sr-110910-3bCity Council Meeting: November 9, 2010
Agenda Item: 3--
To: Mayor and City Council
From: Dean Kubani, Director Office of Sustainability and the Environment
Subject: Commerce Energy Agreement
Recommended Action
Staff .recommends that the City Council authorize the City Manager to negotiate and
execute ah agreement for an estimated $2 million with Commerce Energy to:
1. Purchase renewable electricity for City electrical accounts for the term
October 1, 2010 through September 30, 2012; and
2. Purchase renewable electricity for City electrical accounts switched under SB
695 for the term June 1, 2011 through May 30, 2013.
Executive Summary
On June 22. 2010, the City extended its contract with Commerce Energy for 100%
renewable energy for City electrical accounts for three months through September 30,
2010. It also authorized the City Manager to negotiate and execute a contract for
electric accounts switched to direct access under SB 695 through May 31, 2011. The
extension provided sufficient time to complete a solicitation process that would identify a
renewable electricity generator to contract directly with the City at a competitive price.
The solicitation did not, however, result in obtaining a competitive price for renewable
electricity, and would have cost the City a significant premium. A second solicitation
was issued fora "bundled" product of electricity and renewable energy certificates that
would allow the City to achieve its 100% renewable energy goals, but not from a
dedicated renewable energy source. As a result of the second solicitation, the City will
pay Commerce Energy a fixed price of $0.0665 per kilowatt hour for those accounts
contracted October 1, 2010 through September 30, 2012, and $0.0700 per kilowatt hour
for accounts switched under SB 695 effective June 1, 2011 through May 30, 2013. This
contract price will save the City approximately $200,000 over the next two years.
Discussion
The City has purchased renewable energy for its electrical accounts since 2001 as a
direct access customer. The current contract with Commerce Energy for the purchase
of renewable electricity at a fixed price of $0.07085 per kilowatt hour ends September
30, 2010 for accounts that have been under direct access since 2001. City electrical
accounts switched to direct access under SB 695 on April 16, 2010 are contracted with
Commerce Energy at a fixed price of $0.07165 per kilowatt hour through May 31, 2011.
In April; 2010, energy consultants .Think Energy were hired to coordinate a solicitation
process to identify new renewable energy service providers available in. the direct
access market. It was determined that after two direct access contracts with Commerce
Energy over the past nine years, it was time to explore other available renewable
energy options in light of the tremendous growth in clean energy investment. The
solicitation was for along-term contract with a renewable energy generator with the goal
of ensuring price stability for City electrical costs and to serve as a "hedge" against
future rate increases.
On May 12, 2010, the City issued a Request for Proposals for the City's 616 electrical
meters with an approximate peak demand of 18.5 megawatts and approximate annual
usage of 28,950,000 kilowatt hours. Three bids were received, but only one proposal
identified an energy provider who would contract directly with the City, and this bid was
at approximately twice the price the City currently pays for power. It was clear in
discussions with the bidder that renewable energy generators consider the .City's
electrical .demand to be too small to offer significant price discounts or flexible terms
over along-term contract. The proposal would have resulted in a premium of $1.8
million in the first year of the contract. Continued negotiation resulted in reducing the
premium to about $1 million, which staff deemed an unacceptable cost increase from
the $2.5 million currently paid for electricity. (The City pays Commerce Energy
approximately $2 million per year for the electricity commodity and Southern California
Edison approximately $500,000 per year for transmission and distribution through the
electric grid.) A second Request for Proposals was issued on September 20, 2010 to
energy service providers seeking a bundled product of fossil-fueled power (unidentified
natural gas sources) with renewable energy certificates (RECs) from California or
western state generation. Three bids were received and Commerce Energy's was the
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lowest and best price, and is recommended by staff. The City would pay Commerce
Energy a fixed price of $0.0665 per kilowatt hour for those accounts contracted October
1, 2010 through September 30, 2012, and $0.0700 per kilowatt hour for accounts
switched under SB 695 effective June 1, 2011 through May 30, 2013. i2ECs will be
certified by the Center for Resource Solutions which verifies the renewable generator's
source of supply and specifications. It is estimated that this contract will save the City
approximately $200,000 in electric costs over the next two years from the approximate
$2.5 million spent annually on electricity.
Financial Impacts & Budget Actions
Funds for purchase of electricity during FY10-11 are available in various Departmental
accounts. Budget authority for subsequent years will be requested in the Proposed City
Budget that is submitted to City Council for approval
Prepared by: Susan Munves, Energy and Green Building Programs Administrator
Approved:
v `~! I
Dean Kubani
Director, Office of Sustainability and the
Environment
Forwarded to Council:
Rod Gould
City Manager
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Reference Contract No.
9292 (CCS).