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CITY COUNCIL WORK SESSION
April 21, 2015
4:00 PM, City Council Chambers
MEETING AGENDA
I. Site Visit 211 E. Hallam - Aspenmodern Proposal - 4:00 p.m.
II. Renewable Energy Portfolio Discussion 4:30 p.m.
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MEMORANDUM
TO: Mayor and City Council
FROM: William Dolan, Renewable Energy Manager
THRU: David Hornbacher, Director of Utilities and Environmental Initiatives
DATE OF MEMO: April 17 th , 2015
DATE OF MEETING: April 21 st , 2015
RE: Fixed Cost Recovery and 100% Renewable Energy Work Session
PREVIOUS COUNCIL ACTION: In January of 2013, Council gave staff direction to begin
researching additional renewable energy options. Subsequently, the City contracted with NREL to
analyze the City’s renewable energy alternatives, and devise a work plan that encourages informed
decision-making on the part of Council to meet the 100% by end of 2015 goal.
NREL delivered their first presentation to Council on November 19 th , 2013 during which Council
approved of staff’s recommended renewable energy and REC policies, and each Council member had an
opportunity to choose their highest priority renewable energy project criteria. NREL’s second
presentation was delivered on April 21 st , 2014, during which Council chose their preferred renewable
energy alternatives and instructed staff to research those alternatives in more depth. City staff delivered
the third presentation on December 9 th , 2014, giving an update on the progress towards Council’s chosen
solution.
OVERVIEW:
• Step 1 : November 19 th , 2013. During that work session, Staff and NREL representatives
covered foundational concepts and background information (contract history, conceptual
definitions, etc.)—effectively laying the groundwork for steps 2 and 3.
• Step 2 : April 21 st , 2014. This involved a surface-level presentation of all alternatives explored
by NREL, and assessment according to the project criteria chosen during Step 1. Staff requested
that Council select ~3 alternatives from this list for final research/investigation by staff. The
results of this research is the subject of Step 3.
• Step 3 : December 9th, 2014. This step dealt with a more in-depth discussion of the alternatives
chosen by Council (wind and landfill gas (LFG)), as well as covered other renewable initiatives
and opportunities beyond 2015 (i.e., microhydro, community solar, etc.). Council reaffirmed the
current direction, and staff provided updates on the current status of negotiations with the City’s
wholesale energy supplier, the Municipal Energy Association of Nebraska (MEAN). Staff also
informed Council of the expected structural changes pending at MEAN, which dealt with the
way revenue collection was calculated. The changes for calculating revenue collection applied
to all MEAN members and is independent of how council elects to move forward with
renewables.
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• Step 4 : April 21 st , 2015: During this work session, staff will update Council on the draft
renewables contract and status of ongoing negotiations, as well as provide current timeline and
cost information. Andrew Ross from MEAN will also provide a brief update on the structural
changes at MEAN.
• Step 5 : July, 2015: Staff presents Council with a finalized contract for approval that facilitate
Aspen’s renewable goals, but also ensure that said contract(s) aligns with the City’s stated
environmental values, and fiduciary responsibilities.
Tonight’s discussion marks the fourth in a series of meetings related to the City’s 100% renewable goal.
We will discuss progress since the December 9 th , 2014 meeting, as well as provide a general timeline for
the completion of the 100% renewable goal. In addition, Andrew Ross from MEAN will be here to
update Council on the business-model changes recently implemented by the MEAN Board, colloquially
known as the Fixed Cost Recovery Charge (FCR). 1 This is an entirely separate issue from the
renewables negotiations, but staff felt an update to Council was warranted at this time.
DISCUSSION: Based on the outcome of the April 21 st , 2014 meeting, during which Council instructed
staff to procure the most ideal combination of additional wind purchases and landfill gas (LFG), staff
has entered into negotiations with MEAN to do just that. During these negotiations, staff has
determined that LFG energy—while more convenient from an energy dispatching perspective—is an
inferior product, both in terms of price and environmental impacts. Accordingly, the emphasis in these
negotiations has shifted towards a contract comprised almost entirely of wind.2 The current outline of
the new renewables contract looks like this:
1-3 year term
94% wind, 3% LFG, 3% LFG RECs (approximate)
Incrementally added cost of ~$195,000/yr. for first full year
Longer-term contract to be negotiated over the course of coming year
The current cost of the wind product offered by MEAN is $51/MWh, compared to $37.75/MWh for
MEAN’s standard energy product (excluding capacity and transmission). While this represents a
premium over current energy costs, staff is working on creating a long-term fixed rate for wind, which
will become more competitive with MEAN energy rates as they continue to rise. Staff is also aiming to
have capacity included with the wind product in the successor long-term renewables contract (this will
reduce wind’s effective cost to Aspen).
MEAN sent a draft contract to staff on April 10 th , 2015, which will be the basis of continued
negotiations throughout the spring and summer. Staff plans to have a finalized contract ready for
Council approval in July, which will then clear the way for MEAN Board approval in August.
1 The FCR took effect on April 1 st , 2015. Generally speaking, Aspen will see a higher “fixed cost”
component on all energy bills from MEAN, while seeing reductions in certain “variable costs”. While
substantively separate from the ongoing renewables negotiations, the FCR issue delayed progress on the
new wind/LFG contracts considerably. Once the FCR was established in January, 2015, progress on
renewables negotiations resumed.
2 Proposed contract is projected to be comprised of: 94% new wind, 3% LFG energy, and 3% LFG
RECs.
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FINANCIAL IMPACTS: In preparation for the 2015 budget, staff estimated—and included—the
added costs to achieve 100% renewable energy at $283,940. This number refers to the costs over and
above the null alternative, including the impacts of the FCR. Based on more current and complete
information, staff and MEAN now believes that this premium will be lower, or around $195,798 to
achieve the first full year of 100% renewable energy. Put another way, achieving the 100% renewable
goal will represent an impact on the average residential customer bill of approximately $1.75 per
customer per month (on a $58.51 monthly bill).
The price of Aspen’s wholesale fossil-fuel based energy has been escalating quickly (8% in 2013, and
18.5% in 2014), making a fixed-cost wind energy product increasingly competitive from a pure cost
standpoint. If staff can successfully negotiate capacity being included in the wind product, then wind
will become even closer to parity with MEAN energy rates.
ENVIRONMENTAL IMPACTS: The end goal of this analysis is to find the best possible way(s) to
meet Aspen’s 100% renewable energy goal, reducing Aspen’s GHG emissions, and setting an example
for other municipal electric utilities to follow. Locally speaking, reaching 100% renewable energy
means reducing consumption of coal/gas-based electricity by approximately 15-20 million kWh/yr (this
equates to approximately 30-40 million lbs of avoided CO2 emissions per year). Achievement of this
goal will also place Aspen amongst an elite group of municipalities nationally who have been able to
meet this ambitious goal, further solidifying Aspen’s leadership position with regard to environmental
initiatives.
REQUESTED COUNCIL ACTION: None
CITY MANAGER COMMENTS:
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
ATTACHMENTS:
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Figure 1: Estimated Cost to 100% Renewable
Figure 2: Renewables and Demand
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
No Action Proposed 100% Renewable Plan
Projected Purchased Power Costs 2015
Other Existing Wind MEAN New Wind Ridgway LFG
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
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Renewables and Demand (2002-2015)
Load (MWh) Renewables (MWh)
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MEAN Board of Directors and Management Committee approve
wholesale rate restructure for long-term Participant-Owners
Change adds more rate stability by recovering known fixed costs
At its January 22 joint meeting, the Municipal Energy Agency of Nebraska (MEAN) Board of
Directors and Management Committee approved revising its wholesale electric rate structure
for its 59 long-term Participant-Owners to better recover fixed costs and provide more rate
stability as a result of operating in more regulated wholesale electric markets.
As part of the new rate structure, the Board and Management Committee approved an 8.1
percent average revenue requirement adjustment for all long-term Participant-Owners. Based
on each Participant-Owners’ electric load profile, adjustments will be more or less than the
average.
Under the new rate structure, MEAN’s
base and incremental demand and
energy charges are eliminated and
replaced with a flat energy rate and a
fixed cost recovery charge. This allows
MEAN to recover known fixed costs
and better handle energy usage
volatility due to weather and other
unpredictable factors.
MEAN is also transitioning from a
break-even, cash-based budget to a traditional utility-based budget that takes into account the
requirements of generation asset ownership.
DRIVERS OF THE RATE RESTRUCTURE
Increased Regulation in Wholesale Electric Markets
The wholesale market environment that MEAN must operate within has changed
significantly in recent years with increased regulation due to the transition into Regional
Transmission Organization (RTO) markets. This has significantly reduced MEAN’s revenue
opportunities from selling excess electricity primarily to non-participants. For decades, this
revenue was used to help stabilize and offset rates to MEAN Participant-Owners.
Increased Exposure to Volatility
With reduced revenue from non-participant energy sales, MEAN is more directly susceptible
to market volatility regarding unpredictable variables such as energy sales from weather-
related energy load/usage and unplanned outages. A recent example is the two-month
customer charge which was implemented primarily as a result of lower than budgeted
Participant-Owner energy sales due to mild weather. The new rate structure will help
minimize volatility from these unpredictable variables by replacing the two-tiered demand
and energy rate structure with a flat energy rate.
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Cost of Service Rate Study
The rate restructuring followed a third party, independent cost of service rate study that
began in late 2013. The study provided analysis of MEAN’s rate structure and thorough
review of MEAN’s underlying cost components. A MEAN Ad Hoc Committee considered rate
restructuring strategies.
MEAN’S FIXED COSTS
MEAN’s Fixed Cost Recovery Charge consists primarily of fixed costs related to MEAN’s
ownership of power plants and the operation of MEAN. MEAN owns a share of four power
plants in the region:
• Wygen Unit 1 in Gillette, Wyo.
• Laramie River Station in Wheatland, Wyo.
• Walter Scott Energy Center Unit 4 in Council Bluffs, Iowa
• Whelan Energy Center Unit 2 near Hastings, Neb. (Through the Public Power Generation
Agency)
These fixed costs, like a home mortgage, must be paid irregardless of whether the power plants
are generating electricity due to planned or unplanned outages or market conditions.
MEAN MOVING FORWARD
The MEAN Board of Directors and Management Committee believe the rate restructuring will
significantly help MEAN moving forward in addressing volatility from operating in wholesale
electric markets and should lead to a more stable and predictable annual revenue requirement.
NOTE: MEAN’s 2015-16 budget consists of a number of underlying assumptions, many of which have the
potential to be impacted by regional, regulatory and weather events that are outside the control of staff
or MEAN’s Participant-Owners.
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