Form revised February 6, 2008
FISCAL NOTE FOR NON-CAPITAL PROJECTS
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Department: |
Contact Person/Phone: |
DOF Analyst/Phone: |
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City Light |
Marilynn Semro/ 206-386-4539 |
Karl Stickel/ 206-684-8085 |
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Legislation Title: AN ORDINANCE relating to the City Light Department; authorizing execution of a 15-year agreement with Redding Electric Utility for the exchange of renewable energy and environmental attributes. |
· Summary of the Legislation:
The legislation approves a 15-year exchange agreement for Seattle City Light (‘SCL’) to:
1. Receive up to 10 MW of new, renewable energy and the associated environmental attributes (“REC”) from the Redding Electric Utility’s new Roseburg biomass project, located in California. Redding has entered into a 15-year agreement with RLC Industries to purchase the power from this new, renewable resource. Up to 10 MW of the energy will then be transmitted to SCL. Roseburg is an eligible renewable resource under Washington State’s Energy Independence Act (Chapter 19.285 RCW).
2. Return an amount of energy equivalent to what was delivered to SCL to the Redding Electric Utility. The energy will be delivered from SCL’s system one week after the power is received from the Roseburg biomass project. An equivalent amount of environmental attributes will be delivered from SCL’s Cedar Falls or South Fork Tolt hydroelectric resources. Cedar Falls and South Fork Tolt have been precertified by the California Energy Commission as renewable resources under California’s renewable portfolio standard.
The Roseburg biomass project meets Washington’s renewable portfolio standard definition of a renewable resource and will help SCL meet its I-937 targets. Until such time as the green energy is needed for meeting SCL’s targets, it can be sold in the market or the RECs separated off and sold in the REC market. The RECs SCL is sending to Redding cannot be used to meet the Washington State renewable portfolio standard and have essentially no value in the Northwest. In addition, the agreement provides for a minimum production of RECs from Roseburg guaranteed to about 7.5 aMW annually. This agreement has a net present value to SCL of about $3.3M.
· Background: (Include brief description of the purpose and context of legislation and include record of previous legislation and funding history, if applicable):
Washington state law requires SCL to acquire new renewable
resources or RECs, in the alternative, to
meet a renewable portfolio standard. California has a similar law. Redding
entered into a power purchase agreement for the power output and RECs from the
new Roseburg biomass project, located approximately 70 miles north of Redding in
Weed, Siskiyou County, California, for the purpose of meeting their its load,
and the California renewable portfolio standard.,
butHowever,
there is no transmission available between Weed and Redding. Weed is served by
PacifiCorp. Its transmission line transmits the power into southern Oregon to
the north side of the Malin 500 kV substation on the California-Oregon border.
Further, there is no transmission available across the Malin substation to
deliver the Roseburg power back into California to Redding. The Roseburg
power, however, can be economically delivered to Seattle and power from Seattle
can be economically delivered to Redding at a net present value cost of about
$3.78/MWh. See Attachment A to Fiscal Note.
Because SCL has transmission into California, an exchange of resources adds value to SCL by providing SCL with about 65,700 MWh of Washington renewable portfolio standard qualifying renewable energy from Roseburg for 15 years. The exchange provides Redding with an equivalent amount of SCL energy and RECs from the Cedar Falls and/or South Fork Tolt small hydroelectric facilities.
· Please check one of the following:
__X_ This legislation does not have any financial implications. (Stop here and delete the remainder of this document prior to saving and printing.)
____ This legislation has financial implications. (Please complete all relevant sections that follow.)
Appropriations: This table should reflect appropriations that are a direct result of this legislation. In the event that the project/programs associated with this ordinance had, or will have, appropriations in other legislation, please provide details in the Notes section below.
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Fund Name and Number |
Department |
Budget Control Level* |
2008 Appropriation |
2009 Anticipated Appropriation |
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TOTAL |
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*See budget book to obtain the appropriate Budget Control Level for your department.
Notes. The costs associated with this transaction are already included in the Department’s existing baseline budget, which has not yet been adopted by Council.
Anticipated Revenue/Reimbursement: Resulting From This Legislation: This table should reflect revenues/reimbursements that are a direct result of this legislation. In the event that the issues/projects associated with this ordinance/resolution have revenues or reimbursements that were, or will be, received because of previous or future legislation or budget actions, please provide details in the Notes section below the table.
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Fund Name and Number |
Department |
Revenue Source |
2008 Revenue |
2009 Revenue |
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TOTAL |
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Notes: While no budget item was included for this revenue potential, we would expect to have the ability to sell the RECs at about $6.00/MWh. At an annual production level of 65,700 MWh, there is revenue potential of about $400,000 for 2009 and 2010 as these RECs are not needed as yet to meet SCL’s renewable portfolio standard requirement. In addition, if we have the ability to bundle the RECs with energy and deliver it into California for a period of 2 or more years, the revenue potential increases substantially.
Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact: This table should only reflect the actual number of positions affected by this legislation. In the event that positions have been, or will be, created as a result of other legislation, please provide details in the Notes section below the table.
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Position Title and Department |
Position # for Existing Positions |
Fund Name & # |
PT/FT |
2008 Positions |
2008 FTE |
2009 Positions* |
2009 FTE* |
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TOTAL |
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* 2009 positions and FTE are total 2009 position changes resulting from this legislation, not incremental changes. Therefore, under 2009, please be sure to include any continuing positions from 2008.
Notes: None.
· Do positions sunset in the future? (If yes, identify sunset date): N/A
Spending/Cash Flow: This table should be completed only in those cases where part or all of the funds authorized by this legislation will be spent in a different year than when they were appropriated (e.g., as in the case of certain grants and capital projects). Details surrounding spending that will occur in future years should be provided in the Notes section below the table.
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Fund Name & # |
Department |
Budget Control Level* |
2008 Expenditures |
2009 Anticipated Expenditures |
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TOTAL |
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* See budget book to obtain the appropriate Budget Control Level for your department.
Notes: None.
· What is the financial cost of not implementing the legislation? (Estimate the costs to the City of not implementing the legislation, including estimated costs to maintain or expand an existing facility or the cost avoidance due to replacement of an existing facility, potential conflicts with regulatory requirements, or other potential costs if the legislation is not implemented.)
The cost of not implementing this legislation is to increase the risk of SCL not meeting its renewable portfolio standard targets. SCL will be subject to a penalty for each MWh SCL is short of the target. Roseburg biomass meets Washington’s renewable portfolio standard and SCL’s small hydroelectric resources do not. In addition, the new Roseburg project (on-line November 1, 2008) has a higher value in the REC market than does SCL’s small hydro resources, although they both have about equal value in the California market if the transmission constraints can be overcome and the green energy is delivered into California.
· What are the possible alternatives to the legislation that could achieve the same or similar objectives? (Include any potential alternatives to the proposed legislation, such as reducing fee-supported activities, identifying outside funding sources for fee-supported activities, etc.)
SCL may be able to enter into alternative long-term renewable
energy and/or REC purchases (RECs will satisfy the Washington’s renewable
portfolio standard). However, this transaction alone is insufficient to meet SCL’s
projected renewable portfolio standard requirements. SCL may be able to
purchase RECs when they are needed. However, this appears highly unlikely
given the very significant demand for renewable resources. Some small public
power utilities may have RECs for sale (and SCL will be exploring those
opportunities), but the price is likely to be steep. It is not generally
believed there will be sufficient renewable resources and transmission to meet
the renewable portfolio standard targets of the Western States in the time
frames allowed. At a cost of $3.78/MWh NPV cost SCL believes this transaction with
Redding Utility to be very hard to beat.to be in the
utility’s and its ratepayer’s best interests.
· Is the legislation subject to public hearing requirements: (If yes, what public hearings have been held to date, and/or what plans are in place to hold a public hearing(s) in the future.)
There have not been previous hearings, but in addition to the public notice and comment period, there will be an opportunity for public comment at the council meeting prior to council's vote to approve or reject the legislation.
· Other Issues (including long-term implications of the legislation):
None
Please list attachments to the fiscal note below:
Attachment A - Green Energy Exchange Agreement with Redding Electric Utility, Summary and Analysis
Attachment B – Redding Green Energy Exchange Economic Analysis Spreadsheet
Green Energy Exchange Agreement with Redding Electric Utility
Summary and Analysis
SUMMARY
Under this 15-year agreement, Seattle City Light (“SCL”) acquires from the City of Redding through Redding Electric Utility (“Redding”) energy and environmental attributes from a new 10 MW wood-fueled biomass generating resource located in northern California (“Roseburg”). In exchange, SCL will deliver an equivalent amount of energy and environmental attributes from its small hydroelectric renewable resources located in Washington and owned by the City of Seattle. The biomass resource meets Washington’s renewable portfolio standard (“RPS”) while SCL’s small hydroelectric resources meet California’s RPS. In addition, until needed to meet Washington’s RPS, estimated to be in 2016, the biomass environmental attributes will provide value through SCL’s ability to remarket them in the renewable energy credit (“REC”) market or remarket the energy with the environmental attributes. Attachment 1 is a summary of the Redding-SCL agreement terms and conditions. Attachment 2 is a summary of the Redding-RLC Industries agreement terms and conditions.
BACKGROUND
1. Redding entered into a fifteen year power purchase agreement with RLC Industries for the purchase of up to 10 MW of power and environmental attributes to be generated at the Roseburg softwood veneer mill in Weed, Siskiyou County, California in order to help them meet California’s RPS and load growth. This new resource is expected to go on-line in November 2008.
2. Roseburg is interconnected to PacifiCorp’s transmission system. The power is transmitted from Roseburg to the point of delivery at the north side of the Malin 500 kV substation (“Malin”) at the California Oregon Border (“COB”).
3. Redding found it uneconomic to transmit the power from the north side of Malin into California. The City of Redding proposed an exchange with SCL whereby SCL takes the biomass power, including the environmental attributes, at the north side of Malin and delivers it to Seattle and returns to Redding energy at the south side of Malin one week later a like amount of power and environmental attributes from SCL’s small hydro resources.
ECONOMIC ANALYSIS
1. The contract amount of energy delivery from Roseburg to SCL is 7.5 aMW, unit commitment flat across all hours. Roseburg has the right to deliver up to 10 MW during any hour.
2. In exchange for the energy delivered from Roseburg, SCL will deliver a like hourly amount of firm energy seven days later to Redding.
3. Cost: There are 3 costs to be considered, (a), loss return to BPA for transmitting the small hydro to the head of the intertie and John Day and loss return to SCL for transmitting Roseburg to SCL, (b) reserves, and (c) the opportunity of Point to Point (“PtP”) transmission on BPA’s system to and from John Day. There is only incidental cost for use of SCL’s AC Intertie because the majority of the time the power is scheduled in both directions (for Roseburg from COB to John Day and for SCL’s small hydro from John Day to COB) and can therefore be netted.
The cost analysis assumed the cost of
a. return of losses to BPA @2 * 1.9% * Mid-C price (using GED April 2008 forecast), plus
b. reserves of 5.5% at $7.39 (real 2008$), plus
c. the opportunity of SCL’s use of PtP transmission to John Day at $1 (real 2008$).
Table 1 shows the expected costs.
Table 1
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MWh |
BPA PtP Losses |
Reserve Cost |
PtP Opportunity Cost |
Total Cost |
Cost per MWh |
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65,700 |
$143,274 |
$26,704 |
$65,700 |
$248,245 |
$3.78 |
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2010 |
65,700 |
139,570 |
26,704 |
65,700 |
244,217 |
3.72 |
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2011 |
65,700 |
133,246 |
26,704 |
65,700 |
237,338 |
3.61 |
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2012 |
65,880 |
132,260 |
26,777 |
65,880 |
236,486 |
3.59 |
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2013 |
65,700 |
131,167 |
26,704 |
65,700 |
235,076 |
3.58 |
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2014 |
65,700 |
134,127 |
26,704 |
65,700 |
238,297 |
3.63 |
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2015 |
65,700 |
141,996 |
26,704 |
65,700 |
246,856 |
3.76 |
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2016 |
65,880 |
148,378 |
26,777 |
65,880 |
254,015 |
3.86 |
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2017 |
65,700 |
154,378 |
26,704 |
65,700 |
260,324 |
3.96 |
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2018 |
65,700 |
154,794 |
26,704 |
65,700 |
260,776 |
3.97 |
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2019 |
65,700 |
150,877 |
26,704 |
65,700 |
256,516 |
3.90 |
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2020 |
65,880 |
139,224 |
26,777 |
65,880 |
244,059 |
3.70 |
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2021 |
65,700 |
143,984 |
26,704 |
65,700 |
249,018 |
3.79 |
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2022 |
65,700 |
150,369 |
26,704 |
65,700 |
255,963 |
3.90 |
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2023 |
65,700 |
156,238 |
26,704 |
65,700 |
262,347 |
3.99 |
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Average |
65,736 |
$143,592 |
$26,718 |
$65,736 |
$248,636 |
$3.78 |
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NPV @ 3% |
$1,706,058 |
$347,958 |
$784,751 |
$2,959,343 |
NA |
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Annual Cost of the Exchange (2008$)
* 2008 $
4. The potential revenue resulting from this exchange to SCL is the market value of the Green Premium or RECs. The net benefit of the exchange is the market value of the green premium net of the cost. The net benefits analysis uses a starting green premium or REC value of $5.50/MWh[1] (a recent market broker quote) and escalating it at 5% annually throughout the term.
Table 2 shows annual value of the gross and net benefits to SCL.
Table 2
Net Benefit of the Exchange (2008$)
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Green Premium |
Total Cost |
Net Gain |
MWH |
Total Net Gain |
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2009 |
5.63 |
$3.78 |
1.85 |
65,700 |
121,543 |
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2010 |
5.92 |
3.72 |
2.20 |
65,700 |
144,490 |
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2011 |
6.22 |
3.61 |
2.61 |
65,700 |
171,257 |
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2012 |
6.54 |
3.59 |
2.95 |
65,880 |
194,168 |
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2013 |
6.87 |
3.58 |
3.29 |
65,700 |
216,396 |
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2014 |
7.22 |
3.63 |
3.60 |
65,700 |
236,274 |
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2015 |
7.59 |
3.76 |
3.84 |
65,700 |
251,995 |
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2016 |
7.98 |
3.86 |
4.13 |
65,880 |
271,768 |
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2017 |
8.39 |
3.96 |
4.43 |
65,700 |
290,877 |
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2018 |
8.82 |
3.97 |
4.85 |
65,700 |
318,626 |
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2019 |
9.27 |
3.90 |
5.37 |
65,700 |
352,529 |
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2020 |
9.74 |
3.70 |
6.04 |
65,880 |
397,867 |
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2021 |
10.24 |
3.79 |
6.45 |
65,700 |
423,941 |
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2022 |
10.77 |
3.90 |
6.87 |
65,700 |
451,426 |
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2023 |
11.32 |
3.99 |
7.32 |
65,700 |
481,233 |
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Average |
8.17 |
$3.78 |
4.39 |
65,736 |
288,293 |
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NPV @ 3% |
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$3,277,176 |
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* 2008 $
5. The present value of the net gain in the high cost/low benefit case is about $3.3M with an estimated average Green Premium over the 15 year period of $8.17.
RISK & RISK MITIGATION
This most significant risk related to wood biomass resources is the availability of the fuel supply which is most frequently impacted by economic conditions in the housing market, although temporary interruptions of supply can be brought on by forest fire hazards and winter snow conditions. In the case of Roseburg, the fuel supply is a by-product of their veneer plant operations. While the temporary conditions can be managed by proper planning, longer term economic cycles often cannot which could result in long-term closures of the Roseburg project. In addition, Roseburg will require maintenance outages and will likely occasionally experience forced outages. Short of shutting down on a more permanent basis due to poor economic conditions in the veneer business or for force majeure events, Roseburg must generate at about a 75% minimum capacity factor. Failure to meet this threshold will require Redding to provide Washington RPS compliant RECs to SCL.
If Roseburg has a forced outage, SCL has the option to return or not return energy that was received by it one week earlier and therefore has no energy risk.
If SCL’s small hydro resources produce less than the Roseburg resource over the course of one-year, SCL may use any surplus small hydro RECs from the prior year or borrow from the future year or purchase RECs from any resource that qualifies under California’s RPS. We expect Roseburg to generate about 65,700 MWh per year. Average annual generation from small hydro during 1986-2007 was about 134,149 MWh and the lowest generation was 87,717 MWh in 2005.
ALTERNATIVES
SCL may be able to purchase RECs in the market for the period when we expect to need them to meet the Washington RPS (estimated 2016). However, due to the lack of information on the market availability of RECs, planning to meet RPS by purchasing RECs is highly risky.
SCL could also simply market the small hydro output and associated environmental attributes to California providing the power can be delivered to California. In this case the cost will be higher than the cost for the Redding exchange because there is a cost for the use of the 3rd AC Intertie and associated losses.
CONCLUSION
This exchange is a win-win for both parties. SCL is acquiring a new long-term renewable resource that meets Washington’s RPS for a net cost of about $3.78/MWh. During the next seven years when resource is not needed for meeting Washington’s RPS, there is a net financial benefit to SCL equal to the difference between the market value of the RECs and the low Cost of Redding exchange. At the time it is needed to meet Washington’s RPS in 2016, it will contribute about 7% of SCL’s requirement and will help SCL to avoid a penalty which will be about $60/MWh (nominal) and avoids the need to purchase a new renewable resource at an even higher cost. In exchange, SCL will transmit to Redding at the south side of COB, an equal amount of energy and environmental attributes from its small hydroelectric resources (Cedar Falls and South Fork Tolt), both of which have been precertified by the California Energy Commission as renewable resources under California’s RPS. These small hydroelectric resources do not qualify as renewable resources for meeting Washington’s RPS.
