HomeMy WebLinkAboutStaff Report 4170
City of Palo Alto (ID # 4170)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 11/4/2013
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Summary Title: Renewable Energy Certificate Master Agreement Authority
Title: Adoption of a Resolution Repealing Resolution No. 9225 and Expanding
the City Manager’s Authority to Execute Transactions under the Master
Renewable Energy Certificate Purchase and Sale Agreement with Thirteen
Pre-qualified Suppliers in an Amount Not to Exceed $5,000,000 per Year
During Calendar Years 2013-2018
From: City Manager
Lead Department: Utilities
Recommendation
Staff requests that the Council approve the attached resolution repealing Resolution No. 9225
and expanding the City Manager’s authority to execute transactions under the Council-
approved Master Renewable Energy Certificate Purchase and Sale Agreements (“REC Master
Agreements”) as follows:
1. Allow for the purchase (and incidental sales) of Renewable Energy Certificates (“RECs”)
via the Council-approved Master Agreements with thirteen prequalified suppliers to
meet the needs of the PaloAltoGreen Program, the City’s Carbon Neutral Plan, and the
City’s Renewable Portfolio Standard;
2. Expand the annual expenditure authority for the REC purchases from $1,500,000
annually to $5,000,000 annually; and
3. Extend the term for REC transactions from calendar year 2016 through calendar year
2018.
Executive Summary
Facilities that produce renewable energy receive revenues both from the sale of the energy
produced at the facility and from the “environmental attribute” associated with the project.
The environmental attribute is sold separately as a Renewable Energy Certificate (REC). One
REC represents the environmental attribute of one megawatt-hour (MWh) of electricity
generated from a renewable energy facility. Owners of renewable energy facilities often sell
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the environmental attributes (RECs) associated with the renewable energy separately from the
energy itself. Thus, RECs provide an additional source of funding for renewable energy projects
to make them more economical to develop. The PaloAltoGreen (PAG) program, Carbon Neutral
Plan, and Renewable Portfolio Standard (RPS) have the ability to use RECs to meet the needs of
these initiatives. The use of RECs allows for cost-effective implementation of such programs.
Through Resolution No. 9225 (February 2012) Council authorized the City Manager, or his
designee, to buy RECs from thirteen pre-qualified suppliers with whom the City has executed
REC Master Agreements. The authority granted was limited to transactions to meet the needs
of the PAG program and was limited to $1,500,000 annually through 2016. The purchase
authority granted by that resolution did not include the ability to procure RECs for the City’s
RPS and Carbon Neutral Plan. Expansion of the existing authority is needed to enable the
purchase of RECs that may be required to meet the City’s RPS and Carbon Neutral Plan
objectives in a competitive, timely and cost effective manner.
Background
Since 2003, RECs have been used as the primary source of renewable energy to meet the needs
of the PAG program. Between 2003 and 2009, these RECs were purchased through the City’s
PAG program administrator. Starting in 2009, REC Master Agreements were established as a
means to competitively and efficiently procure RECs to meet the needs of PAG. In 2011,
through a competitive request for proposal (RFP) process, the City updated its list of
prequalified REC suppliers. REC Master Agreements are currently in place with the following
suppliers:
1. 3Degrees Group, Inc.
2. Bonneville Environmental Foundation
3. Constellation Energy Commodities Group
4. EDF Trading North America, LLC
5. Element Markets, LLC
6. Idaho Wind Partners 1, LLC
7. Lakeview Green Energy, Inc.
8. Nexant, Inc.
9. NextEra Energy Power Marketing, LLC
10. Pacific Corp.
11. Powerex Corp.
12. Shell Energy North America (US), L.P.
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13. Sterling Planet Holdings, Inc.
Transactions allowed under the REC Master Agreements are limited to the purchase (and
incidental sales) of RECs. The City Council delegated authority to the City Manager, or his
designee, to execute transactions under the REC Master Agreements only to meet PAG
program needs, and for a total annual expenditure amount not to exceed $1,500,000 for the
period of calendar years 2012 through 2016. Table 1 is a summary of transactions executed to
date under the current REC Master Agreement authority.
Table 1: REC Transactions per REC Master Agreement
Transaction
Date REC Supplier REC Type Quantity Total Cost
2012 Powerex Corp. Wind 532 $133
2012 Constellation Energy Solar 505 $2,510
2012 Lakeview Green Energy Wind 63,938 $56,272
2012 Idaho Wind Partners 1 Wind 15,000 $17,850
Total 2012 79,975 $76,765
2013 Powerex Corp. Wind 3,940 $3,152
2013 Constellation Energy Solar 640 $3,744
2013 EDF Trading North
America Solar 40,000 $100,000
Total 2013 (to date) 44,580 $106,896
Discussion
RECs for PAG
Currently, RECs procured through local solar projects within Palo Alto and/or through REC
Master Agreements are used exclusively to meet the requirements of the City’s PAG program.
The PAG program is “Green-E” certified. This certification is administered by an independent
non-profit organization, the Center for Resource Solutions, which has established national and
regional standards for verifying green power programs and codes of conduct regarding the use
of RECs. Substantial portions of the RECs purchased under the Master Agreements are Green-E
certified.
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On September 9, 2013, Council approved a redesign of PAG (Staff report 4041) essentially
suspending PAG’s Full Needs Program (“Full Needs Program”) under which the City procured
RECs to meet 100% of participants’ energy needs, and reduced the rate for customers
participating in the Commercial Customer Block Program (“Block Program”). Although the Full
Needs Program was suspended in September 2013, RECs will need to be purchased for January
through September 2013 under the REC Master Agreements. RECs sufficient to meet the needs
of the Block Program option will also be acquired through the REC Master Agreements.
Historically, the City has acquired RECs generated within the Western Electricity Coordinating
Council (WECC) region. The WECC region includes all or a portion of 14 western states and 2
provinces in Canada, and one in Mexico. Beginning in 2013, the City began supplying 100% of
the RECs for the program from solar resources located in California. Going forward staff
anticipates procuring less expensive RECs. Specifically, staff will seek Green-e certifiable RECs
generated within the Western Electric Coordinating Council which meet the Environmental
Protection Agency’s Green Power Partnership eligibility requirements. Table 2 is a summary of
the volume and price of RECs anticipated to meet the needs of PAG. Note that REC volume
projections are highly uncertain at this point, particularly in light of the recently-approved
redesign of PAG.
Table 2: PAG RECs 2013 through 2018 Quantity and Price
Quantity (RECs) Price ($/REC) Total Cost ($)
2013 60,000 4.50 $ 270,000
2014 30,000 2.00 $ 60,000
2015 30,000 3.00 $ 90,000
2016 30,000 4.00 $ 120,000
2017 30,000 5.00 $ 150,000
2018 30,000 6.00 $ 180,000
RECs for RPS
The City’s adopted RPS is to meet 33% of the City’s retail sales with renewable energy by 2015
without exceeding a rate impact of 0.5 cents per kilowatt-hour. The City’s RPS is more
aggressive than California’s RPS requirements, which is to achieve 33% by 2020. Under
California’s RPS, RECs are an approved resource to meet RPS with certain restrictions and
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limitations on the amount of RECs which may be used to meet compliance requirements.1 The
City has not historically used RECs to meet its RPS, however, the City may need to use RECs
going forward for compliance purposes in the event that other committed renewable resources
do not come on-line as planned or perform as expected. Staff expects renewable resources
procured through long-term power purchase agreements (PPAs) to be sufficient to meet
compliance requirements and therefore does not anticipate using RECs to meet RPS.
Nonetheless, staff requests authority to procure RECs for RPS needs through the REC Master
Agreements in the event that such purchases become necessary.
RECs for Carbon Neutrality
Through Resolution Number 9322 (March 2013) Council approved the Carbon Neutral Plan,
directing staff to procure resources to achieve carbon neutrality starting in 2013 within a rate
impact limit of 0.15 cents per kilowatt-hour. The Carbon Neutral Plan directed staff to pursue
carbon neutrality for calendar years (CY) 2013 through 2016 primarily through the use of the
City’s existing long-term hydroelectric resources, renewable resources procured through PPAs
to meet the City’s RPS, and through short-term renewable resources and/or RECs. Beyond
2016, carbon neutrality is expected to be achieved through the use of the City’s hydroelectric
resources and long-term renewable PPAs, with RECs used in the event that one or more of the
City’s long-term resources do not perform as expected.
The amount of RECs needed to meet carbon neutrality for the electric supply portfolio is highly
dependent on hydrological conditions and the output of the City’s two long-term hydroelectric
resources. In dry years, the amount of RECs needed will increase, and, conversely, in wet years
the City will need to procure fewer RECs to achieve carbon neutrality. Further, through the
Carbon Neutral Plan, Council directed staff to procure RPS eligible RECs, which often carry a
price premium relative to the least-expensive Green-e certified RECs used for PAG. Table 3 is a
summary of the REC purchase volumes and prices anticipated under average, dry and wet
hydro conditions.
Table 3: RECs for Carbon Neutrality Quantity and Price
Year Price ($/REC) Average Hydro
Quantity (RECs)
Dry Hydro
Quantity (RECs)
Wet Hydro
Quantity (RECs)
2013 2.00 419,000 420,000 397,000
1 Under California’s RPS regulations, RECs that are sold independently of the associated energy are categorized as a
Portfolio Content Category 3 (“Bucket 3”) resource. Utilities are permitted to use Bucket 3 resources to meet a
portion of their total RPS procurement requirements. The volume of Bucket 3 resources that a utility may use
toward its procurement requirements is limited to 25% of the total RPS resources it has procured on or after June
1, 2010, for the 2011-2013 period; up to 15% for the 2014-2016 period; and up to 10% for 2017 and onward.
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2014 3.00 288,000 422,000 146,000
2015 4.50 242,000 444,000 0
2016 6.00 191,000 435,000 0
2017 7.50 7, 000 251,000 0
2018 9.00 7,000 251,000 0
Total Estimated RECs
The annual demand for RECs in the coming years based on expected conditions is projected to
be from 37,000 to 479,000, with an annual purchase cost of $0.2 million to $1.3 million.
However, there is large uncertainty regarding the volumes of RECs needed and the REC price. If
REC prices are higher than expected, hydro conditions are dry, and/or the resources that the
City has under long-term PPA do not come online on time, the annual REC purchase cost could
reach $4 million. Hence, authorizing the City Manager to transact up to $5 million per year
should provide sufficient flexibility to competitively procure REC supplies for the next five years,
until December 2018. Table 4 provides a summary of the annual range of purchase costs.
Table 4: Range of Total REC Purchase Costs
Low Case
Quantity
Expected
Case Quantity
High Case
Quantity
High Price
Scenario ($/REC)
High Annual
Cost Scenario
($ million)
2013 457,000 479,000 480,000 5.00 2.40
2014 176,000 318,000 452,000 4.00 1.80
2015 0 272,000 474,000 6.00 2.84
2016 0 221,000 465,000 8.00 3.72
2017 0 37,000 281,000 10.00 2.81
2018 0 37,000 281,000 12.00 3.37
REC Selection Process
The REC Master Agreements are enabling agreements which prequalify counterparties and
establish general terms and conditions under which the City and the supplier will transact and
settle transactions. The REC Master Agreement does not commit the City to any transactions.
RECs will be procured through a competitive solicitation process through the suppliers with REC
Master Agreements. Staff will award REC purchase transactions to the supplier with the lowest
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offer price, and will award REC sale transactions to the supplier with the highest bid price. All
purchases are under the controls established by the City’s Energy Risk Management Policies,
Guidelines and Procedures and must adhere to the City’s Purchasing requirements.
All REC suppliers are required to meet the Western Regional Generation Information System
(WREGIS) protocols and transfer RECs to the City through WREGIS. These protocols ensure the
validity of the RECs verifying that RECs are only counted once and not resold to other buyers.
Resource Impact
Expanding the authority under the REC Master Agreements will not impact existing resources.
Further, funds to procure RECs to meet PAG, the Carbon Neutral Plan and RPS have been
budgeted for fiscal year 2014.
Policy Implications
Approval of the expansion of authority is consistent with the Council-approved Long-term
Electric Acquisition (LEA) Objectives, Strategies and Implementation Plan; supports the Council-
approved 2011 Utilities Strategic Plan’s environmental sustainability and cost objectives; is
consistent with the City’s Climate Protection Plan; and supports environmental sustainability,
one of the City Council’s top priorities.
Environmental Impact
The proposed contract authority request does not meet the definition of a project under the
California Environmental Quality Act, pursuant to California Public Resources Code Section
21065, and, therefore, no environmental assessment is required.
Attachments:
Attachment A - RESO Expansion of Authority for REC Master Agreements Final (PDF)
NOT YET APPROVED
131022 sh 6051988
Resolution No. ________
Resolution of the Council of the City of Palo Alto Repealing Resolution No. 9225
and Expanding the City Manager’s Authority to Execute Transactions under the
Master Renewable Energy Certificate Purchase and Sale Agreement with
Thirteen Pre-qualified Suppliers in an Amount Not to Exceed $5,000,000
Annually During Calendar Years 2013-2018
R E C I T A L S
A. The City of Palo Alto (the “City") provides electricity to residential and
commercial customers located within its jurisdictional boundary.
B. The Council established the PaloAltoGreen voluntary renewable energy program
(the “PAG Program”) in March 2003 and it has achieved the highest participation rate of any
‘green power program’ in the United States.
C. Implementing the PAG Program requires the City to engage in the purchases
(and incidental sales) of renewable energy certificates (“RECs”) to meet the PAG Program's
retail customer demands in a competitive manner.
D. California’s Senate Bill X12 (2011) requires all load serving entities to have a
Renewable Portfolio Standard (RPS) of at least 33 percent by 2020. Through Resolution No.
9241the City Council adopted an RPS of 33 percent by 2015. RPS enforcement procedures
adopted by the California Energy Commission (CEC) in 2013 permit RECs to meet RPS
requirements under certain conditions, and the City of Palo Alto adheres to the CEC’s
renewable resource eligibility requirements set forth in its enforcement procedures.
E. Through Resolution No. 9322, the Council approved a Carbon Neutral Plan for
the electric supply portfolio to achieve carbon neutrality in calendar year 2013 with a rate
impact not to exceed 0.15 cents per kilowatt hour. The Carbon Neutral Plan allows for the use
of RECs to achieve carbon neutrality.
F. Through Resolution No. 9225 Council delegated the authority to the City
Manager, or his designee, to negotiate and sign Master Agreements with the following
suppliers in connection with the purchases (and incidental sales) of RECs in furtherance of the
PAG Program, but did not grant authority to purchase RECs in support of the City’s RPS or
Carbon Neutral Plan. The annual appropriation for the RECs purchases was not to exceed the
annual expenditure amount of one million five hundred thousand dollars ($1,500,000) during
calendar years 2012 through 2016, inclusive.
1. 3Degrees Group, Inc.
2. Bonneville Environmental Foundation
3. Constellation Energy Commodities Group
NOT YET APPROVED
131022 sh 6051988
4. EDF Trading North America, LLC
5. Element Markets, LLC
6. Idaho Wind Power Partners 1, LLC
7. Lakeview Green Energy, Inc.
8. Nexant, Inc.
9. NextEra Energy Power Marketing, LLC
10. Pacific Corp.
11. Powerex Corp.
12. Shell Energy North America (US), L.P.
13. Sterling Planet Holdings, Inc.
G. Master Agreements, the form of which was approved by Council via Resolution
No. 9225 and is attached to Staff Report 2429, were negotiated and executed with the thirteen
suppliers listed above, and expenditures for calendar year 2012 and 2013 are within the
delegated annual expenditure amount.
H. Expansion of the authority delegated to the City Manager under Resolution No.
9225 is needed to implement the City’s PAG program, RPS and Carbon Neutral Plan.
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. Resolution No. 9225 is hereby repealed in its entirety.
SECTION 2. The Council hereby authorizes the City Manager, or his designee, to
execute purchases (and incidental sales) of RECs to meet the needs of City’s PAG Program, RPS
and Carbon Neutral Plan by negotiating and executing Master Agreements with the following
thirteen pre-qualified suppliers. The aggregate REC transactions shall not to exceed the annual
expenditure amount of five million dollars ($5,000,000) during calendar years 2013 through
2018, inclusive.
1. 3Degrees Group, Inc.
2. Bonneville Environmental Foundation
3. Constellation Energy Commodities Group
4. EDF Trading North America, LLC
5. Element Markets, LLC
6. Idaho Wind Power Partners 1, LLC
7. Lakeview Green Energy, Inc.
8. Nexant, Inc.
9. NextEra Energy Power Marketing, LLC
10. Pacific Corp.
11. Powerex Corp.
12. Shell Energy North America (US), L.P.
13. Sterling Planet Holdings, Inc.
NOT YET APPROVED
131022 sh 6051988
SECTION 3. 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, thus no environmental assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
__________________________ _____________________________
Sr. Deputy City Attorney City Manager
_____________________________
Director of Utilities
_____________________________
Director of Administrative Services