City Council Agenda Report
Meeting Date: September 16, 2025
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Senior Management Analyst
Subject
Confirmation Letter with BP Energy Company
Recommendation
A. Find the action is not in reference to a “project” subject to the California Environmental Quality Act (CEQA) under Guidelines Section 15378 because it involves the continuing administrative activity of purchasing power and resource adequacy; and even if it were a “project” subject to CEQA, the approval requested is exempt in accordance with CEQA Guidelines Section 15061(b)(3), the general rule that CEQA only applies to projects that may have a significant effect on the environment, and any construction that may occur by a private party in the future in reliance on this approval would be subject to CEQA review by another governmental agency at the time when actual details of any physical proposal would be more than speculative; and B. Approve and authorize the City Administrator to execute the Confirmation Letter with BP Energy Company (BP Energy), in substantially the same form as submitted, for the Purchase of Portfolio Content Category Product 1 (PCC1) Energy in the amount-not-to exceed $74,018,950 for a 10-year term.
Background
State regulations require that load-serving entities (utilities) obtain a percentage of their generation from renewable power sources to offset traditional (fossil fuel) energy generation. In addition to, or as an alternative to, procuring power from renewable sources, in order to meet state-mandated renewable requirements, utilities can also purchase Renewable Energy Credits (RECs). RECs demonstrate that electricity was generated from an eligible renewable energy resource and are purchased or sold by eligible entities. The Renewable Portfolio Standard (RPS) is a regulatory mandate to increase the generation of energy from renewable sources. VPU is responsible for implementing an RPS program that reflects the Legislature’s intent to encourage the use of energy from renewable resources, while considering impacts on system reliability, financial resources, environmental goals, and affordability.
VPU is making progress toward meeting the goals set by Senate Bill 350 (SB 350), Senate Bill 100 (SB 100), and Senate Bill 1020 (SB 1020). These laws collectively mandate that 100% of electric retail sales originate from renewable and zero-carbon sources by 2045. Starting with Compliance Period 4 (CP4) in 2021, the California Energy Commission (CEC) implemented the RPS Long-Term Procurement Requirement for Publicly Owned Utilities (POUs), as specified by SB 350. This requirement mandates that at least 65% of renewable energy procurement must come from contracts lasting 10 years or longer.
Currently, VPU staff are encountering challenges due to delays and cancellations of renewable energy projects caused by:
1. Interconnection and transmission constraints;
2. Tariffs imposed on solar panels and battery energy storage system (BESS) equipment; and
3. The phase-out of federal tax credits under the recently signed “H.R. 1 - One Big Beautiful Bill Act,” which were previously available through the Inflation Reduction Act, has negatively impacted renewable development projects in California.
Despite these challenges, VPU staff have successfully negotiated a 10-year long-term agreement in order to meet its interim RPS compliance targets.
On February 14, 1994, the City Council passed Resolution No. 6388, which authorized the execution of the Western Systems Power Pool (WSPP) Agreement with various entities. This agreement, approved by the Federal Energy Regulatory Commission, provides a standardized contract for utilities to manage the purchase and sale of wholesale electricity, including Renewable Energy Certificates (RECs). The WSPP Agreement standardizes the terms and conditions for power purchasing, selling, and trading among its members. Historically, the City has acquired RECs from BP Energy Company (BP Energy) in accordance with the general terms of the WSPP Agreement. Currently, VPU has a short-term agreement with BP Energy under the same WSPP framework. VPU is now seeking approval to continue purchasing RECs from BP Energy through a long-term contract, adhering to the general terms and conditions of the WSPP Agreement. Approving a 10-year Confirmation Letter for the Purchase of Portfolio Content Category Product 1 (PCC1) Energy with BP Energy would be beneficial to the City and serve the best interests of its customers. This agreement will help the City meet its renewable energy requirements, with terms and conditions governed by the WSPP Agreement.
The Confirmation Letter outlines the general terms and conditions of the agreement between the City and BP Energy. These terms are subject to the WSPP Agreement dated October 21, 2024.
In the event of any conflict between the terms in the Confirmation Letter and those in the WSPP Agreement, the terms in the Confirmation Letter will govern. The expected duration of the Confirmation Letter for purchasing RECs from BP Energy is through the calendar year 2035.
It is beneficial to the City, and it is the industry standard to enter into Master and Enabling Agreements that deal with buying and selling power, including RECs. The City will benefit from competitive pricing by purchasing RECs from BP Energy by entering into this transaction.
The key objectives of the Confirmation Letter with BP Energy include:
• Expanding VPU’s credit counterparty pool
• Creating an opportunity for better pricing, especially for RECs • Maximizing trading capability
• Ensuring that VPU meets state-mandated RPS compliance targets Vernon Municipal Code (VMC) Section 3.32.110(A)(6) exempts contracts for the acquisition, sale or transmission of electrical power from competitive bidding requirements where it is commercially unreasonable to comply with standard procurement procedures and dictates that all such procurements shall be made pursuant to a resolution of the City Council which establishes a process for procurement. On November 15, 2022, the City Council adopted Resolution No. 2022-40 approving and adopting an Energy Risk Management Policy (ERMP) to establish a process and procedures for the purchase and sale of energy and natural gas which are commercially reasonable, and intended to prevent fraud and collusion, and to ensure that the City receives optimum value in its procurements. On August 25, 2025, the Energy Risk Management Committee discussed and approved the Confirmation Letter between BP Energy and the City of Vernon. Thus, pursuant to VMC Sections 3.32.110(A)(6) and 3.32.110(B)(1), the proposed Confirmation Letter is exempt from competitive bidding and competitive selection as this contract will be used for the purchase of electricity, including RECs, it is commercially unreasonable to comply with standard procurement procedures, and the contract complies with the process and procedures established by the ERMP. The proposed Confirmation Letter outlines the details of the 10-year term agreement with BP Energy.
Staff recommends that the City Council approve the Confirmation Letter with BP Energy for the purchase of PCC1. The annual average cost is $7,401,895, resulting in a total amount not to exceed $74,018,950 over a 10-year term. This estimate is based on projected usage of 1,947,867 MWh at a contract price of $38 per MWh.
The Confirmation Letter has been reviewed and approved as to form by the City Attorney’s Office.
Fiscal Impact
The fiscal impact is not to exceed $74,018,950. Sufficient funds are available in Electric Fund, Resource Management, Renewable Energy Credit, Account Number 055-050-590-520154, for the current fiscal year and will be budgeted in subsequent years.
Attachments
1. Confirmation Letter with BP Energy Company
2. WSPP Master Power Purchase and Sale Agreement