Resolution No. 2020-030 RESOLUTION NO. 2020-30
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON
ESTABLISHING ENERGY PROCUREMENT TARGETS OF ZERO
MEGAWATT HOURS
SECTION 1 . Recitals.
A. The City of Vernon ("City") is a chartered municipal corporation of the State of
California that owns and operates a system for the generation. purchase. transmission.
distribution and sale of electric capacity and energy.
B. The energy storage law in California. Assembly Bill AB 2514 ("AB 2514"). codified
as Public Utilities Code Section 2835 et. seq.. adopted in 2010. and subsequently revised.
mandates the governing board of each publicly-owned utility (POU) to "determine
appropriate targets, if any, for the utility to procure viable and cost-effective energy
storage systems."
C. AB 2514. adopted in 2010. requires that the City reevaluate this determination
regarding the viability to procure an energy storage target every three (3) years. However.
Public Utilities Code Section 9621(d)(1)(B). effective as of 2018. encompasses the
requirements of AB 2514. and only requires reevaluation every five (5) years as part of
the Integrated Resource Plan.
D. On September 5. 2017. the City Council of the City of Vernon adopted Resolution
No. 2017-47 establishing energy procurement targets of zero megawatt hours.
E. By memorandum dated September 15, 2020. the General Manager of Public
Utilities has recommended that the City continue its policy of no energy procurement
targets on the grounds that procurement of energy systems is not cost-effective at this
time for reasons set forth within the City of Vernon Public Utilities Energy Storage
Evaluation Report (Attachment 2 to the memorandum). incorporated herein by reference.
NOW, THEREFORE. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
VERNON AS FOLLOWS:
SECTION 2. The City Council of the City of Vernon hereby finds and determines
that the above recitals are true and correct.
SECTION 3. The City Council of the City of Vernon hereby establishes energy
procurement targets of zero megawatt hours.
SECTION 4. The City Council of the City of Vernon hereby further finds and
determines that procurement of energy storage systems is not cost-effective.
Resolution No. 2020-30
Page 2 of 2
SECTION 5. The City Clerk shall certify the passage and adoption of this
resolution and enter it into the book of original resolutions.
APPROVED AND ADOPTED this 15th day of September. 2020.
ci7q2, ,
TICIA LOPEZ. Mayor
ATTEST:IL
LISA f� L
LISA POPE. City Cle
(seal)
APPR VED S T FO
AR LD M. LV REZ-GLASMAN.
Interim City Attorney
I CERTIFY THAT THE FOREGOING RESOLUTION NO. 2020-30 was passed and
adopted by the City Council of the City of Vernon at the regular meeting on September
15. 2020 by the following vote:
AYES: 5 Council Members: Davis, Gonzales. Menke, Ybarra, Lopez
NOES: 0
ABSENT: 0
ABSTAIN: 0
Y/ ril 1/r)(
LISA POPE. City CI k
(seal)
STAFF REPORT
City Council Agenda Item Report
Agenda Item No. COV-323-2020
Submitted by: Efrain Sandoval
Submitting Department: Public Utilities
Meeting Date: September 15, 2020
SUBJECT
Energy Procurement Targets of Zero Megawatt Hours
Recommendation:
Adopt Resolution No. 2020-30 establishing energy procurement targets of zero megawatt hours.
Background:
Public Utilities Code Section 2835 et seq. (Assembly Bill 2514) requires the Council to determine
targets for Vernon Public Utilities (VPU)for the procurement of viable and cost-effective energy storage
systems. The California Energy Commission (CEC) reviews the procurement targets and policies and
reports the progress to the Legislature.
The law requires VPU to evaluate the cost-effectiveness and viability of energy storage systems and
consider various policies to encourage the cost-effective deployment of energy storage systems. The
initial evaluation was due on October 1, 2014. Additionally, VPU was authorized to determine
"cost-effective and viable" energy systems. When the energy storage evaluation was completed in 2014
and 2017, the City Council adopted Resolution Nos. 2014-56 and 2017-47 respectively, which
established that a target to procure energy storage systems was not appropriate since there were no
cost-effective opportunities.
AB 2514 required that the City evaluate energy storage options every three years and determine whether
or not to establish a goal for energy storage. Therefore, no later than October 1, 2020, the governing
body is required to adopt a target for the amount of appropriate energy storage that VPU will procure by
December 31, 2021. However, Public Utilities Code Section 9621(d)(1)(B), effective as of 2018,
encompasses the requirements of AB 2514, and only requires reevaluation every five (5) years as part of
the Integrated Resource Plan. Accordingly, the next reevaluation will be conducted as a part of VPU's
IRP.
VPU staff, through its Integrated Resource Plan (IRP) analysis, evaluated the costs and associated
benefits of energy storage (Attachment 2). The analysis determined that the costs of utility-owned and
operated technologies exceed the value of the benefits, and hence, do not provide cost-effective, viable
opportunities for VPU at this time. Nevertheless, VPU will continue to perform due diligence of energy
storage systems as it is moving from research and development to the production realm, and as the
potential benefits of these systems begin to clearly outweigh the costs and become feasible to utility
operations.
To meet the Citys obligation, staff proposes to establish energy storage procurement targets of zero
megawatt hours. VPU will, nevertheless, encourage customers to consider this emerging technology
where it is cost-effective, as it is the belief of staff that in the long term, energy storage is expected to
have substantial impact in the overarching electric system.
Fiscal Impact:
There is no fiscal impact associated with this report.
Attachments:
1. Resolution No. 2020-30
2. Public Utilities Energy Storage Evaluation Report
City of Vernon Public Utilities Energy
Storage Evaluation Report
Recommendation
Vernon Public Utilities (VPU) staff recommends that the City Council adopt a resolution that a
target to procure energy storage systems is not appropriate at this time. This recommendation
comes from the Integrated Resource Plan (IRP) analysis which determined that battery storage
is not feasible at this time. This recommendation, however, does not inhibit VPU from
evaluating and pursuing cost-effective energy storage solutions that strengthen utility
operations in the future. VPU staff will continue to perform its due diligence in the analysis of
energy storage systems as they continue to move from research and development realm to the
production realm, and as the potential benefits of these systems begin to clearly outweigh the
costs and become feasible to utility operations. VPU will seek opportunities to establish
strategic partnerships with customers and developers to advance energy storage opportunities
for the City.
Executive Summary
Assembly Bill (AB) 2514 (Public Utilities Code 2835 et seq.), the energy storage law in California,
requires the governing board of each publicly-owned utility (POU) to "determine appropriate
targets, if any, for the utility to procure viable and cost-effective energy storage systems..." The
California Energy Commission (CEC) was given the responsibility to review the procurement
targets and policies that are developed and adopted by POUs to ensure that the targets and
policies include the procurement of cost-effective and viable energy storage systems. The CEC
then reports to the Legislature regarding the progress made by each local POU serving end-use
customers in meeting the requirements of AB 2514.
The law establishes definitive deadlines for POU compliance within the statute as follows:
1) A POU has the responsibility to evaluate the cost-effectiveness and viability of energy
storage systems in their respective electric systems. Additionally, a POU may also
consider various policies to encourage the cost-effective deployment of energy storage
systems. The initial evaluation was due on October 1, 2014.
2) A POU also possesses the authority to deem any, all or no energy system(s) that are
evaluated as being "cost-effective and viable". Taking into account the significant
differences between respective POU electric system requirements, the cost-
Page I 1
effectiveness and viability of energy storage technology options may vary greatly for
each POU.
When the energy storage evaluation was completed in 2014 and 2017, the City Council adopted
a resolution that a target to procure energy storage systems was not appropriate since there
were no cost-effective opportunities. In accordance with State law, the City must evaluate
storage options and determine whether or not to establish a goal for energy storage every
three years. Therefore, no later than October 1, 2020, the government body is required to
adopt a target for the amount of appropriate energy storage the POU will procure by December
31, 2021. Policies to encourage the cost-effective deployment of energy storage systems may
also be considered by the Governing body.
VPU completed its Integrated Resource Plan (IRP) in November of 2018. The IRP analysis
included an evaluation of energy storage. The IRP storage evaluation concluded that energy
storage was not cost-effective until 2023. The conclusion embraced a "wait and see" strategy
for procuring small amounts of energy storage beginning in 2023 and delaying procurement of
larger amounts of energy storage. Energy storage costs are expected to decrease over time and
future advances in energy storage technology will likely materialize. VPU performed a
sensitivity analysis on energy storage costs to evaluate the impact on the resource plan if
energy storage costs were to substantially decline.
VPU's staff endorses the approach recommended by the IRP that currently there is no
reasonable justification to procure energy storage systems within the City of Vernon for
applications of Ancillary Services, outage mitigation, renewable integration, deferral of
transmission and distribution upgrades, load leveling, grid operational support or grid
stabilization at this time.
Introduction
In September 2017, after examining a detailed analysis from VPU staff,the City Council found a
lack of cost-effective energy storage applications in City of Vernon. This analysis and
determination was prompted by State law under AB 2514 that required the governing board of
each publicly-owned utility (POU) such as VPU to "determine appropriate targets, if any, for the
utility to procure viable and cost-effective energy storage systems." The law also required
"reevaluation of energy storage target determinations not less than every three years."
Page 12
The Energy Storage valuation was developed in response to the requirements of the bill. It
provides the findings from the VPU's research on applications and viability of energy storage on
the City's electric system. For this evaluation, staff used the analysis from its 2018 IRP to
determine the viability of energy storage. The conclusion of this evaluation will serve to identify
whether VPU should pursue establishing targeted levels of investment for energy storage.
Energy Storage Background
The purpose of energy storage systems is to absorb energy, store it for a period of time with
minimal loss, and then release it when appropriate. When deployed in the electric power
system, energy storage provides flexibility that facilitates the real-time balance between
electric supply and demand. Maintaining this balance becomes more challenging as the
contribution of electricity supplied by intermittent renewable resources expands.
Typically the balance between supply and demand is achieved by keeping some generating
capacity in reserve to ensure sufficient supply at all times and by adjusting the output of fast-
responding resources such as hydropower. Energy storage systems, however, have the
potential to perform this role more efficiently.
Rechargeable batteries are the most familiar form of energy storage technology. Large battery
energy storage systems can be connected to the transmission grid to absorb excess wind or
solar power when demand for electricity is low and, in turn, release the power when demand is
high.
Energy storage also offers a variety of other services such as voltage support, distribution
upgrade deferral, regulation of electricity and more, that can benefit the electricity system.
Overarching these specific purposes is the intent of AB 2514 bill outlined in the findings and
declarations. Energy systems are expected to:
• Integrate intermittent generation from eligible renewable energy resources into the
reliable operation of the electric system.
• Allow intermittent generation from eligible renewable energy resources to operate at or
near full capacity.
• Reduce the need for new fossil-fuel powered peaking generation facilities by using
stored electricity to meet peak demand.
• Reduce purchases of electricity generation sources with higher emissions of greenhouse
gases.
• Eliminate or reduce transmission and distribution losses, including increased losses
during periods of congestion on the grid.
• Reduce the demand for electricity during peak periods and achieve permanent load-
shifting by using thermal storage to meet air-conditioning needs.
Page 13
• Avoid or delay investments in distribution system upgrades.
• Use energy storage systems to provide the ancillary services otherwise provided by
fossil-fueled generating facilities.
Energy Storage Technologies
There are numerous energy storage technologies with varying performance ranges suitable for
key electrical applications. It is, therefore, important to understand the different technologies
in order to identify the type of storage device that would be appropriate for the use and
specific application. The preceding is a brief description of the most notable technologies in
this developing industry.
Pumped Hydru
Pumped hydroelectric energy storage is a mature, commercial utility-scale technology that is
currently in operation at many locations throughout the country. Pumped hydro draws off-peak
electricity to pump water from a lower reservoir to a reservoir located at a higher elevation.
When demand for electricity is high, water is released from the upper reservoir, run through a
hydroelectric turbine and deposited once again in the lower reservoir in order to generate
electricity. Pumped hydro requires sufficient raw land, often hundreds of acres, to create two
reservoirs at different elevations. This application has the highest capacity of the energy
storage technologies that were studied. The output is only limited by the volume of the upper
reservoir.
Projects can be sized up to 4000 MW and operate at approximately 76%-85% efficiency.
Pumped hydro plants can have a service life of 50 years, yielding rapid response times that
warrant participation in voltage and frequency regulation, spinning and non-spinning reserve
markets, arbitrage and system capacity support.
While the siting, permitting, and associated environmental impact processes can take many
years, there is growing interest in re-examining opportunities in pumped hydro.
Page 14
Figure 1 Pumped Storage Hydro
JP.'tR RES '" UPPER RESERVE
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GENERATING MODE PUMPING ID STDRAGE MODE
(Source: ClimateTechWiki)
Compressed Air Energy Storage (CAES)
CAES uses off-peak electricity to compress air and store it in an underground reservoir or in
above ground pipes. When demand for electricity is high, the compressed air is heated,
expanded, and directed through a conventional turbine-generator to produce electricity.
Underground CAES storage systems are most cost-effective with storage capacities up to 400
MW and discharge times of between 8 and 26 hours. Siting CAES plants requires locating and
verifying the air storage integrity of an appropriate geologic formation within a service territory
of a given utility. CAES plants employing aboveground air storage would typically be smaller
capacity plants on the order of 3 to 15 MW with discharge times of between 2 and 4 hours.
Aboveground CAES plants are easier to site but more expensive to build. CAES systems, which
have been around for over 18 years, are the other mature bulk energy storage systems
available other than pumped hydro; however, because of the geologic conditions required, few
have been developed.
Page 15
Figure 2 Compressed Air Energy Storage
Compressed Air Energy Storage
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MOTOR COMPRESSOR TURBINES GENERATOR
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AIR IN uadi
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DEPLETED GAS RESERVOIR
(Source:PGE)
Lead-Acid Batteries
Lead-acid is the most commercially mature rechargeable battery technology in the world. Valve
regulated lead-acid (VRLA) batteries are used in a variety of applications, including automotive,
marine, telecommunications, and UPS systems. Transmission and distribution applications are
rare for these batteries due to their relatively heavy weight, large bulk, cycle-life limitations and
maintenance requirements. Serviceable life can vary greatly depending on the application,
discharge rate, and the number of deep discharge cycles. Battery price can be influenced by
the cost of lead, which is a commodity. Finally, very limited data is available regarding the
operation and maintenance costs of lead-acid based storage systems for grid support.
Figure 3 Lead-Acid Battery Storage
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ite;
(Source: Energy Source Publishing)
Page 1 6
Flow Batter;
Vanadium redox batteries are the most mature type of flow battery systems available. In flow
batteries, energy is stored as charged ions in two separate tanks of electrolytes, one of which
stores electrolyte for positive electrode reaction while the other stores electrolyte for negative
electrode reaction. Vanadium redox systems are unique in that they can be repeatedly
discharged and recharged. Like other flow batteries, many variations of power capacity and
energy storage are possible depending on the size of the electrolyte tanks.
Vanadium redox systems can be designed to provide energy for 2 to 8 hours depending on the
application. The lifespan of flow-type batteries is not significantly impacted by cycling.
Suppliers of vanadium redox systems estimate the lifespan of cell stacks to be 15 or more years.
Figure 4 Flow Batteries
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(Source:Construction21.eu)
Lithium-Ton (Li-ion)
Rechargeable Li-ion batteries are commonly found in consumer electronic products, which
make up most of the worldwide production volume of 10 to 12 GWh per year. A mature
technology for consumer electronic applications, Li-ion is positioned as the leading platform for
plug-in hybrid electric vehicle (PHEV) and electric vehicles (EV).
Given their attractive cycle life and compact nature, in addition to high efficiency ranging from
85%-90%, Li-ion batteries are being considered for utility grid-support applications such as
distributed energy storage, transportable systems for grid-support, commercial end-user
energy management, home back-up energy management systems, frequency regulation, and
wind and photovoltaic smoothing.
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Figure 5 Lithium Ion Battery
(Source: Clean Technica)
Flywheels
Flywheels are shorter energy duration systems that are not generally attractive for large-scale
grid support applications that require many kilowatt-hours or megawatt-hours of energy
storage. They operate by storing kinetic energy in a spinning rotor made of advanced high-
strength materials, charged and discharged through a generator.
Flywheels charge by drawing off-peak electricity from the grid to increase rotational speed, and
discharge when demand is high by generating electricity as the wheel rotation slows. Flywheels
enjoy a very fast response time of 4 milliseconds or less, can be sized between 100 kW and
1650 kW and may be used for short durations of up to 1 hour. Flywheels possess very high
efficiencies of about 93% with a lifetime estimated at 20 years.
Because flywheel systems are quick to respond and very efficient, they are being positioned to
provide frequency regulation services. Flywheels are currently being tested to provide ISOs
with frequency-regulation services in the northeast.
While there are several installed flywheel applications, their long-term life and performance
characteristics are still uncertain, particularly at a utility scale. Like other technologies,
flywheels need to mature for grid-scale applications but would be a viable technology for
smaller, customer sited applications. Flywheels are still costly and have not yet been fully
vetted at a distribution scale.
Page 18
Figure 6 Flywheels
(Source:Beacon Power)
Energy Storage Assessment-IRP Analysis
Energy Storage Systems
Lithium ion battery energy storage systems (BESS) were included as a possible future resource
to provide flexible capacity, reduce solar over-generation, and replace the capacity provided by
MGS when the PPA expires in 2028. The capital costs for BESS are typically broken down into
two main components:
• Power Component (MW)— Represents the cost of the non-storage parts of the battery
including interconnection, EPC, installation, and balance of plant (BOP). A 20-year book
life was assumed.
• Energy Component (MWh) — Represents the cost of the lithium-ion energy storage
component of the plant. Assumptions for this component include a 10-year book life
before full degradation, battery cells are replaced after 10 years and the cost of
replacement is included in the energy component.
Page 19
Figure shows the energy component levelized cost of a Li-Ion BESS assuming a 20-year life
including battery cell replacement after 10 years. Between 2018 and 2030 BESS costs are
expected to decrease by almost 50%.
Figure 7:BESS Energy Component Levelized Cost
$80
$70
$60
$50
v�► $40
0
$30
$20
$10
$0
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
Battery Storage-Levelized Energy Cost $/kwh
Source: CPUC IRP— Sept 2017
The projected future cost of BESS is uncertain, therefore, VPU used a conservative estimate of
future BESS cost declines. Efforts to electrify the transportation sector will have a significant
bearing on how fast BESS technology costs decline over the long term. The demand for Li-ION is
much greater in the transportation sector compared to the electric sector. Higher adoption
rates of electric vehicles would likely lead to lower cost for stationary storage technology. The
cost assumptions for energy storage technology will be reviewed in future IRP updates.
Utility-scale energy storage in the form of a BESS can provide many system benefits including
energy arbitrage, RA, reduction of solar over-generation, as well as providing ancillary services.
The IRP analysis shows how the cost of battery storage is not feasible until 2023. VPU
performed a sensitivity analysis on the cost of energy storage, which is discussed in the risk
analysis section.
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Risk Analysis
The resource technology that appears to be the best solution today may not be the most viable
option ten years from now. Before solar PV gained market share as the dominant solar
technology, solar thermal appeared to be the best technology. As much as the cost of solar
technology has decreased in the past several years, the recent development of bi-facial (two-
sided) solar panels could result in even further costs declines. Similarly, lithium ion (Li-ION)
based battery technology appears to be the dominant energy storage resource, but a
competing technology such as flow batteries may experience a manufacturing breakthrough
and overtake Li-ION in the future.
To mitigate the technology risk VPU intends to avoid, if possible, being the early adopter of new
technologies until they become commercially proven and costs stabilizes. As such, the IRP
recommends a gradual phasing in of energy storage beginning in 2023. Energy storage could be
in the form of behind-the-meter or in front of the meter. Should another energy storage
technology experience breakthrough in costs, VPU will still have the flexibility to evaluate other
energy storage resources in addition to Li-ION.
Battery Storage Sensitivity
The projected future cost of energy storage is a major uncertainty that can have a large impact
on future resource decisions. Reaching the 100% carbon-free goal by 2045 may require
replacement of existing natural gas-fired resources with energy storage technology. VPU will
be faced with such a resource decision when the existing MGS PPA expires in 2028. Energy
storage sited locally could be a direct replacement for MGS if energy storage cost decrease at a
rate faster than expected. The base case levelized cost of energy (LCOE) for the energy
component (storage) of a battery was $38/kWh in 2030. To test the risk associated with
acquiring battery storage, VPU completed a sensitivity analysis that varied the cost of battery
storage. The assumptions used in the energy storage cost sensitivity analysis are listed below:
Battery Energy Storage Assumptions
• 100 MW
• 85% Efficiency
• 100% Depth of Discharge(DOD)/100% State of Charge (SOC)
• Operate daily for 4 hours a day for 350 days/year
• 2030 Levelized Cost of Power =$28/kW
• 2030 Levelized Cost of Energy =$38/kWh
• Low Sensitivity - 2030 Levelized Cost of Power =$17/kW
• Low Sensitivity— 2030 Levelized Cost of Energy =$16/kWh
• 140,000 MWh annual generation
• Charging cost is equal to LCOE of solar
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Natural Gas Turbine Assumptions
• 100 M W
• 2030 Levelized capital cost Existing Natural Gas Plant = $88/kW-yr
• 2030 Levelized capital cost New Natural Gas Plant = $197/kW-yr
• Heat Rate 10,000 Btu/kWh
• Variable O&M $3.65/MWh
• Operate daily for 4 hours a day for 350 days/year
• 2030 Natural Gas Prices = $4.28/MMBtu
• 2030 GHG Price = $39/metric ton
• 140,000 MWh annual generation
Under a low energy storage cost sensitivity, the all-in-cost of energy storage appears to be cost-
competitive with natural gas-fired generation in future years. The all-in-cost is defined as the
levelized capacity, storage, fuel, variable operating costs divided by the total annual generation.
Figure 8 below shows the economic comparison between energy storage and an existing
natural gas resource.
Figure 8: Low Energy Storage Cost Comparison with Natural Gas
S350
$300
S250
Q
S200
El ::
•
S5o
SO
2018 2022 2026 2030
Existing Gas Turbine —Battery Storage- Base Scenario —•—Battery Storage- Low Scenario
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The cost of operating natural gas-fired generation increases over time due to increasing
capacity, fuel, and emission costs. The cost of energy storage is expected to decline over time
due to decreasing capital costs. The cost of energy storage intersects with the cost of natural
gas-fired generation in 2030 under the low energy storage cost sensitivity case. This high level
sensitivity analysis was performed by VPU to stress test how energy storage costs could impact
resource decisions. Faster declines in battery energy storage technology costs between now
and 2028 could make replacing MGS with energy storage a viable resource option.
Conclusion
VPU staff performed an evaluation of the cost and associated benefit of energy storage in its
IRP. Over ten or twenty years of storage actual life, the costs of utility-owned and operated
energy storage technologies exceed the value of the benefits, and hence, do not provide cost-
effective, viable opportunities for VPU. More specifically, VPU staff endorses the approach that
currently there is no reasonable justification to procure energy storage systems.
Nevertheless, VPU will continue to perform its due diligence in the analysis of energy storage
systems as they continue to move from research and development realm to the production
realm, and as the potential benefits of these systems begin to clearly outweigh the costs and
become feasible to utility operations. VPU will also seek opportunities to establish strategic
partnerships with customers and developers to advance energy storage opportunities for the
City. VPU will consider to participate in pilot programs such as working with local technology
providers to install energy storage solutions in utility premises.
It is the belief of the VPU staff that in the long term, energy storage is expected to have an
impactful role in the overarching electric power system. Staff will monitor energy storage
systems and evaluate its cost effectiveness and feasibility to the utilities operations. To meet
the City's obligation under AB 2514 while adhering to VPU's IRP, staff proposes that energy
storage procurement targets are not adopted by virtue that energy storage is not cost-effective,
and therefore inappropriate for the City at this time.
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