CITY OF GLENDALE, CALIFORNIA
REPORT TO THE:
Joint D
City Council ~
September
2~ ~
Housing Authority
D
Successor Agency
D
Oversight Board D
2014
AGENDA ITEM
Report: Proposed 25-Year Agreement with Skylar Resources L.P. for the Purchase of SolarGenerated Electrical Power
1. Resolution dispensing with competitive bidding and authorizing a Power Purchase
Agreement for the procurement of renewable solar power for a term of 25 years,
for an amount not to exceed $731 million over the 25-year term
COUNCIL ACTION
Public Hearing
Approved for
D
Or?inapce
Gt):?-~,/~I
D
Consent Calendar D
Action Item ~ Report Only D
calendar
I
ADMINSTRATIVE ACTION
Signature
Submitted by:
Stephen M. Zurn, General Manager - GWP
Prepared by:
Ramon Z . Abueg, Chief Assistant General Manager
Lon L. Peters, Integrated Resources Planning Administrator
Approved by:
Scott Ochoa, City Manager
Reviewed by:
Yasmin K. Beers, Assistant City Manager
Michael J. Garcia, City Attorney
Robert P. Elliot, Director of Finance
I
RECOMMENDATION
It is recommended that the City Council adopt a resolution dispensing with competitive bidding and
approve the procurement of 40-60 MWs per hour of power from a renewable power source, including
required firming services, to help meet GWP's Renewable Portfolio Standard (RPS) compliance
requirement and to cover a portion of GWP's net short energy position. Fifty percent of 50 MW/hour
is guaranteed by the seller to qualify as Portfolio Content Category 1 on an annual basis. Delivery of
energy to Glendale would be scheduled during peak period hours for a term of 25 years, with an
expected start date of December 1, 2015. Deliveries may begin as late as January 1, 2017. The
counterparty is Skylar Resources L.P.
BACKGROUND/ANALYSIS
Compliance with Renewable Portfolio Standards
The California Legislature and the California Energy Commission (CEC) have recently enacted
new environmental laws and regulations, which increasingly require GWP and other public and
private utilities to transition from conventional generation assets to renewable forms of energy
generation. One of the most significant recent legislative enactments was the passage in 2011
of California SBx1-2. SBx1-2 requires that GWP obtain 33% of all resources necessary to
serve its retail load from renewable sources by 2020. SBx1-2 also mandates that GWP meet a
number of intermediate renewable energy milestones prior to 2020. In August 2013, the CEC
adopted regulations outlining how the CEC will enforce the RPS for local POUs pursuant to the
state legislation. The regulations, "Enforcement Procedures for the Renewables Portfolio Standard
for Local Publicly-Owned Electric Utilities", define the RPS percentage milestones that GWP must
meet between now and 2020.
GWP currently faces a 20% RPS obligation in 2014 and 2015, which increases to 25% in 2016,
and then in a linear manner to reach 33% by 2020. Currently, GWP renewable resources are
capable of producing about 220,000 MWh/year, which is about 20 percent of GWP's retail load.
However, the difference between the current 20% obligation and the 33% obligation is about
150,000 MWh per year. The proposed purchase guarantees 146,000 MWh of renewable
energy each year, thus helping to assure RPS compliance through 2020. If GWP procures more
renewable energy than required during any given year, the excess can be "banked" for future
compliance periods.
In addition, GWP's loads are expected to grow during the next two years due to new construction.
By 2016, peak loads are expected to increase by almost 18 MW. Given the nature of the new
load (mixed residential/commercial), this 18 MW of new load is expected to increase GWP's
energy sales by about 95,000 MWh/year. By 2020, one-third of this new load (i.e., 31,000 MWh)
must be served by renewable resources. The proposed purchase, in combination with short-term
purchases of renewable energy, will help ensure RPS compliance even with the expected load
growth.
Replacing Coal-Fired Generation
GWP owns a share of Unit No. 3 at the San Juan (SJ3) coal-fired generating station in New Mexico
and has a long-term contract to purchase coal-fired power from the lntermountain Power Project
(IPP). Together, these coal-fired projects provide about 56 MW of baseload power. Unit No. 3 at
San Juan is currently planned for closure at the end of 2017, and the contract for power from IPP
terminates in 2027. As GWP prepares an exit strategy from SJ3 and IPP, at least 50 MWs of
baseload energy must be procured to replace the energy from these projects. This purchase of
firmed solar power will ensure a replacement supply of reliable power delivered to Glendale
ratepayers and allow Glendale a smooth transition to clean power in the near future.
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This proposed purchase would replace high carbon energy with a supply that is at least 50%
renewable. The project proposed here would deliver between 40 and 60 MWs per hour of firmed
power during all peak-period hours, every day, for 25 years. The seller guarantees that at least
one-half of the energy delivered each year, assuming 50 MW per hour on average, will be
renewable . A portion of the energy delivered would be produced by non-renewable resources,
as necessary to ensure that 40-60 MW per hour is delivered during the entire term of the
agreement.
Alternative Renewable Resources
Currently, GWP has long-term renewable contracts from wind, hydro, geothermal and landfill gas
resources and a small amount of solar in the City of Glendale, which together meet about 20% of
retail load. In order to meet the increasing RPS requirements in 2016 and beyond, GWP has
considered several additional renewable resource projects over the past few years. Recently,
GWP terminated options to purchase the output of three wind projects in the western U.S. because
of significant declines in the cost of alternatives, which rendered the wind projects not cost-effective.
In late 2012 and early 2013, GWP also terminated its participation in the development of two
renewable energy projects in Nevada (one solar and one geothermal), due to steep declines in the
price of alternatives and concern about the cost of integration. The most recent offer (to SCPPA) of
solar power delivered at a point where GWP can take delivery is approximately 40% more expensive
in the first year, and 30% more expensive on a net present value basis over the term of delivery.
In 2014, Glendale terminated its participation in the development of a Purchase Power Agreement
(PPA) at SCPPA associated with a new solar project to be located in the Balancing Area
of the California Independent System Operator (CAISO). The price of delivered solar energy under
the PPA would have been at least $76/MWh, but would have exposed GWP to the unknown risks
of future increases in the cost of transmission and "firming" services within the CAISO. Transmission
costs are expected to increase significantly over the next few years as the CAISO expands its
grid to incorporate new loads and new renewable resources. Firming services are expected to
become increasingly expensive over time as the grid becomes more saturated with solar and wind
resources. The proposed purchase from Skylar avoids these risks.
Alternative Non-Renewable Resources
Given recent actions taken to reduce GWP's carbon exposure, GWP's net short position in energy
is greater than 100 MW per hour during the heavy load hours. One alternative to the proposed
transaction would be to purchase non-renewable energy in exactly the same amount for the same
duration. At least one-half of the total annual energy delivered under this agreement will be
renewable, and thus has no carbon obligation. The remaining portion of the total annual energy
under this agreement will be non-renewable, from gas-fired generating units built to ensure a
constant rate of delivery during all 16 hours each day. This remaining portion will have a carbon
obligation for GWP. If GWP were to purchase a completely non-renewable energy supply of the
same quantity, the entire energy supply would have a carbon obligation for GWP. Based on current
forward prices, the non-renewable supply would cost at least $675 million over the life of the proposed
purchase of firmed, renewable energy (including very conservative [low] carbon prices). Thus, the
proposed purchase is about $55 million more expensive than non-renewable energy, over 25 years,
or approximately $2.5 million per year. This annual expenditure of $2.5 million will help assure
GWP's compliance with RPS obligations, as well as delivering firm energy to retail customers.
Risk Management
The proposed purchase provides for delivery of energy to GWP at the Mead/230 substation, where
Glendale already has ownership rights, as well as long-term leased transmission rights from Mead
across the LADWP grid to Glendale. Based on offers of renewable energy projects evaluated
3
through SCPPA, finding a project that can deliver energy to an existing existing GWP-owned
substation, with downstream rights across the LADWP grid, is very difficult. Recently contracted
wholesale sales at Mead/230 free up 35 MW of transmission rights that would otherwise be used
to import energy from GWP's external resources.
In general, this proposed purchase helps avoid or mitigate several long-term risks, including increases
in carbon prices (especially after 2020 when free carbon allowances are expected to disappear),
increases in energy prices and transmission costs, increases in the cost of firming intermittent
renewable resources, increases in the cost of doing business in the CAISO, risks associated with
buying from a unit-contingent resource, and variations in the shape of prices during the peak period.
All of these mitigated risks will help reduce the cost to ratepayers of risk-management activities that
would otherwise be required .
The proposed purchase also takes advantage of a federal investment tax credit that is scheduled for
expiration at the end of 2016. The price offered reflects the expectation by the developer that over
$20/MWh of tax credits are available for the project. This proposed purchase avoids the risks
associated with the uncertainty of Congressional action regarding renewal of this tax credit.
Currently, about one-third of GWP's expected loads are covered with known resources under
long-term contract or ownership. The remaining two-thirds of expected loads are thus at risk of
market fluctuations. The proposed purchase from Skylar effectively reverses theses shares,
meaning that about one-third of expected loads would be exposed to market conditions.
Recommendation
As a result of the Staff's analysis, it has been determined that the procurement of 50 MW of firmed
power from a solar plant facility under development in Nevada (or equivalent replacement renewable
energy source) provides GWP an opportunity for reliable, cost-effective renewable power supply that
also helps diversify GWP's resource portfolio. Power will be delivered to Glendale at the Mead/230
substation where Glendale has ownership rights, as well as transmission rights across the LADWP
system to get the power delivered to Glendale. The price is competitive given other alternatives
considered and taking into account the deliverability of this specific resource under conditions of
constrained transmission access. Other alternative renewable supplies are projected to be more
expensive due to additional firming costs and additional transmission costs. The project proposed
here delivers firm power to a location where GWP currently holds long-term transmission rights,
thus avoiding the need to buy additional transmission capacity.
Dispensing with Competitive Bidding
Article VI, Section 9 of the Glendale City Charter authorizes the City Council to dispense with
competitive bidding where it is in the City's best interest to do so. On June 17, 2014, the City Council
adopted a resolution dispensing with competitive bidding, and authorizing contracts for the purchase
and sale of energy for terms not to exceed five years in duration. The proposed purchase of
renewable solar energy for a term of 25 years does not fall within the scope of the June 17, 2014
resolution dispensing with competitive bidding.
The proposed purchase follows several years of analysis and evaluation of proposals for renewable
energy projects submitted through a series of "rolling RFPs" issued by the Southern California Public
Power Authority (SCPPA), of which Glendale is a member. GWP's participation in the SCPPA RFP
process led to the wind options and the solar and geothermal resources discussed above, which
ultimately proved more expensive and more uncertain than the proposed purchase from Skylar.
4
It is in the City's best interest to dispense with competitive bidding and authorize the 25-year proposed
renewable solar energy transaction with Skylar Resources, L.P. Electric power and renewable
energy are sold via bilateral transactions , such as that proposed here, or via online exchanges.
Time is of the essence for these transactions, and confirmations must be executed promptly after
agreement is reached. It is not the industry practice to solicit bids for renewable energy using the
City's standard bidding process. For the reasons set forth in this report, staff recommends that the
City Council dispense with competitive bidding on the grounds that it is in the best interest of the
City.
California Environmental Quality Act
Pursuant to Section 21080(a) of the California Public Resource Code, the proposed power purchase
is exempt from the requirements of the California Environmental Quality Act ("CEQA"), because it
does not constitute a "project" as defined in section 21065 of the California Public Resource Code.
The proposed purchase is not unit-contingent and no specific renewable power facility is specified as
the source of the power. To the extent that the power will be derived from a solar plant facility under
development in Nevada, CEQA does not apply to "any project or portion thereof located in another
state which will be subject to environmental impact review pursuant to the National Environmental
Policy Act of 1969 (42 U.S.C. Sec. 4321 et seq.) or similar state laws of that state." Cal. Pub.
Resource Code section 21080(b)(14).
FISCAL IMPACT
The first-year cost of purchasing this energy is no more than $78.65/MWh, escalating at no
more than 1.95% per year over the 25-year term. The total nominal cost of the purchase over
25 years is no more than $730,922,922, including the escalator. This new supply of renewable
energy will displace purchases of non-renewable energy and natural gas, will avoid carbon
costs, and will help preserve free carbon allowances for future compliance obligations.
Funds will be budgeted in 552-921 for FY 2015-16 and future years.
ALTERNATIVES
Alternative 1: Resolution dispensing with competitive bidding and authorizing a Power Purchase
Agreement for the procurement of renewable solar power for a term of 25 years,
for an amount not to exceed $731 million over the 25-year term.
Alternative 2: The City Council may direct GWP to continue to procure non-renewable energy
at market prices, which would expose the City to carbon, RPS and energy market
price volatility.
Alternative 3: The City Council may direct GWP to procure renewable power from another
source and wheel it to Glendale through the CAISO subject to the cost and
uncertainty of export and integration fees , or from a source in LADWP's
balancing area, also exposing the City to the cost and uncertainty of transmission
and integration charges.
Alternative 4: The City Council may consider any other alternative not proposed by staff.
CAMPAIGN DISCLOSURE
In accordance with the Campaign Finance Ordinance No. 5744, the following are the names
and business addresses of the members of the board of directors, the chairperson , CEO, COO,
CFO, Subcontractors and any person or entity with more than ten percent interest in the
company proposed for contract in this agenda item report:
5
...
Off1cers of Sk~v1ar
I Resources LP
Title
Full Name
Officers
William 0 . Perkins Ill
President
Kayla Bruzzese
CFO
Gerardo ("Gerald")
Balboa
Stephen Murphy
coo
Full Name
Board of Directors Not aoolicable
Vice President
Title
Business Address
City
State
Zip
3050 Post Oak
Suite 460
3050 Post Oak
Suite 460
3050 Post Oak
Suite 460
3050 Post Oak
Suite 460
Blvd.,
Houston
TX
77401
Blvd. ,
Houston
TX
77401
Blvd. ,
Houston
TX
77401
Blvd.,
Houston
TX
77401
City
State
Zip
State
Zip
77401
Business Address
...
I Resources LP
0 wnersh'1p In terest.rn more th an t en percent.rn Sk~v1ar
Full Name
William 0. Perkins Ill
Title
President
Business Address
3050 Post Oak Blvd.,
Suite 460
City
Houston
TX
Ownership interest of more than ten percent in Skylar Resources L.P.: William 0 . Perkins Ill
( 100% ownership). No others have more than a ten percent ownership interest.
EXHIBITS
Not applicable.
6
RESOLUTION NO. - - - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GLENDALE,
CALIFORNIA DISPENSING WITH COMPETITIVE BIDDING AND
AUTHORIZING A POWER PURCHASE AGREEMENT FOR
RENEWABLE SOLAR POWER FOR A TERM OF TWENTY-FIVE YEARS
WHEREAS, the California Legislature and the California Energy Commission
have adopted new environmental laws and regulations, which increasingly require
Glendale Water & Power ("GWP") and other public and private utilities to transition from
conventional generation assets to renewable forms of energy generation; and
WHEREAS, in 2011 , the California Legislature enacted SBx 1-2 which requires
that GWP obtain 33% of all resources necessary to serve its retail load from renewable
sources by 2020, and also mandates a number of intermediate renewable energy
milestones priors to 2020, as specified in regulations adopted by the California Energy
Commission (the "RPS requirements"); and
WHEREAS, the City of Glendale owns a share of Unit No. 3 at the San Juan
coal-fired generating station in New Mexico and a long-term contract to purchase coalfired power from the lntermountain Power Project (IPP), which together provide about 56
MW of baseload power; and
WHEREAS, SJ3 is currently planned for closure at the end of 2017 and the
contract for power from IPP terminates in 2027 and accordingly, at least 50 MW of
baseload energy must be procured to preplace the energy from these Projects; and
WHEREAS, currently, the City of Glendale has long-term renewable contracts
from wind, hydro, geothermal and landfill gas resources and a small amount of solar
power within the City of Glendale which together meet about 20% of retail load;
however, the City's peak loads are expected to increase by about 18 MW over the next
two years due to new construction; and
WHEREAS, GWP has considered several additional renewable resource
projects over the past few years, but has not found such projects to be cost-effective;
and
WHEREAS, the proposed procurement from Skylar Resources , L.P. of 40-60
MW per hour of firmed solar power for a 25 year period would provide reliable, costeffective renewable power that would helps diversify GWP's resource portfolio and
achieve RPS compliance, and would be delivered to a substation where GWP has
ownership rights and from which GWP currently holds long-term transmission rights,
thus avoiding the need to buy additional transmission capacity; and
WHEREAS, the proposed renewable solar energy purchase helps avoid or
mitigate several long-term risks, including increases in carbon prices, increases in
energy prices, increases in transmission costs, increases in the cost of firming
intermittent renewable resources, increases in the cost of doing busi ness in the
California Independent System Operator (CAISO) Balancing Area , risks associated with
F:/filenet/cg/council/092314 Skylar Resolution.doc
buying from a unit-contingent resources, and variations in the shape of prices during the
peak period; and
WHEREAS, Article VI, Section 9 of the Glendale City Charter authorizes the City
Council to dispense with competitive bidding where it finds that it is in the City's best
interest to do so; and
WHEREAS, it is in the City's best interest to dispense with competitive bidding
for the proposed 25-year solar energy transaction, for the reasons stated herein and in
the June 24, 201 4 Report to the City Council.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF
GLENDALE, CALIFORNIA:
SECTION 1. The recitals herein above are true and correct and incorporated herein.
SECTION 2. Pursuant to Article VI , Section 9, of the Glendale City Charter, the City
Council does hereby dispense with competitive bidding and authorize the City of
Glendale to enter into a power purchase agreement with Skylar Resources , L.P. for the
purchase of 40-60 MW per hour of firmed renewable solar power, for a term of 25 years ,
for a cost not to exceed $78.65 per Megawatt-hour, escalating at no more than 1.95%
per year over the 25-year term, for a total amount not to exceed $731 ,000,000.
SECTION 3: The City Manager is hereby authorized to execute a Confirmation under
the WSPP Agreement with Skylar Resources, L.P. and such other documentation as
may be required to enter into said solar energy purchase. The form of the Confirmation
shall be subject to the approval of the City Attorney.
SECTION 4: Payment for the renewable solar energy purchased pursuant to the
Confirmation shall be payable solely from a special fund , to wit, the Electric Works
Revenue Fund, and not from the general revenue of the City of Glendale.
SECTION 5. The City Council hereby finds that said solar energy purchase is exempt
from the requirements of the California Environmental Quality Act pursuant to Sections
21065 and 21080(a) and 21080(b)(14) of the California Public Resource Code.
Adopted this _ _ _ day of _ _ _ _ _ _ _ _ ____, 2014.
Mayor
Attest:
City Clerk
F:/fileneUcg/council/092314 Skylar Resolution.doc
STATE OF CALIFORNIA
SS
COUNTY OF LOS ANGELES
I, ARDASHES KASSAKHIAN, City Clerk of the City of Glendale, certify that the
foregoing Resolution was adopted by the Council of the City of Glendale, California at a
regular meeting held on the
day of
, 2014, and that
same was adopted by the following vote:
Ayes:
Noes:
Absent:
Abstain:
City Clerk
F:/fileneVcg/council/092314 Skylar Resolution.doc