DEPARTMENT
Power Enterprise
AGENDA NO.
12 MEETING DATE
10/22/2024
AGENDA ITEM
Public Utilities Commission
City and County of San Francisco
Calendar: Regular Calendar
Project Manager: Julia Olguin, Director of Origination and Power Supply
Authorize the General Manager to seek Board of Supervisors approval to extend and increase the delegation of authority in Section 21.43 of the Administrative Code for the purchase and sale of electricity and related products
Summary of Proposed
Commission Action:
Authorize the General Manager to seek approval from the Board of Supervisors to extend and increase the delegation of authority under Section 21.43 of the Administrative Code to execute power supply contracts: a) with terms in excess of 10 years or requiring expenditures of $10 million or more subject to an annual expenditure limit of $300 million per year; and b) with anticipated revenue in excess of $1 million or more subject to an annual revenue limit of $300 million per year, from July 1, 2025 to June 30, 2030.
Background: The Power Enterprise operates two power supply programs: Hetch Hetchy Power, the City’s full service public power utility, and CleanPowerSF, the City’s Community Choice Aggregation (CCA) program. Both Hetch Hetchy Power and CleanPowerSF pu rchase and sell electricity in the wholesale markets to serve their respective retail customers.
While Hetch Hetchy Power s upplies its customers primarily with electricity generated by City -owned generation projects; CleanPowerSF serves its customers primarily with electricity purchased through wholesale market transactions. Both Hetch Hetchy Power and CleanPowerSF comply with state law and California Independent System Operator market rules, including requirements to procure renewable energy, Resource Adequacy capacity, energy storage, and to contribute to statewide grid reliability. A s a CCA,
CleanPowerSF is subject to numerous addi tional energy procurement requirements under state law and California Public Utilities Commission regulation. Both Hetch Hetchy Power and CleanPowerSF must follow clean energy policies established by the City.
The Power Enterprise is in a unique market position because both Hetch Hetchy Power and CleanPowerSF directly compete with many retail providers in California to acquire supplies of electricity and electricity- related products in a highly competitive wholesale market. In addition, both Hetch Hetchy Power and CleanPowerSF compete with Pacific Gas Agenda Title: Authorize the General Manager to seek Board of Supervisors approval to extend and increase the delegation of authority in Section 21.43 of the Administrative Code for the purchase and sale of electricity and related products Commission Meeting Date: 10/22/2024
& Electric Company (PG&E) and private power providers serving the Direct Access market to serve retail electricity customers in San Francisco. This highly competitive environment heightens the need to maintain rates at a level that is competitive.
To meet regulatory requirements, secure the best possible prices and terms, keep rates affordable and competitive, manage procurement risk, fulfill the City’s goals for a carbon -free future, and support equity in access to 100% renewable energy supply, the Power Enterprise must conduct regular, continuous procurement of power supplies and simultaneously negotiat e a mix of short -, medium -, and long- term contracts for a diverse supply of energy and energy- related products with multiple suppliers, all in an expedited time frame consistent with regulatory deadlines and commercial expectations.
The Commission and the Board of Supervisors recognized how important it is for the Power Enterprise to operate at the commercial pace required in our competitive power markets and approved the use of pro forma power purchase agreements and conditionally authorized the General Manager to execute such power supply contracts, in Commission Resolution Nos . 22-0109, 23-0025, and 24 -0185 , and
Board of Supervisors Ordinance No. 176- 22, which created Section
21.43 of the Administrative Code. Ordinance No. 176-22 also waived specified contract-related requirements. Board of Supervisors Ordinance No. 95- 23 amended Section 21.43 to increase the annual expenditure limit for contracts executed with terms in excess of 10 years or requiring expenditures of $10 million or more from $150 million per year to $200 million per year, modified the waiver of specified contract- related requirements, and delegated approval of binding arbitration in certain circumstances . Board of Supervisors Resolution No. 102- 24 further amended Section 21.43 to increase the $10 million annual revenue cap for power with revenues of $1 million or more to $20 million per year.
Since its adoption, Section 21.43 has been valuable to the Power Enterprise’s efforts to acquire the power supply resources it needs to supply affordable and compliant clean energy to our customers.
Unless extended by the Board of Supervisors and Mayor, Section 21.43 will expire on July 1, 2025. To preserve this important authorization to compete in the power supply markets at a commercial pace, the Power Enterprise seeks to extend the delegated authority under 21.43 until June 30, 2030.
Wholesale electricity markets are dynamic, and prices change regularly in response to changes in available supply and demand, international fuel prices, state and federal regulatory requirements, geopolitical events, and other factors. Since Section 21.43 was adopted, electricity Agenda Title: Authorize the General Manager to seek Board of Supervisors approval to extend and increase the delegation of authority in Section 21.43 of the Administrative Code for the purchase and sale of electricity and related products Commission Meeting Date: 10/22/2024
prices have increased , driving up our power procurement costs. This has been exacerbated by significant new procurement ordered by state regulators and delays to new energ y facilities from supply chain disruptions, increasing global demand, and delayed permitting and grid interconnection. These trends are reflected and updated annually in our Commission-adopted 10-year Financial Plans for both Hetch He tchy Power and CleanPowerSF.
To ensure that Section 21.43 can continue to support our power procurement needs and maximize ratepayer value over the next five years, the Power Enterprise also seeks to increase the maximum annual expenditure and revenue limit for purchase and sales contracts executed under Section 21.43 from $200 million to $300 million per year.
Extending and
Increasing Section 21.43
Delegated Authority
The Power Enterprise seeks to extend the delegated authority under Section 21.43 of the Administrative Code to purchase power and related products using pro forma contracts with terms in excess of 10 years or requiring expenditures of $10 million or more including amendments to such agreements with an impact of greater than $500,000, so long as the contract term, including any amendments, does not exceed 25 years, from July 1, 2025 to June 30, 2030. The Power Enterprise also seeks to increase the maximum annual expenditure limit for purchase contracts executed under this delegated authority from $200 million to $300 million per year.
The Power Enterprise further seeks to increase the maximum annual revenue cap for contracts executed under the delegated authority for the sale of power and related products having anticipated revenue in excess of $1 million dollars from $20 million to $300 million per year.
Increasing the annual revenue limit for sales contracts subject to Section
21.43 will allow the Power Enterprise to optimize our power portfolios, as needed, to ensure the best possible value for ratepayers.
The Power Enterprise further seeks delegated authority to enter contracts that require binding arbitration with any party for all electricity and related products, rather than just for Resource Adequacy and Renewable Portfolio Standard contracts with California investor- owned utilities as 21.43 currently provides . Binding Ar bitration is becoming a more standard term in power purchase contracts.
The Power Enterprise shall continue to report on a quarterly basis to the Board of Supervisors and the Commission, the duration, product purchased, and cost of contracts entered into pursuant to t he delegated authority.
For purposes of the delegation and authorizations, power and related products and services shall include power supplies, the conveyance or Agenda Title: Authorize the General Manager to seek Board of Supervisors approval to extend and increase the delegation of authority in Section 21.43 of the Administrative Code for the purchase and sale of electricity and related products Commission Meeting Date: 10/22/2024
transmission of same, or ancillary services such as spinning reserve, voltage control, as required for assuring reliable services in accordance with good utility practices and applicable laws.
Result of Inaction: CleanPowerSF and Hetch Hetchy Power may not be able to procure sufficient energy supplies to meet regulatory requirements, secure the best possible prices and terms , keep rates affordable and competitive , and adequately manage procurement risk. In addition, these programs are engaged in several procurement efforts to meet the City’s policies for a carbon-free future, energy independence, equity in access to 100% renewable energy supply; ensure stable and af fordable rates ; meet Hetch Hetchy Power’s and CleanPowerSF’s regulatory obligations; and contribute to the reliability of the state’s energy grid and resource supply.
Schedule: The proposed Ordinance would take effect following approval by the Board of Supervisors and Mayor and would expire by operation of law on July 1, 2030.
Environmental Review: This action to authorize the General Manager to seek legislative approval from the Board of Supervisors to extend and increase the delegation of authority under Section 21.43 of the Administrative Code does not constitute a project under the California Environmental Quality Act Guidelines section 15378 because there would be no physical change in the environment. The contracts to be executed under Section 21.43 are for the purchase and sale of electricity and related products from existing facilities or with suppliers that are in the process of developing new facilities. The pro forma agreements require Sellers of electricity products to comply with the law and, for to-be-constructed projects, undergo environmental review and obtain all necessary permits in the jurisdictions where they are located, prior to commercial operation and commencing delivery of electricity.
Recommendation: SFPUC staff recommends that the Commission adopt the attached resolution.
PUBLIC UTILITIES COMMISSION
City and County of San Francisco
RESOLUTION NO. :
WHEREAS, The San Francisco Public Utilities Commission’s (“SFPUC” or “Commission”) Power Enterprise operates a municipal utility, Hetch Hetchy Power, and a Community Choice Aggregation (“CCA”) program, CleanPowerSF. Both Hetch Hetchy Power and CleanPowerSF purchase and sell electricity in the wholesale markets to serve their respective retail customers in San Francisco; and
WHEREAS, Hetch Hetchy Power serves its customers primarily with electricity generated by City-owned generation projects , CleanPowerSF serves its customers entirely with electricity purchased through wholesale market transactions; and
WHEREAS, Hetch Hetchy Power and CleanPowerSF must comply with state law and California Independent System Operator market rules, including requirements to procure renewable energy, Resource Adequacy capacity, and energy storage, and to contribute to grid reliability; and
WHEREAS, To meet regulatory requirements, secure the best possible prices and terms, keep rates affordable and competitive, manage procurement risk , comply with the City’s clean energy policies , and support equity in access to 100% renewable energy supply, the Power Enterprise engages in a continual process of procuring power and simultaneously negotiating a mix of short-, medium-, and long-term contracts for a diverse supply of energy and energy-related products with multiple suppliers, all in an expedited tim e frame consistent with commercial expectations and regulatory deadlines; and
WHEREAS, The Commission recognized how important it is for the Power Enterprise to operate at the commercial pace required in our competitive power markets and approved the use of pro forma power purchase agreements and conditionally authorized the General Manager to execute such contracts, in Commission Resolution Nos. 22-0109, 23-0025, and 24-0185; and
WHEREAS, The Board of Supervisors, in Ordinance No. 176- 22, added section 21.43 of the Administrative Code, approving pro forma power purchase agreements and delegating to the General Manager authority to purchase power and related products using said contracts with terms in excess of 10 years or requiring expenditures of $10 million or more including amendments to such agreements with an impact of greater than $500,000, so long as the contract term, including any amendments, does not exceed 25 years and the annual expenditure for all agreements entered do not exceed $150 million per year , and to enter into contracts for the sale of power and related products having anticipated revenue in excess of $1 million or more provided the annual revenue for all power sales agreements entered does not exceed $10 million, and waived specified contract- related requirements; and
WHEREAS, Board of Supervisors Ordinance No. 95- 23 amended Section 21.43 to increase the annual expenditure limit for contracts executed with terms in excess of 10 years or requiring expenditures of $10 million or more from $150 million per year to $200 million per year, modified the waiver of specified contract-related requirements, and delegated approval of binding
arbitration in Resource Adequacy and Renewable Portfolio Standard contracts with California investor-owned utilities; and
WHEREAS, Board of Supervisors Resolution No. 102-24 further amended Section 21.43 to increase the $10 million annual revenue cap for power sales contracts with revenues of $1 million or more to $20 million per year; and
WHEREAS, This action to authorize the General Manager to seek legislative approval from the Board of Supervisors to extend and increase the delegation of authority under Section
21.43 of the Administrative Code does not constitute a project under the California Environmental Quality Act Guidelines s ection 15378 because there would be no physical change in the environment; and
WHEREAS, The contracts to be executed under Section 21.43 are for the purchase and sale of electricity and related products from existing facilities or with suppliers that are in the process of developing new facilities , and the pro forma agreements require Sellers of electricity products to comply with the law and, for to-be-constructed projects, undergo environmental review and obtain all necessary permits in the jurisdictions where they are located, prior to commercial operation and commencing delivery of electricity; and
WHEREAS, The General Manager reports on a quarterly basis to the Commission and the Board of Supervisors the duration, product purchased, and cost of contracts entered into pursuant to the delegated authority; and
WHEREAS, Section 21.43 of the Administrative Code expires upon operation of law on July 1, 2025; and now, therefore be it
RESOLVED, That this Commission authorizes the General Manager to seek Board of Supervisors approval to extend the delegated authority under Section 21.43 of the Administrative Code to execute power supply contracts for Hetch Hetchy Power and CleanPowerSF from July 1, 2025 to June 30, 2030; and be it
FURTHER RESOLVED, That this Commission autho rizes the General Manager to seek Board of Supervisors approval to expand the delegated approval of binding arbitration in Section
21.43 to all electricity and related product contracts with any counterparty, and be it
FURTHER RESOLVED, The Commission finds that this approval does not constitute a project under the California Environmental Quality Act (CEQA) Guidelines Section 15378; and be it
FURTHER RESOLVED, The General Manager shall continue to report on a quarterly basis to the Commission, the duration, product purchased, and cost of contracts entered into pursuant to this delegated authority.
I hereby certify that the foregoing resolution was adopted by the Public Utilities Commission at its meeting of October 22, 2024.
Director of Commission Affairs
San Francisco Public Utilities Commission