HomeMy WebLinkAbout2004-11-08 City Council (9)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:
SUBJECT:
NOVEMBER 8, 2004 CMR:424:04
ADOPTION OF A RESOLUTION OF THE COUNCIL OF THE
CITY OF PALO ALTO APPROVING THE LONG-TERM POWER
PURCHASE AGREEMENT (WIND POWER) WITH PPM ENERGY,
INC. FOR THE PURCHASE OF ELECTRICITY GENERATED BY
A WIND ELECTRIC GENERATING FACILITY FOR A TERM OF
23 YEARS AND SEVEN MONTHS AND A CONTRACT AMOUNT
OF $78.4 MILLION
RECOMMENDATION
Staff recommends Council adopt the attached Resolution approving a Long-Terln Power
Purchase Agreement ("contract") with PPM Energy, Inc. ("PPM") for a 20 MW share of
the 162 MW rated capacity of the High Winds wind generating facility located in Solano
County, California for atema of 23 years, 7 naonths, and an estimated total cost of $78.4
million ($3.33 million per year). The Resolution authorizes the City Manager tO sign the,
contract on behalf of the City.
BACKGROUND
On October 2!, 2002, the City Council approved the Long-Term Electric Acquisition
Plan ("LEAP") Guidelines (CMR:398:02). The Finance Conmaittee reviewed the
implementation parameters of LEAP Guideline #6: Renewable Portfolio Investments on
October 1, 2002, reconamending renewable energy targets of 10% of the City’s annual
electric load by 2008 and 20% by 2015, and within the system average rate impact limit
of ½ C/kWh. The Finance Conmaittee recommendation was approved by Council as part
CMR:424:04 Page 1 of 5
of the overall LEAP Guidelines. On August 4, 2003, Council approved the LEAP
Inaplementation Plan (CMR:354:03), Task #1 of which is to acquire renewable energy
resources to lneet LEAP Guideline #6.
On January 14, 2004, staff presented the Utilities Renewable Energy Supply
Implementation Plan (the Plan) to the Utilities Advisory Commission (UAC). The UAC
report, presentation and surrounding discussion SUlnn’tary 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 development opportunities for
the longer term (2009-2015) to meet the 20% renewable investmem goal by 2015.
Resources being pursued for the near term are 15-30 MW of wh~d energy from Solano
County with deliveries beginning in 2005, 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 late 2005 to 2007. The proposed projects were selected by means of the NCPA
Renewable Energy RFP, described in detail in the previous staff reports.
Staff provided a progress repoi-t 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 recomlnending that Council adopt a Resolution authorizing the Mayor to execute
the contract with PPM for a 20 MW share of the 162 MW rated capacity of the High
Winds wind generating facility located in Solano County, California for a terln of 23
years and 7 months, at an estilnated total cost of $78.4 million ($3.33 million per year).
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, representing the
first step in implementing Tier 1 of the Renewable Energy Supply hnplementation Plan.
The contract was developed in cooperation with NCPA and Alameda Power & Telecom
("APT"). APT is also purchasing a share of the High Winds energy (a 10 MW share).
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
CMR:424:04 Page 2 of 5
being completed for additional renewable energy resources, and staff expects to bring the
resulting contracts to Council for approval as they are completed.
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 contract are as follows:
Term: 23 years, 7 months, with deliveries beginning December 2004 and
continuing through June 2028.
Quanti _ty: 20 MW share of the 162 MW rated capacity of the High Winds facility.
(12.35%). CPAU’s share of.the expected animal output is 58,000 MWh, or
approximately 6% of Palo Alto’s annual electric retail load. The contract includes
a right to purchase the output from additions to the facility at a price set at the
time, subject to Council approval.
Product: Day-ahead hourly firm, which lneans that PPM will guarantee each day
the hourly output for the following day. This day-ahead finning provides the
ability to allocate other supply resources cost-effectively. The contract includes an
option to change to a product that is only guaranteed one hour ahead (hour-ahead
firm), which CPAU may choose to use if other resources such as Calaveras could
be used as a firming resource instead, with a price reduction of $2iMWh.
Price: $57.60/MWh, for a total contract amount of $78.4 million ($3.3 million per
year) based on estimated generation.
Credit: PPM is backed by Pacificorp Holdings, Inc. (PHI), who is providing a
corporate guarantee. PHI is cmTently rated A- (stable outlook) by Standard and
Poor’s, and is owned by Scottish Power. The contract includes provisions to
provide collateral if needed in order to maintain adequate credit status during the
course of the contract term.
Off-Ramps: Eitherl party may terminate the contract if the other pal~:y does not
meet its obligations under the contract, which include performance, payment, and
adequate credit status. Should the contract be terminated due to default, any
damages, that may be incurred such as wind energy replacement cost are only due
to the non-defaulting party.
Other customers of the High Winds facility include the Sacramento Municipal Utility
District, the cities of Pasadena, Colton, Glendale, Anah.eim, Azusa, and the Modesto
Irrigation District.
CMR:424:04 Page 3 of 5
RESOURCE IMPACT
The estimated $3.33 million animal cost is included in the cm~’ent year’s budget, and will
be included in furore budget year proposals. Annual costs 1Tlay fluctuate due to
unpredictable nature of wind availability, but are expected to be within 5% of the
estimated cost.
The 23.6-year fixed, price of $57.60/MWh is about $5/MWh above the cun’ent fo~wvard
.price for base load electricity for the next four years, meaning that there could be a fairly
modest short-term rate premium of approximately 0.03C/kWh. Electricity prices more
than ten years in the furore range from $65-75/MWh: at a market price of $70/MWh,
long-tema rates would be lower by approximately 0.07C/kWh relative to buying the same
quantity of energy from the electric market. The levelized long-term rate impact is
negligible, approximately 0.008 C/kWh favoi’able, based on a first year market price of
$48.00/MWh increasing at 2.5% per year. The contract facilitates meeting the Renewable
Energy Supply Implementation Plan goals with a rate impact well below the ½C/kWh
limit recomlnended 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 Pato
Alto"s resources.
LEAP Guideline #6: Renewable Portfolio Investments: The City shall continue to
offer a renewable resource-based retail rate for all custolners who want to
voluntarily select an increased content of renewable energy. In addition to the
voluntal-y 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
10% of the expected portfolio load by 2008 and move to a 20% target by 2015,
contingent on economic viability. The contracts for investment in renewable
resources are not to exceed 30 years in term.
CMR:424:04 Page 4 of 5
hnplementing 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 elelnents of the Comprehensive Plan,
specifically:
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: Maimain 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 .for the purposes
California Environmental Quality Act (CEQA).
ATTACHMENTS
of the
A:Resolution approving the long-term power purchase agreement (wind power) with
PPM Energy, Inc. for the purchase of electrical power.
B:Long-term power purchase agreement (wind power) made between PPM Energy, Inc.,
as Seller and the City of Palo Alto, as Purchaser. Attachment B is included as an
attachment in Council member packets and available for review by the public in the
City Clerk’s Office.
-KARL E. KNXISP ,’ ,
Senior Resource Plam~er
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
of Utilities
ttARRISON
Assistant City Manager
CMR:424:04 Page 5 of 5
YET APPROVED
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO APPROVING THE LONG-TERH POWER PURCHASE
AGREEHENT (WIND POWER) WITH PPH ENERGY, INC. FOR
THE PURCHASE OF ELECTRICITY GENERATED BY A WIND
ELECTRIC GENERATING FACILITY
WHEREAS, the City of Pa!o 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 load 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, PPH Energy, Inc. was selected through a
competitive solicitation process, to provide renewable power
generated by the "High Winds" wind electric generating facility
owned and operated by FPL Energy, L.L.C., a subsidiary of the FPL
Group, Inc.;
NOW, THEREFORE, the Council of the City of Palo Alto
" hereby RESOLVE as f’ollows: .
SECTION 1. The Council hereby approves the City’s
execution of the Long-Term Power Purchase Agreement (Wind Power)
made between PPH Energy, Inc., as Seller, and the City of Pa!o
Alto, as Purchaser. The term of the contract shall be 23 years
and 7 months, commencing as of December 1, 2004. The delivery of
electricity will begin December 1, 2004 and continue through June
30, 2028. Quantity shall consist of a 20 HW share of the 162 HW
rated capacity (12.35%) of the High Winds wind electric
generating facility. Spending authority under the contract shall
be seventy-eight million, four hundred thousand dollars
($78,400,000). The City Hanager or his designee is hereby
authorized to sign the contract with PPH Energy, Inc. on behalf
of the City.
O~’IO1S cl 0072441
~NOT YET APPROVED*~
SECTION 2. The Council finds that the adoption of this
resolution does not constitute a project under the California
Environmental Quality Act and no environmental assessment is
required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Hayor
APPROVED:
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of Administrative
Services
Director of Utilities
041018 cl 0072441 2