The Finance Committee was discussing a staff proposal to sign four 20-year contracts with the energy firm Ameresco, which is planning to build four landfills in the Central Valley and capture and burn methane at those landfills to generate electricity. The Utilities Department negotiated the $284.5 million contract over the past few months as part of its effort to increase the city's renewable-energy portfolio.
Ameresco, which currently supplies 9 percent of the city's electricity from five existing landfill-gas power plants, hopes to start building the four new ones before the end of this year. The landfills would provide up to 166,000 megawatt-hours per year of energy.
But committee members balked at the staff proposal, citing uncertainty over energy prices and the prospect of rapid technological change. Instead, the committee said the city should re-evaluate, and possibly lower, Palo Alto's renewable-energy goals.
Councilman Greg Scharff said he was concerned about locking the city into a 20-year contract given the unpredictable fluctuations of energy prices. He also said he was concerned about all of the city's renewable power, with the exception of wind, coming from one company.
If the city were to sign the contracts, 21 percent of Palo Alto's total electricity supply (and 64 percent of its renewable energy) would come from Ameresco.
The contracts would have helped the city achieve its official goal of getting 33 percent of its energy from renewable sources by 2015 — a target the City Council adopted in 2007. The council also specified that the Utilities Department achieve this target without increasing electricity rates by more than 0.5 cents per kilowatt-hour.
Tom Kabat, the Utility Department's senior resource originator, said the four Ameresco contracts beat out 38 other proposals the city received from renewable-energy providers. The new contracts with Ameresco would have increased rates by slightly less than 0.5 cents per kilowatt-hour, falling just under the city's threshold.
The four contracts would have raised Palo Alto's electricity rates by about 4 percent, according to a staff report.
But Scharff suggested that the city is focusing too much on its renewable goals and not enough on utility rates. If local electricity bills become higher than those in surrounding cities, residents will start to wonder why the city needs a utilities department in the first place, he said.
Palo Alto's average residential electric bill is currently about $76 a month, compared to $105 in Redwood City, Mountain View and Menlo Park, which get their electricity from PG&E.
Scharff also proposed that the city move its target date for 33 percent renewable energy from 2015 to 2020 to make it align with proposed state mandates.
Vice Mayor Sid Espinosa and Councilman Greg Schmid shared Sharff's view and agreed that the city needs to review its energy goals. But Espinosa also acknowledged that not signing the contracts could ultimately prove costly.
Ameresco has indicated that it needs to start construction by the end of this year to qualify for federal-stimulus funding. Staff said delaying the signing of the contract would jeopardize the "attractive pricing" in it.
"We may very well be shooting ourselves in the foot by coming back with another contract in however many months that costs a lot more and might not make financial sense," Espinosa said.
Palo Alto currently gets about 18 percent of its electricity from renewable sources, a number that is expected to go up to 21 percent in 2012 because of other energy agreements. The city gets renewable energy through two wind-power contracts and from five other Ameresco landfills.
The company is planning to start building the four new landfills by the end of this year and have them produce energy by 2013.