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Title:
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Amend Ordinance S-45262 to Allow Contract with Salt River Project for Additional Solar Energy (Ordinance S-45343)
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Title
Amend Ordinance S-45262 to Allow Contract with Salt River Project for Additional Solar Energy (Ordinance S-45343)
Description
Request to amend Ordinance S-45262 authorizing the City Manager, or his designee, to enter into a 15-year contract with Salt River Project (SRP) to provide up to 30 percent of the City's total SRP electricity use from a new solar farm as part of the SRP Sustainable Energy Offering.
Report
Summary
In Ordinance S-45262 (December 12, 2018), City Council provided approval for the City to enter into a 15-year agreement with SRP to provide up to 15 percent of the City's total SRP electricity use with renewable solar energy. SRP had approached its largest customers to participate in the purchase of renewable energy at a fixed price of 2.73 cents per kilowatt hour (kWh) as part of a proposed 100 megawatt (MW) solar farm being constructed in southern Arizona. The initial offering to the City was for seven percent of the City's annual electricity load; however, subsequent to Council approval, SRP offered to increase that share from seven percent to as high as 30 percent, or in other words, up to 22 MW or 60,000,000 kWh.
The offering is quite unique, in that, the volume contracted from SRP will be decoupled from current and future rates, and instead, be reflected as a separate line item on the SRP bill as a bill credit based on the difference between SRP rates at the time and a fixed contract price of 2.73 cents per kWh. Currently, SRP rates for the commodity portion of the bill average close to three cents per kWh. At the increased amount of up to 30 percent, in the first year the contract would likely result in a credit of approximately $75,000. If commodity prices rise for renewable electricity over the next 15 years, then the credit would increase; however, if the price of renewable energy falls, the credit would decrease.
After consultation with SRP, staff report that the offering has a strong upside of an immediate credit on the annual SRP energy bill. Even if SRP rates were to fall below the 2.73 cent contract price, the total energy bill from SRP would still fall because the majority of the City's energy use would benefit from the lower price.
In addition to financial considerations, there are several other benefits to increasing the share of renewables in the contract:
The additional renewable energy attributes purchased through this amendment would accrue to the City. The City could claim a percent increase in renewables in its portfolio once the project becomes active.
The offering supports and contributes to the Council-adopted goal to reduce carbon pollution from operations by 40 percent by 2025.
SRP indicated that customer participation in this offering would encourage it to provide similar offerings in the future. Recently, SRP announced plans to grow this initial 100MW solar investment to 1,000MW of renewable solar by 2025.
Financial Impact
The initial impact of the contract, not to take effect until 2020, would likely be an annual bill reduction in the range of $75,000. Over the 15-year life of the contract, however, that annual credit may rise or fall depending on SRP rates in the future. Given the most likely scenario is an ongoing bill credit, staff recommend applying the credit specifically to General Fund electricity accounts.
Concurrence/Previous Council Action
The previous ordinance allowing up to 15 percent renewables was recommended for City Council approval by the Water, Wastewater, Infrastructure and Sustainability Subcommittee on Dec. 5, 2018 by a vote of 3-0, and also unanimously approved by City Council on Dec. 12, 2018.
Department
Responsible Department
This item is submitted by Deputy City Manager Karen Peters and the Office of Sustainability.