REPORT TO COUNCIL
SUBJECT
Title
Action (1) Authorizing the City Manager to Negotiate and Execute a 20MW Power Purchase Agreement with Bloom Energy to supply power to Amazon Web Services (AWS) and a separate Offtake Agreement with AWS; and (2) Authorizing the City Manager to Negotiate and Execute up to an additional 80 MW of Power Purchase Agreements with qualified vendors for in-City generation solutions and all needed agreements with Customers.
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
In November 2019, Silicon Valley Power (SVP) management met to discuss the strategic priorities for SVP and identified that the City would experience significant electric load growth requiring SVP to develop a capital improvement strategy to meet the City of Santa Clara’s potential load growth. Staff developed both near-term and long-term strategies to accommodate approved growth and develop the necessary infrastructure plan options.
On October 13, 2020, the City Council authorized the City Manager to execute master service agreements with several engineering consultant firms to support SVP in system expansion (RTC # 20-854).
On April 6, 2021, staff presented a comprehensive review of upcoming load growth and capital projects to the City Council as part of the SVP Quarterly Report. The presentation concluded with the next steps, including the preparation of a system growth strategy to be presented at a future City Council meeting.
On September 28, 2021, the City Council accepted SVP’s Three-Year System Growth Plan Strategy (RTC # 21-871). This plan identified $300 million in proposed projects for both near-term and long-term capital improvement projects needed to support anticipated system growth and to replace end-of life equipment for system reliability.
On April 5, 2022, the City Council adopted Resolution # 22-9069 adding new and updated connection and load development fees for SVP (RTC # 22-449). Additionally, on April 23, 2024, the City Council adopted Resolution 24-9316 adopting the City of Santa Clara 2024/25 Municipal Fee Schedule, which included new and updated connection fees and load development fees, effective July 1, 2024 (RTC # 24-101). Such fees and their corresponding increases are intended to maintain fees at cost recovery levels necessary to support electric load growth.
On November 15, 2022 (RTC # 22-1172), the City Council accepted SVP’s System Expansion Plan for the California Independent System Operator’s Transmission Planning Process FY 2023/24 (SVP System Expansion Plan CAISO TPP FY 2023/24). The purpose of this process is to project SVP’s load growth over the next ten years and apply it to an electric system model to simulate load growth impacts on SVP’s electric system.
On May 9, 2023, the City Council adopted Resolution # 23-9223 regarding the City’s intent to issue tax-exempt electric system bonds for reimbursement of expenditures for certain capital improvement projects for SVP (RTC # 23-104) including load growth projects and associated equipment and material purchases.
On July 18, 2023, staff updated the City Council regarding these key near-term projects as part of the SVP Quarterly Update (RTC # 23-757). At the same meeting, the City Council approved amendments to several master service agreements, including increases to cumulative maximum compensation (RTC # 23-737).
A critical element of the projected load growth noted in these City Council actions is the need to purchase long lead items to support the system expansion projects.
• On October 10, 2023, the City Council authorized the purchase of up to 12 high voltage transformers from HD Hyundai Electric America Corporation with a total not-to-exceed amount of $81,392,908 (RTC # 23-122).
• On May 7, 2024, the City Council authorized the negotiation and purchase of high voltage circuit breakers with a total not-to-exceed amount of $38,000,000 and an additional 15% contingency (RTC # 24-35).
• On May 28, 2024, the City Council authorized the negotiation and purchase of high voltage disconnect switches, station service voltage transformers, voltage transformers and capacitive voltage transformers, and combination revenue metering transformers with a total not-to-exceed amount of $17,400,000 plus an additional 15% contingency (RTC # 24-453).
System Capacity Limitations
SVP staff continues to work on the System Expansion Plan and anticipates completion of SVP’s major projects and the new LS Power CAISO transmission line on or before 2028. At that time, SVP will almost double in size to approximately 1250+/- MW peak capacity. In addition, there are other projects, such as the Battery Energy Storage System, which will increase the System Capacity prior to 2028.
However, in the interim there are limitations for load ramps (how much power a Data Center can use each year) for major data center customers, and this is expected to continue in the near-term and mid-term timeframes. Staff has discussed this item with the City Council as part of the SVP quarterly reports and directly with data center customers. Some customers have expressed an interest in adding more capacity beyond what SVP can currently serve to their facility.
In addition to the System Expansion Plan, staff has been reviewing possible creative options for in City generation (not limited by Transmission constraints) and has encouraged customers and power vendors to bring options/ideas for consideration.
DISCUSSION
Over the last two years, SVP staff has encouraged customers and power vendors to propose options for in-City generation (not limited by transmission capacity to the City). The team has had many meetings on a variety of different items including peaker power plants (both natural gas and renewable gas), base load power plants, batteries, and fuel cells. While SVP had lengthy and detailed discussions on some items, none reached a formal proposal, except for the proposed Bloom Power Purchase Agreement (PPA) using fuel cells.
The proposed PPA with Bloom to serve Amazon Web Services (AWS) is not typical for SVP for the following reasons: (1) it will have a shorter term, (2) it will be more expensive than our typical PPA contracts, and (3) it will use natural gas but will be required to meet the State Renewables Portfolio Standard (RPS) Program requirements. In addition to a PPA with Bloom, SVP would separately contract with AWS under an Offtake Agreement, whereby AWS will take all energy SVP produced by the Bloom fuel cells and pay SVP’s costs (including other costs mentioned below), even if they don’t utilize all 20MW.
Below is description of the proposed PPA and the Offtake Agreement.
AWS Power Requirements
AWS has a development project which will located at 2305 and 2315 Mission College Boulevard. These properties were originally owned by Oppidan Investment Company (Oppidan). On June 22, 2021, the City and Oppidan entered into a substation agreement for a substation known as the Freedom Circle Junction substation. The Freedom Circle Junction substation has an operational capacity of 99 MVA. On March 1, 2022, the City approved a consent to assignment whereby AWS assumed the rights and obligations of Oppidan under the substation agreement. Below is a summary of the substation agreement load ramp:
• Under the substation agreement, AWS has an initial 9 MVA for its use at 2315 Mission College Boulevard.
• The substation agreement has a ten-year load ramp which will get AWS to 32 MVA in 2034 at 2315 Mission College Boulevard.
• The substation agreement did not allocate any electric capacity to AWS for its use at 2305 Mission College Boulevard.
In order to more quickly ramp up the capacity at 2315 Mission College Boulevard and provide capacity to the other Mission College Boulevard lot, AWS wants to have additional capacity of 20 MVA for its use through the proposed in-City generation option. AWS prefers to enter into a separate agreement with the City to receive that energy instead of directly with Bloom, because AWS prefers to partner with utilities as it is consistent with its sustainability policy. Per AWS these type of projects “both support our utility partners, support AWS renewable energy goals, and build capacity that will support utility/AWS growth in our regions. Via this structure we will be better positioned to supply renewable energy RECs to support those corporate renewable energy goals through SVP, and support SVP meeting their RPS requirements.”
In summary, the City proposes to enter into a PPA with Bloom for power and the City will also enter into an Offtake Agreement with AWS to purchase all the power from the Bloom PPA.
Fifteen Year Term
The term of agreements will be for a period of 15 years. Under the Offtake Agreement, AWS will be required to pay the full cost of the 20MW acquired by the City under the PPA with Bloom (whether they use the full amount or not).
Security
In addition, AWS will need to provide the City financial assurances to address City contractual risk for the full 15-year term. The City has not determined the appropriate form of such assurances or amount that will be required, but it must be sufficient to protect the City in the event of an AWS event of default, including a failure to pay. One preferred security mechanism under consideration would be an irrevocable Letter of Credit issues by a major banking institution.
Cost of the PPA to be borne solely by AWS
The cost of the Bloom PPA will be up to 50% higher than the current rate for SVP industrial customers. Because this PPA will be solely for the benefit of AWS, AWS will be fully responsible for the total PPA cost under the Offtake Agreement and, as such the PPA will not be included as part of the rate analysis for other SVP customers. SVP will not enter into the Bloom PPA and the Offtake Agreement if AWS does not agree to pay the full cost associated with it. Under the Offtake Agreement, AWS will pay SVP the following:
• All costs associated with providing the power including infrastructure, maintenance and operations, gas, and state and federal compliance requirements (e.g., RPS compliance).
• SVP costs for PPA management
• The 5% general fund transfer per the City Charter
Renewable Portfolio Standard (RPS) and Other Regulatory Requirements
Under the Offtake Agreement, AWS will be responsible for compliance cost obligations, including, (1) mitigation of any and all impacts associated with compliance with the RPS, (2) submittal of Power Source Disclosure (isolating AWS emissions from the City’s Power Content Label), (3) compliance with regulations and requirements of the California Energy Commission (CEC), California Air Resources Board (CARB), and any other federal or state agency, and (4) mitigation of any increased resource adequacy obligation In connection with these responsibilities, AWS will also be financially responsible for procurement costs of Power Content Category (PCC) 1 bundled energy. Per Bloom, fuel cells are hydrogen capable which could meet RPS and could mitigate AWS’s cost obligations.
AWS is not required to meet the Climate Action Plan requirement for full carbon neutrality for the electric load of its data center at the Mission College Boulevard site. However, the current AWS sustainability policy could meet the same goals. Per AWS their energy supply from utilities, combined with its renewable energy procurement across the United States, has enabled several AWS Regions including the AWS West (Northern California) Region to be carbon neutral.
Offtake Agreement Other Terms
A separate agreement with AWS will be needed to ensure the following:
• AWS will be required to pay for the full 20 MW and all associated costs whether they use it or not
• As detailed above, AWS will agree to pay a rate that will be up to 50% more than the typical SVP rate
• SVP will not provide AWS standby availability for the additional 20 MVA provided by Bloom, meaning if that the fuel cells go out SVP will not have this 20MW available to them
Construction Site/Timetable
Assuming the execution of the PPA and the Offtake Agreement, the Bloom fuel cell project will be constructed within AWS property at 2305 and 2315 Mission College Boulevard. It is expected the project will take approximately 2-3 years to reach operations. This time frame includes design, construction, and required coordination and review with PG&E and the CAISO.
Additional PPAs with Bloom and Other Vendors
In addition to the AWS agreement, SVP has coordinated with additional large customers to determine if they would be interested in power under similar terms, specifically the additional cost, offtake, and meeting the RPS. To date, staff has received interest from four large customers.
Staff is requesting authority to negotiate both with Bloom, other similar vendors, and SVP customers for additional PPAs and separate offtake agreements. In addition to Bloom, any vendor can approach SVP at any point for a PPA proposal for consideration; provided that, it is in-City generation.
ENVIRONMENTAL REVIEW
Generally, environmental review under the California Environmental Quality Act (“CEQA”) should take place as early as feasible in the planning process to enable environmental considerations to influence project program and design; however, Section 15004 of Title 14 of the California Code of Regulations provides that CEQA review should not be so early as to preclude the availability of meaningful information for environmental assessment. The proposed actions simply authorize the City to negotiate and enter into PPAs and offtake agreements. Currently, the proposed size of the system, location, and other factors to complete a thorough CEQA environmental review are yet to be determined or not fully developed; therefore, it is too early to perform a complete CEQA review. Each PPA will require that the generating facility, which will be used to supply the counterparty, undergo CEQA review. The PPA shall be terminable in the event it is determined that the supplying generating facility will cause significant adverse environmental effects that are not adequately mitigated or for which there are no overriding considerations. The offtake agreements will likewise be terminable in the event of such a CEQA determination.
FISCAL IMPACT
Once the project is constructed and operational, which is projected to take two to three years, the revenues and expenditures associated with these agreements will be incorporated into the Electric Utility Fund budget. Assuming 20MW at 50% higher than the typical rate, the first-year cost of the agreements will be approximately $35 million, including SVP administration costs and the 5% General Fund Transfer (General Fund transfer estimated at $1.7 million a year).
COORDINATION
This report has been coordinated with the Finance Department and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
1. Authorize the City Manager or designee to negotiate and Execute a 20MW Power Purchase Agreement with Bloom or a Bloom affiliate for Amazon Web Services (AWS) and a separate Offtake Agreement with AWS, subject to the review and approval as to form of the City Attorney;
2. Authorize the City Manager or designee to Negotiate and Execute up to an additional 80 MW of Power Purchase Agreements for in-City generation solutions with energy suppliers and separate Offtake Agreements with other SVP customers (each individual PPA and Offtake Agreement cannot exceed 20MW), subject to the review and approval as to form of the City Attorney;
3. Authorize the City Manager or designee to execute all documents, agreements, and certificates as may be required under the terms of the agreement, subject to the review and approval as to form of the City Attorney, including, but not limited to, collateral assignment agreements, estoppel certificates, and performance security documentation, and take any and all actions as are necessary or advisable to implement and administer the agreements; and
4. Authorize the City Manager or designee to execute any amendments to the agreements so long as there is no change to their price or term length.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager