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Home My WebLink AboutStaff Report 2412-3844CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, February 10, 2025 Council Chambers & Hybrid 5:30 PM Agenda Item 8.Adoption of a Resolution Authorizing the City Manager to Approve the Verified Emission Reduction (VER) Master Agreements with AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC and Authorizing the City Manager to Purchase VERs from AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC Under Specified Terms and Conditions During Calendar Years 2025 Through 2034, Inclusive, Subject to Limitations; CEQA Status: Not a Project, CEQA Guidelines 15378(b)(5) 6 0 3 6 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Utilities Meeting Date: February 10, 2025 Staff Report #:2412-3844 TITLE Adoption of a Resolution Authorizing the City Manager to Approve the Verified Emission Reduction (VER) Master Agreements with AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC and Authorizing the City Manager to Purchase VERs from AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC Under Specified Terms and Conditions During Calendar Years 2025 Through 2034, Inclusive, Subject to Limitations; CEQA Status: Not a Project, CEQA Guidelines 15378(b)(5) RECOMMENDATION Staff recommends that the City Council adopt the attached resolution (Attachment A): 1. Authorizing the City Manager, or their designee, to execute the Verified Emission Reduction (VER) Master Agreements with AQC Environmental Brokerage Services, Inc. (Attachment B) and SCB Brokers, LLC (Attachment C); and 2. Authorizing the City Manager, or their designee, to purchase a portion of the City’s VER requirements from AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC under specified terms and conditions during calendar years 2025 through 2034, inclusive, subject to the following limitations: a. The maximum aggregate transaction limit under these Master Agreements shall be $10 million per counterparty; b. All transactions are subject to the Palo Alto Municipal Code; and c.All transactions are subject to the City’s Energy Risk Management Policy, Guidelines and Procedures; EXECUTIVE SUMMARY To implement the Council-approved Carbon Neutral Natural Gas Plan (Resolution 9649), the City must purchase an annual quantity of VERs (commonly referred to as carbon offsets) equal to the greenhouse gas emissions caused by natural gas use by City gas utility customers. In August 2017 Council adopted a Standard Form VER Master Agreement (Resolution 97031). The 1 Resolution 9703 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9703.pdf 6 0 3 6 Standard Form VER Master Agreement is available to all VER suppliers for execution with non- substantive changes, and agreements with specific suppliers including maximum expenditures and transaction term limits are to be presented to Council for approval. AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC have agreed to the terms and conditions of the Standard Form VER Master Agreement. The proposed resolution authorizes the City Manager to execute those agreements and purchase VERs under the agreements within a maximum expenditure and transaction term limits, and increases the pool of approved VER suppliers. BACKGROUND Palo Alto Municipal Code 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 Council-approved master agreements must be done in accordance with the City’s Energy Risk Management Policy, Guidelines and Procedures. On August 15, 2016, Council approved an ordinance modifying the Municipal Code to streamline the purchase and sale of wholesale utility commodities and services and to allow for a Council-approved standard form master agreement (August 15, 2016 City Attorney Report2). The ordinance modified Municipal Code Section 2.30.140 clarifying the process to enable suppliers by specifically allowing the use of a standard form master agreement that contains the City’s minimum contract terms and conditions. Execution of standard form master agreements and delegation of authority to transact under the standard form master agreements with specific suppliers is subject to Council approval. This process is used when contracting for natural gas. In December 2016, Council adopted Resolution 96493 approving a Carbon Neutral Natural Gas Plan (Plan) to achieve carbon neutrality for the gas supply portfolio by FY 2018 using high- quality carbon offsets (VERs) with a cost cap of 10 cents per therm. Implementation of the Plan requires executing contracts to enable the City to purchase VERs from approved suppliers. In August 2017 Council adopted a Standard Form VER Master Agreement (Resolution 9703), making it available to all VER suppliers for execution with non-substantive changes. In December 2020 Council adopted Resolution 99304, amending the Carbon Neutral Gas Plan. The amended plan limited the purchase price of offsets to $19 per ton CO2e, consistent with 2 August 15, 2016 City Attorney Report https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes- reports/reports/city-manager-reports-cmrs/year-archive/2016/sr-7093-mini-packet.pdf 3 Resolution 9649 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9649.pdf 4 Resolution 9930 https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/resolutions-1909- to-present/2020/reso-9930.pdf 6 0 3 6 the original maximum 10 cents per therm rate impact, clarified the allowable offset vintages consistent with state Cap and Trade requirements, and clarified the preference for projects located in California. ANALYSIS Maintaining a set of active counterparties is essential to achieving competitive pricing. The Standard Form VER Master Agreement is available for potential VER suppliers for execution with non-substantive changes. Per Resolution 9703 approving the Standard Form VER Master Agreement, Master Agreements with specific VER suppliers must include maximum expenditures and transaction term limits and must be approved by Council. The VER suppliers AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC have agreed to the terms and conditions of the Standard Form VER Master Agreement. The proposed resolution (Attachment A) authorizes the City Manager to execute those agreements and purchase VERs under the agreements within a maximum expenditure and transaction term limits. Current approved VER counterparties include 3Degrees, ACT Commodities, Anew, CarbonFund, and ClimeCo. Adding the two recommended counterparties will increase the likelihood of receiving multiple bids and competitive pricing for the City’s carbon offset needs. All transactions under the VER Master Agreements will be executed in accordance with the Council-approved Energy Risk Management Policy. The FY2026 budget estimate for the program is $1.9 million which is based on a $13.50 per ton CO2e carbon offset price. If the carbon offset price exceeds the Council-approved maximum of $19 per ton CO2e, the program will need to be modified by Council or terminated. Staff recommends a maximum aggregate transaction limit of $10 million per counterparty, which is consistent with the limits applied to the City’s other VER counterparties. Adoption of the proposed resolution conforms to the Council-approved Energy Risk Management Policy and the Palo Alto Municipal Code. Further, the recommendation is consistent with the Council-approved Carbon Neutral Gas Plan, the Gas Utility Long-term Plan and the Utilities Strategic Plan objective to manage supply cost by negotiating supply contracts to minimize financial risk. FISCAL/RESOURCE IMPACT Funding for the purchase of VERs is available in the FY 2025 Gas supply budget. Funding for the purchase of VERS in subsequent years will be subject to the annual budget process and appropriation of funds. STAKEHOLDER ENGAGEMENT Utilities staff worked with the City Attorney’s Office in 2017 to develop the City’s Standard Form VER Master Agreement. If the proposed resolution is adopted by Council, Staff will submit 6 0 3 6 the VER Master Agreements with AQC Environmental Brokerages Services, Inc. and SCB Brokers, LLC to the City Manager for execution. ENVIRONMENTAL REVIEW Council’s adoption of the attached resolution authorizing the City Manager to approve the VER Master Agreements with AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC and authorizing the City Manager to purchase VERs from AQC Environmental Brokerage Services, Inc. and SCB Brokers, LLC is not subject to California Environmental Quality Act (CEQA) review as it is an administrative governmental activity that will not result in any direct or indirect physical change to the environment (CEQA Guidelines 15378(b)(5)). Future CEQA review will occur, if necessary, based on the relevant lead agency’s analysis of any impacts from any offset projects that are developed. ATTACHMENTS Attachment A: Resolution Approving the VER Master Agreements and Authorizing the City Manager to Purchase VERs Attachment B: VER Master Agreement with AQC Environmental Brokerage Services Attachment C: VER Master Agreement with SCB Brokers, LLC APPROVED BY: Kiely Nose, Interim Utilities Director Staff: Jason Huang, Resource Planner