AGENDA ITEM NO.: 4.G. To: Honorable Public Utilities Board Submitted by: /s/ Barry Leska AGM Energy Resources Planning From: Sarah Liuba Approved by: /s/ Energy Resources Analyst Nicolas Procos General Manager Subject: Authorize Staff to Sell the Banked Low Carbon Fuel Standard Credits Allocated by the California Air Resources Board to Alameda Municipal Power for 2015 and 2016; and, Delegate to AMP s General Manager, or His Delegate, Authority to Negotiate and Execute Necessary Agreements to Accomplish the Transaction RECOMMENDATION By motion, authorize staff to sell the banked Low Carbon Fuel Standard (LCFS) credits allocated by the California Air Resources Board (CARB) to Alameda Municipal Power (AMP) for 2015 and 2016; and, delegate to AMP s General Manager (GM), or his delegate, authority to negotiate and execute necessary agreements to accomplish the transaction. BACKGROUND California enacted its LCFS program in January 2007 in compliance with AB 32 (the Global Warming Solutions Act of 2006) with the primary objective of reducing carbon intensity (CI) of transportation fuels by 10 percent by 2020. 1 In January 2011 under Executive Order S-1-07, CARB became the regulatory body with oversight over the allocation of LCFS program credits and compliance criteria. Under the LCFS program, providers of alternative, low-carbon fuel receive credits that can either be used for compliance reporting of emissions or sold to transportation agencies or related entities of fossil fuel production, generation, or distribution. In 2015, CARB approved AMP s request to join the LCFS program. Due to legal challenges and various procedural issues related to the original program in 2013, CARB re-adopted the LCFS program with improved regulations in September 2015. As of January 1, 2016, electric distribution utilities that provide non-metered, residential electric vehicle (EV) charging are eligible for LCFS credits based on the number of registered EVs within their service territory as reported by the Department of Motor Vehicles (DMV). 1 CI refers the amount of life cycle emissions per unit of energy of fuel measured in of grams of carbon dioxide equivalent per megajoule (CO 2 e). Page 1 of 5
AGENDA ITEM NO.: 4.G.2 As part of the new requirements, CARB included a containment measure, which imposed a price ceiling of $200 per CI credit. Since 2015, the monthly average price per credit increased from $40 to over $120/credit at the height of the market and currently resides at about $90. Each credit is measured as one metric ton (MT) of CO 2 e for electricity dispensed. Banked Credits On March 15, 2017, AMP received 1,752 LCFS credits based on CARB s calculation for the daily average non-metered EV electricity use per vehicle from 2016 along with usage reporting from AMP s EV charging stations. Adding to the previous year s pool of 736 banked credits, AMP s total generated LCFS credits are 2,488. As of March 5, 2017, CARB s Transfer Activity report listed the average market price ($/MT) at $96.32, with sales ranging from $70- $100 per credit. Based on this information, complete monetization of AMP s credits could yield from $174,00 to $248,000 (less transaction fees and brokerage service fees). The LCFS program is scheduled to continue through 2020. Staff forecasts a gradual decline in credit generation as annual compliance goals are met through 2020. In lieu of exhausting all of AMP s banked LCFS credits, staff recommends the monetization of 2,450 credits out of the 2,488 current banked credits. AMP is not aware of any program obligations at this time, but will reserve the 33 credits for any CI deficit under the LCFS program. DISCUSSION Assumptions The LCFS credit market indicates price flattening after a high point starting early 2016 and followed by a significant decrease beginning April 2016 through June 2016. Revenue projections are based on the forecasted price of $80/MT. The City of Alameda is expected to see an increase of EVs through 2020 providing the ability to generate and sell additional LCFS credits going forward. As CI reduction continues to move towards compliance targets, fewer generated credits will be available to participating entities each year. Analysis Figure 1 below presents the monthly average LCFS credit pricing from January 2013 through February 2017. The moving average price indicates that LCFS credit values may stay at about $90 for the subsequent month. (Prior to the re-adoption of the LCFS program, market prices for LCFS credits fluctuated within the $20-$80 range. The visible spike in July 2015 is believed to be correlated with the new regulations.) Staff recommends that LCFS credit sales be made between May 2017 and July 2017. Page 2 of 5
Figure 1 CARB monthly average of LCFS program credit pricing AGENDA ITEM NO.: 4.G.3 Figure 2 shows a granular depiction of the current credit transfers along with their market pricing from July 2016 to March 2017. 2 The overlaid rolling average of the LCFS credit sales illustrates price flattening seen after the last significant descent in pricing noted in Figure 1. Staff is providing this analysis to highlight the volatility of the market and support the expectation that AMP s LCFS credits will sell in the $80-$90 range. Figure 2 LCFS transfer activity from July 2016 March 2017 with $/MT indication 2 https://www.arb.ca.gov/fuels/lcfs/credit/lrtweeklycreditreports.htm Page 3 of 5
AGENDA ITEM NO.: 4.G.4 Staff considered these assumptions in planning for the sale/transfer of banked LCFS credits and expects its sale to be priced around the illustrated $80/LCFS credit monthly average. The revenue for 2,450 LCFS credits at this price would be $196,000 (before service fees). Electric Vehicle Count Table 1 depicts that the City of Alameda is expected to see an average of 350 additional EVs each year through 2030. Based on this projection, AMP has the potential to generate around 2,100 additional credits throughout 2018 2020. This assumes depreciated EV valuation as overall CI of transfer fuels is reduced. The LCFS program regulations and access to credit sales/transfers are anticipated to remain in place even after 2020. Market fluctuation is likely to continue during this time. Table 1 Estimated EV count each year through 2025 Fiscal Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 Estimated EV Count 469 656 881 1,131 1,404 1,704 2,008 2,298 2,605 NEXT STEPS Staff has outlined the current protocol and next steps in executing the sale(s) subject to the authorization to sell from the Public Utilities Board. Sale 1. Staff will develop necessary counterparty forms with the legal team based on industry standard templates created by the Leadership for Energy Automated Processing group. 2. Staff will locate counterparties with emissions reporting and compliance obligations, possibly by utilizing the services of an exchange broker. 3. The GM will authorize entering into agreement(s) with the counterparty/parties. 4. Staff will move forward with the agreement(s) and coordinate the mechanics of the transfer/sale. 5. Use of funds will be determined at a later date with the consideration that under LCFS program guidelines, credit proceeds must benefit current or future EV customers, educate the public on EV benefits, or provide rate options that encourage off-peak charging and minimize grid impacts. FINANCIAL IMPACT There are currently no associated costs with receiving generated LCFS credits from CARB. Brokerage fees may be necessary in facilitating the sale. Monetization of the recommended 2,450 LCFS credits is estimated to produce $196,000 (less service fees). Page 4 of 5
AGENDA ITEM NO.: 4.G.5 LINKS TO BOARD POLICY AND OBJECTIVES KRA 1 Goal 1.2 Goal 1.3 KRA 5 Goal 5.1 Customer Programs & Experience Increase Customer Energy Efficiency Provide Programs that Support Green Alameda Energy Resources Develop Alternative Energy Opportunities EXHIBIT None. Page 5 of 5