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Home My WebLink About05.a. Review draft to approve a new capital District project for Central San's Solar Project and agreement authorizations Page 1 of 7 Item 5.a. CENTRAL SAN BOARD OF DIRECTORS . , , . POSITION PAPER . , DRAFT MEETING DATE: JANUARY26, 2022 SUBJECT: REVIEW DRAFT POSITION PAPER TO APPROVE A NEW DISTRICT PROJECT TO SUPPORT CENTRAL SAN'S SOLAR PROJECT ON THE LAGISS PROPERTYAND AUTHORIZE THE GENERAL MANAGER TO: 1) TRANSFER $600,000 FROM THE FISCAL YEAR 2021-22 CAPITAL IMPROVEMENT BUDGET CONTINGENCY FUND TO THE NEW PROJECT, 2) PAYAN APPROXIMATE $533,000 PG&E INTERCONNECTION FEE, AND 3) INCORPORATE THE NEW RESULTING SOLAR ENERGY PRICE OF $0.0857 PER KILOWATT-HOUR INTO AMENDMENT 1 OF CENTRAL SAN'S POWER PURCHASE AGREEMENT WITH REC SOLAR SUBMITTED BY: INITIATING DEPARTMENT: MELODY LABELLA, RESOURCE RECOVERY ENGINEERING AND TECHNICAL SERVICES- PROGRAM MANAGER RESOURCE RECOVERY REVIEWED BY: EDGAR J. LOPEZ, CAPITAL PROJECTS DIVISION MANAGER JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES ISSUE Board of Directors (Board) authorization is required to create and fund new capital projects that exceed the General Manager's signature authority and to amend an existing Power Purchase Agreement (PPA). BACKGROUND At its January 13, 2022, special meeting, the Board continued and closed a public hearing, adopted a mitigated negative declaration under the California Environmental Quality Act (CEQA), and approved Central San's Solar Project on the Lagiss property. As indicated during the presentation, staff is returning to seek the Board's approval to create a new project for the payment of certain elements of the project to achieve the highest financial benefit for Central San over the 25-year term of the PPA with REC Solar. I n particular, staff is recommending direct payment of approximately$533,000 for the project's PG&E interconnection, which is an asset Central San will own, since the interconnection will be made to a property owned by Central San. Staff is also requesting $50,000 to cover near-term CEQA mitigation costs associated with the project, which are Central San's responsibility per the terms of the PPA. Depending on the outcome of four biological surveys to be conducted over the burrowing owl nesting January 26, 2022 REEP Committee Meeting Agenda Packet- Page 10 of 26 Page 2 of 7 season in 2022 (February 1 -August 31), funding for additional CEQA mitigation costs may be needed. Staff will return to the Board later this year to provide an update on the results of the surveys and request additional funds, if necessary. Central San's PPA currently requires that REC Solar fund the PG&E interconnection cost as part of the overall project and that cost was reflected in the solar power price offered. If Central San pays for that element, the solar power price will drop from $0.10 per kilowatt hour (kWh)to $0.0857 per kWh. Staff is requesting the Board's approval to incorporate this new pricing and the appropriate language updates related to the payment of PG&E's interconnection fee into Amendment 1, which was approved at the January 13, 2022 Board meeting and is currently being drafted. ALTERNATIVES/CONSIDERATIONS The Board could choose not to directly fund PG&E's interconnection fee and allow it to be paid by REC Solar, as originally planned. This is not recommended, because, by paying directly, Central San would realize the highest net present value (NPV) of savings over the 25-year PPA term. FINANCIAL IMPACTS If the Board moves forward with staff's recommendation to pay PG&E's interconnection fee, rather than financing it through the PPA with REC Solar, Central San will save an additional $437,000 to $870,00 in NPV over the 25-year term of the PPA. The savings will depend on PG&E's actual utility escalation rate, which has been modeled by our solar consultant at both 3% and 4.5% per year. To accomplish the payment of the interconnection fee, PG&E would be paid approximately$503,000 and REC Solar would be reimbursed the $30,000 initial deposit it has already paid to PG&E. The new District project is estimated to cost$600,000, which includes approximately$533,000 to cover PG&E's fee, $50,000 to cover initial CEQA mitigation costs, and approximately$17,000 in contingency. A transfer of $600,000 from the Fiscal Year (FY) 2021-22 Capital Improvement Budget (CI B) contingency fund will be completed upon the Board's approval of the new project, leaving a contingency fund balance of$1.75 million. COMMITTEE RECOMMENDATION The Real Estate, Environmental and Planning Committee will consider this matter at its January 26, 2022 meeting. RECOMMENDED BOARD ACTION Approve a new District project in the amount of$600,000 to support Central San's Solar Project on the Lagiss Property and authorize the General Manager to: 1. Transfer$600,000 from the FY 2021-22 Cl B contingency fund to the new project; 2. Pay a PG&E interconnection fee of approximately$533,000; and 3. Incorporate the new resulting solar energy price of $0.0857 per kWh into Amendment 1 of Central San's PPA with REC Solar. Strategic Plan Tie-In GOAL ONE: Customer and Community Strategy 2—Maintain a positive reputation January 26, 2022 REEP Committee Meeting Agenda Packet- Page 11 of 26 Page 3 of 7 GOAL TWO:Environmental Stewardship Strategy 4- Reduce reliance on non-renewable energy GOAL THREE:Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability ATTACHMENTS: 1. Presentation January 26, 2022 REEP Committee Meeting Agenda Packet- Page 12 of 26 Page 4 of 7 APPROVE A NEW DISTRICT PROJECT TO SUPPORT CENTRAL SAN'S SOLAR PROJECT ON THE LAGISS PROPERTY Melody LaBella, P.E. Resource Recovery Program Manager Real Estate, Environmental & Planning Committee Meeting a January 26, 2022 e.� SOLAR PROJECT BACKGROUND June 2020: Request for Proposals issued ProposedS*WrProjed _ for a Power Purchase Agreement (PPA) November 5, 2020: Board awarded a PPA ` to REC Solar for a 1 .75 megawatt (MW) solar photovoltaic system on Central San's Lagiss property July 2021 : Project design sufficient to w ' complete environmental evaluation January 2022: Board adopted mitigated negative declaration, approved project, - and approved PPAAmendment 1 with a new solar price of $0.10 per kilowatt-hour ® ��..�.� (kWh) Rz January 26, 2022 REEP Committee Meeting Agenda Packet- Page 13 of 26 1 Page 5 of 7 RECOMMENDING PAYMENT OF PG&E'S INTERCONNECTION FEE • The interconnection with PG&E is a facility Central San will own, regardless of who pays for it. • Central San's PPA currently makes REC Solar responsible for paying PG&E's interconnection fee of approximately $533,000. • If Central San pays the interconnection fee, the solar power price will drop from $0.10 to $0.0857 per kWh and Central San will realize the highest savings on a net present value basis. • Staff is recommending that Central San pay the interconnection fee directly and the new solar rate and related language be incorporated into PPAAmendment 1 , which is currently being drafted. ' 3 CENTRAL SAN FINANCIAL ANALYSIS Summary of Financial Scenarios with an Annual Utility Escalation Rate of 3.0% 1. • $0.08660 $6,469,426 $4,424,185 1 2.PPA • • $0.10244 $5,165,364 $3,372,654 1 • $0.11558 $4,083,605 $2,589,890 2 Capital-PPA4. • $0.08573 $5,968,576 $3,809,682 5 Capital-PPA5. • $0.08573 $5,518,576 $3,370,657 8 _ Summary of Financial Scenarios with an Annual Utility Escalation Rate of 4.5% IM-01M�offl Cash . 02MUM (Year) 1. • $0.08660 $9,918,476 $6,666,530 1 2.PPA Covers All Costs: CEQA Low $0.10244 $8,614,414 $5,560,308 1 • = $0.11558 $7,532,655 $4,777,544 1 Capital-PPA4. • $0.08573 $9,417,626 $5,997,336 5 Hybrid:5.Capital-PPA • $0.08573 $8,967,626 $5,558,311 7 California Environmental Quality Act(CEQA) 40m ' q CFNTPAI SAN January 26, 2022 REEP Committee Meeting Agenda Packet- Page 14 of 26 2 Page 6 of 7 NEW DISTRICT PROJECT REQUES- In order to fund elements of Central San's Solar Project, staff is requesting approval of a new District project in the amount of $600,000. Approximately $533,000 to pay PG&E's interconnection fee $50,000 to cover initial CEQA mitigation costs Approximately $17,000 contingency Staff is requesting approval to fund the new project from the Fiscal Year (FY) 2021 -22 Capital Improvement Budget (CIB) contingency fund, which currently has $2.35 million. 5 CENTRAL SAN RECOMMENDED BOARD ACTIONS Approve a new District project in the amount of $600,000 to support Central San's Solar Project on the Lagiss Property; Authorize the General Manager to transfer $600,000 from the FY 2021-22 CIB contingency fund to the new project; Authorize the General Manager to pay a PG&E interconnection fee of approximately $533,000; and Authorize the General Manager to incorporate the new resulting solar energy price of $0.0857 per kWh into Amendment 1 of Central San's PPA with REC Solar. January 26, 2022 REEP Committee Meeting Agenda Packet- Page 15 of 26 3 Page 7 of 7 QUESTIONS? CENTRALSAN January 26, 2022 REEP Committee Meeting Agenda Packet- Page 16 of 26 4