HomeMy WebLinkAboutStaff Report 3022
City of Palo Alto (ID # 3022)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 7/23/2012
July 23, 2012 Page 1 of 4
(ID # 3022)
Summary Title: 2013 Electricity Capacity Purchase Authorization
Title: Adoption of a Resolution to Authorize the City Manager to Purchase
Electricity Resource Adequacy Capacity Products for Calendar Year 2013 in an
Amount Not to Exceed $2 Million
From: City Manager
Lead Department: Utilities
Recommendation
Staff recommends that the City Council adopt the attached resolution authorizing
the City Manager or his designee to purchase electricity resource adequacy
products from suppliers who meet the City’s credit requirements for wholesale
utility commodity contracts in an amount not to exceed $2 million for calendar
year 2013.
Executive Summary
Since 2008 the California Independent System Operator (CAISO) has allocated
responsibility to utilities such as the City the responsibility for acquiring sufficient
local generation capacity to maintain electric transmission grid reliability. Over
the past five years, the City has been able to procure sufficient capacity to meet
its allocated responsibility through its existing Electric Master Agreements and
purchases from other members of the Northern California Power Agency.
However, staff was unable to procure the full capacity needs for 2013 in a recent
competitive solicitation from these existing suppliers and additional capacity
resources of approximately 25 megawatts (MW) are still needed. The proposed
resolution authorizes the City Manager or his designee to procure capacity from
additional suppliers to increase staff’s ability to competitively procure capacity
while managing costs and risk.
Background
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In July 2002, the Council approved the Metered Subsystem (MSS) Agreement with
the CAISO, which permits the City to receive electric transmission and related
services. The Council also authorized a number of ancillary agreements with
Pacific Gas and Electric Company (PG&E) and the Northern California Power
Agency (NCPA) to facilitate various transmission grid-related services (CMR:
298:02). The MSS Agreement requires the City and other NCPA member
signatories to abide by applicable CAISO tariffs that may be updated and
subsequently approved by the Federal Energy Regulatory Commission (FERC)
from time to time.
Under the terms of the current CAISO tariff, the responsibility for obtaining
sufficient local generation capacity to maintain transmission grid reliability
belongs with Load Serving Entities such as the City. In order to insure the
reliability of the transmission grid, since 2008 the CAISO tariff has required that
the City procure capacity for Local Resource Adequacy (LRA) from generators
located within CAISO-designated “load pockets” (such as the San Francisco Bay
Area, Stockton, or the Greater Fresno area). To comply with the CAISO tariff
requirement, in 2008 Council approved the Electric Utility Resource Adequacy
Program in Resolution 8870 (Attachment C) (CMR: 392:08).
Discussion
Since 2008 the City has been required to own or contract for Local Resource
Adequacy capacity every year in an amount equivalent to about 50% of its
summer peak load from generation resources located in one of seven CAISO-
designated northern California load pockets or risk being allocated the “backstop”
procurement costs incurred by the CAISO to make up a shortfall of capacity
procured by LSEs. For calendar year (CY) 2013, the City’s Local Resource
Adequacy capacity procurement requirement is expected to be approximately 85
MW. Of this total, approximately 18 MW is satisfied through the City’s existing
resources. The cost of procuring sufficient Local Resource Adequacy capacity is
estimated to be $2.4 million for CY 2013, an amount that was incorporated in the
FY 2013 budget and the FY 2014 budget estimate.
In order to avoid the high CAISO backstop procurement costs, and so as not to
cause the CAISO to find either the City or the NCPA MSS to be non-compliant, the
City can currently meet its requirements by: a) purchasing from NCPA members
that have surplus Local Resource Adequacy capacity, under the authority granted
July 23, 2012 Page 3 of 4
(ID # 3022)
under Resolution 8763 (CMR: 404:07); and b) purchasing from the City’s existing
suppliers, with which the City has executed Electric Master Agreements (EMAs),
under the authority granted in Ordinance 4953 (CMR: 224:07).
In the last five years in which the City has been required to procure Local
Resource Adequacy capacity, sufficient resources were procured from other NCPA
members or from the City’s existing suppliers. However, in a recent competitive
solicitation to procure Local Resource Adequacy capacity for CY 2013, staff was
only able to purchase 20 MW from one supplier with whom the City has an
executed Electric Master Agreement. The City expects to be able to procure
approximately 25 MW of additional Local Resource Adequacy capacity from NCPA
members through an NCPA capacity transfer process that will occur in August.
However, this still leaves the City short of its CY 2013 Local Resource Adequacy
capacity procurement requirement by about 25 MW, and the City’s pre-approved
suppliers are not able to sell any additional Local Resource Adequacy capacity to
the City.
To increase staff’s ability to competitively procure Local Resource Adequacy
capacity while managing costs and risk in order to meet the City’s obligations
under the MSS Agreement and the City’s Electric Utility Resource Adequacy
Program, staff recommends Council approve the attached resolution to authorize
the City Manager or his designee to transact Local Resource Adequacy capacity or
related products from suppliers who meet the City’s credit requirements for
wholesale utility commodity contracts (Municipal Code Section 2.30.340). Under
the proposed resolution, the Local Resource Adequacy capacity purchase is
limited to the following parameters:
The amount of the purchase will not exceed the amount needed to meet the
CAISO’s Local Resource Adequacy capacity obligation to the City for CY 2013; and
The total purchase cost will not exceed $2 million.
The form of agreement will be jointly determined by the selected Local Resource
Adequacy capacity seller and the City, and will be approved as to form by the City
Attorney. The agreement will be substantially similar in form to the Draft
Agreement (Attachment B), which the City has previously used to purchase Local
Resource Adequacy capacity bilaterally from other NCPA members.
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Resource Impact
Local Resource Adequacy capacity purchases are expected to cost the City a total
of approximately $2.4 million in CY 2013. This cost estimate includes the
expected cost of the purchases to be made under this authorization request
(approximately $1 million). These cost estimates are included in the Electric
Fund’s FY 2013 budget and were incorporated into the five-year Electric Fund
financial forecast and retail rate projections.
Policy Implications
This recommendation is consistent with the Council-approved Utilities Strategic
Plan to ensure a high level of system reliability in a cost-effective manner.
Environmental Review
Adopting a resolution authorizing the City Manager to purchase electricity
resource adequacy products does not constitute a project for the purposes of the
California Environmental Quality Act.
Attachments:
Attachment A: Draft Resolution Authorizing the City Manager to Purchase Electricity
Capacity Products (PDF)
Attachment B: Draft LRA Capacity Transaction Agreement (PDF)
Attachment C: Resolution No. 8870 – Electric Utility Resource Adequacy Program (PDF)
Prepared By: James Stack, Resource Planner
Department Head: Valerie Fong, Director
City Manager Approval: ____________________________________
James Keene, City Manager
*NOT YET APPROVED*
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Resolution No. _____
Resolution of the Council of the City of Palo Alto Approving the Purchase
of Local Resource Adequacy Electricity Capacity Products from Suppliers
Meeting the City’s Creditworthiness Requirements for Wholesale Utility
Commodity Contracts in an Amount Not to Exceed $2,000,000 for Calendar
Year 2013
A. The City of Palo Alto (the “City”) receives electric transmission services under the
terms of the 2002 Metered Sub-System (“MSS”) Agreement between the Northern California
Power Agency (“NCPA”) and the California Independent System Operator (“CAISO”).
B. The MSS Agreement requires the City and other NCPA members to abide by the
applicable CAISO Tariff (the “Tariff”) that may be updated and subsequently approved by the
Federal Energy Regulatory Commission (“FERC”) from time to time.
C. The Tariff includes the obligation of the City to purchase Local Resource
Adequacy (“LRA”) electricity capacity products.
D. To comply with its obligation to procure LRA capacity under the Tariff the City
has established the Electric Utility Resource Adequacy Program (Resolution No. 8870).
E. The City obtains some LRA electricity capacity from its existing resources, but
needs to purchase additional LRA electricity capacity products in order to satisfy its
procurement obligation under the Tariff.
F. To competitively procure LRA electricity capacity products, the City has
developed and adopted the contracting mechanism to transact with several private sector
suppliers and with NCPA members, but it expects to need the contracting authority to transact
with additional suppliers in order to satisfy its LRA capacity procurement obligation under the
Tariff.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby resolve, as follows:
SECTION 1. The Council hereby approves the negotiation of, and authorizes the City
Manager or his designee, the Director of Utilities, on behalf of the City to sign contracts relating
to, one or more local resource adequacy electricity capacity product transactions with suppliers
who meet the City’s creditworthiness requirements for wholesale utility commodity contracts
established by Palo Alto Municipal Code Section 2.30.340. These transactions shall meet the
City’s LRA obligation for calendar year 2013 and their total cost shall not exceed two million
dollars ($2,000,000).
//
//
*NOT YET APPROVED*
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SECTION 2. The Council finds that the adoption of this resolution does not meet the
definition of a project under the California Environmental Quality Act (CEQA) pursuant to
California Public Resources Code Section 21065, and therefore, no environment assessment is
required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENTIONS:
ABSENT:
ATTEST: APPROVED:
____________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM:
_____________________________ _____________________________
Senior Asst. City Attorney City Manager
_____________________________
Director of Utilities
_____________________________
Director of Administrative Services
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LOCAL RESOURCE ADEQUACY CAPACITY TRANSACTION AGREEMENT
BETWEEN ___________________
AND THE CITY OF PALO ALTO
This Local Resource Adequacy Capacity Transaction Agreement (this “Agreement”),
dated as of __________, 20__ (the “Effective Date”), is entered into by and between XYZ
Corporation, a California corporation, [street address], [city], California [zip] (“Seller”), and the
City of Palo Alto, a California chartered municipal corporation, acting by its Department of
Utilities (“CPAU”), 250 Hamilton Avenue, Palo Alto, California 94301 (“Buyer”) (individually,
a “Party” or collectively, the “Parties”).
RECITALS:
A. Buyer, acting by CPAU, desires to transact in local resource adequacy capacity
(“Local RA Capacity”) in order to enable the City of Palo Alto, California (the “City”) to
competitively meet regulatory requirements imposed by the California Independent Systems
Operator Corporation (the “CAISO”).
B. Seller has ownership rights to surplus capacity from generating units, identified
by the CAISO as units that are located in northern California load pockets, which units are listed
in the CAISO document entitled “Final (Update) NQC Local Area Data for Compliance Year
2012 – Oct 28, 2011”; specifically, they are: ____________________.
C. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the
above-mentioned Local RA Capacity (the “Product”) for calendar year 2013, provided that the
CAISO recognizes the transfer of the Product’s resource adequacy counting rights to Buyer,
without the imposition on Seller of any further obligations beyond those currently required of
Seller. For example, the transfer by Seller is not expected to result in any obligation to submit
supply plans or make the units available under must-offer.
AGREEMENT
IN CONSIDERATION OF Recitals A, B and C and the following covenants, terms and
conditions, the Parties agree:
Section 1. Description of Product
1.1 The Product, the subject matter of this Agreement, is Local RA Capacity that
qualifies to meet “Local Capacity Requirements” (“LCR”), as that term is defined and otherwise
identified by the CAISO in its document entitled “2013 LOCAL CAPACITY TECHNICAL
ANALYSIS - FINAL REPORT AND STUDY RESULTS, APRIL 30, 2012.” Seller shall
provide the Product during calendar year 2013 only. The Parties acknowledge and agree that (a)
Seller is not obligated to provide to Buyer any energy, ancillary services or any other services
other than the service consisting of conveying to Buyer the contract quantity of ____MW of
Local RA Capacity attributes for use by Buyer in regard to its obligation to make CAISO
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Resource Adequacy showings, and (b) Buyer shall not have any right, title or interest to make a
call on or bid Seller’s generation.
1.2 The ____ MW Product will be made available from _____________; at a price of
_____________ during calendar year 2013.
1.3 Seller agrees that the contract quantity of ____ MW of Product sold under this
Agreement shall be unencumbered by any other sale, any assignment, or any rights conferred to
any party other than Buyer.
1.4 Buyer shall have the right to declare to the CAISO the Local RA Capacity rights
secured through this transaction. Seller shall be obligated to inform the CAISO, through its
Scheduling Coordinator, the Northern California Power Agency (“NCPA”), of the transfer of
these rights to Buyer.
Section 2. Payment & Billing Terms
2.1 On or about the tenth (10th) day of each month, Seller shall provide an invoice to
Buyer in the amount applicable to that prior month’s contract quantity of Product sold under this
Agreement.
2.2 The terms of payment shall be net ten (10) days after the date Buyer receives a
properly prepared and accurate invoice sent to Buyer’s address, which shall include at a
minimum:
(a) Seller’s complete name and address where payment is to be remitted;
(b) Buyer’s complete name and address where bill is to be sent;
(c) Price and billing units consistent with this Agreement;
(d) Quantity;
(e) Invoice date;
(f) Total monetary amount; and
(g) Terms of payment, including any applicable discount calculations.
2.3 Payment may be made by check, draft, warrant or wire transfer. Payment by
check shall be considered made when received by the other Party.
Buyer agrees to send its payment to:
[address]
Wire Transfer:
[bank information]
2.4 If Buyer fails to remit the full amount then due and payable, then interest on the
unpaid portion shall accrue from the due date until the date of payment at a rate equal to the then
effective prime rate reported daily in the Wall Street Journal for the period beginning on the day
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after the due date and ending on the day of payment, provided that such interest rate shall not
exceed the amount permitted by law.
Section 3. Assignment of Replacement Capacity, Backstop Assignment and
Performance Penalties or Payments
3.1 In the event the Product does not meet, conform to or otherwise satisfy the
CAISO’s Local RA Capacity specifications during a specified month and the Product’s failure to
meet the CAISO’s specifications would require or cause Buyer to purchase replacement capacity
or incur a direct assignment of the CAISO’s backstop assignment costs (as specified in the
prevailing CAISO Tariff), Buyer’s replacement costs or the CAISO’s backstop assignment cost
due to the Product’s failure to qualify for the term of the replacement will be assumed by, paid
for or be otherwise the responsibility of Seller.
3.2 If the CAISO determines that the Product has failed to perform in accordance
with the provisions of the CAISO Tariff, resulting in non-availability charges being assessed, or
if the CAISO determines that the Product has exceeded the performance standards in accordance
with the provisions of the CAISO Tariff, resulting in the credit of availability incentive
payments, such charges and/or incentive payments will be allocated to and paid by or credited to
Seller.
3.3 Notwithstanding 3.1 and 3.2, in the event the CAISO does not recognize one or
more generating units of the Product as capable of providing Local RA Capacity as reflected in
the CAISO’s final Net Qualifying Capacity report for 2013, then all rights and obligations of the
Parties arising from their performances under this Agreement shall be void with respect to those
particular generating units deemed by the CAISO as not capable of providing Local RA
Capacity.
Section 4. Events of Default; Remedies
4.1 An “Event of Default” shall mean, with respect to a Party (the “Defaulting
Party”), the occurrence of the failure to make, when due, any payment required pursuant to this
Agreement if such failure is not remedied within five (5) business days after written notice of
such failure is given by the other Party.
4.2 If an Event of Default shall have occurred and be continuing, the other Party (the
“Non-Defaulting Party”) may give notice of termination, specifying the effective date of
termination if there is a failure to cure the Event of Default within a reasonable time, which time
will be not less than thirty (30) days, and thereafter may terminate the Agreement and seek
damages arising out of the act or failure to act by the Defaulting Party.
Section 5. Representatives of the Parties
5.1 Each Party will designate, in writing, an employee who shall be the Party’s
representative in all matters relating, directly and indirectly, to this Agreement. For the purposes
hereof, the following individuals are designated the representatives of the Parties:
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Buyer: Director of Utilities
250 Hamilton Avenue
Palo Alto, CA 94301
Phone: (650) 329-2214
Fax: (650) 326-1507
E-mail: valerie.fong@cityofpaloalto.org
Seller: Name:
Address:
Phone:
Fax:
Email:
Section 6. Indemnity
6.1 Each Party shall indemnify, defend and hold harmless the other Party, its officials,
directors, officers, employees, and agents, and each and every one of them, from and against all
actions (including, but not limited to, those in tort or contract), penalties, damages, costs,
liability, claims, losses and expenses of every type and description to which any or all of them
may be subjected by reason of, or resulting from, the performance of this Agreement. The
provisions set forth in this Section 6 shall survive the termination of this Agreement.
Section 7. Dispute Resolution
7.1 Unless otherwise mutually agreed to by the Parties, in writing, any controversy
between the Parties regarding the interpretation of this Agreement, and any claim of a Party
against the other Party arising out of this Agreement or its breach, shall be submitted to
nonbinding mediation within thirty (30) days after the service of the written request of one Party
on the other Party; provided, however, the Parties shall attempt to resolve outstanding issues
informally at the senior executive level of each organization for at least thirty (30) days after the
service of the written request before they will seek the assistance of a professional mediator.
7.2 The Parties shall agree on one mediator. The mediation meeting shall not exceed
one (1) day, unless the Parties otherwise agree, in writing, to a different number of days.
Mediation under this section is a condition precedent to the filing of an action at law or in equity.
In the event of litigation related to this Agreement, the Parties shall each pay their own attorney’s
fees, expert witness costs and cost of suit.
Section 8. Miscellaneous
8.1 The Term of this Agreement will commence on January 1, 2013, and will expire
on December 31, 2013. The Agreement may terminate sooner in accordance with provisions of
Section 4.
8.2 Each Party represents and warrants that it is authorized to execute this Agreement,
it has the full right, power and lawful authority to undertake all obligations as provided in this
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Agreement, and the execution, performance and delivery of this Agreement has been fully
authorized by all requisite actions on its part.
8.3 The laws of the State of California shall govern the interpretation of and the
resolution of disputes under this Agreement.
8.4 This Agreement, including any exhibits, contains the entire agreement between
the Parties and supersedes all oral and written understandings and agreements between the
Parties existing prior to the execution of this Agreement. This Agreement shall not be altered,
amended or modified except when the modification is in writing and signed by both Parties.
8.5 If any portion of this Agreement, or the application thereof to any person or
circumstance, shall be determined by a court having jurisdiction over the Parties to be invalid or
unenforceable to any extent, the remainder of this Agreement shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
8.6 The Parties agree that the normal rules of construction regarding the drafting of
this Agreement shall not apply; each Party represents that it has been represented by independent
counsel.
IN WITNESS WHEREOF, the Parties by their duly authorized representatives have
executed this Agreement in counterparts as of the Effective Date.
CITY OF PALO ALTO XYZ CORPORATION
___________________________ ______________________________
VALERIE O. FONG JANE O. DOE
Director of Utilities Vice-President
APPROVED AS TO FORM: APPROVED AS TO FORM:
___________________________ ______________________________
GRANT KOLLING HARLEY OATES
Senior Assistant City Attorney General Counsel