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Home My WebLink AboutG-2.1. Semi-Annual Report on ALWs Energy Portfolio INFORMATION ITEM G-2 TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: RICHARD TORRES, ASSISTANT GENERAL MANAGER – RESOURCE MANAGEMENT DATE: JUNE 24, 2024 SUBJECT: SEMI-ANNUAL REPORT ON AZUSA LIGHT AND WATER'S ENERGY PORTFOLIO BACKGROUND: The recently adopted 2024 Energy Risk Management Policy sets refreshed guidelines and limits for purchasing and selling energy-related products. Certain policy deliverables include establishing a risk management committee and providing a semi-annual report to the utility board covering risk and hedging topics and incorporating projected costs, market changes, and potential changes in projected costs. RECOMMENDATION: Staff recommends the Utility Board take the following action: 1) Receive and file the Semi-Annual Report on Azusa Light and Water’s Energy Portfolio ANALYSIS: A key component of the Energy Risk Management Policy is providing a semi-annual report to the Utility Board. This semi-annual report includes issues related to hedging, projected costs, changes and probability in projections, market changes and opportunities, and potential stress events. -Current Azusa Light & Water (ALW) Portfolio The ALW portfolio currently consists of participation in two wind projects, one small hydro project, five solar projects, one natural gas plant, one large hydroelectric project, and one nuclear project. ALW staff schedules six of these resources. Semi Annual Policy Report June 24, 2024 Page 2 ALW Portfolio 1 Garnet Wind Project 2 Mesa Wind Project 3 Padua Small Hydro Project 4 Columbia 2 Solar Project 5 Big Sky Summer Solar Project 6 Big Sky Ranch Solar Project 7 Kingbird Solar Project 8 DSR2 Solar Project 9 Lodi Energy Center 10 Wapa Hoover Project 11 SCPPA PV Nuclear Project -Projected Costs The ALW power resource portfolio has changed due to two power purchase agreement terminations and a new resource addition. As of the beginning of 2024, ALW no longer receives small hydro generation from its Metropolitan Water District purchase agreement or wind output from its High Winds agreement. However, the addition of the Mesa Wind facility not only replaces but adds to ALW’s renewable profile. Recognizing that the actual metered output of Mesa Wind needs to be recorded and assessed, staff has conservatively projected its output. Based on initial projections, staff feels comfortable that the ALW portfolio is roughly 60% to 100% hedged, mainly depending on the seasonal nature of its renewable energy output. From its projections, staff sees most remaining energy needs affecting the period of July through December. The lowest wind patterns are seen in the fall and winter, thus creating energy gaps in the ALW portfolio. According to the Energy Risk Hedging Policy, staff will hedge these remaining energy needs from its initial projections. Finally, as Mesa metered generation data is gathered, staff will continue tuning its hedging needs. -Energy Markets Forward energy market pricing have somewhat eased compared to previous years. This is mainly due to milder weather, healthier hydrological conditions, and new online resources. The charts below provide a view of the market showing signs of a healthier energy supply. Semi Annual Policy Report June 24, 2024 Page 2 -Market Changes In contrast to the relatively stable energy markets, the forward capacity market costs have increased significantly. Resource Adequacy capacity, also known as the amount of megawatts required to be ready for dispatch to maintain stable grid operation, has become an issue for many utilities that do not own dispatchable generation. The capacity market is scarce due to low northwest rainfall (less hydro to share), more variability in renewable energy, hot southwest power demands, and less gas-based dispatchable generation. The dispatchable energy storage buildout pace is insufficient to compensate for the scarcity. The California Independent System Operator (CAISO) and the Energy Commission are aware of this market change. Assembly bill (AB1373) proposes the State (via the Electricity Supply Strategic Reliability Reserve Program) to serve as a central procurement entity for capacity and allocating costs to utilities that did not fully meet their capacity needs. 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 Jul 2023 Aug 2023 Sep 2023 Oct 2023 Nov 2023 Dec 2023 Jan 2024 Feb 2024 Mar 2024 Apr 2024 May 2024 Jun 2024 Jul 2024 Aug 2024 SP15 Forward Power Index On-Peak as of June 6, 2023 0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 Jul 2024 Aug 2024 Sep 2024 Oct 2024 Nov 2024 Dec 2024 Jan 2025 Feb 2025 Mar 2025 Apr 2025 May 2025 Jun 2025 Jul 2025 Aug 2025 SP15 Forward Power Index On-Peak as of June 11, 2024 Semi Annual Policy Report June 24, 2024 Page 2 -Changes in Projections The Mesa Wind project “capacity value” will lessen some of the procurement burden to ALW. The final value from Mesa Wind is yet to be formally set by the CAISO causing some changes in the projected remaining needs for ALW capacity. The above is a snapshot of what brokerage firms see in the capacity market. These prices are exponentially higher than 5-10 years ago. Staff, however, sees these “quotes” move quickly, and at times, the cost to procure is lower as the trading month is near. In February of this year, staff recommended, and the UB approved the Bonanza Power Agreement, which includes ALW’s interest in 10 MW of battery storage capacity. The expected date for the solar/battery facility's operation is the fall of 2027. This investment will help provide cost stability to ALW’s capacity needs. In the meantime, staff will continue procuring capacity from their counterparties at the best reasonable cost. -Potential Stress Events Some stress events that impact ALW are project construction delays, severe weather conditions, including cold fronts and wildfires, and gas fuel scarcity. Mesa Wind construction delays stressed ALW’s ability to generate corresponding renewable energy primarily in 2023. This stress event has impacted the annual renewable composition for 2023, showing that 28.7% of ALW’s retail sales were derived from renewable energy resources. It is key to state that despite the lower percentage from 2023, ALW has procured sufficient Renewable Energy Credits to supplement any gaps to meet its obligations for the entire mandated Renewable Portfolio Standard (RPS) compliance period of 2021-2024. Unfortunately, public state reports such as Power Source Disclosures and Power Content Labels are not congruent with RPS filings. In summary, ALW will fully comply with meeting its renewable targets per the RPS regulations. $0 $20 $40 $60 $80 $100 $120 1 Capacity Markets 2025 ($/Kw-mo) Jan-Mar 2025 Apr-Jun 2025 Jul-Sept 2025 Oct-Dec 2025 Semi Annual Policy Report June 24, 2024 Page 2 -Summary From an energy supply perspective, the ALW portfolio is well hedged and compliant with the Risk Management policies. Supplemental energy purchases will continue to fill the periods of lower renewable output. Staff will procure short-term capacity and soon recommend an additional battery storage proposal to the Board. Regarding its renewable progress, the staff sees little to no risk in achieving current and future RPS targets. In the next semi-annual report, staff will report any changes in projections that differ from this report. FISCAL IMPACT: This informational item has no fiscal impact on the operating or capital budget. Prepared by: Reviewed and Approved: Richard Torres Danny Smith Assistant General Manager - Utilities Admin & Finance Manager Resource Management Reviewed and Approved: Reviewed and Approved: Tikan Singh Sergio Gonzalez General Manager City Manager