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sr-072809-1LCity Council Meeting: July 28, 2009 Agenda Item: ~ _ ~- To: Mayor and City Council From: Dean Kubani, Director Office of Sustainability and the Environment Subject: Purchase of Renewable Electricity for City Facilities Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute an amendment and reinstatement of Contract 8604 (CCS) with Commerce Energy for the purchase of renewable electricity for City facilities from July 1, 2008 through June 30, 2010. Executive Summary On June 27, 2006, the City entered into a second agreement with Commerce Energy for 100% renewable energy for all City electrical-accounts. On October 1, 2007, the City modified the agreement with Commerce Energy covering July 1, 2007 through June 30, 2008. From July 1, 2008 through June 30, 2009, the City paid a premium of $0.134 per kilowatt hour for renewable energy as a result of escalating costs for fossil fuels. Under the terms of this proposed amendment and reinstatement, the contract will retroactively include last year's price for FY 08-09 and Commerce's proposed new price for FY 09- 10. From July 1, 2009 through June 30, 2010, Commerce will provide 100% renewable electricity for City facilities at a fixed price of $0.07275 per kilowatt hour, saving approximately $1 million in electrical costs over last year. Discussion Purchasing renewable electricity for City facilities is a key strategy supporting the energy goals in the Sustainable City Plan. In 1999, Santa Monica became the first city in the nation to purchase renewable electricity for its municipal operations from Commerce Energy. City became a direct access customer of electricity in 1999 when the State attempted utility deregulation. Direct access was stopped by the Legislature in 2001, but the City remains a direct access customer for most of its electrical accounts and annually renegotiates a price for renewable energy with Commerce Energy, an energy service provider. On June 26, 2006, the City entered into a second contract with 1 Commerce Energy for one year with an option to renew the agreement for four additional years at amutually-acceptable price. On October 1, 2007, the City entered into a contract modification with Commerce for FY 07-08 to pay $0.099 per kilowatt hour for 100% renewable energy, less than it would have paid Southern California Edison for fossil fuel-generated electricity. In June 2008, the price of crude oil rose to $150 per barrel and the cost of natural gas also increased. The City paid a premium of $0.134 per kilowatt hour during FY 08-09 because the City contracts with Commerce for electricity generated from natural gas-fueled plants combined with sufficient renewable energy certificates to "green" the City's entire demand. In this way, the City purchases 100% renewable electricity. A second contract modification covering FY 08-09 was not executed. Reorganization transitions created a temporary gap in contract oversight, This situation has now been rectified and responsibility for this contract will reside with OSE. The current contract must be amended with the proposed amendment and reinstatement to include the $0.134 per kilowatt price for FY 08-09 and the price for FY 09-10. The Commerce Energy proposal for July 1, 2009 through June 30, 2010 is for a fixed price of $0.07275 per kilowatt hour. If the City consumes the same amount of electricity as last year (17,126,548 kilowatt hours), cost savings in FY 09-10 will total an estimated $1,049,000: Commerce's fixed price does not include transmission and distribution charges, other Edison or State charges, or taxes which are still paid to Southern California Edison. The fixed price includes the electricity and the purchase of renewable energy certificates to cover all of the City's electrical demand including those accounts remaining with Edison. Southern California Edison currently provides 16% renewable energy to its customers and the State mandates that it provide 20% renewable energy by 2010. 2 Alternatives If the City were to return its direct access accounts to Edison and not enter into an agreement with Commerce Energy, the City would relinquish its rights to the direct access market for a minimum of three years. The City would have to pay higher Edison rates, an average of $0.16 per kilowatt hour, plus the cost of purchasing renewable energy certificates to cover its demand if the City continues to implement a renewable energy purchasing policy. Contractor/Consultant Selection Commerce Energy was selected as the City's energy service provider through a competitive process in 1999. In 2006, few energy service providers certified by the CPUC would provide renewable electricity to Santa Monica other than Commerce Energy and the City entered into a sole source agreement. During FY 09-10, staff will work with an energy consultant to identify other renewable energy procurement options and develop a request for proposals for the purchase of renewable electricity for City facilities for future years. Financial Impacts & Budget Actions Funds for the purchase of electricity during FY 09-10 are available in various departmental accounts. Prepared by: Susan Munves; Energy and Green Building Programs Administrator Approved: Dean Kubani Director, Office of Sustainability and the Environment Forwarded to Council: 3 may iayei Reference Amendment to Contract No. 8604 (CCS).