SR-510-011
Council Meeting: September 11, 2001 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Authorize the City Manager to Negotiate and
Execute a Contract with Commonwealth Energy Corporation for the
Purchase of Renewable Energy for City Facilities
INTRODUCTION
This report recommends that the City Council authorize the City Manager to
negotiate and execute an agreement for the purchase of renewable electricity for
City facilities with Commonwealth Energy Corporation.
BACKGROUND
On May 13,1999, the City entered into a one-year agreement (CCS 7458) with
Commonwealth Energy for the purchase of 100 percent renewable energy
(geothermal) for all City facilities within Southern California Edison's service
territory. After the first one-year term ended, the City renewed the agreement
for one additional year, which ended June 2001. The City received widespread
recognition for being the first U.S. city to switch to a renewable energy
provider. Other California cities and counties followed Santa Monica's example
and similarly purchased renewable energy for all or a portion of their
electricity demand.
Despite such significant renewable energy purchases by cities and others, the
market for green energy collapsed as wholesale electricity costs spiraled out of
control and made it difficult for the green energy service providers to offer
competitively priced power. Almost all of the green power marketers have
returned customers to their serving utility and gone out of business.
Commonwealth Energy is the only green energy provider still accepting new
customers in California.
DISCUSSION
Under the terms of the previous agreement with Commonwealth Energy, the City
paid $.01 per kilowatt hour above Southern California Edison's current tariff. In
the year 2000, the City purchased over 23,000,000 kilowatt hours of electricity
from Commonwealth Energy at a cost of approximately $2.5 million. In March
2001, the California Public Utilities Commission approved a significant rate
increase for all investor-owned utility customers in an effort to recover the
State's costs for the purchase of wholesale power. Staff estimated that the
approximately $.03 per kilowatt hour rate hike could potentially increase the
City's electricity costs by over $500,000. Rather than renew the agreement,
staff commenced discussions with Commonwealth Energy to achieve a power
cost which would be less than the Edison tariff.
Under the terms of Commonwealth's proposal, Commonwealth will provide the
City with 90 percent renewable energy from geothermal plants in Northern
California and 10 percent new renewable energy from other sources at a cost 5
percent below Southern California Edison's current tariff. This represents a
savings of approximately $80,500 per year from the amount the City would have
had to pay Southern California Edison for non-renewable power. The
agreement will be for a one year period with an option to renew the same
contract terms, if both parties agree, for five additional years. This provides
flexibility in the currently volatile energy market.
BUDGET/FISCAL IMPACT
It is anticipated that the City will save approximately $80,500 per year over what it
would have paid for electricity purchased from Southern California Edison as a
result of the renegotiated contract terms.
RECOMMENDATION
Staff recommends that the City Council authorize the City Manager to negotiate
and execute an agreement with Commonwealth Energy Corporation for the
purchase of renewable energy for City facilities under the terms discussed
above.
Prepared by: Craig Perkins, Director of Environmental and Public Works
Management Department
Susan Munves, Energy and Green Building Programs Coordinator