Title
Authorization to Issue Request for Pricing and Contract with Energy Firms
Description
Request to authorize the City Manager, or his designee, to enter into a contract, or contracts, to procure electricity through one or more qualified energy firms. This action is required to facilitate City of Phoenix participation in an energy program that allows large customers of regulated utilities to enter into the electric generation market and arrange for alternative sources of generation. There will be no cost to the City for these third-party energy contracts, and the City will be able to procure electricity through Arizona Public Service at wholesale rates with these contracts.
Report
Summary
In 2012, the Arizona Corporation Commission allowed large customers of Arizona Public Service (APS) to buy energy from the market through a program called AG-1. The City subscribed the majority of the City's APS accounts to the program, and over the subsequent five years reduced utility costs more than $11 million. As part of an APS rate case settlement in August 2017, the program was revised to limit participation through a lottery system. The City submitted four bundles of accounts to the new program called Schedule AG-X: Buy-through Generation. One of the entries submitted by Aviation in 2017 was permitted to participate and has been part of the program since that time. In February 2022, the City was notified that a second group of accounts from Public Works were selected to join the program.
The City is able, through this program, to seek wholesale market pricing for the selected accounts from the Aviation and Public Works departments. The City is able to use an energy consultant under an existing contract to obtain price quotes from qualified firms using an industry-standard competitive process, and contract with the firm(s) that provide the best value to the City. The contracts with the third-party energy firm(s) are required by APS as part of the program and were updated in December 2021 as part of an APS rate case settlement to include revisions to the Power Payment Procedures Agreement.
The City will make no payments to the contracted energy firms. The City will pay APS for the selected bundle of Aviation and Public Works accounts but at the wholesale rate available through alternative generation sources. The City will also evaluate the carbon intensity of the market offerings and favor bids that are "greener" or less carbon-intensive than the current APS portfolio provided the pricing is still competitive with the utility cost of energy.
These activities will allow the City to test and identify opportunities to reduce energy expenses and ideally, as a secondary benefit, reduce the carbon intensity of the electricity supply for participating accounts. Depending on market conditions, the cost savings are expected to range between five percent and twenty percent annually.
Contract Term
The initial contract term(s) will likely be one to three years based on current market pricing, however, this authorization is requested for multiple contract terms for the period that the energy program with APS is in effect. Staff will report back to City Council periodically on the success and savings of the program. If the pricing from wholesale markets in the future is no longer cost-competitive, the City has the option to return to APS as its primary energy provider.
Department
Responsible Department
This item is submitted by Deputy City Managers Karen Peters and Mario Paniagua, the Office of Sustainability, and the Aviation and Public Works departments.