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1 RiversideCA.gov1
RiversideCA.gov
RESOURCE ADEQUACY PURCHASE AND FINANCIAL ENERGY SETTLEMENT AGREEMENT FROM THE BALDY MESA C FACILITYCity CouncilFebruary 25, 2025Public Utilities Department RiversideCA.gov2
1. Resource Adequacy (RA) describes an electric utility’s procurement of sufficient power supply capacity to serve its customers’ projected electricity requirements, plus an additional amount to be held in reserve for unanticipated circumstances2. RA Program requirements are governed by the CAISO Tariff a. CAISO Tariff provides an option for the local regulatory authorities of publicly owned utilities to adopt their own guidelines that meet certain criteriaBACKGROUND1 2 2/13/2025
2 RiversideCA.gov3
1. May 23, 2006 – City Council established its own RA Program accordance with the CAISO Tariff2. June 5, 2012 – City Council approved a revised RA Program which reflected the current market conditions and ensured efficient implementation while enhancing reliability3. August 18, 2020 – City Council approved specific revisions to the RA Program to eliminate provisions that were no longer applicable and facilitated the ability to acquire less expensive RARPU RA PROGRAM HISTORY RiversideCA.gov4
4. RPU meets most of its RA requirements by purchasing the capacity attributes from generation resources under long term power purchase agreements (PPAs). However, RPU still needs to buy additional RA for non-winter months, with most of this need occurring during July, August, and September5. This additional RA need has grown over time as the City has procured more wind and solar resources, since these resources do not provide the same amounts of qualifying RA6. California’s accelerated retirements of natural gas resources has now created a supply shortage of RA RPU RA PROGRAM HISTORY3 4 2/13/2025
3 RiversideCA.gov5
SOCAL SYSTEM RA PRICES SINCE 2019Q3 Marks – System RA ($/kW-month)YearUnder $10.002019$10.00-$15.002020$15.00-$20.002021$20.00-$40.002022$35.00-$55.002023$65.00-$100.002024$0.00$5.00$10.00$15.00$20.00$25.00$30.002019 2020 2021 2022 2023 2024$/kW-monthAverage Annual System RA Cost RiversideCA.gov6
RECENT RPU RA PRICE DATAAverage PriceMarket Operations RA Request for Offers ResponsesYear$6.65/kW-month7 Offers2022$13.06/kW-month4 Offers2023$35.53/kW-month2 Offers20241. RPU staff have witnessed increasing RA cost pressures firsthand in the merchant responses to Market Operations RA Request for Offers (RFOs)2. While the exorbitant price increases are showing signs of stabilizing, staff expect that the CA merchant capacity market may remain excessively volatile for the next 2-5 years 5 6
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4 RiversideCA.gov7
1. In 2023, staff began looking for Battery Energy Storage solutions to address the following concerns:− RPU has a growing need for RA− RA prices continue to increase− RPU’s sustainability and carbon reduction goals2. In July 2024, RPU executed its first long-term RA contract with Vesi 15, LLC:− 15-Year Agreement for 80 MWs of BESS Capacity− Replaces 59% of the RA capacity that Riverside will lose after the retirement of Intermountain Power Project (IPP) in 20273. This proposed Baldy Mesa C RA and Energy Settlement Agreement is:− Located in Adelanto, CA− 50 MW/ 200 MWh of RA− Effectively replace an additional 50 MW (37%) of the retiring IPP RABALDY MESA C STORAGE AGREEMENT RiversideCA.gov8
1. Contract Price: $8/kW-month for RA, $9/kW-month for Energy hedge, fixed for 15 years2. Monthly Energy Settlement: a. Uses each month’s four highest and five lowest Day Ahead index prices to offset the fixed price $9/kW-month hedge paymentb. Should effectively lower the total cost of this Agreement3. Guaranteed Commercial Operation Date: March 1, 2027a. Failure to achieve commercial operation by March 1stwill result in liquidated damages of $30,000/per day to RPU.b. Failure to achieve commercial operation by the Outside Commercial Operation Date – September 1, 2027; RPU has the right to terminateAGREEMENT TERMS7 8 2/13/2025
5 RiversideCA.gov9
4. Delivered Product: RA attributes include both System RA and Flexible RA benefits.5. Resource Adequacy Guarantees:a. Provides RA benefits throughout the term of the Agreementb. Failure to deliver RA benefits could result in the payment of liquidated damages6. Decommissioning Costs: RPU has no responsibility or liability for any decommissioning or demolition costs of the Facility AGREEMENT TERMS RiversideCA.gov10
7. Project Development Security: Within 10 days of contract execution provide $5,000,000 ($100,000 per MW of installed capacity)8. Project Delivery Term Security: Within 10 days of COD provide $6,000,000 ($120,000 per MW of storage contract capacity)AGREEMENT TERMS9 10 2/13/2025
6 RiversideCA.gov11
FINANCIAL ASSESSMENT – RA CAPACITY VALUE1. Average annual RA Capacity cost for the Baldy Mesa C Project is $8.00/kW-month, fixed for 15 yearsa. Approx $4.09M annually. Total cost decreases as available capacity decreases (over time).2. Normalized RA Capacity value in the market is forecasted to be $10.06/kW-montha. Approx $5.14M annuallyEstimated Savings: $1.05M annually RiversideCA.gov12
FINANCIAL ASSESSMENT – FINANCIAL HEDGE1. The Financial Energy hedge cost for this agreement is $9.00/kW-month− Average cost $4.60M annually2. The expected revenue from this Financial Energy hedge is expected to be ~ $11.06/kW-month− Approx revenue $5.66M annuallyEstimated Net Revenue: $1.06M annually468101214161820$/kW-monthFE Hedge Revenue (Mean, P5, P95) vs FE Hedge CostMeanP5P95FE hedge cost11 12 2/13/2025
7 RiversideCA.gov13
HISTORICAL ASSESSMENT – FINANCIAL HEDGETop4-Bottom5 annual revenue streams ($/kW-month) for years 2019-2023 at the SCE Roadway interconnection point20232022202120202019Year$8.35$8.99$6.30$6.06$4.40$/kW-monthFinancial hedge will settle monthly. Will help protect RPU revenue stream in months exhibiting significant intraday energy price deviations.$4.48$6.18$6.92$9.23$10.07$8.30$7.26$10.20$22.86$5.11$6.74$10.33$0.00$4.50$9.00$13.50$18.00$22.50$27.00Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2022 Monthly FE Hedge Values ($/kW-mo): SCE Roadway RiversideCA.gov14
FINANCIAL ASSESSMENT – COMBINED1. $8.00/kW-month RA cost is materially lower than the anticipated annual value of future system RA2. The assessment of the Financial Energy Hedge suggests the hedge instrument should usually pay out a gross revenue greater than the annual hedge cost (and thus generate a net revenue stream)3. Overall, the net project cost for the RA from this facility is projected to decrease to $5.94/kW-month. This equates to an annual savings of approximately $2.11M in Power Supply capacity costs 13 14
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8 RiversideCA.gov15
Strategic Priority 2 – Community Well-BeingGoal 2.6 -Strengthen community preparedness for emergencies and disruptive events to ensure effective response and recovery.Cross-Cutting ThreadsSTRATEGIC PLAN ALIGNMENTCommunity Trust Equity
Fiscal Responsibility
Innovation
Sustainability & Resiliency
RiversideCA.gov16
That the City Council:1. Approve the Resource Adequacy Purchase and Financial Energy Settlement Agreement with Baldy Mesa C, LLC for 50 megawatts of battery energy storage capacity from the Baldy Mesa C Facility for a term of fifteen years and an estimated initial annual net capacity cost of $4,800,000; and2. Authorize the City Manager, or designee, to execute the Resource Adequacy Purchase and Financial Energy Settlement Agreement and all documents necessary to administer the Agreement including the ability to make non-substantive changes, as well as to execute future amendments to the Resource Adequacy and Financial Energy Settlement Agreement under terms and conditions substantially similar or superior to the Resource Adequacy Purchase and Financial Energy Settlement Agreement or, if needed, to terminate the Resource Adequacy Purchase and Financial Energy Settlement Agreement in accordance with Agreement terms and conditions.RECOMMENDATIONS15 16