CITY OF BURBANK Burbank Water and Power STAFF REPORT

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1 CITY OF BURBANK Burbank Water and Power STAFF REPORT DATE: February 13, 2018 TO: FROM: Ron Davis, City Manager Jorge Somoano, General Manager, Burbank Water and Power SUBJECT: RECOMMENDATION TO CITY COUNCIL FOR BURBANK WATER AND POWER TO ENTER INTO A POWER SALES AGREEMENT WITH SOUTHERN CALIFORNIA PUBLIC POWER AUTHORITY FOR THE ENERGY AND ENVIRONMENTAL ATTRIBUTES FROM A 22 MEGAWATT SHARE OF A UTILITY-SCALE SOLAR POWER PLANT IN RIVERSIDE COUNTY RECOMMENDATION City Council to (a) approve a 25-year Power Sales Agreement (PSA) with Southern California Public Power Authority (SCPPA) for the energy and environmental attributes from a 22 megawatt (MW) share of a utility-scale solar power facility in Riverside County, (b) authorize the General Manager of Burbank Water and Power (BWP) to execute the PSA and any other ancillary documents necessary to implement the PSA and (c) grant the City Manager, or his designee, authority to exercise all authority granted to the City under the PSA. BACKGROUND Burbank s Renewable Energy Goals On October 30, 2012, City Council adopted the First Amended California Renewable Energy Resources Act Compliance Plan that requires BWP to procure renewable energy equivalent to 33% of its annual retail sales by 2020 and beyond. On October 7, 2015, the State of California passed Senate Bill 350 (SB 350) into law which establishes new clean energy, clean air, and greenhouse gas reduction goals for 2030 and beyond. This law requires BWP to increase its renewable energy procurement efforts to 50% of its retail sales by 2030, with interim targets in the intervening years. BWP first began to study how to meet the SB 350 requirement of a 50% renewable procurement as part of its 2015 Integrated Resource Plan. BWP is currently developing its 2019 Integrated Resource Plan which will continue to look at ways to procure 50% or 1

2 greater amounts of renewable energy by 2030 (as well as how it can help its customers become more energy efficient and transition into the electrified future of transportation). Joint Development of Renewable Energy through SCPPA BWP works with other SCPPA members to jointly source and negotiate power purchase agreements (PPAs) for renewable energy. This arrangement has allowed BWP to participate in large projects (which BWP would not otherwise have had access to) and to take advantage of economies of scale. SCPPA facilitates this participation through its highly competitive Request for Proposals for Renewable Energy Resources and Energy Storage Solutions (RFP), through which SCPPA received over one hundred renewable energy proposals. Staff from SCPPA and its members (including BWP) analyze these proposals to find the best renewable energy procurement opportunities for each of the respective members. BWP has been procuring renewable energy per its goal of 33% by 2020 and anticipates achieving approximately 32% of its sales in This procurement includes contracts with wind generation (such as Milford 1 in Utah), solar generation (such as Copper Mountain Solar 3 in Nevada), geothermal generation (such as the Don Campbell project in Nevada), and small hydroelectric generation (such as the Tieton project in Washington). As part of this procurement, in 2011, BWP also entered into 10-year biomethane (renewable natural gas) supply contracts to fuel a portion of its share of the Magnolia Power Project and generate renewable power, representing approximately 25% of Burbank s annual renewable energy supply. Biomethane is a particularly valuable renewable fuel: it displaces a portion of the natural gas that BWP would otherwise purchase for Magnolia, it allows BWP to increase its renewable percentage without contributing to BWP s Duck Curve, and it does not rely on finite electric transmission paths from outside the LA Basin into Burbank. These biomethane contracts expire in 2021 and cannot be renewed under current California regulations. Therefore, BWP must replace the renewable energy benefits obtained through its existing biomethane contracts in order to maintain 33% beyond Furthermore, one of BWP s biomethane contracts has not been delivering since March This biomethane contract was intended to provide 4.1% of BWP s renewable procurement. Thus, the non-delivery of such biomethane brings BWP below 33% and must be replaced with an alternate renewable energy source so that 33% (or more) can be maintained. Despite this forecast compliance shortfall in renewable energy, BWP currently has an adequate supply of energy from conventional and renewable resources to meet Burbank s reliability needs. The chart below shows the renewable procurement targets BWP seeks to achieve and demonstrates the need to add new renewable energy resources, over time, to both replace and increase its renewable energy procurement. 2

3 BWP Renewable Goals and Trajectory 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Requirement Existing Contracts With EDF Solar To bridge this gap and maintain compliance with California s Renewable Portfolio Standard requirements for publically owned utilities, BWP continues to actively participate in SCPPA s RFP for projects that meet BWP s needs, especially those that can replace biomethane s advantages with respect to the Duck Curve. DISCUSSION In 2017, EDF Renewable Development, Inc., (EDF) responded to SCPPA s RFP with a proposal for a contract involving two separate solar projects, Desert Harvest II LLC Solar and Maverick Solar 2 LLC, with both projects connecting to the grid at the same point. The Desert Harvest II LLC project will be a 150 MW facility located in Riverside County that is expected to come online in December The Maverick Solar 2 LLC project will be a 500 MW facility located a few miles away. From the SCPPA membership, the Cities of Anaheim, Vernon, and Burbank expressed interest in participating in the contract and together negotiated the terms of a PPA with EDF through which SCPPA would purchase the output of a separately metered 70 MW portion of either the Desert Harvest II LLC or Maverick Solar 2 LLC facilities. Burbank proposes to purchase the output from a 22 MW share of that 70 MW. The structure of the transaction allows BWP to increase its renewable procurement without adding to BWP s fully resourced position or needing to integrate additional renewables. The energy generated will be scheduled and sold within the California Independent System Operator s grid, with the debits and credits associated with the sale being a pass-through to Desert Harvest II LLC (i.e. without risk to SCPPA or BWP). With the energy sold to others, BWP will effectively pay $15.25 per Renewable Energy Credit (REC) associated with that energy. This $15.25 REC price is fixed for the 25-year term of the PPA. Under the PPA, BWP will only pay for California Energy Commission-certified RECs delivered to a SCPPA account on its behalf. 3

4 This $15.25 is slightly below the current REC market value, generally thought by industry participants to be $17-$20/REC and has been as high as $42/REC in the past. Thus, staff believes that $15.25 represents a good value for RECs. Description of the Proposed Transaction When SCPPA undertakes a transaction on behalf of its members, there are two basic agreements involved in the transaction as set forth below. Only the PSA requires the approval of the City Council. 1) The first is a PPA between SCPPA and Desert Harvest II LLC which contains the commercial terms for the transaction which are summarized below: a. Project Size: 70 MW share of either the Desert Harvest II LLC or Maverick Solar 2 LLC solar photovoltaic. b. Location: Riverside County, CA. c. Expected Capacity Factor: 36.7%. d. Term: 25 years. e. Delivery Point: Southern California Edison s Red Bluff substation in unincorporated Riverside County, CA. f. Commercial Operation Date: December 1, g. Price: Index + $15.25 fixed. h. Ongoing Performance Guarantee: EDF provides performance security in varying amounts for its performance through the life of the PPA. This performance security is $3.5 million at PPA signing, increasing to $7.0 million upon reaching project commercial operation. 2) The second is a PSA between SCPPA and each of its members participating in the project. SCPPA resells all of the energy it obtains under the PPA to its members under a PSA, at cost. The major provisions of the PSA are: a. Burbank agrees to purchase energy from a 22 MW share of 70 MW SCPPA is purchasing under the PPA. b. The cost of the energy is comprised of a pass-through of pricing specified in the PPA as well as the administrative costs of SCPPA. c. The PSA becomes effective on the first day when all of the following have occurred: (1) the PSA is approved and executed by both SCPPA and Burbank, (2) The PSAs between SCPPA and the Cities of Anaheim and Vernon have been approved and executed, and (3) the PPA has been approved and executed by both SCPPA and Desert Harvest II LLC. d. The PSA establishes payment mechanisms and billing procedures. e. The PSA establishes the rights and obligations between SCPPA and the participants. f. The PSA establishes a Coordinating Committee for the purpose of project control, communication, and coordination between the participants and SCPPA. 4

5 SCPPA resells the power to its participants at cost. Staff of the Cities of Anaheim and Vernon are currently seeking approval to enter into identical PSAs with SCPPA for 36 and 12 MW respectively. The SCPPA Board approved the PPA between SCPPA and Desert Harvest II LLC on December 21, The PPA, though approved by the SCPPA Board, is not yet signed and will not be until all three cities approve their respective PSAs for their shares of the purchase SCPPA will make on their behalf. The BWP Board reviewed BWP s participation in this proposed transaction, as described above, at its January 18, 2018, meeting and unanimously recommends it to City Council for approval. The PSA has been reviewed and approved by the City Attorney s Office. FISCAL IMPACT As described above, the REC price paid under the proposed PSA is $15.25 for the life of the contract. The REC quantities BWP expects to receive are almost equivalent to those that would have been generated had one of BWP s biomethane supply agreements continued to deliver. The cost of the REC component associated with this non-delivering biomethane contract is $31.50 and so the proposed agreement represents a substantial savings over this biomethane contract and thus reflects a positive fiscal impact for BWP s power supply expenses over the life of the proposed agreement. CONCLUSION Staff requests that City Council adopt a motion approving a 25-year PSA with SCPPA for the energy and environmental attributes from a 22 MW share of a utility-scale solar power facility in Riverside County and to authorizing the General Manager of BWP to execute the PSA and any ancillary documents to implement the PSA. EXHIBITS Exhibit A Power Purchase Agreement between Desert Harvest II LLC and SCPPA. Exhibit B Power Sales Agreement between SCPPA and the City of Burbank. 5