Loading...
HomeMy WebLinkAbout2024/02/06 - City Council Special Meeting - Study Session CITY COUNCIL VISION STATEMENT “Our Vision is to create an equitable, sustainable, and vibrant city, rich in opportunity for all to thrive by building on our foundation and success as a world class community.” Page 1 CITY OF RANCHO CUCAMONGA SPECIAL MEETING CITY COUNCIL AGENDA February 06, 2024 – 3:15 PM City Hall: Tri-Communities Conference Room 10500 Civic Center Drive Rancho Cucamonga, CA 91730 CALL TO ORDER PLEDGE OF ALLEGIANCE ROLL CALL: Mayor Michael Mayor Pro Tem Kennedy Council Members Hutchison, Scott and Stickler A. PUBLIC COMMUNICATIONS This is the time and place for the general public to address the City Council on any item listed on the agenda. State law prohibits the City Council from addressing any issue not previously included on the agenda. The City Council may receive testimony and set the matter for a subsequent meeting. Comments are to be limited to three (3) minutes per individual. For City Council Rules of Decorum refer to Resolution No. 2023-086. B. ITEMS OF DISCUSSION B1. Receive Presentation on Chaptered Bill AB 1373, Clean Energy Legislation and Projected Impacts. (CITY) C. ADJOURNMENT CERTIFICATION I, Linda A. Troyan, MMC, City Clerk Services Director of the City of Rancho Cucamonga, or my designee, hereby certify under penalty of perjury that a true, accurate copy of the foregoing agenda was posted on at least twenty-four (24) hours prior to the meeting per Government Code 54954.2 at 10500 Civic Center Drive, Rancho Cucamonga, California and on the City's website. LINDA A. TROYAN, MMC CITY CLERK SERVICES DIRECTOR If you need special assistance or accommodations to participate in this meeting, please contact the City Clerk's office at (909) 477-2700. Notification of 48 hours prior to the meeting will enable the City to make reasonable arrangements to ensure accessibility. Listening devices are available for the hearing impaired.    Page 1 DATE:February 6, 2024 TO:Mayor and Members of the City Council FROM:John R. Gillison, City Manager INITIATED BY:Jason C. Welday, Director of Engineering Services / City Engineer Fred Lyn, Deputy Director of Engineering Services - Utilities Deborah Allen, Management Analyst I SUBJECT:Receive Presentation on Chaptered Bill AB 1373, Clean Energy Legislation and Projected Impacts. (CITY) RECOMMENDATION: Staff recommends the City Council receive and file the presentation and overview of Assembly Bill (AB) 1373 and its projected impacts on Resource Adequacy requirements. BACKGROUND: The Rancho Cucamonga Municipal Utility (RCMU) is a part of the California Independent System Operator (CAISO) which manages eighty percent (80%) of the high-voltage, long-distance power lines for California. As part of CAISO, RCMU has a Resource Adequacy (RA) requirement mandate that it have in excess of fifteen percent (15%) electricity reserves beyond expected demand, which represents the Planning Reserve Margin (PRM). Over the last few years, RCMU’s attempt to purchase RA in this market has resulted in unprecedented difficulties in obtaining the full allotment required by law. The price volatility of purchasing RA in the last several years has gone from $1.25 per kilowatt per month (kW/mo) in 2017 to $6.75 in 2022 and $30 and up for 2024 and beyond, which is 5 to 25 times the original price and is not sustainable for this commodity. This challenge is similar to what has been experienced by all Publicly Owned Utilities (POUs) and Community Choice Aggregators (CCAs) statewide. The California RA issues will continue to worsen due to regulatory changes, reduction in the availability of RA supply due to the lack of baseload generators statewide, and other macroeconomic issues. Thus, RCMU and other POUs will only partially meet its PRM and RA requirements for 2024 and beyond. RCMU’s efforts to purchase RA for 2024 and beyond included issuing two (2) joint requests for proposal (RFPs) both of which were unsuccessful. One RFP received no responses and the second RFP response was priced well above the acceptable dollar range as noted previously. RCMU also participates in multiple utility-scale solar photovoltaic (PV) energy projects that provide RA to the electric grid. However, the RA value of these solar PV resources has dropped by 85% or more as solar PV is considered unreliable and inadequate as an RA resource due to its intermittency. These experiences are not unique to RCMU and are consistent with those of the Investor-Owned Utilities (IOUs) and CCAs.    Page 2 Page 2 2 2 0 6 ANALYSIS: There have been a multitude of legislative bills chaptered that directly affect POUs, such as RCMU. A significant bill, AB 1373 makes numerous changes to the state’s energy policy. AB 1373 was recently highlighted in the Daily Bulletin newspaper titled, “California state government makes energy more expensive with clean energy bill” dated September 28, 2023, and in a white paper issued by the California CCA trade association titled, “California’s Constrained Resource Adequacy Market” dated September 15, 2023. AB 1373 was enrolled on September 22, 2023, and was chaptered upon the Governor’s signature on October 7, 2023, and is effective immediately. The passage of AB 1373 creates the following changes: -Capacity Payment Mechanism (CPM) (2.0): Authorizes the Executive Director of the California Energy Commission (CEC) to impose capacity payment penalties on POUs that have not met their PRM when the state’s Strategic Reliability Reserve (SRR) Program is used. The SRR was created to address electric reliability during extreme summertime weather events. This will begin in 2024 and run through 2027. For reference, RCMU already has imposed upon it a Capacity Payment Mechanism (CPM 1.0) through CAISO when the utility does not meet the local Resource Adequacy Planning Reserve Margin minimum in the CAISO’s monthly calculations. In CPM 1.0 when RCMU’s monthly local RA is short in the overall CAISO system for the month, RCMU has to pay its pro-rata share of the shortfall through the CPM 1.0 “penalty” of $6.31/kW/mo. CPM 2.0 will add to this requirement with additional capacity payment penalties. -Central Procurement Mechanism: The Department of Water Resources (DWR) will establish a process to centrally procure energy resources to help the state meet its renewable and zero-carbon energy goals by procuring new resource contracts and building new projects such as offshore wind. To voluntarily participate, a local publicly owned electric utility shall commit to the imposition of a non-by-passable charge on its ratepayers to fund participation in the program. This State level procurement will likely begin in 2025 and sunset in 2035. As the state energy policy legislative landscape continues to dramatically change, AB 1373 further exacerbates the RA situation: •All POUs will be highlighted in a forthcoming report by the CEC on or before January 31, 2024, that includes an assessment of whether each electric POU exceeded, met, or failed to meet its minimum PRM and specified system RA requirements from June 1, 2023, to September 30, 2023. This will create an informational RA baseline statewide indicating those utilities who have not fully met the RA requirements for 2023; however, the extent of the POUs and CCAs that did not meet the RA requirements will be unknown until the statewide report is released. •No later than September 1, 2024, the CEC and CAISO shall determine if there is a need for the procurement of eligible energy resources based on a review of the Load Serving Entity (LSE) complying and progressing toward meeting the portfolio resource standards.    Page 3 Page 3 2 2 0 6 •Beginning in 2024, if RCMU is not meeting its minimum PRM, it will be required to pay into the future CPM 2.0. The capacity payments will be applicable each year beginning in 2024 through 2027. If DWR determines that resources it procured through the Electricity Supply Strategic Reliability Reserve were used in a given month to meet an LSE-identified reliability shortfall, then a capacity payment will be assessed annually for each LSE by the CEC during that same month it fails to meet its minimum planning RA requirements. Any monies collected from RCMU and other LSEs/POUs through CPM 2.0 will be collected from and deposited into two established State-run accounts. This includes the Load-Serving Entity Capacity Payment Account and the Local Publicly Owned Electric Utility Capacity Payment Account both of which go into the DWR Electricity Supply Strategic Reliability Reserve Fund. •The DWR will create the Central Procurement Mechanism as a state energy project procurement entity to conduct one or more competitive solicitations and enter contracts to procure eligible energy resources. It is estimated to begin in 2025 and sunset in 2035. RCMU will have the voluntary option to obtain eligible energy resources acquired by the DWR through its Central Procurement Mechanism on a contract-by-contract basis. The agreement shall have the force and effect of an irrevocable financing order. If RCMU chooses to participate, the cost of the Central Procurement Mechanism will be imposed as part of the RCMU’s Power Cost Adjustment Factor (PCAF) charge on its ratepayers beginning in 2025. In essence, AB 1373 will not help RCMU or other electric utilities with its limited RA options in the near term and will likely result in increased pricing to purchase this commodity. In the long term, the creation of a Central Procurement Mechanism authority under DWR could be helpful in having another energy procurement option for RCMU; however, having a new CPM 2.0 adds another layer of state authority infringing upon the City Council’s authority over RCMU’s jurisdiction and has the potential to increase costs to any entity subject to the CPM 2.0 requirements. RCMU will continue to be diligent and exercise an “all options approach” to responsibly procure all resources, including RA that serve our ratepayers while continuing to meet the state’s renewable and zero- carbon energy goals. Meeting these RA requirements will continue to be challenging unless more reliable resources come online soon or the State adjusts its overly ambitious and infeasible timelines and goals. FISCAL IMPACT: Any wholesale power costs that are incurred will be passed to ratepayers through the established Power Cost Adjustment Factor (PCAF). As a not-for-profit utility, RCMU only collects what is necessary to recover our costs. RCMU is unable to forecast these estimates since it will be based on current market rate conditions. COUNCIL MISSION / VISION / VALUE(S) ADDRESSED: This information supports the mid and long range planning council goals by providing a vision and roadmap for the future outlook of RCMU. ATTACHMENTS: None.    Page 4 RCMU Resource Adequacy (RA) Impacts from AB 1373 What is Resource Adequacy? https://www.oppdcommunityconnect.com/po wer-with-purpose Historical Pricing of Resource Adequacy* not including summer months •RCMU issued two joint RFPs in 2023 both of which were unsuccessful. One RFP received no responses, and the second RFP was priced well above our acceptable dollar range. •RCMU is part of the California Independent System Operator (CAISO), and if the RA is not collectively met, RCMU pays our pro rata share of the shortfall. •RCMU and other small POUs rely on the larger utilities with greater buying power to shoulder the RA load. •If the collective RA is not met, RCMU pays the CPM penalty of $6.31 per kW per month. This has only occurred 3 times since RCMU’s inception in 2004. •Historically, RA during summer months has been unavailable for 2-3 years. •Passage of AB1373 is an additional layer, namely, Capacity Payment Mechanism 2.0 which will be another penalty assessed during June – September for not meeting RA capacity. This will be assessed on each individual POU. Capacity Payment Mechanism (CPM) Central Procurement Mechanism •AB1373 authorizes the Department of Water Resources (DWR) to centrally procure energy resources to help the state meet its renewable and zero-carbon energy goals. •From 2025 through 2035, DWR will solicit renewable energy contracts. •RCMU and other POUs could contract directly with DWR to purchase RA, instead of issuing our own RFPs. •AB1373 includes an appropriation of six million dollars ($6,000,000) will support comprehensive, regional baseline environmental monitoring and research into the impacts of prospective offshore wind energy development, which is the Governor’s goal. Fiscal Impact •Electric Providers will pay more to meet RA obligations through issuing RFPs. •Utilities will be assessed CPM penalties through CAISO to meet RA obligations both on a collective and individual basis. •Either way, electricity ratepayers will pay a higher cost for electricity. •This increased cost will be assessed through the Power Cost Adjustment Factor (PCAF). Summary •AB1373 will not immediately help electric utilities with its limited RA options. •The Capacity Payment Mechanism 2.0 adds another layer of State authority infringing upon a Publicly Owned Utility (POU) jurisdiction. •RCMU will exercise an “all options approach” to responsibly procure RA to meet the state’s renewable and zero-carbon energy goals. •These RA requirements will be challenging to meet unless more reliable and clean resources come online soon, or the State adjusts its overly ambitious and infeasible timelines. •The Central Procurement Mechanism via Department of Water Resources (DWR) could help to have another energy procurement option.