REPORT TO COUNCIL
SUBJECT
Title
Action Authorizing the City Manager to Negotiate and Execute Agreements with Westlands Grape, LLC to Purchase Resource Adequacy Capacity up to $34 Million Annually from the Westlands Grape Battery Storage Project for Silicon Valley Power’s Compliance Obligations
Report
COUNCIL PILLAR
Deliver and Enhance High-Quality Efficient Services and Infrastructure
Promote Sustainability and Environmental Protection
BACKGROUND
The City of Santa Clara’s (City) Electric Department, Silicon Valley Power (SVP), is responsible for supporting the reliability of the grid through the demonstration of having sufficient resource adequacy capacity. Resource adequacy (RA) compliance ensures the safe and reliable operation of the grid in real-time providing sufficient resources when and where needed. Each utility or load serving entity is responsible for demonstrating it has sufficient RA either through the ownership of generation resources and/or procuring enough RA, measured in Mega Watt (MW).
As a California Independent System Operator (CAISO) market participant, SVP must follow the CAISO Tariff Requirements Section 40.2.1(b) to provide RA minimum of no less than 115% of its forecasted peak load. On April 25, 2006, the City Council, exercising their Local Regulatory Authority, adopted SVP’s Integrated Energy Resource Policy (IERP) establishing SVP’s Resource Adequacy guidelines to meet the minimums of the CAISO Tariff requirements. Without this authority, SVP would be subject to RA requirements set by the California Public Utilities Commission.
DISCUSSION
SVP’s electric load has increased by more than 20% over the last decade and is expected to continue increasing over the next decade. Due to SVP’s projected load growth, additional purchase of RA is warranted to meet the CAISO’s RA requirement.
In late 2023, SVP was presented with an offer from Westlands Grape, LLC (Westlands) to purchase RA from a battery storage project (Grape) in Kings County, California. Westlands will sell to SVP 150-225 MWs of RA. SVP staff performed an evaluation based on volume, pricing, timing, project maturity, and determined the Grape project to be a good fit with SVP’s forecasted demand. The Westlands agreement represents approximately 6%-10% (depending on options exercised) of SVP’s current RA portfolio value.
SVP’s failure to procure sufficient RA compromises the grid’s ability to serve its customers and can result with SVP being subject to the CAISO’s Central Procurement Mechanism as a backstop and where SVP can be exposed to CAISO assessed financial penalties (currently with a soft cap penalty price at $6.31/kW-month), real-time market price exposure and potential of increased procurement margins beyond 115% levied by the CAISO. The CPUC is currently pursuing an initiative to have the CAISO increase the penalty price to be more in line with current capacity market prices.
Grape has a projected commercial operation date of June 2026 and will help support SVP’s compliance with the RA program. The term of the purchase agreement will be for ten years. Staff will provide updates to Council as appropriate.
ENVIRONMENTAL REVIEW
The proposed agreement involves the procurement of resource adequacy from the Grape project. The Grape project has undergone environmental review under the California Environmental Quality Act (CEQA). On January 16, 2018, the Westlands Water District (WWD), as the lead agency, certified the Final Program Environmental Impact Report (PEIR) for the Westlands Solar Park Master Plan and WSP Gen-Tie Corridors Plan - State Clearinghouse No. 2013031043.
The PEIR covers all projects within the Westland Solar Park, including Grape, from which the City will derive resource adequacy under the proposed agreement. In addition to the programmatic EIR, the specific environmental impacts of the Grape project were further analyzed under a Mitigated Negative Declaration adopted by the Kings County on or about March 2021. Therefore, no additional CEQA analysis is required for this proposed action.
FISCAL IMPACT
The annual cost under the Agreement is estimated to be between $21 million to $34 million depending on the commercial operation date and amount of options exercised by the City. The Agreement will reduce the utility’s risk exposure to future price fluctuations in RA. The cost obligations for RA requirements are already assumed in the budget process and are included in the Electric Utility Fund. As such, this agreement does not have a net fiscal impact.
COORDINATION
This report has been coordinated with the Finance Department and 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 an agreement (Agreement) with Westlands Grape, LLC for the purchase of resource adequacy capacity on the terms presented subject to review and approval as to form by the City Attorney;
2. 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 Agreement; and
3. Authorize the City Manager or designee to (a) execute any amendments so long as there is no change to price or length of the Agreement; and (b) exercise an option for additional resource adequacy capacity in accordance with the terms of the Agreement and subsequently amend the Agreement to reflect the adjusted contract quantity, subject to appropriation of funds and review and approval as to form of the City Attorney.
Staff
Reviewed by: Manuel Pineda, Chief Electric Utility Officer
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Western Systems Power Pool Agreement Transaction Confirmation Between City of Santa Clara and Westlands Grape, LLC