HomeMy WebLinkAboutStaff Report 2405-2996CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, June 17, 2024
Council Chambers & Hybrid
4:00 PM
Agenda Item
30.Approve Retention of the Current Western Area Power Administration (WAPA)
Hydroelectricity Base Resource Contract Allocation From 2025-2030; CEQA Status: Not a
Project. Presentation
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City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Utilities
Meeting Date: June 17, 2024
Staff Report: 2405-2996
TITLE
Approve Retention of the Current Western Area Power Administration (WAPA) Hydroelectricity
Base Resource Contract Allocation From 2025-2030; CEQA Status: Not a Project.
RECOMMENDATION
The Utilities Advisory Commission and staff recommend that the City Council keep the City of
Palo Alto’s full share of its allocated hydroelectric resource under the current hydroelectricity
supply contract, the 2025 Base Resource Contract from Sierra Nevada Region of the Western
Area Power Administration (2025 WAPA Contract), as approved by Council in February of 2021
(Staff Report #116791).
Note: No action from City Council is required to remain in the contract at the current resource
allocation percentage (12.06299%). Staff will revisit project financial impact in 2029 and make a
recommendation for the period of 2030 through 2034. The decision to reduce the contract
allocation or terminate the contract will be revisited every five years until the last termination
opportunity in 2049.
EXECUTIVE SUMMARY
In 2021 the City Council approved the 2025 WAPA Contract, which allocates to the City a
12.06299% share of the WAPA contract’s base resource generation from 2025-2055. As
negotiated, the City has the option to reduce its allocation or terminate the 2025 WAPA Contract
until June 30, 2025. The current decision is whether to maintain, decrease, or exit our
hydroelectricity supply contract with WAPA for the years 2025 – 2030. If the City chooses to keep
this contract in the electricity supply portfolio at the current allocation percentage, there will be
an opportunity to reduce or eliminate the City’s resource allocation share again in 2029, and
every five years until the contract terminates in 2054. Exiting the contract or reducing the
1 Staff Report 11679 https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2021/02-01-21-id-11679.pdf
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contract allocation share is a permanent decision through the remaining duration of the contract
(2054).
BACKGROUND
2) which began delivering hydroelectric power to
the City in 2005 and would terminate if not extended by December 31, 2024. The City Council
approved the 2025 WAPA Contract extension in 2021 after nearly seven years of negotiation
(Staff Report #116793). This 2025 WAPA Contract extension runs from 2025-2054 unless the City
decides to reduce its resource allocation percentage or exit the contract. The City can choose to
reduce its resource allocation or exit the contract before June 30, 2024, and then may reconsider
every five years thereafter for duration of the 30-year extension, assuming the City remains in
the contract through the full extension term. Therefore, while this is potentially a 30-year
extension, any decision to remain at the City’s current resource allocation percentage is only
binding for the next five years from January 1, 2025 to December 31, 2029. Most renewable and
hydroelectricity contracts require a ten to twenty-year commitment, so the opportunity to
reduce or end the contract every five years is a somewhat rare flexibility. A decision to reduce
the City’s allocation percentage or terminate the agreement will be permanent for the remainder
of the 30-year extension period.
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and if the City exits the contract in 2025 then overpaid funds will not be reimbursed to the City.
2 Resolution 8007 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso8007.pdf
3 Staff Report 11679 https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2021/id-11679.pdf
4 WAPA’s financial limitations do not allow return of funds by 2025.
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The contractual costs have been estimated by WAPA and USBR to be about $9M in 2025
escalating to about $11.5M in 2030. Contractual costs are not fixed, but WAPA and USBR aim for
cost stability year to year.
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Figure 1. USBR Map of Central Valley Project- By Shannon1 - Own work, CC BY-SA 4.0,
https://commons.wikimedia.org/w/index.php?curid=47015188
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Figure 2.Simplified diagram of the Central Valley Project (CVP). A few State Water Project (SWP)
units are shown when they are closely integrated or shared with the CVP. Credit: Cary Fox,
USBR 2024
ANALYSIS
To determine whether or not to recommend keeping the status quo under this contract
extension, modeling with Ascend Analytics energy software as well as a broader uncertainty and
sensitivity analyses was completed. Supplemental sensitivity and uncertainty analysis was
performed to illustrate the magnitude of the uncertainties and to verify the Ascend model results
with more conservative assumptions.
Ascend Analytics Analysis
Staff and the Ascend Analytics team completed robust analysis of the energy value under the
2025 WAPA Contract, using hundreds of Monte Carlo simulations5 comparing WAPA to other
resources and variable forward-market prices. Several large community choice aggregators use
Ascend Analytics tools for valuation of electricity supply contracts as it is considered one of the
best-in-class tools currently available.
Ascend uses current market prices along with planned transmission projects and generation
projects to create a custom market price forecast for the California ISO area. These price forecasts
by region within the California ISO are then used to generate project-specific price forecasts at
5 Monte Carlo simulations are used to model the probability of different outcomes when a number of the inputs in
models have large uncertainties associated. It is a technique used to understand the impact of risk and uncertainty.
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each ISO node. This nodal price granularity provides improved accuracy for project revenue
projections.
Supplemental Sensitivity and Uncertainty Analysis
Supplemental Costs Included in Analysis
o In 2022 CPAU received about 20% of long-term average generation expected
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o In 2021 CPAU received about 50% of long-term average generation expected
- Back-to-back dry years and extreme multi-year droughts are becoming more common in
California, which effectively increases the reserve funds CPAU needs to self-insure against
precipitation variability through the Hydroelectric Stabilization Reserve. CPAU limits the self-
insurance costs by accepting some level of volatility in electricity rates, as CPAU passes
through to customers some costs in Hydro Rate Adjustment surcharge.
Cost of seasonal mismatch with CPAU electric portfolio:
- WAPA delivers electricity mostly in the Spring and Summer, when CPAU’s electric portfolio
already has a surplus, requiring CPAU to sell power from other projects during low price
seasons, and purchase market power during higher priced Fall and Winter to comply with risk
management guidelines. The seasonal mismatch to CPAU’s electric portfolio is quantified and
included additional cost to capture the full cost of keeping the 2025 WAPA Contract.
Cost of month-ahead forecast errors:
- Poor forecasts add cost and exposure to the day-ahead market if the energy is not delivered
as expected for the current month. The month-ahead forecasts from WAPA have been shown
to have persistent inaccuracies to due to the operational complexity of the project and the
reservoir, streamflow, temperature, dissolved oxygen, and pumping requirements. This cost
is quantified and included in staff’s analysis.
Supplemental Uncertainties Included in Analysis
- Exploring a broader range of low power prices similar to 2019 power price levels as an
additional conservative sensitivity analysis
- Additional environmental costs which could be added to the contract cost analysis in the
future under some interpretations of the Central Valley Improvement Act
- Lower generation from the project from both climate change and additional environmental
constraints which would lower absolute generation which could be implemented as part of
federal and state proceedings
- Lower value generation from more generation being shifted into spring months with lower
value from both reduced snowpack and additional environmental constraints being
considered at the state and federal level
RESULTS
Overall, the 2025 WAPA Contract competed favorably under the large majority of scenarios
explored, due to the dispatchable nature of the hydroelectricity. The improved dispatchability
allows the project to generate in the late evening hours of the summer and even to some extent
year-round as the overbuild of solar generation causes shortfalls of dispatchable power in the
evening hours. The new flexibility of the project benefits from the increasing seasonal and hourly
volatility from surplus solar in California. USBR operators are currently cycling pumped storage
within the day to capture additional power revenues, backing down generation and spilling water
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over dams to capture negative prices, and pumping during the middle of the day to capture
negative prices. These operational improvements are new in the last few years and are saving
millions of dollars per year to CPAU and other power customers.
Results of Analysis with Ascend Analytics
Results of Supplemental Uncertainty and Sensitivity Analysis
Alternatives Analyzed
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assessed that the marginal diversity benefit of decreasing our exposure to hydroelectricity by
decreasing the WAPA contract is far outweighed by the flexibility and cost of the WAPA
resource.
FISCAL/RESOURCE IMPACT
POLICY IMPLICATIONS
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STAKEHOLDER ENGAGEMENT
Staff presented the recommendation to extend the maximum available share of the WAPA Base
Resource to the UAC May 1, 20246. UAC members asked for clarification about:
1.Why the value of the project is going down over time?
a.Energy prices are currently projected to go down over the 2025-2029 timeframe,
meaning the revenue from this generation would also go down.
2.If it were possible to sign up for only the years where the project was projected to be
profitable, such as 2025-2027?
a.Our current WAPA contract is a 20-year contract, and that technically this contract
extension is a 30-year contract, with the option to decrease our share or terminate
every five years. That flexibility to decrease or exit every five years was the result of
contract negotiations.
3.What the WAPA bar chart of costs the really meant in the presentation7?
a.Costs in 2024 were lower than in any year since 2010. This is largely because staff had
worked closely with Western to get more value from WAPA transmission charging
more to their transmission customers and generating more revenue from the project
by operating it more flexibly and also participating in the Energy Imbalance Market.
4.How could costs of WAPA be going down if our rates were going up?
a.City rates are not only driven by the profitability of our electricity supply, but also by
transmission costs and reliability products such as resource adequacy, the cost of both
of which is going up.
The recommendation was approved with all six UAC Commissioners in attendance.
ENVIRONMENTAL REVIEW
The City Council’s approval regarding remaining in this contract extension does not require
California Environmental Quality Act review, because it does not meet the definition of a project
under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), as an
administrative governmental activity which will not cause a direct or indirect physical change in
the environment. WAPA’s 2025 Power Marketing Plan authorizing the contract has a Categorical
Exclusion from National Environmental Policy Act (NEPA) review since WAPA is reallocating its
existing resources and is not planning to increase its generation or transmission.
APPROVED BY:
Dean Batchelor, Director of Utilities Staff: Lena Perkins, PhD, Senior Resource Planner
6 https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/agendas-minutes/utilities-
advisory-commission/archived-agenda-and-minutes/agendas-and-minutes-2024/05-may-2024/05-01-2024-
packet-v2.pdf Beginning page 14 of the pdf
7 UAC Presentation https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=61715
City Council: June 17, 2024 www.cityofpaloalto.org
Presentation of Recommendation to
Retain the Current Resource Allocation
under the 2025 WAPA Hydroelectric
Contract
Lena Perkins, PhD, Utilities Dept., Senior Resource Planner
Tim Hall, Karl Knapp Stanford Energy Graduate Summer Fellow
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-Central Valley Project (CVP) mostly built in 1930s & 1940s
-Federal water storage and conveyance project: 20 reservoirs, 10
generating power plants, 3 pump stations, 643 miles of canals
-Generates up to 2,000 MW, delivers ~7MAF/yr of water 500 miles south
-Palo Alto has been purchasing surplus power from CVP since 1960s
-For 2005-2024 the surplus power was packaged into a product called
Base Resource electricity. It is ~ 60% of the total generation of the CVP
power (surplus power not needed for pumping water south)
-City currently purchases ~ 12% of the Base Resource hydroelectricity,
(~ 35% of City’s electricity supply)
-Current Base Resource contract (2005-2024) has option to extend 98%
of current share of WAPA Base Resource Contract through 2054
-City has option to exit or reduce 2025-2054 share until June 30, 2024
-If extended, City will also have option to exit or reduce contract in 2030
CVP Background & CPAU History
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WAPA and City have worked hard to increase value & flexibility
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-City staff has worked with WAPA and USBR
since 2008 to increase flexibility
-Increased revenue from better flexibility has
lowered our costs
-WAPA has also worked with staff to contain
costs and is returning money to power
customers 2019-2030
-Staff is in active collaborations with WAPA and
USBR to:
-Improve the forecasts
-Add flexibility, potentially via pumped
storage, curtailing pumps, and batteries
-Optimize real-time emissions of operations
Recommend keeping 100% of 2025 WAPA Contract Extension through 2030
Positive net value driven by:
-Increased flexibility from hardware & software
improvements
-High market electricity prices in evening hours
-Above average generation likely 2025 & 2026
Decreasing value over time driven by:
-decreasing power market prices
-Increasing chance of dry years from present
-Increasing cost projections
Uncertainty driven by:
-Electricity market price uncertainty & volatility
-Variability of precipitation
-Regulatory risks of lower generation & higher costs
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Recommendation
Staff and the UAC recommend that the City Council keep the City of Palo Alto’s full
share of its allocated hydroelectric resource under the current hydroelectricity supply
contract, the 2025 Base Resource Contract from Sierra Nevada Region of the Western
Area Power Administration (2025 WAPA Contract), as approved by Council in February
of 2021 (Staff Report #11679). No action from City Council is required to remain in the
contract at the current resource allocation percentage. Staff will revisit project financial
impact in 2029 and make a recommendation for the period of 2030 through 2034. The
decision to reduce the contract allocation or terminate the contract will be revisited
every five years until the last termination opportunity in 2049.
Questions?
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