Title
Adoption of Resolution Approving Participation in California’s Clean Fuel Reward Program and Delegating Authority to the General Manager to Execute the Participating Electric Distribution Utility Joinder Agreement to the Clean Fuel Reward Program Governance Agreement. (Alameda Municipal Power 10491900)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
Staff seeks City Council approval to participate in California’s Clean Fuel Reward Program through the Participating Electric Distribution Utility Joinder Agreement. This Agreement requires City Council approval as there is no specified term of the Agreement. All participants to the Agreement, including Alameda Municipal Power (AMP), can voluntarily withdraw from the Agreement at any time. On November 14, 2022, the Public Utilities Board adopted a Resolution with a recommendation for the City Council to approve participation in the Clean Fuel Reward Program.
BACKGROUND
The California Air Resources Board (CARB) developed the Low Carbon Fuel Standard (LCFS) program in compliance with Assembly Bill (AB) 32 (the Global Warming Solutions Act of 2006) to reduce the carbon intensity of transportation fuels used in California by 10 percent by 2020 and 20 percent by 2030. Under the LCFS program, providers of alternate fuels, such as electricity, generate credits that can be sold to producers of traditional fossil fuels, helping those entities meet AB 32 emissions reduction requirements. Electric Distribution Utilities (EDU) that provide electricity for residential electric vehicle (EV) charging are eligible to receive LCFS base credits based on the number of EVs in California and the number registered in their service territory.
AMP has participated in the LCFS program since 2015. Through the first quarter of 2022, AMP received approximately $3 million from sales of LCFS credits. Based on current market prices, AMP holds an additional estimated $1.0-$1.5 million in unsold balance of LCFS base and incremental credits. The Public Utilities Board (Board) approved a Master Agreement for AMP’s sale of LCFS credits in September 2018. CARB mandates the funds from credit sales be used towards programs that support transportation electrification.
A new requirement has now been added to all EDUs that receive LCFS credits. To continue to receive LCFS credits, EDUs are now required to join the Clean Fuel Reward (CFR) program and its Governance Agreement, where EDUs contribute a percentage of their credit sales towards the CFR program. CFR is a statewide point-of-purchase cash rebate program for EVs, required by LCFS regulation. This rebate is available at any participating automobile dealership within California.
The Governance Agreement requires AMP to contribute a one-time initial funding amount and a minimum of 2 percent of sales proceeds from AMP’s annual LCFS base credit to the CFR program beginning in 2023. AMP’s annual base credits and contributions to the CFR program are expected to increase as the number of EVs in California and registered in the City of Alameda (City) increases, subject to changes in market prices for LCFS credits. The CFR program rebates are expected to be in place until, and may be extended beyond, 2030.
DISCUSSION
In January 2020, the California Public Utilities Commission (CPUC) formally approved a final version of the Governance Agreement, enabling the five large EDUs to execute the Governance Agreement and implement the CFR program. Medium EDUs began participating in 2021 and small EDUs, including AMP, will join the agreement via the Participating EDU Joinder Agreement (Joinder Agreement) beginning in 2023.
AMP’s Participation in the CFR Program
As a small EDU, AMP is required to annually transfer a minimum of two (2) percent of sales proceeds from annual LCFS base credit beginning in 2023 to the CFR program. AMP’s share of funding for the CFR Program is estimated to be between $16,000-$22,000 per year for 2023-2025, based on estimated sales proceeds of annual LCFS base credits of $2.4-$3.3 million during this period. In addition, AMP will also be making a one-time initial contribution of $184,822.
AMP’s transfer amounts will increase as the number of EVs registered in Alameda and California increase over time, through 2030. AMP’s funding amount of the CFR program rebates is independent from the total rebates potentially received by individuals in Alameda through the point of purchase EV rebates. These rebates are solely a function of the number of new vehicles purchased. Other EDUs will also be funding the common CFR account based on the number of LCFS base credits received for their own service territories and independent of individual rebates their community members potentially receive.
On November 14, 2022, the Public Utilities Board passed a Resolution with a recommendation for the City Council to approve participation in the Clean Fuel Reward Program.
ALTERNATIVES
Should AMP not participate in the Clean Fuel Reward Program, AMP will no longer receive annual LCFS base credits starting in 2023. Depending on market prices, these credits can be sold for $300,000 - $1,000,000 each year to fund eligible transportation electrification programs for AMP’s customers.
FINANCIAL IMPACT
There is no financial impact to the General Fund.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Section 12-2 (A) of the Charter of the City of Alameda requires City Council approval for any contract for the purchase of electrical energy or such other public utility service or commodity necessary for the operation of the public utility which exceeds fifteen years.
ENVIRONMENTAL REVIEW
The City Council’s approval regarding execution of these agreements do not require California Environmental Quality Act (“CEQA”) review, because they do not meet the definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), as an administrative government activity which will not cause a direct or indirect physical change in the environment.
CLIMATE IMPACT
The continued availability of annual LCFS base credits supports AMP’s transportation electrification programs for customers, which are designed to accelerate the adoption of electric vehicles.
RECOMMENDATION
Adopt a resolution approving participation in California’s Clean Fuel Reward Program and delegate authority to the General Manager to execute the participating Electric Distribution Utility Joinder Agreement to the Clean Fuel Reward Program Governance Agreement.
Respectfully submitted,
Nico Procos, AMP General Manager
By,
Alan Harbottle, Acting Supervisor - Energy Resources
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibit:
1. CFR Program Governance Agreement and Joinder Agreement
cc: Erin Smith, City Manager