your constituents, the City, what's been done and how you're looking at it. You have configuration opportunities. It's how you structure your costs. You've heard it addressed more than once within the panels and you'll hear it later, is that your connection costs are the costs that's driving the major component cost to your street lighting. There's configuration opportunities that you have available, and those are things that you should look at. There's two main tools. Looking at what you have as cost avoidance is just as important as you can address energy savings. And with that, the major tool that you should be looking at right now is how to make the information that's coming available transparent and usable by those that are coming on. Our firm, based on what it is that we had to do over the number of years and representing better than 95 53 5/5/10 - TRANSPORTATION - BILL 100163 percent of all of the street lighting clients in PP&L that's already gone through this, can tell you horror stories of the configurations to how the polar default rates have assembled and the actual rate increases on streetlights that were owned of greater than 100 percent of the rate that they were paying, not 30 percent. With those components at hand, it's very important to actually have the information so that you have each of the accounts spread, that you can have a web-based platform that can utilize GIS where you cannot only be able to determine, as the Solicitor had here, how many accounts, where they are, what the rates that they're on, what the rates they're paying and the contracts that they're under. It's very easy at this point in time as an Authority to assemble the data in a format that's transparent to those that will be using it. Opportunities that exist within layers of 54 5/5/10 - TRANSPORTATION - BILL 100163 a haze or some sort of not knowledge is not going to be beneficial to this Authority. By having the information readily available, there are many commercial accounts that will come to you with opportunities. Not knowing or not even understanding some of the things that are in front of you I think are issues that would go away. So with that, I really want to affirm two things. You should look to experiences of those that are around you that have gone through it for cost avoidance as much as you have in energy savings. And we are involved in your solar program and the micro grid demonstration that's right here in Philadelphia. We are involved in configurations within PECO that have saved significant dollars. And the management tools that we have available with GIS and with creating the transparency are things that we have readily available.
As you look at this, 55 5/5/10 - TRANSPORTATION - BILL 100163 I strongly support your ability to identify a municipal authority such as you have identified and that this renewable initiative is certainly a worthwhile goal. I thank you for your time.
Thank you for your testimony. A couple of things come to mind, and I'll try to move us along so we can get all of the testimony in. There are municipalities that in -- we're not the only city going through a cash crunch and economic hard times. Other cities have opted and one just stuck in my mind, and I won't name them. They were considering cutting lights off in sections of town to avoid the cost of the electric, and I just couldn't fathom a city of the first class like Philadelphia ever even considering that option. So this discussion, this process is timely. Now, I heard one quote as 56 5/5/10 - TRANSPORTATION - BILL 100163 possibly ten percent increases. I heard another quote as possibly 30 percent, and you just blew me away with some examples of 130 percent. Why such a variation in estimates? Anyone can respond.
I'll take a shot at it first. From the actual experience of PP&L when they bid their rate classes, small and industrial clients got pooled with their street lighting clients. So all area lighting and street lighting in the polar default rates were grouped as a rate class. So as the utility goes out and they bid these polar default rates, some of which have been completed by now, they get a sense for the majority of the clients went up. What isn't properly mapped because for some reason I don't know if the numbers are transparent to the rate classes that have been awarded, you need to take a look at specifically the rate classes that you have. So I'd be very interested as you have PECO step 57 5/5/10 - TRANSPORTATION - BILL 100163 up here later to see what information they'd be willing to provide to the City to anticipate what kind of rates would go up. You have no controls. In other words, at this point with the balance as big as $15 million, you're not looking to tell the good story of what happens to small industrial and commercial clients as much as you're trying to find out what the impact directly is to the Philadelphia Authority. There's a very good chance that there's cannibalized effects based on the rates. If most of your rate that's structured on street lighting is based on a connection fee, then your energy costs are at an unrealistic level now. So each time that someone comes to you and says your energy rate will go up, it's because the energy rates are so attractive to the way that they build them to this point. So from this point forward, if energy is deregulated after '11 as it is in PP&L, 58 5/5/10 - TRANSPORTATION - BILL 100163 you're paying the same for the energy as I would. So it wouldn't matter who owns the light. So the connection fee that's driving the cost is still there and now the benefit of having that super low rate in energy is gone. You're going to be buying a marketable rate that's been pooled as a polar default rate unless you move to try to get a grasp of where that power is, how it's assembled and when it's used. Your consumption based on where you are is heavier in like January -- November, December, January, February you're hitting peak hours just because the lights are coming on, but in the summer when you're hitting peak at 5:00 p.m., you have no lights on. So your ability to move or migrate off that polar default rate will be very important. But if you are going to base your savings on something that's a default rate, it's important to understand where those rates look like now based on the polar 59 5/5/10 - TRANSPORTATION - BILL 100163 defaults.
PP&L specifically paid a half cent a kilowatt hour before deregulation. Their polar default rate went to 10.4 percent as a rate.
Is this similar, if I could use the analogy, of risk assessment for auto insurance, depending on what class you're rated at?
Yes, which is -- I think some of the things that will happen is, you get caught in a dead spiral. One of the 800-pound gorillas that's in the room is, you have a steam system. I mean, if you're talking about energy, stop just talking about electricity. You have a steam system that is by far one of your huge stresses to cost. We can throw the other numbers around. If you lose 70 percent of the efficiency of creating the heat before it ever got to your valve, the mathematics don't take long when the 60 5/5/10 - TRANSPORTATION - BILL 100163 energy costs are actually on an open market. So I'd stress that your ability as an Authority to find out or to weigh in on leverage and legislation is a key component to that. I hope I answered your question.
Would anybody else like to respond? We're going to bring up our last panel shortly.
I'll just comment briefly. You have to look at where everybody was starting off, too. We're looking at residential rate classes. We're looking at small commercial and industrial, medium-sized commercial and industrial and large commercial and industrial, and each had a certain rate class. And the PPL territory where we're already in a deregulated market where the rate caps have already came off, they were already operating at a pretty low 61 5/5/10 - TRANSPORTATION - BILL 100163 rate up there. So the increase will be greater in the PPL territory and the PECO territory, because for the last ten years, our rates have been just a little bit higher than the rates in PPL. In addition, PECO is actually in the market right now. They have four scheduled auctions for purchasing power for 2011. They've already purchased -- gone to auction twice. They have one more this spring and then another one in the fall. And so only 50 percent of their purchase has already been made. So we don't know what their price will be for their price of last resort until November of 2009 (sic), but because the market conditions are pretty favorable right now, they're not -- you're going to hear all types of wide ranges in the percentages of how much those rates are going to go up.
Any other questions for the panel? (No response.) 62 5/5/10 - TRANSPORTATION - BILL 100163
Thank you for your testimony. Will the Clerk read the next panel.
Good afternoon, Mr. Chairman, Councilmembers. My name is Ritchie Hudson. I'm the Pennsylvania State Chairman of the Retail Energy Supply Association. First, I'd just like to thank you for the opportunity to testify today. By way of introduction, the Retail Energy Supply Association, or RESA for short, is a trade group of competitive retail electricity suppliers. There's 13 member companies made up of large national and international energy companies, some household names like Hess, the familiar oil company; my company, ConEdison Solutions, which is an affiliate of ConEdison Company of New 63 5/5/10 - TRANSPORTATION - BILL 100163 York, the local utility in the New York metro area; companies like GDF Suez, which is an international energy company that has over 200 million customers worldwide. And we are the new energy suppliers that are interested in entering the market here in the Philadelphia area to compete for customers' business. I will go off script a bit because I know you have a number of folks testifying today. My message today is actually quite simple. It's that the competitive market as it develops will help the City achieve all of its energy policy objectives. With the transition to competition at the end of this year as rate caps expire, there's a tremendous amount of opportunity for the City of Philadelphia, and you've heard about some of those opportunities already in terms of aggregation opportunities, opportunities to access renewable energy investment and other sustainable energy products and services. 64 5/5/10 - TRANSPORTATION - BILL 100163 I'd like to start by talking a little bit about what we do as competitive retail electricity suppliers. We are an alternative to the local utility. We compete against PECO and we compete against one another to earn customers' business. We offer a variety of innovative products and services, and you might be thinking what type of product or service are you talking about. It's all electricity. You flip on the light switch and the light comes on. But there's a number of different ways that electricity can be priced. For example, there are fixed-price energy contracts that are good for customers that want budget certainty that need a predictable stable cost per kilowatt hour. There are variable-price products where the cost of energy actually floats with a transparent market index. And there are customizable combinations of these types of products where you can lock in a certain amount of 65 5/5/10 - TRANSPORTATION - BILL 100163 your energy needs with a fixed price and float the rest on the market. And what we do is, we come in and we evaluate a customer's electricity usage pattern and help them figure out the best product or service for them. We also offer innovative sustainable energy products such as the availability to purchase a certain percentage of your electricity through green or renewable resources like wind or solar. As an example of this, my company, ConEdison Solutions, we have over 10,000 wind energy customers across the country and we're also involved in a number of energy-efficiency products where we come in and work with non-profit entities like Penn State University, like the United States Postal Service, hopefully entities like the City of Philadelphia, and help them find opportunities to save energy through physical retrofits, lighting retrofits, the use of co-generation and a variety of 66 5/5/10 - TRANSPORTATION - BILL 100163 other measures. So these are just a number of some of the innovative products and services you can expect to see come to the Philadelphia area as rate caps expire and as competition develops. I'd like to talk a little about the issue of rate caps, because it has been touched on already today.
First of all, just to get some of the facts straight, PECO has a structured competitive procurement plan that was approved by the Public Utility Commission where there's a schedule of the energy purchases that they're going to make for their 2011 supply, and they've already bought about 50 percent of the supply needs for 2011 for their residential market already. And the cost of those energy procurements is known, and I'm sure representatives from PECO would be more than willing to share that information with Council. Based on that 50 percent of 67 5/5/10 - TRANSPORTATION - BILL 100163 supply that they've already purchased, they're projecting a rate increase of four percent on a total-bill basis. So energy rates are going up because they've purchased generation at today's market prices, and that would drive about a four percent increase, assuming the rest of the 50 percent energy supply that they purchase is in line with what they've already bought. There have been some numbers thrown around like ten percent or 30 percent as what was experienced in the PPL area, and the actual known information that we have for PECO is the rate increase is going to be around four percent, which is really quite amazing when you think about the fact that rates have been capped for more than a decade and in the Philadelphia area at a time when all energy costs have escalated dramatically due to increased global demand for energy, turmoil in the Middle East and many other factors. 68 5/5/10 - TRANSPORTATION - BILL 100163 And just to put the issue in perspective a bit, the price of any good or service should be expected to increase over time due to normal inflationary pressure. For example, the cost of potatoes has risen over 40 percent over the same timeframe. So if you have an artificial price cap in place, if you lift that price cap, prices will go up, and it's important to keep in mind that these rate increases are driven by that policy decision to impose rate caps more than a decade ago, not because of the transition to competition. But what the transition to competition will do is, it will provide the City of Philadelphia and its residents and businesses the opportunity to get the best deal they possibly can in the competitive market after rate caps expire, and that's what our companies are here to do and bring to the table. Now, moving to the issue at hand today, on the topic of the Energy 69 5/5/10 - TRANSPORTATION - BILL 100163 Authority, we have engaged in discussions with various stakeholders, the Mayor's Office, various Councilmembers' offices, and when this ordinance was first introduced, we did have some concerns about it. It was written fairly broadly, and our concern, quite frankly, was that this Energy Authority would seek to supplant the new competitive market that's about to develop. Now, in our discussions and in the testimony that we've heard today, we understand that that's not the intent.
Yes. Absolutely. And we've seen some of the amendments offered by the Mayor's Office and we think those are definitely a step in the right direction, and we look forward to working with the Mayor's Office and other stakeholders to get the language on those amendments crystal clear. The reason for the concern -- 70 5/5/10 - TRANSPORTATION - BILL 100163 and I don't want to dwell on the negative, but I do think it is important to point out why we had some concerns initially -- is if you were to create an Energy Authority that would seek to build generation plants or become a wholesale market participant, it would require millions of dollars of capital to engage in these very complicated wholesale energy markets, and clearly that's not something that the City of Philadelphia would want to take on. So we're very --
We wouldn't do it any worse than Enron, I wouldn't think. But go ahead.
Yes. So I do think it's important to point out the complexities involved in the wholesale competitive market space. And we are very pleased to see that amendments have been offered that would seek to clarify the intent of the legislation, and that ultimately is our objective as well. So just in summation, we think 71 5/5/10 - TRANSPORTATION - BILL 100163 the competitive market will help you achieve all of the objectives that you'd like to achieve, aggregating City facilities together to get the best possible deal, possibly creating some type of preferred supplier program for the residential or small business market, and also looking at potential energy development and opportunities. Thank you for the opportunity to testify today.
And thank you for your comments. Are there any questions -- oh, I want to recognize Councilwoman Blackwell has joined the Committee.
Thank you, Mr. Chairman. Good afternoon. Nice to see you again. 72 5/5/10 - TRANSPORTATION - BILL 100163
Thank you for coming in. I just wanted to respond to a couple of your comments. With respect to, one, the City of Philadelphia getting in the energy business in terms of purchasing facilities and plants, as the Chairman has said, we will address that in amendments, but I do want to say with respect to your characterization of referencing the fact that it would not be a good idea on our behalf, I must say that we have some very talented people working under the direction of Deputy Mayor Rina Cutler that would clearly make decisions that are prudent decisions that are based on the benefit of the citizens of the City of Philadelphia. So I appreciate your concern for us not being able to adequately understand the industry, but I feel quite confident that we wouldn't enter into any type of a program that would be detrimental to our city. 73 5/5/10 - TRANSPORTATION - BILL 100163
I hope you didn't misinterpret my comments. I have the utmost confidence in those individuals and the Mayor's Office, and the City of Philadelphia and you, Councilman Clarke --
You may want to throw City Council in that mix in terms of confidence.
Yes. And the City Council, and you're absolutely to be commended for dealing with this issue in a very proactive manner, and we're very thankful of that.
And the other thing, I agree with you that this is an opportunity to take advantage of a competitive market, and we just want to position ourselves either utilizing the powers within the government structure or within the Authority structure to take every advantage possible of the competitive environment. So that's just essentially what -- but, again, I just 74 5/5/10 - TRANSPORTATION - BILL 100163 want to thank you for your testimony and thank you for your earlier conversations in our office.
Are there any other questions for this witness? (No response.)
Hearing none, thank you for your testimony. This will conclude our public hearing on Bill No. 100163. We will now move into our public meeting. I understand there are amendments on this bill.
Mr. Chairman, I move the adoption of the amendments to Bill 100163, which have all been distributed to members of the 75 5/5/10 - TRANSPORTATION - BILL 100163 Committee. (Duly seconded.)
Hearing none, the amendment is adopted. Can I make a motion -- can I hear a motion on Bill No. 100163, as amended.
Mr. Chairman, I move that Bill No. 14 100163, as amended, be reported out of this Committee with a favorable recommendation and, further, that the rules of Council be suspended to allow for first reading at our next session of Council. (Duly seconded.)
The bill 25 is -- can I get some ayes. 76 5/5/10 - TRANSPORTATION - BILL 100163 (Aye.)
Bill No. 4 100163, as amended, has been moved and properly seconded. All in favor will say aye. (Aye.)
Bill No. 11 100163, as amended, will be reported out of this Committee with a favorable recommendation and a further recommendation that the rules of Council be suspended to allow the first reading at our next scheduled Council meeting. This concludes our meeting of the Committee of Transportation and Public Utilities. Thank you for your attendance. Is there a comment from our prime sponsor?
Thank you. 77 5/5/10 - TRANSPORTATION - BILL 100163 (Committee on Transportation and Public Utilities concluded at 2:30 p.m.) - - - 78 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on May 5, 2010, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)