HomeMy WebLinkAboutStaff Report 2409-3528CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, January 13, 2025
Council Chambers & Hybrid
5:30 PM
Agenda Item
4.Adoption of a Resolution Extending the City Manager’s Authority to Execute Transactions
Under Master Renewable Energy Certificate Agreements with Pre-Qualified Suppliers in
an Amount Not-to-Exceed $5,000,000 per Year During Calendar Years 2025-2030; CEQA
Status: Not a project
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: January 13, 2025
Report #:2409-3528
TITLE
Adoption of a Resolution Extending the City Manager’s Authority to Execute Transactions Under
Master Renewable Energy Certificate Agreements with Pre-Qualified Suppliers in an Amount Not-
to-Exceed $5,000,000 per Year During Calendar Years 2025-2030; CEQA Status: Not a project
RECOMMENDATION
Staff recommends that the City Council approve a resolution (Attachment A) extending 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 sale of Renewable Energy Certificates (RECs) via the Council-
approved Master Agreements with prequalified supplies to meet the needs of the City’s
PaloAlto Green (PAG) Program, Renewable Portfolio Standard (RPS) Procurement Plan,
Carbon Neutral Plan, and REC Exchange Program;
2. Maintain the annual expenditure authority for the REC purchases at $5,000,000 annually;
and
3. Extend the term for REC transactions from calendar year 2025 through calendar year
2030.
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 these
environmental attributes separately from the underlying energy itself, or “unbundled.” Thus,
RECs provide an additional source of funding for renewable energy projects to make them more
economical to develop. The City’s PAG program, RPS Procurement Plan, Carbon Neutral Plan, and
REC Exchange Program all allow for the use of unbundled RECs to cost-effectively meet each
program’s goals.
In November 2013, Council authorized the City Manager, or their designee, to buy RECs from
thirteen pre-qualified suppliers with whom the City has executed REC Master Agreements
(Resolution 93791). The authority granted by that resolution applied to transactions to meet the
needs of the PAG program, the City’s RPS requirements, and the Carbon Neutral Plan, and was
limited to $5,000,000 annually through 2018. In May 2019, Council extended this authorization
through 2024 (Resolution 98312). The attached resolution extends this existing authority – at the
same expenditure level but with an updated set of suppliers – to enable the purchase and sale of
RECs that may be required to meet the City’s PAG, RPS, Carbon Neutral Plan, and REC Exchange
Program objectives in a competitive, timely, and cost-effective manner. Note that none of these
Council actions will directly result in any REC transactions; these actions simply enable the
procurement of RECs as needed for the programs described in this report.
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 proposals (RFP) process, the City executed REC Master Agreements with
the following 13 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 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.
Of these 13 suppliers, several are no longer operating or no longer selling RECs. In addition, in
December 2016, Council approved a standard form REC master agreement (Resolution 96523),
which suppliers could execute at any time and become enabled with the City (after the individual
1 Resolution 9379: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9379.pdf
2 Resolution 9831: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-
9831.pdf?t=55321.72
3 Resolution 9652: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9652.pdf
agreement was approved by Council). In October 2019, Council approved an updated Master REC
agreement and modified the approval process for individual agreements “such that Council
approval of individual REC Master Agreements is no longer required where Council has
authorized the City Manager to award and sign REC contracts with qualified, eligible
counterparties, as described in Section 2.30.340(b) of the Municipal Code.” (Resolution 98634)
Since December 2016, the City has executed new REC Master Agreements with the following 11
suppliers:
1. Renewable Power Strategies, LLC
2. ACT Commodities Inc.
3. STX Commodities LLC
4. Anew Environmental, LLC
5. AQC Environmental Brokerage Services, Inc.
6. Ecohz, Inc.
7. GO2 Markets, Inc.
8. Verdant Energy Services LLC
9. Bridge to Renewables, LLC
10. SCB Brokers LLC
11. Carbon Solutions Group, LLC
Transactions allowed under the REC Master Agreements are limited to the purchase and sale of
unbundled RECs. Note that these REC Master Agreements do not include individual transaction
limits; the only authority limit applicable to these agreements is the annual aggregate limit of $5
million. This is due to the fact that the RECs the City purchases under these agreements are
always transferred to the City within the year in which they’re purchased, and often within days
of the date of purchase. Therefore the City has no long-term exposure to counterparties under
these agreements.
ANALYSIS
RECs for PAG
Currently, the requirements of the City’s PAG program are met via wind RECs procured through
the REC Master Agreements. The PAG program is “Green-E” certified, which is a certification
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. The RECs purchased under these Master Agreements
for the PAG program are all Green-E certified, and the current market price for such RECs is about
4 Resolution 9863: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-
9863.pdf?t=52859.29
$7 per REC.5 The costs to procure these RECs, and to administer the PAG program, are borne by
participating PAG customers through the program’s rate premium.
In 2013, when the City’s electricity supply became 100% carbon neutral, the PAG program was
closed to residential customers. It is currently open to commercial customers, and there is a
relatively low demand for it – driven by customers who need to procure additional RECs to satisfy
their own corporate sustainability objectives. In 2012, total PAG program demand was about
75,000 RECs; in 2023, demand had fallen to about 28,000 RECs, or about 3% of the City’s total
electric load.
RECs for RPS and the REC Exchange Program
The City, like all electric utilities in the state, is required to achieve an RPS level of 60% (of the
City’s retail electric sales) by 2030.6 Under California’s RPS regulations, unbundled RECs are an
approved resource to meet this requirement, with certain restrictions and limitations on their
use for RPS compliance purposes.7 In recent years, the City has opted to use unbundled RECs
(which are significantly less expensive than RECs sold together with the associated energy from
a renewable resource) in order to reduce its cost of complying with the RPS mandate.
In addition, in August 2020, Council authorized the REC Exchange Program, under which the City
exchanges bundled RECs from the City’s long-term renewable resources (Bucket 1 RECs) for RPS-
eligible, unbundled RECs (Bucket 3 RECs) to the maximum extent possible, while maintaining
compliance with the state’s RPS regulations (Staff Report 115568). Because Bucket 1 RECs are
much more valuable under the state’s RPS regulations than Bucket 3 RECs, this program
generates significant revenue for the City. Per Council’s direction, during the program’s first two
years, two-thirds of this revenue was allocated to offset electric utility supply costs, while since
that time all of the revenue has been invested locally in electrification efforts necessary to meet
the City’s ambitious climate goals (Resolution 99139).
5 The supply of Green-e certified RECs in the Western U.S. is somewhat limited, and so the price of these RECs
tends to be slightly higher than the price of RECs purchased for RPS or Carbon Neutral Plan purposes.
6 Per Senate Bill 100, approved in September 2018:
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB100.
7 Under California’s RPS regulations, RECs that are sold independently of the associated energy (i.e., “unbundled
RECs”) are categorized as Portfolio Content Category 3 (“Bucket 3”) resources. The volume of Bucket 3 resources
that a utility is permitted to use toward its RPS procurement requirements is limited to 10% of the total RPS
resources it has procured on or after June 1, 2010.
8 Staff Report 11556: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2020-2/id-11566.pdf
9 Resolution 9913: “Consistent with the City’s Cap and Trade Revenue Use Policy, for Fiscal Years 2021 and 2022,
an amount equivalent to at least one-third of the revenues earned from the REC Exchanges would be allocated
from the City’s Cap and Trade Reserve to local decarbonization efforts; thereafter the City would prioritize local
decarbonization efforts with these funds.” https://www.cityofpaloalto.org/files/assets/public/v/1/city-
clerk/resolutions/reso-9913.pdf?t=40151.26
RECs for Carbon Neutrality
In March 2013, Council approved the Carbon Neutral Plan (Resolution 9322,10 Staff Report
355011), directing staff to procure resources to achieve carbon neutrality starting in 2013 within
a rate impact limit of 0.15 cents per kilowatt-hour. Council updated the Carbon Neutral Plan in
August 2020, changing the City’s methodology for accounting for the carbon emissions of its
electric portfolio from an annual methodology to a more accurate hourly methodology (Staff
Report 1155612).
The amount of renewable energy needed to meet carbon neutrality for the electric supply
portfolio is highly dependent on hydrological conditions. In dry years, the amount of renewable
energy needed will increase, and, conversely, in wet years the City will need less renewable
energy to achieve carbon neutrality and it may even have a surplus. For example, CY 2017 was
such a wet year that the City ended up with about 369,000 MWh of carbon neutral energy in
excess of its load. CY 2018 was much drier, and the City had to purchase a small volume of market
power for the year as a result. In a scenario such as this, the City must procure some unbundled
RECs to maintain the carbon neutrality of its electricity supplies.
Estimated REC Purchase Volumes
Total annual demand for RECs in the coming years will depend heavily on hydrological conditions.
Over the past four years, REC purchase volumes (for all of the above-mentioned program needs)
have ranged from 155,000 to 500,000, with total purchase costs ranging from $746,000 to $2.4
million, as described in Table 1 below. Going forward, there is significant uncertainty regarding
the volume of RECs that will be needed as well as the REC market price. If REC prices are higher
than expected, hydro conditions are extremely 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 exceed recent
historical values. Hence, authorizing the City Manager or their designee to transact up to $5
million per year should provide sufficient flexibility to competitively procure REC supplies for the
next five years.
Table 1: REC Purchase Volumes & Costs, FY 2021-2024
Fiscal Year Volume Cost $/REC
2021 499,479 $ 1,875,921 $ 3.76
2022 389,115 $ 2,161,284 $ 5.55
2023 448,000 $ 2,397,230 $ 5.35
10 Resolution 9322: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9322-
33835.pdf
11 Staff Report 3550: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2013/final-staff-report-id-3550_electric-supply-portfolio-
carbon-neutral-plan.pdf
12 Staff Report 11556: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-
reports/reports/city-manager-reports-cmrs/year-archive/2020-2/id-11566.pdf
2024 155,000 $ 746,400 $ 4.82
Total 1,491,594 $ 7,180,835 $ 4.81
REC Procurement 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. Executing a REC Master Agreement does not commit the City to any
transactions with that counterparty.
REC transactions are always carried out through a competitive solicitation process among the
suppliers who have executed REC Master Agreements with the City. Staff awards REC purchase
contracts to the supplier with the lowest offer price, and awards REC sale contracts to the buyer
with the highest bid price. All REC transactions 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 satisfy the Western Renewable Energy 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.
FISCAL/RESOURCE IMPACT
Funds to procure RECs to meet PAG, RPS Procurement Plan, Carbon Neutral Plan, and REC
Exchange Program needs have already been budgeted for fiscal year 2025. Funding for future
years will be subject to the appropriation of funds through the annual budget process.
STAKEHOLDER ENGAGEMENT
Utilities staff coordinates with the City Attorney’s Office in negotiating REC Master Agreements
and with the Administrative Services Department to transact within the Risk Management Policy
and associated Guidelines and Procedures.
ENVIRONMENTAL REVIEW
The adoption of a resolution extending the City Manager’s authority to execute purchases and
sales of RECs is not a project subject to California Environmental Quality Act (CEQA) review
because adoption of this resolution is an administrative government activity that will not result
in any direct or indirect physical change to the environment as a result (CEQA Guidelines section
15378(b)(5)).
ATTACHMENTS
Attachment A: Resolution
APPROVED BY:
Alan Kurotori, Utilities Chief Operating Officer
Staff: James Stack, PhD., Senior Resource Planner
Attachment A
* NOT YET APPROVED *
0290164_kb_20241213_ms29
Resolution No. _____
Resolution of the Council of the City of Palo Alto Extending the City Manager’s
Authority to Execute Transactions under Master Renewable Energy Certificate
Purchase and Sale Agreements with Pre-qualified Suppliers at an Annual
Expenditure Not Exceeding $5,000,000 During Calendar Years 2025-2030
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.
C. Implementing the PAG Program involves the City’s purchase and sale of renewable
energy certificates (“RECs”) to meet the PAG Program's retail customer demands in a competitive
manner.
D. California’s Senate Bill 100 (2018) requires all load serving entities to have a
Renewable Portfolio Standard (RPS) of at least 60 percent by 2030. RPS enforcement procedures
adopted by the California Energy Commission (CEC) allow for limited use of unbundled RECs to
meet RPS requirements. In 2011, through Resolution No. 9215, the Council approved the City of
Palo Alto’s RPS Procurement Plan, which allows for limited use of unbundled RECs to meet RPS
requirements, in adherence to the CEC RPS enforcement regulations.
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. In 2020, through Resolution No. 9913, the Council approved a new procurement
strategy whereby the City does not keep all of the output of its long-term, in-state renewable
resources, but instead exchanges that output for less expensive out-of-state renewable
generation, with the net proceeds used to fund local decarbonization programs (the “REC
Exchange Program”).
G. In 2013, through Resolution No. 9379, the Council delegated authority to the City
Manager, or their designee, to execute purchases and 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 13 pre-qualified suppliers, in an aggregate amount not to exceed five million
dollars ($5,000,000) annually during calendar years 2013 through 2018, inclusive.
1. 3Degrees Group, Inc.
2. Bonneville Environmental Foundation
3. Constellation Energy Commodities Group
Attachment A
* NOT YET APPROVED *
0290164_kb_20241213_ms29
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.
H. Master Agreements were negotiated and executed with the thirteen suppliers
listed above and expenditures for calendar year 2013 through 2018 were within the delegated
annual expenditure amount.
I. In 2016, through Resolution 9652, the City Council approved a Standard Form
Master REC Agreement that incorporates the contract terms and conditions required in City of
Palo Alto Municipal Code Section 2.30.340(c). As a result, new REC suppliers are able to execute
the Standard Form Master REC Agreement with the City after staff determines that they are
qualified.
J. Through Resolution 9831, Council authorized the City Manager to execute
purchases and sales of RECs in furtherance of the City’s PAG Program, RPS, and Carbon Neutral
Plan with pre-qualified suppliers via Master Agreements during calendar years 2019 through
2024, inclusive.
K. In October 2019, through Resolution 9863, Council approved an updated Master
REC Agreement and modified the approval process for individual agreements such that Council
approval of individual REC Master Agreements is no longer required where Council has
authorized the City Manager to award and sign REC contracts with qualified, eligible
counterparties, as described in Palo Alto Municipal Code Section 2.30.340(c).
L. Since Resolution 9652 was approved in 2016, the City has executed new REC
Master Agreements with the following 11 suppliers:
1. Renewable Power Strategies, LLC
2. ACT Commodities Inc.
3. STX Commodities LLC
4. Anew Environmental, LLC
5. AQC Environmental Brokerage Services, Inc.
6. Ecohz, Inc.
7. GO2 Markets, Inc.
8. Verdant Energy Services LLC
9. Bridge to Renewables, LLC
10. SCB Brokers LLC
11. Carbon Solutions Group, LLC
Attachment A
* NOT YET APPROVED *
0290164_kb_20241213_ms29
M. Extension of the authority delegated to the City Manager under Resolution No.
9831 is needed to implement the City’s PAG Program, RPS Procurement Plan, Carbon Neutral
Plan, and REC Exchange Program.
The Council of the City of Palo Alto does hereby RESOLVE, as follows:
SECTION 1. The Council hereby authorizes the City Manager, or their designee, to
execute purchases and sales of RECs in furtherance of the City’s PAG Program, RPS Procurement
Plan, Carbon Neutral Plan, and REC Exchange Program with pre-qualified suppliers via Master
Agreements. The aggregate REC transactions shall not exceed the annual expenditure amount of
five million dollars ($5,000,000) during calendar years 2025 through 2030, inclusive.
SECTION 2. The Council finds that the adoption of this resolution extending the City
Manager’s authority to execute purchases and sales of RECs is not a project subject to California
Environmental Quality Act (CEQA) review because adoption of this resolution is an administrative
government activity that will not result in any direct or indirect physical change to the
environment as a result (CEQA Guidelines section 15378(b)(5)).
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services