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HomeMy WebLinkAboutStaff Report 2401-2549CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, March 18, 2024 Council Chambers & Hybrid 5:30 PM     Agenda Item     6.Adoption of a Resolution Approving an Edison Electric Institute Master Power Purchase and Sale Agreement With Silicon Valley Clean Energy Authority and Delegating Authority to the City Manager to Transact Under the Master Agreement for Electricity-Related Commodities and Services CEQA Status: Not a project under CEQA Guidelines 15378(b)(5) Consent Questions City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Utilities Meeting Date: March 18, 2024 Staff Report: 2401-2549 TITLE Adoption of a Resolution Approving an Edison Electric Institute Master Power Purchase and Sale Agreement With Silicon Valley Clean Energy Authority and Delegating Authority to the City Manager to Transact Under the Master Agreement for Electricity-Related Commodities and Services CEQA Status: Not a project under CEQA Guidelines 15378(b)(5) RECOMMENDATION Staff recommends that Council adopt a Resolution (Attachment A): (a) Approving the Edison Electric Institute Master Power Purchase and Sale Agreement with Silicon Valley Clean Energy Authority (SVCE) (Exhibit A to Attachment A); and (b) Delegating authority to the City Manager or their designee, the Director of Utilities, to transact under the Master Agreement for electricity-related commodities and services subject to the following limitations: a. The date for delivery of the electricity products for each transaction shall not exceed 36 months from the date the transaction is executed; b. The delivery date for any transaction shall not extend beyond December 2027; c. The maximum aggregate transaction limit under each Master Agreement shall be $25 million; d. All transactions shall be subject to the Palo Alto Municipal Code; and e. All transactions shall be subject to the City’s Energy Risk Management Policies, Guidelines, and Procedures. EXECUTIVE SUMMARY An active set of creditworthy counterparties is essential to ensure that the City can continue to meet its electric supply portfolio planning objectives, internal risk management controls, and external operational and regulatory requirements. Approval of the recommended electric master agreement with SVCE provides the City with an additional electric supplier with which to transact in a timely and competitive manner ensuring that the City’s objectives are met efficiently. Executing the master agreement does not commit the City to any transactions with SVCE, but it allows for transactions to be executed efficiently in the future. The recommended master agreement was negotiated under terms and conditions acceptable to the City and has been reviewed and approved by the City Attorney’s Office and the City’s Energy Risk Manager. BACKGROUND Palo Alto Municipal Code (PAMC) Section 2.30.340 (Contracts for Wholesale Utility Commodities) allows for the use of Master Agreements to buy and/or sell electricity, gas, and related services through various preapproved (“enabled”) suppliers. Contracts or transactions executed under the Council-approved Master Agreements must be done in accordance with the City’s Energy Risk Management Policy, Guidelines, and Procedures. Historically, the process for entering into Master Agreements with wholesale utility suppliers has been to: issue a request for proposals (RFP); select multiple suppliers; negotiate terms and conditions with the potential suppliers; and seek Council approval of and authority to transact under the Master Agreements. This process took upwards of one year, and was how the City established its current set of Electric Master Agreements (Resolution 93241). This set of agreements, which were all approved by Council in March 2013, includes: 1. BP Energy Company 2. Cargill Power Markets, LLC 3. Constellation Energy Generation, LLC (formerly Exelon Generation Company, LLC) 4. Avangrid Renewables, LLC (formerly Iberdrola Renewables, LLC) 5. NextEra Energy Marketing, LLC 6. PacifiCorp 7. Powerex Corp. 8. Shell Energy North America (US), L.P. 9. Turlock Irrigation District However, in August 2016 Council streamlined this process, approving Ordinance No 53872, which modified the Municipal Code to explicitly allow for Council-approved standard form master agreements. The ordinance modified PAMC Section 2.30.140, clarifying the process to enable new suppliers by specifically allowing the use of a standard form agreement that contains the City’s minimum contract terms and conditions. Negotiations could then be carried out with qualified suppliers on an ongoing basis without the need to issue successive formal requests for proposals. Under this process, execution of, and delegation of authority to transact under, standard form master agreements with specific suppliers remains subject to Council approval before any transactions may be completed. 1 Resolution 9324: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9324.pdf 2 Ordinance 5387: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/ordinances/ord-5387.pdf. In December 2016 Council approved a standard form electric master agreement (Resolution 96523), based on the year 2000 version of the Edison Electric Institute (EEI) Master Power Purchase and Sale Agreement. This standard form agreement has been made available to any wholesale utility supplier on the City’s website since that time, although to date this has not yielded any new enabled suppliers. ANALYSIS In 2023 Palo Alto Utilities reached out to SVCE about the possibility of entering into an electric master agreement with the City. SVCE is a non-profit, community-owned agency (commonly known as a Community Choice Aggregator, or CCA) that provides clean electricity to more than 270,000 residential and business customers in 13 Santa Clara County communities. SVCE was formed in 2016 by 12 South Bay communities to source clean electricity at lower rates than PG&E, and recently had its investment-grade issuer credit ratings affirmed by both Standard & Poor’s (A) and Moody’s Investors Services (Baa1). Over the course of 2023 Utilities staff worked with the City Attorney’s Office to negotiate master agreement language with SVCE staff and attorneys. The resulting agreement (Attachment A) meets the City’s “must-have” contract provisions4, has been approved as to form by the City Attorney’s Office, and has also been approved by the City’s Energy Risk Manager. Consistent with the City’s other electric master agreements, the Energy Risk Manager recommends that transactions executed under the master agreement with SVCE be subject to the following limitations: a. The date for delivery of the electricity products for each transaction shall not exceed 36 months from the date the transaction is executed; b. The delivery date for any transaction shall not extend beyond December 2027; c. The maximum aggregate transaction limit under each Master Agreement shall be $25 million; d. All transactions shall be subject to the Palo Alto Municipal Code; and In addition, all transactions shall be subject to the City’s Energy Risk Management Policies, Guidelines, and Procedures. Staff will seek Council approval prior to execution of any transaction outside of the above limitations. 3 Resolution 9652: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9652.pdf. 4 PAMC Section 2.30.340(c) requires that utilities contracts incorporate the following contract terms and conditions: (1) governing law shall be the laws of the State of California; (2) choice of venue shall be the County of Santa Clara; and (3) a counterparty shall obtain and maintain during the term of the contract the minimum credit rating established as of the date of award of contract of not less than a BBB- credit rating established by Standard & Poor’s and a Baa3 credit rating established by Moody’s Investors Services. FISCAL/RESOURCE IMPACT Approval of the electric master agreement with SVCE will help ensure that the City continues to have an active set of suppliers in the future so that it can continue to competitively and efficiently meet its electric supply portfolio objectives. Further, approval of this electric master agreement does not commit the City to any transactions with SVCE; therefore, this action will not result in any direct fiscal impact to the City. Costs and revenues associated with future transactions under the recommended master agreement will be accounted for in the Electric Utility Fund budget. STAKEHOLDER ENGAGEMENT Utilities staff has coordinated with key staff from departments involved in the negotiation and/or implementation of electric master agreements, including the Administrative Services Department and the City Attorney’s Office. ENVIRONMENTAL REVIEW The City Council’s approval of this electric master agreement does not meet the definition of a project under the California Environmental Quality Act (CEQA), pursuant to Public Resources Code Section 21065 and CEQA Guidelines 15378(b)(5) because this activity would not result in a reasonably foreseeable direct or indirect change in the environment. ATTACHMENTS Attachment A: Resolution Approving the EEI Master Purchase and Sale Agreement with Silicon Valley Clean Energy Authority APPROVED BY: Dean Batchelor, Director Utilities Staff: James Stack, PhD., Sr. Resource Planner Attachment A * NOT YET APPROVED * 1 6056763R Resolution No. _________ Resolution of the Council of the City of Palo Alto Approving an Edison Electric Institute Master Power Purchase and Sale Agreement with Silicon Valley Clean Energy Authority and Delegating Authority to the City Manager to Transact Under the Master Agreement for Electricity-Related Commodities and Services R E C I T A L S A. The City of Palo Alto seeks to ensure an active set of creditworthy counterparties to meet its electric supply portfolio planning objectives, internal risk management controls, and external operational and regulatory requirements. B. Silicon Valley Clean Energy Authority (SVCE) is a non-profit, community-owned agency with investment-grade credit ratings. C. Approval of the Edison Electric Institute Master Power Purchase and Sale Agreement (Master Agreement) with SVCE will provide the City with an additional electric supplier to transact with efficiently and competitively. D. The recommended Master Agreement with SVCE has been negotiated under terms and conditions acceptable to the City, reviewed and approved by the City Attorney’s Office, and deemed suitable by the City’s Energy Risk Manager. E. Palo Alto Municipal Code (PAMC) Section 2.30.340 permits the use of Master Agreements to buy and/or sell electricity, gas, and related services through preapproved suppliers, subject to the City’s Energy Risk Management Policy, Guidelines, and Procedures. F. Executing this Master Agreement does not commit the City to any transactions with SVCE but allows for future transactions to be executed efficiently. The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The Council hereby approves the execution of the Edison Electric Institute Master Power Purchase and Sale Agreement with Silicon Valley Clean Energy Authority (SVCE) (Exhibit A). SECTION 2. The Council hereby delegates authority to the City Manager or their designee, the Director of Utilities, to transact under the Master Agreement for electricity- related commodities and services and to take any actions necessary to implement this Resolution, subject to the following limitations: (a) The date for delivery of the electricity products for each transaction shall not exceed 36 months from the date the transaction is executed; (b) The delivery date for any transaction shall not extend beyond December 2027; Attachment A * NOT YET APPROVED * 2 6056763R (c) The maximum aggregate transaction limit under the Master Agreement shall be $25 million; (d) All transactions shall be subject to the Palo Alto Municipal Code; and (e) All transactions shall be subject to the City’s Energy Risk Management Policies, Guidelines, and Procedures. SECTION 3. The City Council’s approval of this electric master agreement does not meet the definition of a project under the California Environmental Quality Act (CEQA), pursuant to Public Resources Code Section 21065 and CEQA Guidelines 15378(b)(5) because this activity would not result in a reasonably foreseeable direct or indirect change in the environment. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Assistant City Attorney City Manager ___________________________ Director of Utilities Dear Mayor and Council Members, On behalf of City Manager Ed Shikada, please see staff responses below for questions from Council Member Tanaka on the Monday, March 18 Council Meeting. Item 6: Adoption of a Resolution Approving an Edison Electric Institute Master Power Purchase 1. Can you explain the specific criteria used to select Silicon Valley Clean Energy for this master agreement over other potential suppliers and what positive benefits or qualitative changes they could bring to the group of energy suppliers? Staff response: SVCE was not selected over any other potential suppliers, they were the only potential supplier who inquired about executing an EEI master agreement with us and completed negotiations on such. The City has an open process for getting enabled with new electric and gas master agreement counterparties, in which any credit-worthy supplier who will accept the City’s must-have master agreement provisions is welcome become a new master agreement supplier. SVCE met these criteria, and staff hopes they will become an active participant in the City’s solicitations for electricity products, yielding higher levels of competition and better pricing for the City in these efforts. 2. Was there an impact assessment on how this agreement would affect the city’s current and future energy portfolio, more specifically analyzing the potential benefits or drawbacks of diversification of energy suppliers? Staff response: The City’s pool of enabled electricity counterparties has dwindled somewhat in recent years, as some formerly active counterparties have decided to stop engaging in the California energy markets. As such, staff sees only benefits (and no drawbacks) to expanding the City’s pool of active energy suppliers. Item 7: Approval of Amendment No. 2 of C19171513 With CLEAResult Consulting, Inc. 1. Was an in-depth demand analysis based on empirical data that suggested the future need for EV charging stations, and if so, what were the key findings that suggested that current EV charging stations were being optimally used and Palo Alto needs more chargers? Staff response: There has been an internal preliminary assessment made about EV charger needs. This 2021 internal assessment suggests the need for multiple fold increase in chargers by 2030 to meet demand in alignment with the goals of the S/CAP, which is to reduce emissions 80% by 2030. This need for a robust increase in EV charging infrastructure is in line with state’s EV charger needs assessment for meeting the 7 million EVs by 2030 goal. An update to the Palo Alto estimate is currently underway and results available in early 2025. 2. What measures have been taken by the city to assess the current electrical infrastructure's capability to support the increased load from additional EV chargers? Staff response: An assessment was made on the electrical infrastructure needs to support both EV and building electrification needs. This analysis suggested substantial upgrade needs in residential neighborhoods. The Grid Modernization project, estimated at $200M+, is designed to upgrade the system to meet this increased need. At the February 12, 2024 Council Study Session on the Reliability and Resiliency Strategic Plan, various elements of grid modernization were discussed, including the capacity of the system to handle electrification. For the specific scope involved with this contract, site-specific analyses are conducted to ensure adequate infrastructure for individual installations. Link to February 12, 2024 Study Session: Reliability and Resiliency Strategic Plan for the City’s Electric Utility: https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=4071&meetingT emplateType=2&compiledMeetingDocumentId=9079 3. Should the proposed approval go through, what impact would it have on Palo Alto residents currently dependent on EV charging stations, particularly concerning the cost of recharging and the availability of charging facilities? Staff response: There will be no impact on electricity rates. The EV program is currently funded solely from revenues derived from the state’s LCFS program, and not from rate- payer funds. While the City does not manage the cost of charging as that is the domain of property owners and EV charging companies to set pricing parameters, this contract increases charger availability for the Palo Alto community. One of the S/CAP goals is to increase access to chargers for residents of multi-family properties by 10% by 2025. This contract puts the City on track to increase access from 4.7% currently to the 10% goal. Item 8. Approval of a Professional Services Agreement (Contract No. C24190819) 1. Could you detail the mechanisms and systems in place for the Palo Alto community to provide feedback on Pets In Need and the services it may provide, especially since the incident of 7 puppies dying under PIN care during the previous contract? How will this feedback be considered and integrated into ongoing service evaluation and improvement efforts? Staff response: Community members can provide feedback directly to City staff, the City Manager or City Council. Pets in Need has been discussed four times at Council since February 2022, which provided opportunities for feedback from the community. All comments received are considered and some have influenced the current agreement, for example the policy on handling of feral cats. City and PIN staff meet regularly and any concerns needing resolution are discussed at that time. 2. How were alternative service providers evaluated for animal sheltering services in Palo Alto following the operational challenges with Pets In Need, beyond the City already having prior contact with the business, and what considerations were made to identify a more cost-effective and efficient solution to fulfill the mandatory service requirements? Staff response: Completion of this contract was at the direction of City Council. Staff presented options for alternative service delivery models on February 14, 2022, and the Council directed staff to proceed with negotiations for a long-term agreement with Pets in Need. A detailed analysis of an in-house model for shelter operations was presented to Council on March 27, 2023. Item 10: Approval of Amended Palo Alto CLEAN Program Rules and Requirements 1. Given the significant amendments proposed to the Palo Alto CLEAN Program, especially regarding the rate structure of renewable energy resources, can you provide explicit details on the analytical processes used to determine the cost-effectiveness of these rates and how they fit into the current renewable energy market? Staff response: Staff’s proposed changes to the CLEAN program are not intended to make any significant modifications to the overall program rate structure. Under the proposed staff changes, the program price would remain 16.5 cents/kWh for solar resources up to the participation cap of 3 MW (also unchanged), and the only change would be a slight increase to the “avoided cost” rate that is available to all non-solar renewable resources and to solar resources after the 3 MW participation cap is reached. For example, the contract price available to solar resources that select a 15-year contract term would increase from 8.8 cents/kWh to 9.5 cents/kWh, resulting in a cost impact of less than $25,000 per year to the City. These routine updates to the avoided cost level have been carried out numerous times in the years since the program’s launch.