City Council Agenda Report
Meeting Date: March 3, 2026
From: Todd Dusenberry, General Manager of Public Utilities Department: Public Utilities
Submitted by: Adriana Ramos, Principal Management Analyst Subject
Clean Energy Savings Plan for Renewable Energy and Supporting Agreements Recommendation
A. Find that the proposed action is exempt from the California Environmental Quality Act (CEQA), 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 B. Adopt Resolution No. 2026-006 approving and authorizing the City Administrator to (a) execute and deliver those interrelated agreements (Prepay Agreements) to which the City is a party for participation in a clean energy savings renewable energy transaction, in substantially the same form as submitted, with such changes as the City Administrator deems necessary or advisable in furtherance of the purposes of this resolution; (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.
The Prepay Agreements include:
1. A Limited Assignment Agreement (Antelope DSR—Vernon) (the Antelope DSR LAA) among Antelope DSR 1, LLC (Antelope DSR), the Southern California Public Power Authority (SCPPA) and J. Aron & Company (J. Aron), providing for SCPPA to assign certain of its rights and obligations to receive and pay for renewable energy and associated resources under the Power Purchase Agreement, dated as of July 16, 2015 (the Antelope DSR PPA), between Antelope DSR and SCPPA, which rights and obligations relate to the Power Sales Agreement, dated as of July 16, 2015, between SCPPA and the City;
2. A Limited Assignment Agreement (Astoria—Vernon) (the Astoria LAA) among Re Astoria 2 Solar LLC (Astoria), SCPPA and J. Aron, providing for SCPPA to assign certain of its rights and obligations to receive and pay for renewable energy and associated resources under the Power Purchase and Sale Agreement, dated as of July 23, 2014 (the Astoria PPA), among Astoria, SCPPA, Power and Water Resources Pooling Authority, City of Lodi, City of Corona, City of Moreno Valley and City of Rancho Cucamonga, which rights and obligations relate to the Power Sales Agreement, dated as of July 23, 2014, between SCPPA and the City;
3. A Limited Assignment Agreement (Daggett—Vernon) (the Daggett Solar LAA) among Daggett Solar Power 2 LLC (Daggett Solar), SCPPA and J. Aron, providing for SCPPA to assign certain of its rights and obligations to receive and pay for renewable energy and associated resources under the Power Purchase Agreement, dated as of June 24, 2022 (the Daggett Solar PPA), between Daggett Solar and SCPPA, which rights and obligations relate to the Power Sales Agreement, dated as of June 24, 2022, between SCPPA and the City;
4. A Limited Assignment Agreement (Desert Harvest—Vernon) (the Desert Harvest LAA) among Desert Harvest II LLC (Desert Harvest), SCPPA and J. Aron, providing for SCPPA to assign certain of its rights and obligations to receive and pay for renewable energy and associated resources under the Power Purchase Agreement, dated as of December 21, 2017 (Desert Harvest PPA), between Desert Harvest and SCPPA, which rights and obligations relate to the Power Sales Agreement, dated as of December 21, 2017, between SCPPA and the City;
5. A Limited Assignment Agreement (BP Energy—Vernon/SCPPA) (the BP Energy— Vernon/SCPPA LAA) between the City and SCPPA, assigning to SCPPA certain of the City’s rights and obligations to receive and pay for renewable energy credits under the City’s Confirmation Letter outlining the general terms and conditions of the agreement between the City and BP Energy Company (BP Energy), whose terms are subject to the WSPP Agreement dated October 21, 2024, as amended from time to time (collectively, the BP Energy PPA);
6. A Limited Assignment Agreement (BP Energy—SCPPA/J. Aron) (the BP Energy—SCPPA/J.
Aron LAA) and together with the BP Energy—Vernon/SCPPA LAA, the BP Energy LAA), among SCPPA, J. Aron, and the City, assigning to J. Aron certain of SCPPA’s rights and obligations to receive and pay for renewable energy credits under the BP Energy PPA;
7. A Clean Energy Purchase Contract (CEPC) with SCPPA by which SCPPA will sell to VPU at discounted prices the prepaid renewable energy and associated resources generated by the assigned Antelope DSR PPA, Astoria PPA, Daggett Solar PPA, Desert Harvest PPA, BP Energy PPA (together, the PPAs) for a term of up to 30 years;
8. A Custodial Agreement with J. Aron and U.S. Bank Trust Company, National Association, or selected financial institution as selected by J. Aron, as custodian, for a term equal to the CEPC’s term, to establish bank accounts for and administer payments to Antelope DSR, Astoria, Daggett Solar, Desert Harvest and BP Energy in satisfaction of performance under their respective PPAs;
9. A Project Coordination and Governance Agreement with SCPPA and the three other participating SCPPA members (Burbank, Colton, and Pasadena) by which SCPPA will administer this project and allocate administrative direct costs associated with the transaction to all SCPPA project participants, including Vernon Public Utilities (VPU); and
10. A Letter Agreement with SCPPA for a term equal to the terms of the Antelope DSR LAA, the Astoria LAA, the Daggett Solar LAA, the Desert Harvest LAA, and the BP Energy LAA (together, the “LAAs”), providing that the parties may terminate the LAAs only upon certain specified events, such as termination or suspension of performance under the assigned PPAs or suspension or termination of performance under the Clean Energy Purchase Contract.
Background
Vernon Public Utilities (VPU) continues to progress toward meeting the Senate Bill 100 (SB 100) goal of sourcing 100% carbon-free resources by 2045, while increasing renewable power supplies in a cost-effective manner. VPU proposes to assign existing renewable resources to the Southern California Public Power Authority (SCPPA) for the purpose of leveraging its tax-exempt status to achieve cost savings of approximately $2 million per year. SCPPA is a twelve-member Joint Powers Authority (JPA) comprised of eleven municipal utilities and one irrigation district and has previously undertaken similar financings for renewable power resources.
To achieve the anticipated savings, SCPPA proposes to issue Clean Energy Project Revenue Bonds as the tax-exempt financing mechanism, as permitted by the Internal Revenue Service (IRS), to finance a one-time prepayment to an affiliate of J. Aron. Under the Clean Energy Savings Plan, VPU will assign renewable energy products to SCPPA, and SCPPA will, in turn, assign the renewable energy products (including those assigned by VPU, as well as renewable energy products under its own direct PPAs) to J. Aron. VPU will agree to purchase back the renewable energy products from SCPPA pursuant to a Clean Energy Purchase Contract (CEPC) at a discounted price per megawatt-hour (MWh) relative to the prices under the existing PPAs.
Risk mitigation terms have been fully reviewed through the City Attorney’s Office, VPU’s outside law firm, which has extensive experience in these transactions, VPU staff, SCPPA’s external advisors and legal counsel, and incorporated into the prepay energy transaction documents to protect VPU’s customers. If an adverse event occurs, such as a counterparty’s bankruptcy, the existing PPAs and all their respective terms would revert back to VPU.
February 17, 2026 Council Discussion
Participation in the Clean Energy Savings Plan was presented to City Council for approval at their meeting on February 17, 2026 (Attachment 2). The discussion before Council provided an overview of the Clean Energy Savings Plan, the differences between it and the 2006 natural gas prepay transaction, and Vernon’s ability to opt out if the discount available in a future bond reset period is less than an established minimum discount. Ultimately, City Council tabled the item for further discussion at the March 3, 2026. The following summarizes the discussions before the City Council on February 17, 2026, regarding the Clean Energy Savings Plan, and identifies the “worst case outcome” from that program.
Overview
The Clean Energy Savings Plan uses Vernon and SCPPA’s tax-exempt status to create a discount on Vernon’s existing clean energy purchase agreements. The structure provides a discount by having SCPPA issue bonds to fund energy generated by renewable energy projects and agreements during the 30-year term of the Clean Energy Savings Plan. The tax-exempt bonds create a discount on Vernon’s energy purchases under its existing agreements. The right to purchase renewable energy products under the existing agreements are assigned to J Aron & Company, LLC, which will supply the energy to its subsidiary, J Aron Energy Prepay 51, LLC, under an Electricity Purchase Sale & Service Agreement, which will sell the energy to SCPPA under a Master Power Supply Agreement. SCPPA will then sell the energy products to Vernon under the Clean Energy Purchase Contract. The PPA seller will continue to receive the original full PPA price, with Vernon paying the discounted price (e.g., 95%), and the bonds funding the balance of the PPA price (e.g., 5%) to the PPA seller.
Vernon currently procures energy from four renewable projects: Antelope, Astoria, Daggett, and Desert Harvest. In each case, SCPPA serves as the purchaser from the project owner, and Vernon purchases the renewable energy products from SCPPA. Vernon has negotiated one direct renewable energy product purchase agreement with BP Energy. The right to purchase energy under all five of those agreements will be assigned to J Aron, so Vernon can receive a discount on the purchase price.
Differences from the 2006 transaction
In the 2006 natural gas prepay transaction, Vernon issued bonds to fund a prepayment for a long-term natural gas supply agreement. To comply with tax laws, Vernon was required to continue purchasing the prepaid quantity of natural gas and using it to serve Vernon municipal utility retail customers during the full term of the bonds. Problems arose when Vernon sold its natural gas–fired electric generation plant after the prepay was executed, which substantially reduced Vernon’s natural gas load because the plant was sold to a private entity. Despite the reduced load, Vernon remained responsible for the debt service obligations and was required to secure an alternative “qualifying use” as required by IRS regulations (i.e., a municipal utility).
Vernon satisfied this requirement by selling the gas to Sacramento Municipal Utility District (SMUD), another municipal utility.
There are three primary differences between the 2006 prepay transaction and the 2026 Clean Energy Savings Plan. First, SCPPA is issuing bonds to fund the prepay, not Vernon. Vernon has no obligation under the bonds. Second, the Clean Energy Savings Plan uses Vernon’s existing renewable energy products rather than creating new purchase obligations. Vernon’s existing agreements are aligned with Vernon’s SB 100 requirements. Lastly, if Vernon experiences a permanent reduction in electric load, the Clean Energy Savings Plan includes a mechanism to reduce Vernon’s purchase obligations to reflect its lower load.
Opt-Out of Discount Program
The discount Vernon receives at the beginning of the transaction will continue through the first bond reset period (likely 10 years). The Clean Energy Savings Plan documents will set a minimum savings threshold for future bond reset periods (e.g., 5%). If savings in any future bond reset period fall below the minimum savings threshold, Vernon has the option of accepting the lower discount or Vernon can make a remarketing election, in which case the Prepay Supplier remarkets Vernon energy entitlement under the Program, Vernon’s Limited Assignment Agreements would terminate, and Vernon’s PPAs will revert to their original contractual relationships, with Vernon receiving the energy from SCPPA or the PPA seller at the original undiscounted contract price.
Thirty (30) Year Term and Potential for Early Termination The 2026 Clean Energy Savings Plan transaction is structured to ensure that Vernon is in no worse risk position than it is today if the transaction terminates early for any reason. The Clean Energy Savings Plan has a 30-year term. The City is committed to the full 30-year term but can opt out during each bond reset period (every 10 years) if the Plan does not provide the minimum guaranteed discount. The entire Plan can be terminated if a majority of participants opt out during a reset period. If the transaction terminates, then the Limited Assignment Agreements (LAAs) will terminate, and Vernon’s PPAs will revert to their original contractual relationships. There will be no adjustment to the price of the PPAs from what was previously negotiated and approved by the City Council. Vernon returns to the same financial, risk, and contractual position that it is in today. However, with the termination of the Clean Energy Savings Plan, Vernon would lose its expected savings because it would revert to paying the originally agreed full contract price.
Next Steps
If Council approves the City’s participation in the Clean Energy Savings Plan, VPU will continue to work with the City Attorney’s Office and outside legal counsel to finalize the necessary contracts and agreements. VPU anticipates the SCPPA Board will take up the item for approval at their March 19, 2026 meeting.
Fiscal Impact
The savings is estimated at $2 million per year. Savings will be used to offset expenses in the Electric Fund, Resource Management, Renewable Energy Credit, Account Number 055-050- 590-520154 for the current fiscal year and subsequent years.
Attachments
1. Resolution No. 2026-06
2. Agenda Report - February 17, 2026