Desalination Task Force Memorandum
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DESALINATION TASK FORCE MEMORANDUM TO: DESALINATION TASK FORCE FROM: PROGRAM MANAGERS SUBJECT: ENERGY STUDY STATUS REPORT, PROJECT ASSESSMENT REVIEW, AND DISCUSSION ON PROJECT EVALUATION, SCORING AND RANKING METHODOLOGY DATE: OCTOBER 19, 2011 RECOMMENDATION: That the scwd2 Desalination Task Force receive the sixth Energy Study status report and schedule, provide feedback on the attached 16 draft Project Assessments (dPAs), receive an update on the October 13, 2011 Energy Study Technical Working Group (ETWG) Workshop, and provide feedback on the scoring, ranking and selection methodologies being described below and in the attached document(s). BACKGROUND: This memorandum serves as the sixth status report and will update the Task Force on work progress with regard to the Energy Minimization and Greenhouse Gas Reduction Study (Energy Study). With guidance from members of the ETWG and additional local energy experts, the Energy Study work to date has focused on establishing the potential energy use of the facility, further understanding the CEQA and regulatory framework used to evaluate that energy use, and vetting potential projects that could be implemented to reduce energy and indirect GHG impacts of the project. Sixteen projects (which can be generally categorized as water and energy efficiency projects, renewable energy projects, and/or GHG reduction projects) were recommended for in-depth evaluation by the ETWG. (For simplicity, the 16 projects will be collectively referred to as GHG reduction projects for the remainder of the document.) The dPAs provide a framework for understanding the project efficiency, and relative economic and social costs. These factors may ultimately be used to assemble cost effective and community-valued GHG reduction project portfolios, the foundation of the Energy Minimization and GHG Reduction Plan. At its September meeting, the Task Force was given an introduction to the dPAs to provide context to their content and layout as well as a sample dPA. Task Force members were informed about the second ETWG Workshop, scheduled to take place on October 13, 2011. Task Force members reiterated the importance of continued engagement with the ETWG, requesting again that the ETWG provide feedback on the dPAs and proposed project scoring, ranking and sensitivity analysis. DISCUSSION: Energy Study Schedule and Work Flow As mentioned in previous status reports, the Energy Study is being developed in stages. An outline of the tasks involved and their status is presented below. 1. Define the potential energy use and associated indirect GHGs of the desalination facility. Complete. 11 2. Identify a range of potential GHG reduction goals for future consideration. Ongoing with no noteworthy update at this time. 3. Identify and assess potential GHG reduction projects. See Item 4. 4. Score and rank the projects according to the evaluation criteria and sensitivity analysis. Ongoing. Objectives of the October ETWG Workshop include receiving ETWG feedback on the dPAs, and to identify, discuss and recommend a methodology by which projects can be ultimately selected by each agency. 5. Recommend a portfolio of projects to meet a range of potential goals for each agency. Not yet started. Energy Study work remains on schedule and generally follows the timeline below. Item Corresponding Participants Approximate Task No. Date Identify CEQA threshold of 2 EIR consultant Late October significance Sept. 21st – Oct. TF and ETWG review of 16 dPAs 3 TF, ETWG 19th ETWG meet to review dPAs and Staff, Kennedy/Jenks develop methodology for project 4 October 13th (K/J), ETWG evaluation and selection Review TF comments on dPAs and TF, Staff, K/J, October TF 4 present ETWG meeting results ETWG meeting Review GHG reduction project selection results, review feasible project portfolios to meet range of TF, Staff, K/J, November TF 4 GHG reduction goals, discuss draft ETWG meeting Energy Minimization and GHG Reduction Plan content and structure Prepare the draft Energy Mid Nov. – Mid Minimization and GHG Reduction 5 Staff, K/J Dec. Plan Energy Community Informational Staff, K/J, ETWG, N/A December Meeting community Discuss Community Informational Meeting, discuss noteworthy comments and considerations, December TF 5 TF, Staff incorporate comments into draft meeting Energy Minimization and GHG Reduction plan ETWG review the draft Energy Minimization and GHG Reduction 5 Staff, K/J, ETWG January Plan Present the draft Energy Minimization TF, Staff, K/J, February TF and GHG Reduction Plan to the scwd2 5 ETWG meeting Task Force 12 Previously Approved Project Evaluation Criteria, Scoring, Ranking and Sensitivity Analysis Over the last several months, staff and K/J have developed a comprehensive process for evaluating, scoring and ranking the potential GHG reduction projects. The goal of the process is to provide a framework to assess the attributes of each project as well as to identify the methodology for selecting project(s) that best suit the community. At its June and July meetings, the Task Force preliminarily approved the evaluation criteria, weightings and sensitivity analyses as follows but did request that additional feedback be received by the ETWG during the continued development of the Energy Study. Approved Evaluation Criteria, Weighting and Sensitivity Analysis Proposed Sensitivity Analyses TF Recommended Evaluation Criteria Weighting Cost- Local- Weighting Other Range Focused Focused Local Benefit 15 to 20% 20% 10% 50% 20% Energy Produced or 10 to 15% 10% 5% 10% 15% GHG Reduced Technical Maturity 15 to 25% 10% 5% 10% 15% Sustainability* 10 to 15% 5% 2.5% 2.5% 10% Reliability and Operational 5 to 10% 5% 2.5% 2.5% 5% Complexity Cost/Cost 15 to 50% 50% 75% 25% 35% Effectiveness Total 100% 100% 100% 100% *Sustainability was added as an evaluation criterion at the July TF meeting. This project selection process closely resembles the method used for narrowing down alternatives in other components of the scwd2 desalination programmatic evaluation. The sequencing of the methodology is outlined below. 1. Establish project evaluation criteria. 2. Establish an evaluation criteria weighting. 3. Evaluate and define each project in relation to each evaluation criterion. 4. Score each project with respect to each evaluation criterion. 5. Perform a sensitivity analysis on evaluation criteria weightings to determine the effect of policy considerations on project ranking. Additional sensitivity analyses could be added to attempt to capture additional economic and non-economic policy considerations. 6. Assemble GHG reduction project portfolios based on results of sensitivity analysis. The attached, scwd2 Evaluation Criteria Scoring and Weighting Sensitivity Analysis, provides an overview of this methodology. 13 Alternative Project Selection Methodologies Staff requested preliminary feedback from the ETWG with regard to the methodology outlined above. Several ETWG members identified other methods for project evaluation and selection. A main objective of the October 13, 2011 ETWG Workshop will be to come to a consensus with regard to the most appropriate project evaluation and selection methodology. The distinctions between the current and alternative methodologies are outlined below. Distinction One According to the ETWG members, the primary responsibility of a public agency is to pursue the most cost effective GHG reduction projects to maximize return on investment (ROI). Maximizing ROI should first be done from a purely economic perspective and should follow the basic rule of prudent economic investing; build a diverse portfolio. Synonymous with capital or retirement investing, a diverse GHG reduction project portfolio should be assembled with different types of projects to minimize risk and maximize rate of return, profitability and flexibility. Different economic variables can be used to identify GHG reduction projects that are analogous with: • certificates of deposit (long-term investment, low risk, lower rate of return) • bonds or mutual funds (middle-term investment, medium risk, medium rate of return) • stocks (short term investment, higher risk, potential for quick high rate of return) Once projects are grouped into the three investment categories, a policy consideration with regard to what percentage of each category should make up the portfolio can to be made to maximize ROI and flexibility and minimize risk. This approach differs from the approved project selection methodology in that it maximizes ROI and builds a diverse portfolio before attempting to score and rank the projects. It also differs by identifying additional economic policy considerations in project portfolio selection. The approved approach scores and ranks the projects according to Net Present Value (NPV) only and does not necessarily take into consideration the other economic policy considerations and nuances involved in creating a diverse portfolio. (Or, it may take into consideration these different economic policy considerations, but only after scoring and ranking based on NPV). This new approach identifies the economic policy considerations and nuances first and then ranks and groups the projects with those in mind. Once a thorough economic analysis is done, agencies can then focus on the non-economic policy considerations. This process is described below in greater detail. Distinction Two This new approach separates project evaluation into two stages which are iterative. The first stage, as described in Distinction One, ranks projects through economic considerations.