HomeMy WebLinkAbout2004-11-08 City Council (2)City of Palo Alto
C ty Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:
SUBJECT:
NOVEMBER 8, 2004 CMR:461:04
ADOPTION OF A RESOLUTION OF THE COUNCIL OF THE
CITY OF PALO ALTO APPROVING THE LONG-TERM POWER
PURCHASE AGREEMENTS (LANDFILL GAS POWER) WITH
AMERESCO SANTA CRUZ ENERGY,L.L.C.FOR THE
PURCHASE OF ELECTRICITY GENERATED BY LANDFILL GAS
ELECTRIC GENERATING FACILITIES FOR A TERM OF 20
YEARS ANDCONTRACT AMOUNT OF $13.9 MILLION
RECOMMENDATION
Staff recommends Council adopt the attached Resolution approving a Long-Tema Power
Purchase Agreement with Ameresco Santa Cruz Energy, LLC. for a 50% share oft.he 3.2
MW (gross) capacity of the Santa Cruz landfill generating facility located in Watsonville,
California.
¯The term of the agreement is 20 years.
¯The total contract amomat is $13.9 million.
¯The Resolution authorizes the City Manager to sign the agreement on behalf of the
City.
¯ " Under the resolution, the Council waives the choice of venue and creditworthiness
terms and conditions requirements of Palo Alto Municipal Code Section
2.30.340(c) as they may apply to the award of contract to Ameresco.
BACKGROUND
On October 21, 2002, the City Council approved the Long-Tema Electric Acquisition
Plan (LEAP) Guidelines (CMR:398:02). On October 1, 2002, the Finance Comlnittee
reviewed the ilnplementation parameters of LEAP Guideline #6: Renewable Portfolio
Investmelats and recommended renewable energy targets of ten percent of the City’s
annual electric load by 2008 and twenty percent by 2015, and within the system average
CMR:461:04 Page 1 of 5
rate impact limit of ½ C/kWh. The Finance Committee reconm~endation was approved by
Council as part of the overall LEAP Guidelines. On August 4, 2003, Council approved
the LEAP Implementation Plan (CMR:354:03), Task #1 of which is to acquire renewable
energy resources to meet LEAP Guideline 6.
On January 14, 2004, staff presented the Utilities Renewable Energy Supply
Implementation Plan (Plan) to the Utilities Advisory Commission (UAC). The UAC
report, presentation and sm~rounding discussion sulmnary were provided to Council as
information on March 1, 2004 (CMR:168:04). The Plan has two tiers: (1) power
purchase agreements (PPAs) for the near term (2005-2008) to meet the 10% renewable
investment target by 2008, and (2) exploring new resource developmem opportunities for
the longer term (2009-2015) to meet the twenty percent renewable investmem goal by
2015. Resources being pursued for the near term are 20 MW of wind energy from
Solano County with deliveries begim~ing in December 2004 (CMR:425:04);~ and 3-10
MW of electricity from landfill gas from various locations in and around the Bay Area,
with deliveries expected to ramp up from 2006 to 2007. The proposed projects were
selected by means of the NCPA Renewable Energy RFP, described in detail in the
previous staff reports. On March 15,’2004, (CMR:174:04) Council approved Second
Phase and Third Phase Member Agreements with NCPA to facilitate completing
renewable energy supply contracts with three vendors. The contract is the result of those
efforts, implementing Tier 1 of the Renewable Energy Supply Implementation Plan.
Staff provided a progress report to Council in August 2004 (CMR: 370:04), which
included a UAC Report from July 2004 that describes the basic tenets of the renewable
energy contracts.
DISCUSSION
Staff is recon~naending that Council adopt a Resolution approving the Long:Tenn Power
Purchase Agreement with Ameresco Santa Cruz Energy, LLC. for a 50% share of the 3.2
MW (gross) capacity of the Santa Cruz landfill generating facility located in Watsonville,
California. The teru~ of the agreement is 20 years. The total contact alnount is $13.9
million.
The contract was developed in cooperation with NCPA and Alameda Power & Telecom
(APT). APT is purchasing the remaining 50% share of the output from the facility. NCPA
will serve as the scheduling coordinator, managing the day-to-day balancing activities
within the NCPA pool; verifying deliveries, monitoring supplier compliance with
contractual obligations, and managing invoicing and payment. Negotiations are being
completed for pgtential additional renewable energy resources, and staff expects to bring
the resulting contracts to Council for approval to meet these goals as they are completed.
CMR:461:04 Page 2 of 5
A copy of the contract is attached for Council and available, to the public on file with the
City Clerk. The key terms of the comract are as follows:
Tei~n: 20 years, with deliveries cormnencing when construction is completed and
the facility is operational. The Santa Cruz facility is expected to be operational in
June 2007.
Ouanti _ty: 50% of the output fronl the facility. Santa Crtlz has a gross capacity of
3.2 MW, (2.9 MW net), with expected anmlal generation of 23,626 MWh (11,813
MWH to Palo Alto, approximately one percent of the City’s annual load). The
contract includes a right to purchase the output from additions to the facility at a
price determined at the time that additions are proposed, and the option for Palo
Alto and Alameda to assign one’s share of the contract to the other. Any such
amendments would be subject to Council approval.
Product: Electric generation from landfill gas (LFG) operates around the clock,
except for scheduled and unplanned equipment outages. NCPA will serve as
schedulh~g coordinator for the facility.
Price: $51.00/MWh in the first year, escalating at 1.5% per year, for a total
contract amount of $13,930,989., based on estilnated generation. The price in year
20 is $67.67/MWh.
Credit: Ameresco, Inc. is a small company relative to the large investmem-grade
energy companies and does not have a credit rating fromMoody’s or Standard and
Poor’s. Energy deliveries are tied to a specific generator and specific location, as
opposed to market contracts whose deliveries are often backed by financial
strength or collateral rather than a physical asset. The contract includes minimum
equipment availability requirements, and provisions to allow Palo Alto or
Alameda to operate the facility should the .facil!ty stop operating. Staff
reconm~ends that Council waive the investment-grade credit rating requirement
otherwise applicable to electric power contracts.
Off-Ramps: Either party may terminate the contract if the other party does not
meet its obligations under the contract, which include perfomaance, payment, and
meeting permitting, construction, and operation date milestones. The contract
includes penalty payments for late completion of the project. Should the contract
be terminated due to default, any damages, such as LFG energy replacement cost,
that may be inculTed are only due to the non-defaulting party. Venue for dispute
resolution is the County of San Francisco instead of Santa Clara County due to the
joint purchase with APT.
CMR:461:04 Page 3 of 5
Other customers of Ameresco, Inc. include BMW (South Carolina), Chicopee Electric
Light (Massachusetts), and the Southern California Public Power Association (SCPPA).
RESOURCE IMPACT
The estimated amaual cost is $600,000 in the first year, rising to $800,000 in year 20.
These costs .have been factored into long-term budget projections, and will be included in
future budget year proposals. A~mual costs may fluctuate slightly due to the as-delivered
nature of a generator-specific purchase, but is expected to be within 5% of the estimated
cost.
The 20-year price schedule is $51.00 escalating at 1.5% per year, which is roughly
equivalent to "the current projected prices for base load electricity, meaning that there is
essentially no rate premium above market prices. The contract facilitates meeting the
Renewable Energy Supply Implementation Plan goals within the ½C/kWh limit
reconmaended by the Finance Committee and approved by Council.
POLICY IMPLICATIONS
The proposed contract is a key element of the Utilities Renewable Energy Supply
Implementation Plan (CMR:168:04), and supports the Council-approved Utilities
Strategic Plan (CMR 432:02) and Utilities Strategic Implementation Plan (CMR:223:01).
Renewable energy supplies are required to meet the targets established by Council in
LEAP Guideline #6 (Renewable Portfolio Investments) and also support LEAP Guideline
#2 (Hydro Risk Management) and #3 (Market Risk Management) by diversifying Palo
Alto’ s resources.
LEAP Guideline #6: Renewable Portfolio. Investments: The City shall conti~ue to
offer a renewable resource,based retail rate for all customers who want to
voluntarily Select an increased content of renewable energy. In addition to the
voluntary program, the City shall invest in new renewable resources to meet the
City’s sustainability goals while ensuring that the retail rate impact does not
exceed 0.5C/kWh on average. Pursue a target level of new renewable purchases of
ten percent of the expected portfolio load by 2008 and move to a twenty percent
target by 2015, conthagent, on economic viability. The contracts for investment in
renewable resources are not to exceed 30 years in term.
Implementing LEAP Renewable Portfolio Investments also supports City’s Sustainability
Policy Statement, adopted April 2, 2001 (CMR 175:01), the Green Government Pledge,
adopted July 19, 1999 (CMR 284:99) and elements of.the Comprehensive Plan,
specifically:
CMR:2~61:04 Page 4 of 5
1.GOAL N-9: A clean, efficient, competitively-priced energy supply that makes use
of cost-effective renewable resources, and Policies
2.POLICY N-44: Maintain Palo Alto’s long-term supply of electricity and natural
gas while addressing environmental and economic concerns.
3. POLICY N-48: Encourage the appropriate use of alternative energy teclmologies.
ENVIRONMENTAL REVIEW
Execution of the Agreement does not constitute a project
California Environmental Quality Act (CEQA).
for the purposes of the
,ATTACHMENTS
A:Resolution approving a contract with Ameresco Santa Cruz Energy, LLC to purchase
electricity generated by landfill gas from the Santa Cruz Landfill generating facility.
B:Long-term power purchase agreement (landfill gas electric power) made between the
City of Palo Alto, as Purchaser and Ameresco Santa Cruz Energy LLC. Attachment
is included as an attaclmaent in Council member paCkets and available for review by
the public in the City Clerk’s Office.
PREPARED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
KARL E. KNAPP
Senior Resource
of Utilities
HARRISON
Assistant City Manager
CMR:461:04 Page 5 of 5
***NOT YET APPROVED***
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PAL0
ALTO APPROVING THE LONG-TERM POWER PURCHASE
AGREEMENT (LANDFILL GAS POWER)WITH AMERESCO
SANTA CRUZ ENERGY,L.L.C. FOR THE PURCHASE OF
ELECTRICITY GENERATED BY LANDFILL GAS ELECTRIC
GENERATING FACILITIES
WHEREAS, the City of Palo Alto ("City"), a municipal
utility and a chartered city, is a member of the Northern
California Power Agency ("NCPA");
WHEREAS, on October 21, 2002, the City approved seven
electric portfolio planning and management guidelines to guide
the development and management of the City’s long-term
electricity acquisition plan; one of the guidelines is to pursue
target levels of new renewable energy purchases equal to ten
percent and twenty percent of the City’s expected energy ~oad by
2008 and 2015, respectively;
WHEREAS, the City is interested in purchasing power
generation from renewable resources for the benefit of its
electric customers;
WHEREAS, by purchasing these sources of renewable
energy, the City will help reduce the production of greenhouse
gases and assist in reducing volatile organic compound
emissions;
WHEREAS, Ameresco Santa Cruz Energy, L.L.C. was selected
through a competitive solicitation process, to provide renewable
power generated by the proposed Santa Cruz Landfill electric
generating facility;
NOW, THEREFORE, the Council of the City of Palo Alto
does RESOLVE as follows:
SECTION i. The Council hereby approves the City’s
execution of the Long-Term Power Purchase Agreement (Landfill
Gas Power) made between Ameresco Santa Cruz Energy, L.L.C., as
Seller, and the City of Palo Alto, as Purchaser. The term of
the contract shall be 20 years, commencing on the Commercial
Operation Date of the proposed generation facility. The
quantity shall consist of a fifty percent share of the design
gross 3.2 MW gross capacity plant output. The maximum spending
authority under the contract shall be thirteen million, nine
hundred thousand dollars ($13,900,000). The City Manager or his
041025 cl 0072460 1
***NOT YET APPROVED***
designee is hereby authorized to sign the contract with Ameresco
Santa Cruz Energy, L.L.C. on behalf of the City.
SECTION 2. With respect to the Council’s award of the
Long-Term Power Purchase Agrsement referred to in Section 1
above, the Council hereby waives the choice of venue and
creditworthiness terms and conditions requirements of Palo Alto
Municipal Code section 2.30.340(c).
SECTION 3. The Council finds that this is not a project
under the California Environmental Qu&lity Act and, therefore,
no environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
041025 cl 0072460 2