Item 9-A

City Council Meeting: 02-16-99 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 and Approve a Change Order to the City's Professional Services Contract with Henwood Energy Services for Contract Negotiation and Implementation Assistance

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. The report requests that Council approve a change order in an amount not to exceed $40,000 with Henwood Energy Services for assistance in contract negotiation and implementation.

BACKGROUND

On October 13, 1998, City Council approved the issuance of a Request for Proposal for the purchase of renewable energy for all City facilities as the first step in the development and implementation of a comprehensive energy management plan for the City and community. With this procurement decision, Santa Monica would become the first municipality in the United States to obtain all its electricity from renewable sources and would significantly contribute to the promotion of the renewable power market in California. The conversion to 100% renewable electricity is one of the most important environmental policy actions which can be taken by the City in terms of reduced air pollution, reduced greenhouse gas emissions and public health benefits.

DISCUSSION

On November 9, 1998, the City issued a Request for Qualifications/Proposals for competitive energy services. California Public Utility Commission-certified Energy Service Providers (ESPs) were asked to submit proposals and qualifications to serve the residential, commercial, industrial and municipal sectors of Santa Monica with either renewable or a mix of renewable and non-renewable resources sufficient to meet Santa Monica's electricity demand. Bids for City facilities were required; proposals for the broader community were optional. The objective of this process was to both identify the best immediate proposal for purchase of renewable electricity in City facilities as well as qualify renewable energy providers should the City Council ultimately adopt an energy management plan in which renewable energy would be offered to the community.

Henwood Energy Services, an energy consultant under contract to the City, coordinated review and selection on behalf of the City, providing comprehensive data on the City's and community's electricity usage to thirty interested energy suppliers. Fourteen proposals were received. Staff from the Environmental and Public Works Management Department, the City Manager's Office, and Henwood Energy Services evaluated the proposals using criteria that included: price, the experience and reliability of the energy provider, the energy management and other energy services to be provided, the strength of the proposed team, the flexibility of the proposal's terms and options, and the proposed electricity resource itself. The type and amount of renewable energy to be provided to the City and whether the electricity would be generated by new or existing facilities were also criteria that were ranked. Solar, wind, and geothermal energy were the preferred renewable sources as they are more environmentally benign than the alternatives. New generation projects were preferred over existing generation facilities as a means to increase the amount of renewable energy in California's electricity supply mix. Local or California-based generation was preferred over out-of-State sources. Four finalists were selected.

Following interviews with the four finalists and reference checks, Commonwealth Energy Corporation was selected as the most qualified supplier of renewable electricity for City facilities, and as the provider most able to deliver the comprehensive energy services requested by the City. It should be noted that other finalist's proposals were competitive and, in the event that negotiations with Commonwealth Energy falter, staff will recommend entering into negotiations with the next best alternative provider.

Commonwealth Energy has established contracts with Calpine Corporation to supply up to 20 megawatts of geothermal power from Calpine's Northern California geothermal plants and is negotiating for additional supply. Commonwealth's bid would provide the City with 100 percent renewable energy from a designated source (Calpine's geothermal). Starting sometime in the year 2000, the source of the 100% renewable electricity would become new geothermal generation facilities being developed in Southern California at the Salton Sea.

In addition to the provision of renewable energy for City facilities, Commonwealth's bid includes: the installation costs for approved interval electricity meters at up to 30 existing municipal sites (and any new meters which may be required during the term of the agreement), meter reading, ESP consolidated billing services, and any additional savings derived from the installation of new energy management measures at City facilities. The estimated maximum cost impact from the proposed package of energy management services totals approximately $200,000 per year above the City's current electricity costs, or about an 8.7% increase over the City's present total electricity bill of approximately $2.3 million. It is anticipated, however, that ongoing negotiations with Commonwealth will result in a significantly lower cost impact to the City.

Commonwealth will provide the City with a performance bond valued at $100,000 to guarantee a reimbursement to the City for its costs should Commonwealth default on their obligations under the proposed contract. As part of their bid, Commonwealth Energy will also pass-through the California Energy Commission Renewable Energy Trust Fund credit, estimated at approximately $120,000 per year, to the City as long as these credits continue to be available. Staff recommends that the term of the agreement with Commonwealth be for a one year period with an annual option by the City to renew the same contract terms for up to four additional years. It is expected that the effective date for commencement of the renewable electricity purchases under this proposed agreement would be April 1, 1999.

Staff also believes that Commonwealth Energy Corporation presented strong qualifications and a strong conceptual proposal for providing renewable electricity and other energy services to the residential and business communities should this be recommended as part of the comprehensive energy management plan. It is anticipated that the Strategic Energy Plan draft will be presented to Council in approximately three months.

Due to the complexity of finalizing and verifying the terms of the proposed contract for serving municipal facilities, particularly in the development of ongoing tracking and verification processes, it is recommended that the City negotiate and execute a change order to Henwood Energy Services' existing contract for additional services in an amount not to exceed $40,000. Henwood will provide critical assistance to City staff in the drafting of agreement language and establishing a contract implementation and auditing framework.

BUDGET/FISCAL IMPACT

The proposed agreement will have a maximum fiscal impact of an 8.7% increase in the electricity rate for all City facilities or approximately $200,000 per year. Since the effective date of the contract will be April 1, 1999 at the earliest, the fiscal impacts in FY 98-99 will not be significant for any one fund and any necessary budget adjustments will be requested as a part of the Year End Budget Report. Expected impacts in FY 99-00 will be included in the proposed FY 99-00 budgets for all affected departments/funds. Existing funds for the $40,000 change order to Henwood Energy Services' contract are available in EPD Account # 31-500-662-00000-2254-00000.

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 according to the terms outlined in this staff report. Staff also recommends that Council approve a change order in an amount not to exceed $40,000 with Henwood Energy Services for assistance in contract negotiation and implementation.

Prepared by:

Craig Perkins, Director of Environmental and Public Works Management

Susan Munves, Conservation Coordinator