City Eyes $3.5 Million in Annual Savings Through Renewable Energy Prepayment Plan

Pasadena Water and Power could save millions of dollars annually by prepaying for renewable energy through an innovative financing mechanism pioneered earlier this year by a neighboring utility. 

The Municipal Services Committee will discuss the cost-saving strategy at its meeting Tuesday, 4 p.m. at City Hall. 

In a memorandum for the meeting, PWP General Manager David M. Reyes told committee members the utility plans to seek City Council authorization in early November for the transaction. The exact savings amount has not been determined. 

The strategy mirrors a deal completed in April 2024 by Anaheim and the Southern California Public Power Agency (SCCPA). That transaction saves Anaheim nearly $3.5 million per year on existing energy purchase agreements. 

Anaheim was the first publicly owned utility to execute such a transaction, the report said. More than a dozen community choice aggregators have since used the mechanism. 

The financing works by having SCPPA issue tax-exempt prepay energy bonds. Pasadena would assign renewable energy power to SCPPA, then buy back the produced energy through a Clean Energy Purchase Contract at discounted rates. 

PWP intends to include five existing power purchase agreements in the prepay structure. They are Antelope Big Sky Ranch Solar, Big Sky Summer Solar, Columbia 2 Solar, Kingbird Solar and CalWind. 

Those agreements were selected because of their relatively high costs and long remaining contract terms, the report added. 

PWP said savings depend on the difference between municipal and corporate capital borrowing rates. That difference has been favorable for several years, at times exceeding 10 percent. 

The long-term nature provides budget certainty essential for planning and rate stability, Reyes said in his memorandum.

Risk mitigation terms protect customers. If bankruptcy or other adverse events affect the tax-exempt financing structure, the existing agreements would revert to the city with all original terms intact. 

PWP has built in off-ramp provisions if terms or savings drop below acceptable thresholds. The utility can also cancel the assignment agreement if discount rates fall too low. 

As other renewable agreements reach commercial operation, PWP will consider additional prepay transactions when market conditions are favorable. Having legal and financial documents in place will streamline future transactions. 

The strategy supports Pasadena’s goal of being 100 percent carbon-free by 2030.