SUBJECT: UPDATE ON SAN JOSE CLEAN DATE: March 20, 2017 ENERGY SUPPLEMENTAL

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Prudence Parker
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1 CITY OF C: 3 SAN IPSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL COUNCIL AGENDA: 03/21/17 ITEM: 7.1 Memorandum FROM: Kerrie Romanow SUBJECT: UPDATE ON SAN JOSE CLEAN DATE: ENERGY Approved Date TVW'T- SUPPLEMENTAL REASON FOR SUPPLEMENTAL The purpose of this supplemental memorandum is to provide additional information on potential scenarios and governance models for San Jose Clean Energy and share feedback from a community meeting held on March 15,2017. ANALYSIS Worst Case Scenario The March 21, 2017 council memo provides a summary of a worst case scenario for the community choice aggregation (CCA) program in San Jose, referred to as San Jose Clean Energy (SJCE). The scenario assumes the simultaneous occurrence of several highly unfavorable conditions. Although the probability of this scenario occurring is extremely low, the scenario does present a worst case scenario, as requested by Council. However, it is important to note that: ' 1. The assumption that more than 65 percent of SJCE's total load would opt out of SJCE in one month is equivalent to approximately 180,000 residential and 13,000 commercial accounts leaving service within a one month timeframe. For reference, Peninsula Clean Energy (PCE) has had a total of one percent of their customers opt out since its launch and Marin Clean Energy has had a total of 14 percent opt out since The dollar amount referenced in the worst case scenario is based on an assumption that SJCE has accessed a $50 million loan for working capital. In reality, similar to other operational CCAs' approach to addressing the time lag between billing and payments received, SJCE could establish a line of credit that would only be accessed as needed and/or negotiate pricing with power companies to enable delayed payments. This could significantly reduce the amount of working capital needed. PCE, which has a load similar

2 Page 2 in size to SJCE s load, has a $13.5 million loan for its working capital but will likely not draw down the full amount. 3. The scenario described is assumed to occur at a very specific point in time and would be short-lived over a one-two month window of time. The potential liability would be less prior to this time and would also decrease after February 2019 as the rate stabilization reserve is built up and the start-up loan is paid back. Status Quo Although staff has presented potential risks associated with SJCE, it is also important for Council to understand the potential consequences of the status quo. If Council opted to remain with PG&E, it could cost ratepayers an additional $30 million for electricity on an annual basis starting in This cost figure is based on the savings, per the Business Plan (Appendix B), that it is estimated SJCE would have achieved under a power mix with 10 percent more renewables than PG&E. In addition, Council would need to make significant investments in alternate projects and/or adopt policies to meet State mandates and local/international goals for reducing greenhouse gas (GHG) emissions, equivalent to the anticipated 14 to 28 percent reduction in community-wide GHG emissions from electricity that could be achieved by proceeding with SJCE under a 10 to 20 percent more renewable scenario. Best Case Scenario At the February 13, 2017 SJCE Study Session, Council also expressed interest in a best case scenario. The following assumptions are made to create a best case scenario : percent participation rate (not including Direct Access customers) percent lower power prices than the market prices assumed in the Business Plan without a corresponding increase in PG&E's generation rates percent more renewable and 100 percent GHG-free baseline power 4. The PCIA rate assumed in the Business Plan remains in place 5. No change to PG&E rate forecast By the end of year five of full operation, SJCE could have the following outcomes: 1. $100 million realized in cost savings per year by San José residents and businesses 2. An additional 20 percent more renewable power and 40 percent more GHG-free power than PG&E s baseline product resulting in a 95 percent reduction of GHG emissions from electricity usage in San José 3. $160 million of potential funds for energy programs such as low-income programs, solar incentives, energy-efficiency rebates, or even rate reductions

3 Page 3 Governance and Operational Models Staff has provided information on the differences between SJCE governance and operational models at the October 28, 2017 and February 13, 2017 Study Sessions and in the March 21, 2017 council memo. While staff cannot formally negotiate with PCE and Silicon Valley Clean Energy, staff has conducted further research and met with both parties and would like to provide the attached comparison table on the three governance/operational models being considered (see Attachment A) for Council reference based on the information that it has available to date. Public Meeting Update Staff hosted a public information meeting on March 15, 2017 to provide an update on the SJCE Business Plan findings and next steps. Approximately 20 community members attended inperson and 40 watched the session live online. The highly engaged meeting attendees and five online participants asked a wide range of questions, which were responded to at the meeting. The following questions from the meeting were not already addressed in the existing online SJCE Frequently Asked Questions (FAQs) and warranted further detailed response: Q1: Will SJCE have an impact on residents participating in PG&E low-income or medical baseline programs? A1: No, SJCE will not impact low-income or medical baseline program participants. These program discounts are applied to the distribution (not generation) side of the electricity bill, so the discount is the same because all SJCE customers will continue to receive PG&E distribution services. PG&E customers who are already enrolled in PG&E's low-income or medical baseline programs would continue those programs automatically if they become SJCE customers and PG&E would continue to administer these programs for SJCE customers. In addition to these existing programs, SJCE could develop programs to further support lowincome residents. For example, Marin Clean Energy established its own solar rebate program for low-income residents. Q2: What public outreach has been done on SJCE? A2: The City established the SJCE webpage ( in September 2016, which includes a SJCE fact sheet and FAQs in English, Spanish, and Vietnamese as well as an subscription service to receive updates. Video recordings, presentations, and memos from prior meetings as well as information on upcoming meetings are available on the website. In addition, since March 2016, City staff have presented at nine public meetings throughout San José and three City Council meetings (including two Study Sessions). The public meetings are typically promoted via library flyers, online/ notifications, and social media. City staff has conducted outreach to business and neighborhood groups, non-profits, and other interested stakeholders and leveraged Council District newsletters and large public events to reach the San José community at large. If Council decides to proceed with an SJCE launch, City staff will implement an even more extensive outreach campaign.

4 Page 4 Q3: PG&E has oversight by the CPUC in rate-setting and watchdog groups for general operations, who has oversight of SJCE? A3: If SJCE is established under a single-jurisdiction governance model, it would be a function of local government like the City s other utility services. Therefore, the community could provide input on the oversight and decision-making of SJCE through standard City processes open to the public, such as City Council meetings, which provide public transparency and accountability. In addition, Council could establish a community advisory committee that could provide regular input on SJCE operations. As a local government operation, SJCE would be required to comply with the City s Ethics and Open Government Provisions (see the City s Open Government webpage) and all applicable State legislation, such as the Public Records Act and the Brown Act. These questions and answers will be added to the SJCE FAQs and re-posted on the SJCE webpage. The PowerPoint and a video recording of the March 15, 2017 meeting are also posted on the SJCE webpage. /s/ KERRIE ROMANOW Director, Environmental Services For questions, please contact Kerrie Romanow, Director of Environmental Services, at (408) Attachment A Comparison of SJCE Governance and Operational Models

5 Attachment A Comparison of SJCE Governance and Operational Models CCA Considerations Local Decision Making (in San José) Single Jurisdiction City Staff and Specialty Consultants High San José City Council approves programs, policies, rates, similar to Recycle Plus, Regional Wastewater Facility, and Muni Water. Single Jurisdiction Third-Party Turnkey Medium Will need to negotiate with third party Rate Setting City decision City decision but will need to CCA Goals City decision City decision but will need to Power Mix City decision Unknown, will need to Joint Powers Authority Silicon Valley Clean Energy (SVCE) Peninsula Clean Energy (PCE) Low San José will have one vote (1/23 for PCE, 1/13 for SVCE) Can call for a load weighted vote but restrictions apply 1 Local Programs Maximum ability to customize for San José Programs will need to be negotiated with third party Unknown, may be negotiable % Revenues for Local Programs Funding Needed High San José retains all CCA revenues $5 M start up loan Working capital is estimated at $25 M - $50 M; will likely be much lower using a line of credit and/or negotiated power agreements Medium Will need to negotiate with third party Unknown Third party may bear initial costs but they will be reflected in customer rates Unknown Will need to be negotiated Unknown but expected to be minimal May need to provide funding for a technical analysis Liability to General Fund Possible; mitigation measures to reduce liability Possible; mitigation measures to reduce liability None to minimal liability Overall Risk Low-medium risk High risk Low risk Proven risk mitigation strategies Lack of proven track record, less control over third party Proven risk mitigation strategies; shared risk 1 Under SVCE s JPA agreement, a minimum of two Board Members must immediately call for a weighted vote after an approval decision. Under a weighted vote scenario, if a SVCE Member has more than 50% share of the weighted vote then a minimum of two Members must vote to change an approval decision. Under PCE s JPA agreement, one Board Member may call for a weighted vote. Under a weighted vote scenario, a majority weighted vote AND a majority of SVCE Member votes is required to approve a decision.

To approve and provide input on key start-up activities toward a targeted April 2018 launch for the first phase of San Jose Clean Energy customers.

To approve and provide input on key start-up activities toward a targeted April 2018 launch for the first phase of San Jose Clean Energy customers. COUNCIL AGENDA: 8/8/17 ITEM: 7.2 CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL Memorandum FROM: David Sykes SUBJECT: SAN JOSE CLEAN ENERGY DATE: My 27, 2017 RECOMMENDATION (a) Approval