The City’s FAQ on the BrightNight lease option is misleading and factually incorrect – Part 3
By Alan Pryor and Richard McCann
At the last City Council meeting, more than 20 people called in opposition to the City of Davis entering a lease option agreement with BrightNight to develop a solar project on a 235-acre parcel next to the City’s waste water treatment plan. Councilmembers Lee, Carson, Arnold, and Partida all voted for the proposal. Only Councilmember Frerichs voted against the proposal citing his strong concerns about the lack of Commission involvement, the failure to follow normal City policy to procure open bids, and the lack of guaranteed energy sales to the City and Valley Clean Energy.
After the controversy had risen to a high profile, the City Staff issued a “Q & A City of Davis Solar Lease 4/15/20” to defend its decision. Unfortunately, this response is misleading and filled with errors. In this series of articles we go through the Q&A question by question in their order. Our responses also address the gist of Staff's answers. You can follow the link to the Staff’s answers if you are interested, but you should have a good understanding of the issues from this article. Because answering these questions completely is a lengthy endeavor, we have divided this into three parts. This is Part 3 in the series.
Part 1 can be found here (https://www.davisite.org/2020/04/city-misleads-on-brightnight-deal.html) which includes a more complete background of the controversy. Part 2 can be found here (https://www.davisite.org/2020/04/city-misleads-on-brightnight-deal-part-2.html).. The questions posed in both Parts 1 & 2 are posted at the end of this article.
Q. What will happen to the deal if the lessee goes out of business?
The City claims that BrightNight's lenders would likely step into the shoes of BrightNight should it default on the lease. They also claim that "as part of future lease negotiations, the City will likely require a set-aside fund or other similar mechanism that will ensure funds are available for decommissioning and restoration in the event that BrightNight goes out of business".
But the requirement to ensure a set-aside fund or surety bond is NOT in the Term sheet and the City cannot demand it because it is not part of the "Solar Development details" which is the only part of the subsequent lease agreement that is negotiable.
Q. It appears that the term sheet attached to the lease option agreement contains two conflicting assignment clauses. Can you clarify this?
The City claims there are two sections that reference assignment which could be "consolidated" but this is doublespeak and does not address the question. What the City’s answer does illuminate is that the contract is poorly written and they hope that negotiations will resolve any disputes. But no amount of wishful thinking will change the fat that the one assignment clause in the contract “allows for the transfer and assignment, with the City’s written consent that shall not be unreasonably withheld” while the other assignment clause does not allow assignment or transfer.
Q. How is the City protected from any future claims made against this project?
Amazingly, the City is only requiring a $1,000,000 insurance policy from BrightNight. A non-profit run by Mr. Pryor delivers about 5,000 tubes of toothpaste and toothbrushes/year to non-profit organizations in the City for distribution to their low income clients. This organization, Davis Oral Health Project, receives $5,800 this year of HUD money through the City to help procure these supplies. The City of Davis requires us to maintain $2,000,000 of insurance by the City for giving out toothpaste and toothbrushes while a lessee of 235 acres of City property that is putting a large scale high-voltage solar system on it costing tens of millions of dollars is only required to have a $1,000,000 insurance policy in place. It seems there is a misplacement of potential risk priorities here.
Q. What was the hurry to apply for connection to the California Independent System Operation (Cal ISO)?
Staff again may untruthful statements about CalISO filing requirements by stating BrightNight MUST file by April 1st in order to be considered for an interconnection agreement. BrightNight could have either 1) submitted a $250k refundable bond or 2) gotten site control and submitted without a deadline. Under the CAISO’s Cluster Study Option, which has an application window of April 1 to 15, site exclusivity is not required, and a refundable deposit of $250,000 can be made in lieu. Under the Independent Study Process, no deadline exists while site exclusivity is required. BrightNight appears to have combined the most stringent aspects of these two different processes in its representations to the Staff. (See CAISO presentation at http://www.caiso.com/Documents/2-InterconnectionApplicationOptionsandProcess.pdf). This fact was presented to the City Council and the Staff in comments that we submitted with others before the Council’s April 7 meeting. It is disingenuous for the Staff to continue to repeat this false statement when it has been corrected and they know it is false.
And we ask the further question, if a company cannot afford to post a refundable $250,000 bond, how should the City expect that company to finance a $25 million plus project? A plea of poverty is not reassuring.
Q. What is BrightNight's track record? Isn't it a new company?
Let's be clear here. This isn't just a situation where Staff should have been more clear stating BrightNight had extensive previous experience where none existed. This was another outright false statement by Staff. Consider only Council's statement in the resolution authorizing the signing of the option agreement,
"WHEREAS, BrightNight is an energy company that focuses on delivering safe, reliable, high-value, low-cost renewable energy. BrightNight has developed, financed, constructed and operated more than 3,000 megawatts of renewable energy since 2009. "
This is simply a completely untrue statement and they got this information from BrightNight themselves. If you look at BrightNight's website, they still clearly are stating that they have done projects which were, in fact, done by the company that previously employed Mr. Hermann. it does not appear that BrightNight has done a single solar deal to date since their founding.
And while Mr. Hermann's experience is interesting and perhaps even compelling, the City is NOT signing an agreement with one man here who happens to have a track record with another company. We are signing an agreement with a company and that company appears to have a single US office which happens to be his private home in El Dorado Hills. Knowing this, Staff continues in this deception in their above answer stating "Those projects are attributable to Mr. Hermann, who was the signatory on the Lease Option Agreement." That also is not true. Mr. Hermann was only one person in a much larger team of professionals at 8minute Renewables which support he does not have available in his current company.
This blatant misrepresentation continues a pattern by Staff that when they are caught making false statements (e.g. the statements they made re the ISO filing requirements). When confronted with the true facts, Staff quickly pivots and say they perhaps, " should have been more clearer" instead of simply admitting that what they said to Council and the public was not true. This is not a confidence building step on Staff's behalf.
Part 1 published on Thursday answered the following questions that exposed the City's misguided efforts surrounding this lease and lease option agreement:
- Did the City enter into a lease for a solar farm?
- Is the lease rate at market value? Were all uses considered?
- How was the lease rate determined?
- The City did not utilize the RFP process for this solar deal. Why?
- Is a sole-source procurement process consistent with the City's procurement policy?
Part 2 published on Saturday delved into the following questions:
- Were there other land uses that were considered?
- Why is the City using a fixed-rate rental rate escalator?
- What is the Term Sheet in the Lease Option Agreement?
- Were there any other solar leases to comparable to the City's deal with BrightNight?
- Did Staff not look at other solar land lease rates in the Central Valley? If so, what were they? If not, why not?
- How does the City solar deal compare to the County's project at the Grasslands
- The option period and lease period seem long. Are they typical for this industry? Q. What if the lessee defaults on the project?
- Why doesn't the agreement stipulate that Davis residents will benefit from the solar power generated at the site? Can the lessee sell power to Valley Clean Energy?
About the Authors:
Richard McCann: Richard is a Davis resident and much of his work has focused on identifying market trends, and developing and assessing incentive structures in both energy markets and environmental regulations. He has analyzed and designed both wholesale and retail electricity pricing and identified key technological and institutional factors driving pricing factors. In particular, he has addressed both the market and environmental barriers to increased renewable energy development. That work has included utility-scale, community or neighborhood, and customer-side resources. He also successfully persuaded electric utilities to institute asset acquisition programs that produced benefits for both specific customer classes and larger communities. On water policy, he analyzed water transfer markets, water efficiency measures, and agricultural water management. And he has participated in a broad range of regulatory forums beyond energy and water, including air quality and greenhouse gases, and land-use planning. He is a member of the City of Davis Natural Resources Commission, a past member of the Utilities Commission, and a former member of the Technical Advisory Subcommittee of the city's Community Choice Energy Advisory Committee which recommended a community energy agency. That recommendation eventually bore fruit in the form of Valley Clean Energy (VCE), which saves Davis and Yolo County residents money on their monthly electric bill, with cleaner renewable energy to boot. Richard was just selected as a group member for city's 2020 Environmental Recognition Award for his work on behalf of that Technical Advisory Subcommittee
Alan Pryor: Davis resident Alan Pryor has a long career in commercializing large-scale alternative energy projects and other environmentally benign technologies. He is the founder and a director of Yolo Clean Air, a nonprofit organization that focuses on improving air quality for the benefit of environmentally sensitive individuals suffering from respiratory health problems - particularly children and senior citizens. He is also the current chair of the local Sierra Club Yolano Group (which has taken no position in this matter), a member of the city’s Natural Resources Commission, and former Chair of the city's Community Choice Energy Advisory Committee.