Deregulation laws froze utility rates until April 2002, or until the utilities recovered “stranded” costs incurred by deregulation. The California Power Exchange was also established as a clearinghouse for utility companies and ESPs to buy and sell power. After monitoring California Power Exchange prices for the first few months, and after unsuccessful attempts to purchase electricity through an ESP, Edwards Air Force Base (AFB) decided to continue buying power from the local utility company, Southern California Edison (SCE), at its frozen tariff rate.
This strategy proved correct until the summer of 2000, when the California electricity market became dysfunctional. Prices tripled on the California Power Exchange, going as high as 60 cents per kilowatt hour, rolling blackouts began, and utility companies were losing billions of dollars.
Although Edwards’ utility rates did not increase during this period, its frozen rate was in danger of ending. SCE stated its stranded costs had been recovered and requested the California Public Utility Commission (CPUC) allow it to unfreeze its tariff so it could charge market-based rates. Edwards AFB was facing major rate increases and a decision by the California legislature to prohibit customers from obtaining power from an ESP.
A BOLD IDEA DEVELOPSThese events highlighted the urgency of finding an ESP to provide power at a fixed price for a term of 3 to 5 years (the base’s estimate of the time needed for the California electricity market to resolve its problems and become truly competitive, or for the State to return to regulation). Paul Weaver, Energy Manager for Edwards AFB’s 95th Civil Engineer Group, had already made contact with ESPs that indicated an interest in such an arrangement, and which also offered renewable power at a price comparable to the frozen tariff rate.
Edwards AFB’s contracting office issued a sources-sought notice in October 2000 for providing renewable power at or near the current frozen rate.
“We weren’t sure what to expect because we were asking for renewable power at fossil fuel prices — something no other Federal agency had successfully done. But based on previous discussions with ESPs, we knew we had to try,” said Weaver.
After receiving five responses to the sources sought notice, Edwards AFB issued a pre-solicitation notice for a request for proposals (RFP). The base received several responses, with two appearing to satisfy all the requirements. Another potential bidder who could meet the requirements was identified later. An RFP was issued in April 2001 to the three identified sources to provide all the supplemental power (approximately 133,000 megawatt hours or 60% of total load) that Edwards AFB needed above the Western Area Power Administration (WAPA) hydropower allocation for a period of five years.
Two of the three sources responded. An evaluation team composed of the Air Force Civil Engineer Support Agency (AFCESA) and Edwards AFB personnel reviewed the bids. Only one of the sources could fully meet the base’s requirements; then negotiations began.
At the same time, negotiations began with SCE for a modified Power Displacement Agreement (PDA). The PDA is a crediting mechanism in which SCE actually delivers all the power to the base, but credits the base for its WAPA hydropower allocation, and now green power, received at other points on their grid.
PAYDIRTDuring negotiations, Edwards AFB discovered that it was faster to use WAPA as the contracting agent to award the renewable power contract. Timing was critical since the base expected the CPUC to suspend use of ESPs on July 1, 2001. The base executed an interagency agreement with WAPA to permit them to award the contract. Negotiations were completed in May 2001, and a contract was awarded to Enron Corporation to supply renewable power to Edwards AFB starting June 1, 2001.
(While Enron may be experiencing contract problems elsewhere, the Edwards AFB contract is in good shape and continued service is not endangered. It has remained profitable for Enron and it is highly likely the contract could be successfully assigned to another energy company in the event Enron desires to withdraw.)
The contract requires 25% renewable power in the first two years and up to 100% renewable power at the end of the third year. The renewable power would be a mix of wind and biomass power initially, with the potential for 100 percent wind power in the last 3 years of the contract.
Delivery started June 1, 2001, using the PDA with SCE.
“This is a win-win agreement,” said Weaver. “Edwards gets lower prices. SCE gets power at competitive prices to meet demand where they need it, and California gets power from out of State, reducing their generation shortages. Enron benefits with their first large-scale renewable power sale in California, helping them further develop renewable power products.”
The renewable power purchase will save the base approximately $42 million in electricity costs over the five-year period of the contract based on the current SCE tariff rate. In addition, the renewable power will help Edwards AFB meet its current energy conservation goals and renewable power goals as mandated by Executive Order 13123.
“The initiative took a number of unexpected turns and experienced some setbacks, but stayed alive with the support of open-minded base leadership,” said Mike Santoro, a team member of the Edwards project and Senior Engineer for the utility rates management team at Headquarters AFCESA, Tyndall AFB, FL. “The team effort could not have been accomplished without the hard work, dedication, and persistence of Captain Amy Hoffer and Paul Weaver of Edwards AFB’s 95th Civil Engineering Group, Mike Keeling from base Contracting, John King and Ray Haug of SCE, Penny Casey of WAPA, and Major Jeff Renshaw of AFCESA, and the senior leadership of Lieutenant Colonel Greg Emanuel, Colonel James Judkins, and Colonel Robert Hood of Edwards AFB.”
This article first appeared in the June 2002 issue of “FEMP Focus,” the monthly newsletter of the United States Department of Energy, Office of Federal Energy Management Programs. For more information or assistance with renewable power purchases, please contact the AFCESA utility rates management team at 850-283-6463/6348 or David McAndrew of FEMP at 202-586-7722 or firstname.lastname@example.org (e-mail).
Publication date: 07/22/2002