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The Case for Energy Efficiency:
Pioneers in the City of San Jose

The City of San Jose, located at the southern tip of San Francisco Bay with a population of 782,000, has long been a pioneer in promoting the more efficient use of electricity. With approximately 1,200 electricity accounts serving buildings, pumping stations, traffic signals, and streetlights, San Jose's municipal electricity budget represents an annual $10.6 million expenditure. Half of this budget comes from the general fund. The balance is paid from various enterprise funds. Only 13 of the City's 1,200 accountsthe civic center, the convention center, and airport among themare considered large; 300 are medium accounts; the remainder are small accounts.

Challenge:

To continue to find creative ways to reduce electricity consumption through energy efficiency upgrades in the new era of electricity deregulation, while also pursuing energy strategies that shop for electricity products and services tailored to the distinct needs of the municipal government and/or its constituents.

Implementation Strategy:

The City of San Jose engaged in a lengthy review of restructuring issues and local power purchasing options in 1996 and 1997. A $75,000 grant was received from Public Technology Inc. and the U.S. Department of Energy to develop a comprehensive approach to the new challenges associated with electricity restructuring. The City is now implementing its new energy strategy based on the following goals:

• Minimize electric utility expenditures;
• Increase energy efficiency in facility operations;
• Gain experience in procuring competitively priced electricity services;
• Obtain value-added services such as electrical metering and billing;
• Establish relations with potential electricity providers to ensure the ability to collect utility user taxes and fees;
• Explore the potential for developing renewable energy resources; and
• Develop technical expertise to assist residential and business consumers in obtaining quality services in the new marketplace.

San Jose has had considerable success in reducing its electricity costs in the past (see below) through an aggressive energy efficiency package of services managed by its incumbent investor-owned utility, Pacific Gas & Electric. Supported by $55,000 in rebates from PG&E, the City replaced lamps and ballasts with more energy-efficient equipment as part of the utility's "power savings partners" program. The City now saves $200,000 annually under this program.

The City has also moved on its own to become more energy independent by installing two cogeneration power plants at its convention center and water quality control facilities which generate another $1.5 million in annual energy savings.

San Jose moved quickly in response to restructuring, issuing a Request For Proposals (RFP) for new power supplies in August 1997. The RFP requested bids for San Jose's municipal facilities alone, as well as for the combined requirements of the City, Santa Clara County, the Valley Transportation Authority and the Santa Clara Valley Water District. RFPs were mailed to 102 firms; eight proposals were submitted.

Results To Date:

San Jose chose New Energy Ventures to provide electricity for the City's thirteen largest municipal accounts only. New Energy Ventures offered a guaranteed 5% savings off the indexed market price for power and the opportunity to share the difference between the going market rate and New Energy Ventures' own cost for purchasing wholesale electric power. Total annual savings from the contract are estimated at $75,000 to $240,000.

Lessons Learned:

The accompanying bar chart clearly demonstrates the case for energy efficiency. The savings from purchasing power on the open market will be minimal until 2002, when prices are expected to drop dramatically because a temporary Competition Transition Charge to pay all of the old debts for existing power plants will then be paid off.

In contrast, San Jose's past investments in energy efficiency still yield annual savings of over $4.5 million. During the current transition to a fully competitive market, local governments should investigate energy efficiency opportunities, since they lower bills regardless of future sources of supply.

San Jose has teamed up with the City of Santa Monica, the City of Irvine, the Local Government Commission and the Residential Energy Efficiency Clearinghouse to create the Community Energy Alliance in order to access ratepayer funding now available to local governments from the California Board for Energy Efficiency (CBEE). Among the activities proposed for the Community Energy Alliance are consumer outreach activities to educate constituents about the CBEE funding program and to identify energy efficiency needs within each jurisdiction.

The Alliance also plans to develop new local building codes and guidelines for new construction projects; encourage the use of distributed generation technologies, energy efficiency and renewable energy technology demonstration projects; facilitate aggregation of constituents wishing to purchase clean, renewable energy; and work with local nonprofit organizations to reduce electricity bills of small commercial, residential and low-income constituents.

For More Information:

City of San Jose
Rita Norton
777 N. 1st St., Suite 450, San Jose, CA 95112
(408) 277-3861 • FAX (408) 277-3606
e-mail: rita.norton@ci.sj.ca.us

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