City Council Meeting: June 27, 2006

Agenda Item: 1-E  

To: Mayor and City Council 

From: Craig Perkins, Director - Environmental and Public Works Management

Subject: Commerce Energy Agreement

Recommended Action

This report recommends that the City Council authorize the City Manager to negotiate and execute a sole source professional services agreement with Commerce Energy for the purchase of renewable electricity for City facilities from July 1, 2006, through June 30, 2007.

Executive Summary

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, formerly Commonwealth Energy. Under the terms of this proposed one year agreement, Commerce will provide 100% renewable electricity for City facilities at a fixed price of $.0985 per kilowatt hour. Over the next year, the City will pay Commerce Energy approximately $250,000 less for electricity than it would have paid Southern California Edison. Southern California Edison electricity is only 17% from renewable sources.

Discussion

The City became a direct access customer in 1999 when the State attempted electric utility deregulation. Deregulation was suspended in 2001 and the City is one of the few remaining entities in California allowed to continue purchasing electricity from an electric service provider other than its serving utility. By being an early direct access customer, the City avoids a $.02 per kilowatt hour surcharge paid by all Edison customers for contracts entered into by the State during the 2001 “energy crisis.” The City’s commitment to increasing its procurement of renewable energy has paid off both financially through cost savings and in the leadership recognition it has received. It is anticipated that energy markets will remain volatile into the foreseeable future and energy costs will continue to increase.

The Commerce Energy proposal for July 1, 2006, through June 30, 2007, is for a fixed rate of $.0985 per kilowatt hour. The comparable Southern California Edison tariffs vary from meter to meter depending on size of service and type of use, but the overall cost savings to the City from the proposed contract with Commerce Energy are significant. The fixed price includes the purchase of renewable energy credits from new renewable sources for 100% of the City’s demand. The renewable energy credits will be primarily purchased from the power produced by composting biosolids and dairy manure in aneorobic digesters located at the Inland Empire Utilities Agency in Chino. The new agreement with Commerce provides an option for the City to extend every year for five years at a mutually agreed-upon price. The fixed price paid to Commerce does not include Edison transmission and distribution charges, other Edison or State charges, or taxes. During calendar year 2005, the City spent a total of $2.5 million for electricity for City facilities and municipal operations.

Community Choice Aggregation Update

The California Public Utilities Commission recently approved utility tariffs for community choice aggregators. Assembly Bill 117, enacted in 2002, provided the right to cities, counties, and Joint Power Authorities to aggregate electric customers within their boundaries on an opt-out basis. The benefits could include electric commodity supply cost savings; the ability to purchase clean, renewable energy; access to public goods funds for energy efficiency programs; and a collective community approach to long-term energy decisions. A preliminary economic analysis of community choice aggregation in Santa Monica, based upon Edison-provided generic customer data, concluded that the financial risk to the City would be considerable based on the unpredictable future supply of natural gas and the City’s ability to secure long-term procurement contracts. Council’s approval of the two-year Community Energy Independence Initiative demonstration project, in which the City will facilitate installation of energy efficiency measures and on-site solar systems in residential and commercial buildings, will more reliably reduce the community’s dependence on fossil fuels and increase its long-term energy security.

Previous Council Action

At the February 23, 1999 Council meeting, the City Council authorized a one-year professional services agreement (CCS 7458) with Commonwealth Energy for the purchase of 100% renewable electricity (geothermal) for all City facilities with the option to extend the agreement for an additional five years at a mutually agreed-upon price. Over the next five years, the price negotiated with Commerce for each extension term varied in response to changing dynamics in California’s energy markets. The original one-year agreement was extended through July 30, 2001, at the rate of $.01 per kilowatt hour over the applicable Southern California Edison tariff. From July 31, 2001, through August 31, 2003, in response to California’s escalating wholesale electricity market, pricing was renegotiated at a 5% discount off Edison’s tariff saving the City approximately $80,000 per year. Also as a result of volatile markets, Commonwealth was no longer able to purchase geothermal electricity and instead provided 100% renewable electricity (10% from new renewable sources) from the purchase of renewable energy certificates. From September 1, 2003, through August 31, 2005, Commonwealth provided the same product at a fixed rate of $.07 per kilowatt hour. From September 1, 2005, through June 30, 2006, the price increased to $.091 per kilowatt hour. All of these prices were below the prevailing Southern California Edison tariffs.

Contractor/Consultant Selection

Commerce Energy, then named Commonwealth Energy, was selected as the City’s energy service provider through a professional services request for proposals process in 1999. Since then, Commerce has provided the City with reliable, cost-effective renewable electricity while almost all other energy service providers in California have gone out of business. At present, there are no vendors that are able to provide renewable electricity to Santa Monica other than Commerce Energy. Staff is therefore requesting that a sole source agreement be negotiated with Commerce Energy for the proposed services.

Budget/Financial Impact

The recommendation presented in this report will benefit the City and the departments responsible for electrical usage by keeping costs to a minimum.

Prepared by: Susan Munves, Energy and Green Building Programs Administrator

Approved:	Forwarded to Council:
Craig Perkins Director - Environmental and Public Works Management Department	P. Lamont Ewell City Manager