HomeMy WebLinkAboutStaff Report 14042
City of Palo Alto (ID # 14042)
City Council Staff Report
Meeting Date: 4/4/2022
City of Palo Alto Page 1
Title: Approval of Amendment Number 2 to the Power Purchase Agreement
for Landfill Gas-Generated Electricity With Ameresco Keller Canyon LLC.,
Reducing the Facility's Output in Exchange for an Annual $250,000
Administrative Payment to the City
From: City Manager
Lead Department: Utilities
Recommendation
Staff recommends the Council approve and authorize the City Manager or their designee to
execute the attached amendment (Attachment A) to the Power Purchase Agreement (PPA) with
Ameresco Keller Canyon LLC (Keller Canyon) to permit Keller Canyon to reduce the output from
the facility that it delivers to the City in exchange for an annual $250,000 “Administrative Fee”
(payment) from Keller Canyon to the City, with additional considerations possible.
Executive Summary
The City signed a 20-year PPA with Keller Canyon in 2005 to purchase a 50% share1 of the
output from a landfill gas electric generating facility (the LFG Project), and the LFG Project has
been reliably delivering its output to the City since August 2009.
Keller Canyon intends to build, own, and operate a new facility at the LFG Project site that will
process landfill gas for sale as renewable natural gas (RNG) to third parties. The RNG processing
facility will require a significant amount of electrical power to operate, and Keller Canyon would
like to supply this power from the LFG Project, which will drastically reduce the amount of
renewable energy that Keller Canyon is able to provide to the City for the remainder of the
City’s PPA term.
In exchange for authorizing Keller Canyon to reduce the output it provides to the City under the
PPA, Keller Canyon will provide an annual Administrative Fee of $250,000 to the City, along with
additional compensation in the event that the amount of Resource Adequacy capacity (RA) that
the LFG Project provides to the City is reduced as a result of the RNG processing facility’s
1 The City of Alameda purchases the other 50% of the Project’s output, under terms that are essentially identical to
those of the City’s PPA.
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operations or in the event that the scheduling variability of the LFG Project causes the City to be
assessed charges from the grid operator.
When the RNG processing facility begins operating, the LFG Project’s output is expected to
decrease by about 85% (from providing about 1.7% to providing 0.3% of the City’s total electric
needs). Because the contract price of the Keller Canyon PPA now exceeds the market value of
the LFG Project’s output, this reduction will result in a net value to the City of approximately
$420,000 per year, in addition to the $250,000 per year Administrative Fee (payment) provided
to the City through this amendment. Staff therefore recommends that the Council approve the
attached amendment to the Keller Canyon PPA.
Discussion
In August 2005, Council approved the PPA with Keller Canyon to obtain a 50% share of the
electric output of a 3.8 MW landfill gas electric generating facility located in Contra Costa
County over a 20-year term (Resolution 8552, CMR 350:05).
One of the provisions of the PPA (Section 2.2(a)) is that Keller Canyon must transfer all of the
output of the LFG Project to the two PPA off-takers (the Cities of Palo Alto and Alameda); they
are not allowed to use any of the output or sell it to any other party. However, Keller Canyon
intends to build, own, and operate a new RNG processing facility at the LFG Project site, which
would require using a large share (estimated at 85%) of the LFG Project’s power output, in
violation of the PPA. What follows is a discussion of the various implications that this revised
arrangement would have for the City, and the amendment provisions that staff negotiated with
Keller Canyon to protect the City from the potential adverse impacts of this change. (Note that
the RNG processing facility is expected to begin operating in mid-2023, and the City will not
experience any of these financial impacts until that point. These impacts will therefore be
included in the City’s electric supply budgets for FY 2024 and onward.)
Reduced Energy Costs
Because this is one of the City’s oldest renewable energy PPAs—negotiated about a decade
before the sharp drop in solar and wind energy prices of the past several years—the Keller
Canyon contract rate is somewhat higher than the current market price for renewable energy
contracts.2 As a result of this contract being priced above-market, reducing the output that the
City receives (and pays for) from the project represents a significant cost savings. Although the
output of this project is relatively small compared to the City’s total electric supply needs
(currently about 1.4%), reducing its output as proposed in this amendment would yield an
annual cost savings to the City of about $420,000, exclusive of the Administrative Fee the City
will receive from Keller Canyon as described below.
Reduced RA Capacity
2 Over the remaining years of the Keller Canyon PPA term, the contract rate is approximately $82/MWh. Current
renewable energy market prices are approximately $30-$40/MWh for solar and wind resources, or about $50-
$60/MWh for baseload renewable energy resources like the Keller Canyon LFG project.
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In addition to renewable energy, another valuable commodity that the Keller Canyon LFG
project provides to the City under the current PPA is local RA capacity, which the City then uses
to satisfy its regulatory requirements for RA capacity procurement. However, when the RNG
plant begins operating, the LFG project’s output will not only be greatly reduced but also
become far less predictable. As a result, staff expects that the LFG project will no longer qualify
as an RA capacity resource, thus eliminating one of the sources of value provided by the PPA.
To mitigate this, staff proposed that Keller Canyon provide compensation to make the City
financially whole for any loss of RA value incurred (with a cap of $135,000 per year). Staff
expects the financial impact of reduced RA Capacity to be less than the $135,000 cap; therefore
the lost RA capacity from the LFG project is expected to have no negative financial impact on
the City.
Energy Scheduling Uncertainty
As noted in the section above, when the RNG plant begins operating the LFG project’s output is
likely to become less predictable. Large increases in output are possible if the RNG plant stops
operating (and thus consuming electric power). If changes to expected output are known at
least a day in advance, the LFG project’s energy schedules can be adjusted accordingly, and
there will be no negative financial impact to the City. But if expected output changes with less
than a day’s notice, the City will be unable to adjust the project’s day-ahead energy schedules
and will be exposed to real-time energy prices for the deviation in output.3 To mitigate the real-
time energy market price risk resulting from changes in project output, Keller Canyon will
provide compensation to make the City financially whole during the first 18 months of the RNG
plant’s operations (with a cap of $50,000 on the total compensation).4 Staff expects the
financial impact of energy scheduling uncertainty to be less than the $50,000 cap; therefore
the energy scheduling uncertainty is expected to have no negative financial impact on the City.
Administrative Fee (Payment to City)
In exchange for reduced project output and in recognition of the significant amount of staff
time and scheduling complexity resulting from the operational changes to the project, Keller
Canyon will provide the City an annual “Administrative Fee” of $250,000.
If Council does not approve this second amendment to the Keller Canyon PPA, the operational
changes will still occur; the RNG plant construction would still move forward, but Keller Canyon
would not use the output of the LFG project to power it. As a result, the Keller Canyon PPA
would continue in its current form, with the City receiving (and paying for) all of its share of the
LFG project’s output, and not receiving the negotiated $250,000 per year Administrative Fee.
This alternative is less financially beneficial to the City.
3 In situations where the LFG project’s output increases after the day-ahead energy schedules have been
submitted, if real-time prices are greater than the day-ahead market prices were, this works to the City’s
advantage. However, it is often the case that real-time market prices are lower than day-ahead prices, in which
case the City would receive less revenue for that output than if it had been scheduled on a day-ahead basis.
4 Keller Canyon staff aver that the issues with unpredictable LFG project output will be worked out within the first
six months of the RNG plant’s operations, but City staff insisted that this real-time market exposure mitigation
provision extend for 18 months.
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Resource Impact
Approving the recommendation is expected to result in an increase in value to the City of
approximately $670,000 per year (an estimated $420,000 per year in reduced energy costs and
$250,000 per year from a direct Administrative Fee payment). Because there will be
approximately six years remaining in the term of the Keller Canyon PPA when the RNG plant
begins operating, the total resource impact to the City is expected to be a benefit of
approximately $4.0 million dollars (over the FY 2024 through FY 2029 timeframe). The
recommendation in this report does expose the City to potential financial risk based on reduced
RA capacity and output changes on short notice, in that if unexpected conditions occur
throughout the remaining term, the City could be responsible for expenses that would reduce
the net benefit of this amendment to the agreement. However, based on staff analysis and
historical trends, the potential impact of those risks is estimated to be fully offset by their
corresponding negotiated compensation.
Policy Implications
This recommendation does not represent any change to existing City policies.
Environmental Review
Approval of the second amendment to the Ameresco Keller Canyon LLC contract does not meet
the definition of a project, pursuant to Section 21065 of the California Environmental Quality
Act (CEQA), therefore no environmental assessment is required.
Attachments:
• Attachment9.a: Attachment A: Ameresco Keller Canyon PPA Contract,
Amendment #2
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Attachment A
AMENDMENT NO. 2 TO POWER PURCHASE AGREEMENT BETWEEN THE CITY
OF PALO AL TO AND AMERESCO KELLER CANYON LLC
This Amendment No. 2 to the Power Purchase Agreement dated as of August 8, 2005, as
amended by Amendment No. 1 dated as of March 10, 2008 (the "Contract"), is entered into this
__ of _____ , 2022 ("Effective Date"), between the City of Palo Alto, a chartered
city and a municipal corporation of the State of California ("Buyer") and Ameresco Keller
Canyon LLC, a Delaware limited liability company, located at Framingham MA ("Seller")
(individually a "Party", and together with Buyer, the "Paities").
WHEREAS, the Pruties entered into the Contract for the provision of electricity and
environmental attributes from a landfill gas to energy project; and
WHEREAS, Ameresco Keller Canyon RNG LLC ("Ameresco"), an affiliate of Seller,
intends to design, build, own, and operate gas processing facilities located on or adjacent to the
Site that will process landfill gas for sale to third parties (the "RNG Plant");
WHEREAS, Ameresco desires to use all or a portion of the Output to power the RNG
Plant which is anticipated to be online in the second quarter of 2023, and Buyer is willing,
subject to the terms and conditions of this Amendment No. 2 (i) to allow Seller to sell all or a
portion of the Output to Ameresco or its affiliate to power the RNG Plant and (ii) to continue to
purchase any remaining Output in accordance with the Contract; and
WHEREAS, the Parties desire to amend the Contract accordingly.
NOW, THEREFORE, in consideration of the covenants, terms, conditions, and
provisions of this Amendment No. 2, the Parties mutually agree as follows:
1. Capitalized terms used in this Amendment No. 2 and not defined herein have the
meanings assigned to them in the Contract. The Recitals are incorporated into this
Amendment No. 2.
2. Purchase and Sale of Output.
a. Notwithstanding any provisions to the contrai-y in the Contract, from the date of
mechanical completion of the RNG Plant and during the remainder of the Term,
Seller shall have the right to use up to 100% of the Output to power the RNG
Plant.
b. Seller shall provide Buyer 30-days written notice of the anticipated date of
mechanical completion of the RNG Plant (the "RNG MC Date").
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c. In the event that Ameresco does not use 100% of the Output to power the RNG
Plant, any remaining Output shall be delivered to the Point of Interconnection and
Buyer shall purchase, accept and pay for its Percentage Share of the Output
delivered to the Point of Interconnection.
d. For the purposes of this Amendment No. 2 and Section 2.2 of the Contract,
Buyer's "Percentage Share of the Output" shall mean the Buyer's Percentage
Share of the Output delivered to the Point oflnterconnection and Buyer's
"Percentage Share of the Environmental Attributes" shall mean Buyer's
Percentage Share of the Environmental Attributes related to the Energy delivered
to the Point of Interconnection.
e. Seller's use of Output to power the RNG Plant shall not impact the calculation of
the Availability Threshold or be deemed an Outage.
f. Seller's sale or transfer of Output to power the RNG Plant shall not be an Event of
Default under Section 7.2(d).
3. Administrative Fee. In consideration of the costs and expenses associated with the
review, evaluation, negotiation, execution and/or delivery of any and all documents,
consents, amendments, modifications or restatements related to the amendment and
administrative costs associated with the implementation of changes as set forth in this
Amendment No. 2, beginning on the RNG MC Date, Seller shall pay Buyer
$250,000/year for each year (prorated for partial years) remaining in the Term (the
"Administrative Fee"), with the first annual Administrative Fee due within 30 business
days of the RNG MC Date, and by that date every year thereafter for the remainder of the
Term.
4. RA Capacity. The Parties acknowledge that due to the proposed changes set forth in this
Amendment No. 2, Seller may no longer provide Buyer with capacity contributions
towards Buyer's resource adequacy requirements ("RA Capacity") to the extent that the
Output will be diverted to the RNG Plant. Beginning on the RNG MC Date, Seller shall
compensate Buyer for the loss of this RA Capacity during the Term in an amount equal to
Buyer's share of the monthly Net Qualifying Capacity ("NQC") amounts for the landfill
gas electric facility for calendar year 2021 multiplied by the Local RA Capacity price
approved by the NCPA Commission for the NCPA Capacity Pool for each month of the
Term (the "RA Capacity Compensation"). Seller shall pay the RA Capacity
Compensation to Buyer within 30 business days after the NCPA Commission approves
the NCPA Capacity Pool price for Local RA Capacity each year for the duration of the
Term or in the event that the NCPA Commission does not approve a Local RA Capacity
price in any given year, the RA Capacity Compensation for that year shall be equivalent
to the CPM Soft Offer Cap, as that term is defined at Section 43A of the CAISO Tariff;
provided that in no event shall the RA Capacity Compensation exceed $135,000/year.
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5. Scheduling. Section 3 ("Daily modifications to forecasts") of Appendix D ("Scheduling
Protocols") of the Contract states "Unless otherwise mutually agreed, Seller may make
changes to the Weekly forecast by providing such changes to NCPA prior to 08:00 am
Pacific Time two (2) workdays before the active scheduling day." Through this
Amendment No. 2, the Parties mutually agree to amend Section 3 of Appendix D to state
that "Seller may make changes to the Weekly forecast by providing such changes to
NCPA prior to 06:00 am Pacific Time one (1) workday before the active scheduling day."
In addition, for the first 18 months after the RNG MC Date, to the extent that the actual
Output of the Plant delivered to the Point oflnterconnection deviates from the forecasted
amount provided to NCP A pursuant to the Appendix D Scheduling Protocols, and as a
result Buyer or NCPA incur any CAISO charges associated with FMM Instructed
Imbalance Energy (FMM IIE), RTD Instructed Imbalance Energy (RTD IIE),
Uninstructed Imbalance Energy (UIE) or Penalties for Uninstructed Imbalance Energy
(as those capitalized terms are defined in the CAISO Tariff and at Section 11.5.1, Section
11 .5.2 and Section 11.23 of the CAISO Tariff, respectively, as may be amended from
time to time), Seller shall compensate Buyer in an amount equivalent to the settlement of
such charges for FMM IIE, RTD IIE, UJE and Penalties for Uninstructed Imbalance
Energy. Such compensation to Buyer for FMM IIE, R TD IIE, UJE charges and Penalties
for Uninstructed Imbalance Energy assessed against Buyer or NCPA for Seller's
deviation from the forecasted amounts shall be subject to a maximum (cap) of $50,000.
6. Entire Agreement; Governing Law. This Amendment No. 2 shall be governed by the
laws of the State of California.
7. Authority. Each Party represents and warrants to the other Party that it has the power,
right and authority to enter into this Amendment No. 2 and to consummate the
transactions contemplated hereby.
8. The Parties may execute this Amendment No. 2 in counterparts, which shall, in the
aggregate, when signed by both Parties constitute one and the same instrument; and,
thereafter, each counterpart shall be deemed an original instrument as against any Paity
who bas signed it. Delivery of an executed counterpart of this Amendment No. 2 by
facsimile transmission or by other electronic transmission shall be effective as delivery of
a manually executed counterpart of this Amendment No. 2.
9. Except as modified and amended in this Amendment No. 2, the Contract remains in full
force and effect, and the Parties hereby ratify and re-affirm the Contract in all respects.
[ signatures follow]
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City Manager
APPROVED AS TO FORM
_________________________________
Assistant City Attorney
__________________________________________
Director of Utilities
IN WITNESS WHEREOF, the Seller and Buyer have executed this Amendment No. 2 as of
the Effective Date.
AMERESCO KELLER CANYON LLC
a Delaware Limited Liability Company
By: Ameresco LFG Holdings Ill LLC, its sole member
By: Ameresco, Inc., its sole member
By: liJJL
Michael T. Bak.as Executive Vice President
CITY OF PALO ALTO
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