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Anaheim, CA 92805
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CITY COUNCIL AGENDA REPORT
City of Anaheim
PUBLIC UTILITIES DEPARTMENT
DATE: APRIL 16, 2024
FROM: PUBLIC UTILITIES DEPARTMENT
SUBJECT: CLEAN ENERGY PURCHASE CONTRACT FOR PREPAID
RENEWABLE ENERGY AND SUPPORTING AGREEMENTS,
INCLUSIVE OF TWO LIMITED ASSIGNMENTS OF EXISTING
RENEWABLE POWER PURCHASE AGREEMENTS, FOR THE
PURPOSE OF COST SAVINGS
ATTACHMENT (Y/N): YES ITEM # 13
GOVERNMENT CODE § 84308 APPLIES: YES
RECOMMENDATION:
That the City Council, by Resolution:
1) Approve the following five interrelated agreements (Prepay Agreements), in substantial form, for participation in a prepay renewable energy transaction that will create a discount for the City of Anaheim (City) in its purchase of certain renewable energy:
a. A Limited Assignment Agreement (Bowerman LAA) with the Southern California Public Power Authority (SCPPA), assigning to SCPPA certain of the City’s rights and obligations to receive and pay for renewable energy and associated resources under the City’s Renewable Power Purchase and Sale Agreement (Bowerman PPA) with Bowerman Power LFG, LLC (Bowerman);
b. A Limited Assignment Agreement (Brea LAA) with SCPPA, assigning to SCPPA certain of the City’s rights and obligations to receive and pay for renewable energy and associated resources under the City’s Consolidated, Amended, and Restated Power Purchase Agreement (Brea PPA) with Brea Generation LLC and Brea Power II, LLC (together, Brea); c. A Clean Energy Purchase Contract (CEPC) with SCPPA by which SCPPA will sell to the City at discounted prices the prepaid renewable energy and associated resources generated by the assigned Bowerman PPA and Brea PPA (together, PPAs) for a term of up to 30 years; d. A Custodial Agreement with J. Aron & Company LLC and U.S. Bank Trust Company, National Association, as custodian, for a term equal to the CEPC’s term, to establish bank accounts for and administer payments to Bowerman and Brea in satisfaction of performance under their respective PPAs;
Clean Energy Purchase Contract for Prepaid Renewable Energy and Supporting Agreements, Inclusive of Two Limited Assignments of Existing Renewable Power Purchase Agreements, for the Purpose of Cost Savings April 16, 2024
e. A Letter Agreement with SCPPA for a term equal to the terms of the Bowerman LAA and the Brea LAA (together, LAAs) providing that the parties may terminate the LAAs only upon certain specified events, such as Bowerman or Brea’s termination or suspension of performance under the assigned PPAs; and
2) Authorize the Public Utilities General Manager or designees, on behalf of the City, to (a) execute and deliver the Prepay Agreements with any de minimis changes that, as determined by the City Attorney’s Office, do not substantially change the terms and conditions of the Prepay Agreements; (b) execute and deliver any related documents, such as amendments of any of the Prepay Agreements or any agreements necessary to carry out the transactions contemplated by the Prepay Agreements; and (c) take such actions as are necessary or advisable to implement and administer the Prepay Agreements.
DISCUSSION:
At its meeting on March 27, 2024, the Public Utilities Board recommended that the City Council approve the Agreements.
Anaheim Public Utilities (APU) continues to progress towards meeting state environmental mandates for increasing renewable power supplies, but to do so in a cost- effective manner. APU proposes to assign existing resources to SCPPA for the purpose of leveraging their tax-exempt status to achieve cost savings of approximately $3.5 million per year. SCPPA is a twelve-member Joint Powers Authority (JPA) comprised of publicly owned utilities and has previously undertaken a similar financing for natural gas savings.
For the City to achieve the anticipated savings, SCPPA proposes to issue prepay energy bonds as the tax-exempt financing mechanism, which is allowed by the Internal Revenue Service (IRS). In this prepaid structure, Anaheim will assign renewable energy power to SCPPA and will agree to buy back the produced energy through a Clean Energy Purchase Contract (CEPC). SCPPA will make a prepayment through the bond proceeds for most of the purchase price enabling SCPPA to sell the produced energy back to APU at per Megawatt-hour (MWh) prices discounted from the prices in the existing agreements.
It is important to point out that risk mitigation terms have been fully vetted and incorporated into the prepay energy transaction to protect APU’s customers. If an adverse event, such as a counterparty’s bankruptcy or interest rate volatility, affects the tax-exempt financing structure, the existing PPAs and all their respective terms would revert back to the City. Specific to interest rates, if the discount falls below 5%, the City has the option of canceling the LAAs and bringing the PPAs back to the City.
Two separate renewable power purchase agreements (the Bowerman and Brea PPAs) have been evaluated and due to their relatively high costs, have been determined to be ideal candidates for savings through tax-exempt bond financing. These involve landfill gas-to-energy projects from two local landfills: Frank R. Bowerman in Irvine and Olinda Clean Energy Purchase Contract for Prepaid Renewable Energy and Supporting Agreements, Inclusive of Two Limited Assignments of Existing Renewable Power Purchase Agreements, for the Purpose of Cost Savings April 16, 2024
Alpha in Brea. These two agreements provide 46 Megawatts (MW) of power to APU, or approximately 8% of Anaheim’s peak demand.
The Bowerman Power Plant generates 19 MW of renewable power. The Anaheim City Council first approved the 20-year Bowerman PPA associated with this facility in 2014 with the term starting in May 2016 once the facility became fully operational. APU currently pays $17.3 million annually based on a unit price of $103.89 per MWh, inclusive of the cost of energy that escalates at 2.5% per year, and its environmental attributes, referred to as Renewable Energy Credits (RECs). Savings will be based on the cost of energy, as the REC pricing remains the same.
The Brea Landfill Gas Plant at the Olinda Alpha landfill is a 27 MW power resource. In 2012, the Anaheim City Council approved the 30-year Brea PPA. APU currently pays $26.6 million per year based on a fixed price of $112.60 per MWh, inclusive of the cost of energy and its environmental attributes. Similar to the Bowerman resource, savings will be based on the cost of energy, as the REC pricing remains the same.
Under this proposal, the City would assign the Bowerman and Brea PPAs to SCPPA, who would then issue the tax-exempt financing. With the financing savings, SCPPA would then sell the energy back to APU at a reduced cost. SCPPA has the ability to leverage its position as a JPA to issue bonds for multiple renewable power purchase agreements. Additionally, other SCPPA members have expressed interest in tax-exempt financing for their energy resources, and APU has been collaborating with other public utilities to develop a pathway for similar savings.
Other supporting agreements are necessary to complete this transaction. The Custodial Agreement will solely be a clearinghouse for payments and disbursements, similar to a trustee. The custodian will ensure all payments received and disbursements made are correct and meet the requirements of the respective PPAs. The Letter Agreement with SCPPA modifies the LAAs and limits the parties’ ability to terminate the LAAs to specified events, such as Bowerman or Brea’s termination or suspension of performance under the PPAs.
This prepay financing structure has been authorized by governing boards for six other tax-exempt power agencies in California. These agencies have issued prepay energy bonds to achieve savings between 10-12% off their originally contracted renewable power prices. APU has monitored similar financing structures to ensure that risks are appropriately mitigated. Savings from the tax-exempt financing will enable APU to continue investing in renewable energy resources to meet state mandates that require 60% renewable power supplies by 2030 and 100% carbon-free resources by 2045, while minimizing utility bill increases to customers.
IMPACT ON BUDGET:
Potential budget savings to the restricted Electric Utility Fund are estimated at $3.5 million per year.
Clean Energy Purchase Contract for Prepaid Renewable Energy and Supporting Agreements, Inclusive of Two Limited Assignments of Existing Renewable Power Purchase Agreements, for the Purpose of Cost Savings April 16, 2024
Respectfully submitted,
Dukku Lee
Public Utilities General Manager
Attachments:
1. Resolution (authorizing the prepay renewable energy transaction)
2. Limited Assignment Agreement (for Bowerman PPA)
3. Limited Assignment Agreement (for Brea PPA)
4. Clean Energy Purchase Contract
5. Custodial Agreement
6. Letter Agreement