AGENDA SONOMA CLEAN POWER AUTHORITY COMMUNITY ADVISORY COMMITTEE Wednesday, November 30, :00 A.M. 11:00 A.M.

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1 AGENDA SONOMA CLEAN POWER AUTHORITY COMMUNITY ADVISORY COMMITTEE Wednesday, November 30, :00 A.M. 11:00 A.M. Sonoma Clean Power Authority 50 Santa Rosa Avenue, 5 th Floor Santa Rosa, California All Community Advisory Committee (CAC) members present will be given the oath of office by General Counsel prior to the call to order. I. CALL TO ORDER II. COMMUNITY ADVISORY COMMITTEE REGULAR CALENDAR 1. Review the September 12, 2016 meeting minutes of the Business Operations Committee. 2. Receive report on operations, financial performance and audited financial statements for fiscal year ending June 30, Legislative Report. 4. Review and provide recommendation on proposed budget and rates adjustment. III. COMMITTEE MEMBER ANNOUNCEMENTS IV. PUBLIC COMMENT ON MATTERS NOT LISTED ON THE AGENDA (Comments are restricted to matters within the Committee jurisdiction. The Committee will hear public comments at this time for up to thirty minutes. Please be brief and limit your comments to three minutes.) V. ADJOURN DISABLED ACCOMMODATION: If you have a disability which requires an accommodation, an alternative format, or requires another person to assist you while attending this meeting, please contact the Clerk at (707) , as soon as possible to ensure arrangements for accommodation. 1/57

2 BUSINESS OPERATIONS COMMITTEE MEETING MINUTES SEPTEMBER 12, 2016 I. CALL TO ORDER: Meeting called to order by BOC Chair Dowd at 9:00 A.M. Committee members present: Dick Dowd, Ken Wells, George Beeler, Bill Mattinson, Paul Brophy Staff Present: CEO Geof Syphers, General Counsel Steve Shupe, Director of Programs Jan McFarland, Internal Operations Manager Stephanie Reynolds, Executive Assistant, Braiden Gugel Chair Dowd had Internal Operations Manager, Stephanie Reynolds, introduce each member of the Board Operations Committee and they each gave a brief introduction of themselves. CEO Geof Syphers introduced new employees, Regulatory Affairs Manager Neal Reardon and Executive Assistant Braiden Gugel. II. BUSINESS OPERATIONS COMMITTEE REGULAR CALENDAR: 1. Approve the June 23, 2016 meeting minutes of the Business Operations Committee and the June 30, 2016 joint meeting minutes of the Sonoma Clean Power Business Operations and Ratepayer Advisory Committees (9:00 A.M.) Motion to approve minutes, as presented by CM Matheson Seconded by CM Brophy Motion approved Receive report on operations and financial performance. (9:10 A.M.) CEO Syphers gave report to committee members on operations and financial performance and discussed upcoming agenda items for the next board meeting including JPA amendments and committee structure changes. The last fiscal year ended on June 30. Estimates for deposits to reserves are approximately $20M. Final deposits will be determined after an outside audit is completed in September or October. The final audit will be brought to the Board and committee(s) once completed. He also reported the fiscal year-end audit will be reported on in October or November. 2/57

3 Business Operations Committee Meeting September 12, 2016 Page 2 General Counsel Shupe reported to committee members on PCIA vintaging issues. The CPUC will finalize a decision to change the way vintaging is calculated for CCA customers on September 15. The decision would be an overall benefit for CCA programs. Regulatory Manager Neal Reardon reported on Diablo Valley closure discussions. SCP is engaged with PG&E discussing possible fees that would affect CCA customers due to an estimated $1.8B PG&E needs to secure new resources. Chair Dowd stated the PCIA was set up to protect the interest of the shareholder s of the IOUs. Chair Dowd stated we need to have more public outreach to explain PCIA issues. Programs Director McFarland said that in May, under the NetGreen Program SCP mailed checks to solar customers in the amount of $650,000. The current fiscal year budget allocates $850,000 in anticipation of continued growth. A first mailing of surveys regarding electric vehicles was sent to 1,600 households. A second round will be sent in September. Results will guide SCP in future EV programs. In October and November six Ride and Drive events are planned. Director of Public Affairs and Marketing, Kelly and Communications Assistant Varellas will be helping with public outreach. The idea is to promote purchases of EVs. CEO Syphers stated that we participated in an EV event at Coddingtown on 9/11/16. Owners and dealers of EVs were available for the public to ask questions and test drive vehicles. CEO Syphers stated that the Energize program has been held for general release due to some issues. Plan to continue working with Ohm Connect on tools that can be used to determine customer behaviors. He noted that we are still in negotiations and will report back. CEO Syphers stated SCP was successful getting a bid into PG&E s 2017 Demand Response Program. SCP has contracted with emotorwerks to operate a small-scale pilot of an aggregated load. SCP s goal is to learn how to better manage demand response tools and understand the grid better. CM Brophy asked about the July statements and the impact from sales of energy and increase in rates. CEO Syphers stated due to a delay in accounting systems, the financials will reflect differently next month Public Comment: Woody Hastings stated that the Center for Climate Protection is planning to submit a protest letter to the CPUC by Thursday, September 15 th. He also noted the Energize Program and suggested SCP target people who are home a lot. He also asked about the current status of ProFIT projects. 3/57

4 Business Operations Committee Meeting September 12, 2016 Page 3 Jan McFarland responded that the three current FIT projects are having trouble with permitting. SCP has contracted with an interconnection expert to get projects moving forward. 3. Approve recommendation of proposed electric vehicle, electric vehicle charging equipment and installation incentives related to Sonoma Clean Power s Bulk Electric Vehicle Purchase and Lease pilot. (9:57 A.M.) Program Director McFarland stated an RFP was issued in July with the intent to provide a bulk discount purchase program with additional SCP incentives for EV buyers. The 75-day pilot program will serve SCP customers. The website launch and registration process is estimated to start on 10/13/16 and close on 1/02/2017, followed by a rigorous evaluation. Responses to the RFP were received from Jim Bone Nissan, Manly Honda, Hansel BMW and Volkswagen. SCP is working with Nissan, BMW and possibly also Honda. A voucher process will be set up for customers to lease/purchase a car with significant discounts. The RFP required vehicles have a range of 75 miles and a plug in a range of 25 miles. She is hoping to get a one-page informational sheet on each vehicle in English and Spanish. Program Director McFarland said we have not signed any contracts and are still negotiating. CEO Syphers hopes to get a lot of media and other manufacturers interested and to make a strong first impression. The short window of time is intended to create interests without causing a problem in the used car market. If we have a strong program, then any future incentives could be at a lower rate. He asked the BOC for help in getting the word out. Program Director McFarland stated the SCTA is helping as well. CM Brophy commented on the rebate being weighted toward the higher end vehicles. Program Director McFarland explained the thought was to reward the EVs with the lowest GHG. CM Mattinson also asked if there were other manufacturers contacted. Program Director McFarland responded all EV manufacturers were contacted for the RFP process. CM Wells stated that he really would like to see the project. He asked to get the program going and said that he s excited to see how it works. 4/57

5 Business Operations Committee Meeting September 12, 2016 Page 4 CM Beeler stated he s very enthusiastic about the program. He thinks this is a good example about fuel switching. He suggested commuter vans might be a nice thing for a business to have for its employees. He likes the fact we included benefits to our community. He suggested SCP work with other organizations and students, because they can affect their parents. CM Mattinson suggested utilizing the Sierra Club newsletter and the bike coalition. Chair Dowd asked for someone to explain who is eligible and not eligible. CEO Syphers stated there are three classes. Anyone can get a manufacturer s discount. To get an SCP discount you must be an SCP customer. To receive CARE/FERA incentives, the customer needs to be already classified as a CARE/FERA customer. Because this is a short program Chair Dowd is worried that people who will participate are people already informed rather than people who didn t know enough to get involved in time. He doesn t want SCP to get criticized. Program Director McFarland stated that the staff has a PR campaign ready with mailers and radio ads, and will be working with community organizations. Public Comment: Doron Amiran commended the program and is very excited to help support it. He asked if there is a way to track vehicles and create additional programs to maximize benefits for people trading in older fossil fuel vehicles. Bruce Nyden represented the North Bay Electric Vehicle Auto Association and asked to be added to the list as a contact for people during outreach. Woody Hastings stated he was echoing what Doron said. He also suggested adding questions to the application regarding what the vehicle would be used for and if it was replacing a fossil fuel vehicle. CM Brophy suggested wording not to exceed and increase the program budget to $1.5 million for vehicles. CM Brophy commented on having flexibility to allow low-income customers who are not on their landlord s bill to participate in the program. 5/57

6 Business Operations Committee Meeting September 12, 2016 Page 5 Motion by CM Wells that the BOC recommend SCP create an EV incentive program with a budget cap of $1.5M, substantially similar to what was presented at this meeting, to last 75 days. Seconded by CM Brophy Vote carried: III. COMMITTEE MEMBER ANNOUNCEMENTS (11:03 A.M.) CM Beeler discussed his installation of energy efficient heat pump. IV. PUBLIC COMMENT ON MATTERS NOT LISTED ON THE AGENDA (11:04 A.M.) None V. ADJOURNMENT: Meeting adjourned by Chair Dowd at 11:05 A.M. Respectfully submitted, Braiden Gugel Executive Assistant 6/57

7 Staff Update Item 2 To: From: Issue: Sonoma Clean Power Authority Community Advisory Committee Geof Syphers, CEO Stephanie Reynolds, Internal Operations Manager Operations Report Date: November 30, 2016 NEWS & MILESTONES Drive EverGreen program has strong early results Audited financials from Pisenti and Brinker completed $16 million added to SCP s reserves for Fiscal Year 2015/16 FUTURE PUBLIC MEETINGS: December 1, 2016 Board of Directors Meeting January 5, 2017 Board of Directors Meeting PCIA Vintaging Workgroup SCP staff, along with Southern California Edison, are leading a stakeholder driven effort to develop improvements to the Power Charge Indifference (PCIA) methodology. The California PUC directed our two organizations to outline changes to make the PCIA calculation more transparent, and to improve access to the underlying data that contributes to the PCIA. These could be implemented through modifications to existing policies or as new processes. To date, we have solicited feedback from over 100 stakeholders and hosted two workshops. The first, held on October 27 th, examined the PCIA history and inputs, IOU confidentiality provisions, 7/57

8 and potential alternatives to the PCIA. The second, held on November 17 th, reviewed the November update to the PCIA, IOU load forecasting for CCA growth, IOU contract processes and procurement strategy, as well as two specific alternatives to the PCIA: assignment of contracts from an IOU to a CCA, and a lump sum buyout provision. We have six months to propose recommendations and plan to host a third workshop in December. Diablo Canyon Replacement Procurement PG&E, along with environmental NGOs, labor unions, and local government cities, are proposing to procure renewable resources and energy efficiency to replace the generation being provided by Diablo Canyon Power Plant. This is the last nuclear plant in California, and its two units are slated for retirement in 2024 and PG&E argues that greenhouse gas (GHG) emissions will rise once Diablo Canyon retires if they don t procure replacement resources in the near term. However, they propose to allocate the costs to customers who take delivery service (not generation), and to include more of the benefits in a compensation program that rewards their shareholders. SCP and other affected parties have been actively participating in confidential settlement discussions with PG&E. The CPUC directed PG&E to provide information on their proposal to procure these resources and allocate costs as suggested. They will do so at an informational workshop hosted on December 8 th, 2016 at 10:00am at the CPUC Auditorium, 505 Van Ness Avenue, San Francisco, CA /57

9 MENDOCINO TIMELINE Following is the draft timeline for enrolling Mendocino County and the cities of Fort Bragg, Point Arena and Willits into Sonoma Clean Power s program. Item Timeframe Notes Hire Customer Service Specialist General Public Workshops Held January 2017 Feb June 2017 To Assist with Outreach/Marketing Incorporated Cities & County Locations (Spanish & English) Enrollment Notice #1 April 2017 Required Pre Enrollment Notice Specific Customer Letters Mail April 2017 NEM, Peak Day Pricing, SmartRate Enrollment Notice #2 May 2017 Required Pre Enrollment Notice Net Energy Metering (NEM) Public Workshops Held May 2017 Incorporated Cities & County Locations (Spanish & English) Service Begins June 2017 All Eligible Customers Enrollment Notice #3 June 2017 Additional Enrollment Notice Enrollment Notice #4 July 2017 Required Post Enrollment Notice First Customer Bills Arrive July 2017 Customers will see generation charges from SCP on their bill. Enrollment Notice #5 August 2017 Required Post Enrollment Notice DRIVE EVERGREEN PROGRAM/RIDE-AND-DRIVE EVENTS Ride and Drive Events Through Reach Strategies, SCP has held three Ride and Drive events this fall. The Medtronic event was held on September 29 in combination with that company s environmental fair. On November 10, SCP held an event for Amy s Kitchen employees in Spanish at their Santa Rosa factory. A LabCon event will take place on November 30. We have tentatively scheduled another event at Amy s Kitchen Headquarters in Petaluma, that would also include Amica Insurance, Alvarado Street, CamelBak, Athletica, and other companies nearby. 9/57

10 Drive EverGreen The Drive EverGreen program has launched and is running smoothly. The DriveEV.org website is fully operational. SCP customers can: 1) Get an Electric Car - Apply for and receive SCP EV Incentive Certificates 2) Get Connected - Choose between three discounted Level 2 chargers or a JuicePlug through emotorwerks on-line store, customers can also sign up to participate in SCP s demand response program and receive $250 of Juice points; 3) Drive on EverGreen Choose to drive on 100 percent renewable energy produced inside SCP s territory. In the first two weeks of the program, we have seen both participating EV dealers sell out of their inventory and they have had to order more vehicles. Over 205 EV applications were received and 52 EVs were leased or sold in the first two weeks. SCP is providing the chargers at no hardware cost, and customers are paying the tax, shipping and installation costs. SCP customers have ordered 82 chargers in the same time period, 50 people have registered to participate in our demand response program. SCP s 2017 demand response program will aggregate EV chargers into a network that responds to CAISO signals in order to help integrate more renewable energy, improve grid reliability and reduce costs of wholesale energy. The Center for Sustainable Energy has a thorough process for managing SCP incentives in place. CSE verifies every purchased or leased vehicle within the Drive EverGreen program to ensure our customers receive the time of purchase credits negotiated by SCP prior to dealer payment of SCP incentives. CSE s detailed weekly reports provide all program data to ensure proper accounting and evaluation. MONTHLY COMPILED FINANCIAL STATEMENTS Sonoma Clean Power continued to add to a strong net position in September, with projections of further growth in net position over the remainder of the year. Average customer rates have been reduced as of the beginning of the fiscal year, as SCP intends to keep rates attractive compared to those of PG&E. The summer rate season continued through September, a period where aggregate rates are greater than in the winter season. SCP plans for increased revenues during this season, and 10/57

11 the resulting positive change in net position helps move the agency closer to its reserve goals. The year-to-date growth in net position is slightly below projections due primarily to lower than anticipated customer usage volumes. Net position is expected to increase through the end of the fiscal year. Year-to-date operating revenues reached 47,023,000. Electricity sales (as reported on the Statement of Revenues, Expenses and Changes in Net Assets) is being offset by our estimate of uncollectible accounts, which is currently set at approximately 0.5% of electricity sales. As historical data is gathered on the collection patterns specific to SCP customers, this rate will be revisited and adjusted as necessary. Note that the accounts receivable line on the Statement of Net Position is presented net of allowance for uncollectibles. SCP continues to procure electricity from multiple sources, with the total cost for the year-to-date landing above projections. This is primarily due to the purchase of excess energy that is being re-sold to another reseller. Net position increased to a positive $46,639,000, which indicates healthy growth as SCP continues to make progress towards its reserve goals. Of this net position, approximately $6,281,000 and $1,108,000 is considered set aside for operating and project reserves, respectively. SCP will increase these project reserves after the 2015/16 audited financial statements have been completed. Overall, other operating expenses continued near or slightly below planned levels for the year. BUDGETARY COMPARISON SCHEDULE The accompanying budgetary comparison includes the 2016/17 budget approved by the Board of Directors in May The budget is formatted to make comparisons for both the annual and the year-todate perspective. The first column, 2016/17 YTD Budget, allocates the Board approved annual budget at expected levels throughout the year with considerations for the timing of additional customers, usage volumes, staffing needs etc. This column represents our best estimates and this granular approach was not part of the Board approved budget. 11/57

12 Revenue from electricity sales to customers is slightly below budget. This variance can be partially explained by lower volume usage by certain customer types than planned. The cost of electricity is around 114% of budget-to-date. Most of this variance is due to an energy supplier that began operating its renewable energy facility sooner than anticipated at a time when SCP did not need the energy to provide to its customers. SCP has arranged to re-sell all of this energy to another energy company. Other causes of the variance is due to fluctuating market cost of energy on open position purchases. Major operating categories of Data Management fees and PG&E Service fees, which are tied to the customer account totals, are closely aligned to the annual budgeted amount. Other than the items mentioned above, SCP continues its trend of remaining near or under budget for most of its operating expenses. 12/57

13 Thursday, October 27, 2016 at 11:36:04 AM Pacific Daylight Time Subject: Date: From: To: Buiding Stock Assessments for Program Planning Thursday, October 27, 2016 at 8:57:19 AM Pacific Daylight Time Andy Ferguson Geof Syphers Category: 1-YEAR Geoff, You are no doubt aware that a criucal issue concerning future program development, especially in homes, is electric panel capacity. Future desirable programs that include EV charging, heat pump water heaters and space condiuoning, plus other electric appliances, may be blocked by insufficient panel capacity in many or most homes. To help meet this challenge, several of us last year recommended to Amy Rider that SCP conduct building stock assessments of a sample of perhaps 300 homes plus 100 businesses in the County. These assessments would be carefully designed to indicate the state of a representauve sample of homes vis a vis building shell, whether installed appliances use gas or electricity, panel capacity and use, etc. That informauon could then inform program design and development under a comprehensive plan going forward. The earlier such assessments can be undertaken the be[er, since they require a year or so to complete. I've seen cost esumates of between $400K and $800K for such studies. Obviously, upgrading electric panels could be very expensive (PG&E's charges for ditching, new panel cost etc), and it's desirable to know if that expense can be avoided and whether future programs could fit into exisung panels. A building stock assessment might therefore indicate 1) Should panel upgrades be an immediate program goal?, or perhaps 2) Should SCP plan for tesung and development of high COP dual purpose (water and space condiuoning) CO2 heat pump or other technologies whose low power consumpuon could fit into exisung panels? In 25 years, what would the ideal panel configurauon look like? Knowing that itself could help guide program development. Whatever the conclusions, such stock assessments seem vital at this point. I note that other large EE program developers require such assessments before allowing any programs proceed. Many companies are offering this service and I believe you're familiar with some of them. I hope you'll move quickly in this area with an experienced outside firm. The program to install home EV chargers helps brings this quesuon into focus. Thanks for your considerauon of this quesuon. Andy Ferguson 13/57 Page 1 of 1

14 1101 FIFTH AVENUE SUITE 200 SAN RAFAEL, CA ACCOUNTANTS COMPILATION REPORT Board of Directors Sonoma Clean Power Authority Management is responsible for the accompanying special purpose statement of Sonoma Clean Power Authority (a California Joint Powers Authority) which comprise the budgetary comparison schedule for the period ended September 30, 2016, and for determining that the budgetary basis of accounting is an acceptable financial reporting framework. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statement nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, a conclusion, nor provide any assurance on this special purpose budgetary comparison statement. The special purpose statement is prepared in accordance with the budgetary basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. This report is intended for the information of the Board of Directors of SCP. Management has elected to omit substantially all of the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the special purpose budgetary comparison statement, they might influence the user s conclusions about the Authority s results of operations. Accordingly, this special purpose budgetary comparison statement is not designed for those who are not informed about such matters. We are not independent with respect to the Authority because we performed certain accounting services that impaired our independence. Maher Accountancy San Rafael, CA November 15, /57

15 SONOMA CLEAN POWER AUTHORITY OPERATING FUND BUDGETARY COMPARISON SCHEDULE July 1, 2016 through September 30, 2016 REVENUE AND OTHER SOURCES: 2016/17 YTD Budget 2016/17 YTD Actual 2016/17 YTD Budget Variance (Under) Over 2016/17 YTD Actual/Budget % 2016/17 Annual Budget 2016/17 Budget Remaining Revenue - Electricity (net of allowance) $ 44,836,762 $ 43,602,299 $ (1,234,463) 97% $ 151,038,000 $ 107,435,701 Revenue - Evergreen Premium (net of allowance) 58,184 45,682 (12,502) 79% 196, ,318 Revenue - Electricity sales for resale * - 3,375,459 3,375,459 na - (3,375,459) Revenue - Interest income 37,750 44,403 6, % 151, ,597 Total revenue and other sources 44,932,696 47,067,843 2,135, % 151,385, ,317,157 EXPENDITURES AND OTHER USES: CURRENT EXPENDITURES Cost of energy and scheduling 33,854,542 38,721,861 4,867, % 124,124,000 85,402,139 Data management 822, ,977 (46,523) 94% 3,290,000 2,514,023 Service fees- PG&E 267, ,183 (6,817) 97% 1,068, ,817 Personnel 684, ,606 (135,394) 80% 2,736,000 2,187,394 Outreach and communications 194, ,614 (41,636) 79% 777, ,386 Required noticing 153,500 62,030 (91,470) 40% 614, ,970 Legal 98,750 49,364 (49,386) 50% 395, ,636 Accounting and auditing 46,250 33,297 (12,953) 72% 185, ,703 Technical consultants 192,500 28,461 (164,039) 15% 770, ,539 Legislative consultants 91,250 19,500 (71,750) 21% 365, ,500 Other consultants 40,000 91,360 51, % 160,000 68,640 Program implementation and development 875,000 51,480 (823,520) 6% 3,500,000 3,448,520 General and administration 126, ,532 (25,718) 80% 505, ,468 Total current expenditures 37,445,792 40,895,265 3,449, % 138,489,000 97,593,735 OTHER USES Collateral deposit payments 1,000,000 3,110,000 2,110, % 2,000,000 (1,110,000) Collateral deposit payments returned ** - (60,000) (60,000) na - - Capital outlay 51,000 7,339 (43,661) 14% 204, ,661 Total expenditures, Other Uses and Debt Service 38,496,792 43,952,604 5,455, % 140,693,000 96,680,396 Net increase (decrease) in available fund balance $ 6,435,904 $ 3,115,239 $ (3,320,665) 48% $ 10,692,000 $ 7,636,761 * Electricity sales for resale is the result of sales to other utilities for resale purposes. This revenue is not separately budgeted. ** Collateral deposit payments returned provides for the display of the return of collateral during the year, this inflow is not budgeted separately. RESERVES *** Balance Operating Reserve $ 6,280,664 Program Reserve 1,108,353 $ 7,389,017 *** Reserve balances do not include additions for the 15/16 year. This addition will occur after the completion of that year's audit. 15/57 See accountants' compilation report. 2

16 SONOMA CLEAN POWER AUTHORITY OPERATING FUND BUDGET RECONCILIATION TO STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION July 1, 2016 through September 30, 2016 Net increase (decrease) in available fund balance per budgetary comparison schedule: $ 3,115,239 Adjustments needed to reconcile to the changes in net position in the Statement of Revenues, Expenses and Changes in Net Position: Subtract depreciation expense (12,086) Add back capital asset acquisitions 7,339 Subtract collateral deposits returned (60,000) Add back collateral deposits 3,110,000 Change in net position $ 6,160,492 See accountants' compilation report. 16/57 3

17 1101 FIFTH AVENUE SUITE 200 SAN RAFAEL, CA ACCOUNTANTS COMPILATION REPORT Management Sonoma Clean Power Authority Management is responsible for the accompanying financial statements of Sonoma Clean Power Authority (a California Joint Powers Authority) which comprise the statement of net position as of September 30, 2016, and the related statement of revenues, expenses, and changes in net position, and the statement cash flows for the period then ended in accordance with accounting principles generally accepted in the United States of America. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, conclusion, nor provide any assurance on these financial statements. Management has elected to omit substantially all of the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the user s conclusions about the Authority s financial position, results of operations, and cash flows. Accordingly, the financial statements are not designed for those who are not informed about such matters. We are not independent with respect to the Authority because we performed certain accounting services that impaired our independence. Maher Accountancy San Rafael, CA November 15, /57

18 SONOMA CLEAN POWER AUTHORITY STATEMENT OF NET POSITION As of September 30, 2016 ASSETS Current assets Cash and cash equivalents $ 31,932,087 Accounts receivable, net of allowance 16,995,365 Other receivables 959,667 Accrued revenue 8,087,239 Prepaid expenses 19,088 Investments 7,007,726 Total current assets 65,001,172 Noncurrent assets Capital assets, net of depreciation 196,408 Deposits 3,804,666 Total noncurrent assets 4,001,074 Total assets 69,002,246 LIABILITIES Current liabilities Accounts payable 436,545 Accrued cost of electricity 21,062,907 Other accrued liabilities 216,901 User taxes and energy surcharges due to other governments 496,661 Total current liabilities 22,213,014 NET POSITION Net investment in capital assets 196,408 Unrestricted 46,442,824 Total net position $ 46,639,232 See accountants' compilation report. 18/57 2

19 SONOMA CLEAN POWER AUTHORITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION July 1, 2016 through September 30, 2016 OPERATING REVENUES Electricity sales, net $ 43,602,299 Evergreen electricity premium 45,682 Electricity sales for resale 3,375,459 Total operating revenues 47,023,440 OPERATING EXPENSES Cost of electricity 38,721,861 Staff compensation 548,606 Data manager 775,977 Service fees - PG&E 260,183 Consultants and other professional fees 224,098 Legal 49,364 Communications 214,644 General and administration 100,532 Depreciation 12,086 Total operating expenses 40,907,351 Operating income 6,116,089 NONOPERATING REVENUES (EXPENSES) Interest income 44,403 CHANGE IN NET POSITION 6,160,492 Net position at beginning of period 40,478,740 Net position at end of period $ 46,639,232 See accountants' compilation report. 19/57 3

20 SONOMA CLEAN POWER AUTHORITY STATEMENT OF CASH FLOWS July 1, 2016 through September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 43,518,111 Receipts from electricity sales for resale 3,462,482 Receipts from supplier security deposits 150,000 Tax and surcharge receipts from customers 487,143 Payments to purchase electricity (37,500,035) Payments for staff compensation (501,778) Payments for contract services (1,474,650) Payments for communications (242,119) Payments for general and administration (120,922) Tax and surcharge payments to other governments (453,534) Net cash provided (used) by operating activities 7,324,698 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Deposits and collateral paid (3,110,000) Deposits and collateral returned 60,000 Net cash provided (used) by non-capital financing activities (3,050,000) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (12,925) CASH FLOWS FROM INVESTING ACTIVITIES Interest income received 39,147 Net change in cash and cash equivalents 4,300,920 Cash and cash equivalents at beginning of year 27,631,167 Cash and cash equivalents at end of period $ 31,932,087 See accountants' compilation report. 20/57 4

21 SONOMA CLEAN POWER AUTHORITY STATEMENT OF CASH FLOWS (continued) July 1, 2016 through September 30, 2016 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 6,116,089 Adjustments to reconcile operating income to net cash provided (used) by operating activities Depreciation expense 12,086 (Increase) decrease in net accounts receivable (1,367,539) (Increase) decrease in other receivables 87,023 (Increase) decrease in accrued revenue 1,237,668 (Increase) decrease in prepaid expenses 1,060 Increase (decrease) in accounts payable (215,208) Increase (decrease) in accrued cost of electricity 133,929 Increase (decrease) in accrued liabilities 1,135,981 Increase (decrease) in user taxes and energy surcharges due to other governments 33,609 Increase (decrease) in supplier security deposits 150,000 Net cash provided (used) by operating activities $ 7,324,698 See accountants' compilation report. 21/57 5

22 Financial Statements Years Ended June 30, 2016 and June 30, 2015 With Report of Independent Auditors 22/57

23 SONOMA CLEAN POWER AUTHORITY YEARS ENDED JUNE 30, 2016 AND 2015 TABLE OF CONTENTS Independent Auditor s Report.. 1 Management s Discussion and Analysis.. 3 Financial Statements: Statements of Net Position 10 Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows 12 Notes to the Financial Statements 14 23/57

24 A. B. Independent Auditor s Report To the Board of Directors Sonoma Clean Power Authority Santa Rosa, California Report on the Financial Statements We have audited the accompanying financial statements of Sonoma Clean Power Authority (SCPA), as of and for the years ended June 30, 2016 and 2015, and the related notes to the financial statements, which collectively comprise SCPA s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SCPA as of June 30, 2016 and 2015, and the changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America Round Barn Circle, Suite 300, Santa Rosa, CA (707) Fax (707) Offices in Santa Rosa, Petaluma and Napa 24/57 pbllp.com

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26 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS The Management s Discussion and Analysis provides an overview of Sonoma Clean Power Authority s (SCPA) financial activities as of and for the years ended June 30, 2016 and The information presented here should be considered in conjunction with the audited financial statements. BACKGROUND The formation of SCPA was made possible by the passage, in 2002, of California Assembly Bill 117, enabling communities to purchase power on behalf of their residents and businesses and creating competition in power generation. SPCA was created as a California Joint Powers Authority on December 4, SCPA was established to provide electric power and related benefits within Sonoma County, including developing a wide range of renewable energy sources and energy efficiency programs. Governed by an appointed board of directors (Board), SCPA has the rights and powers to set rates for the services it furnishes, incur indebtedness, and issue bonds or other obligations. SCPA is responsible for the acquisition of electric power for its service area. SCPA s financial activity commenced on April 23, 2013, when it succeeded the Sonoma County Water Agency (SCWA) in performing specified activities related to a community choice aggregation program. Pursuant to an agreement between SCPA and SCWA, SCPA accepted an obligation to reimburse SCWA for specified costs to initiate the entity and its programs which were incurred prior to the agreement. In May 2014, SCPA began providing service to its first 22,000 customer accounts. Significant growth has occurred since that time, and as of June 30, 2016, SCPA serviced approximately 200,000 customer accounts. Service areas include the cities and towns of Cloverdale, Cotati, Petaluma, Rohnert Park, Santa Rosa, Sebastopol, Sonoma, Windsor, and all of Sonoma County s unincorporated areas. Providing its customers with affordable electricity with significant renewable attributes is a main focus of SCPA s operations. SCPA has entered into agreements with electricity suppliers to ensure that a portion of the electricity provided to customers is from renewable sources. In an effort to increase demand for renewable electricity, SCPA offers its customers two electricity services to choose from: CleanStart and Evergreen. Evergreen customers have chosen to purchase electricity from 100% local renewable sources. Customers who do not choose to participate in Evergreen fall into the CleanStart service and receive electricity with 36% renewable energy, 41% hydropower, and 23% general power which is primarily natural gas. SCPA intends to raise awareness and participation of its Evergreen service to provide a greater demand for renewable electricity. 3 26/57

27 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS The following chart illustrates the energy mix of SCPA s CleanStart and Evergreen services: Evergreen CleanStart Natural Gas Qualifying Renewable Qualifying Renewable Hydropower (carbon free) Financial Reporting SCPA maintains its accounting records in accordance with Generally Accepted Accounting Principles (GAAP) for proprietary funds, as prescribed by the Governmental Accounting Standards Board (GASB). Contents of this report This report reflects SCPA activities that are funded through the sale of energy to its customers and is divided into the following sections: Management discussion and analysis, which provides an overview of operations. The financial statements, which offer information on SCPA s financial status: o The Statements of Net Position includes all of SCPA s assets, liabilities, and net position using the accrual method of accounting. The Statements of Net Position provide information about the nature and amount of resources and obligations at a specific point in time. o The Statements of Revenues, Expenses, and Changes in Net Position report all of SCPA s revenue and expenses for the years shown. o The Statements of Cash Flows report the cash provided and used by operating activities, as well as other sources and payments, such as debt financing. o Notes to the financial statements, which provide additional details and information to the main reporting documents. 4 27/57

28 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL HIGHLIGHTS The following table is a summary of SCPA s assets, liabilities, and net position as of June 30: Current assets $ 60,653,208 $ 33,825,432 $ 11,975,089 Noncurrent assets Capital assets 201, ,042 63,415 Other noncurrent assets 754, , ,000 Total noncurrent assets 955, , ,415 Total assets 61,609,029 34,336,240 12,843,504 Current liabilities 21,130,289 15,842,820 7,024,637 Noncurrent liabilities - 4,836,405 5,920,157 Total liabilities 21,130,289 20,679,225 12,944,794 Net position Net investment in capital assets 201, ,042 63,415 Unrestricted (deficit) 40,277,585 13,485,973 (164,705) Total net position $ 40,478,740 $ 13,657,015 $ (101,290) Current Assets 2016 compared to 2015 Current assets reached $60,653,000 by the end of 2016 and are mostly comprised of the following: $27,631,000 in cash, $15,628,000 in accounts receivable, $9,325,000 in accrued revenue, and $7,008,000 in investments, each of which mark a significant increase from The increase in cash is largely the result of an operating surplus from servicing a larger territory for an entire fiscal year. Accounts receivable and accrued revenue also experienced increases directly attributable to territory expansions within Sonoma County in mid- to late These assets were affected in 2016 to a greater extent than the previous period because the customer base was included for the entire year. Accrued revenue differs from accounts receivable in that it is the result of electricity use by SCPA customers before invoicing to those customers has occurred. The increase in investments is from a 2016 purchase of a six-month certificate of deposit. 5 28/57

29 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS Capital Assets 2016 compared to 2015 Capital assets increased from $171,000 in 2015 to $201,000 in 2016 as a result of purchases of furniture, equipment, and tenant improvements. Spending in this category increased from the prior year primarily due to SCPA making accommodations for its increase in employees. The amount reported is net of depreciation. SCPA does not own assets used for electric generation or distribution. Other Noncurrent Assets 2016 compared to 2015 Other noncurrent assets increased from $340,000 in 2015 to $755,000 in This increase is due to certain cash deposits with energy providers for collateral for energy purchases. These deposits will be returned to SCPA at the completion of the related contract, or as other milestones are met. The remaining balance are various deposits for regulatory and other operating purposes. Current Liabilities 2016 compared to 2015 Current liabilities increased from $15,843,000 in 2015 to $21,130,000 in 2016, mostly due to the increase in accrued cost of electricity, resulting from growth in the number of customers. Accrued cost of electricity is the cost of energy delivered to customers that will be paid by SCPA in subsequent months as provided with agreements with suppliers. Other components include trade accounts payable, taxes and surcharges due to governments, and various other accrued liabilities. During 2016, SCPA retired all of its term debt. See Note 5 for more details regarding debt. Noncurrent Liabilities 2016 compared to 2015 As of June 30, 2016, SCPA no longer had noncurrent liabilities. This was due to the early retirement of bank loans and the return of $3,450,000 in security deposits to an energy supplier for multiple generation facilities. The security deposits were held by SCPA in the event the energy supplier s generation facilities were not operational within a contractually defined timeframe. During the year the security deposits were replaced with letters of credit with SCPA as the beneficiary. 6 29/57

30 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS The following table is a summary of SCPA s results of operations Operating revenues $ 163,680,820 $ 96,552,720 $ 9,792,608 Interest income 52, Total income 163,733,299 96,552,720 9,792,608 Operating expenses 136,875,570 82,588,593 8,565,792 Interest expense 36, , ,441 Total expenses 136,911,574 82,794,415 8,677,233 Increase in net position $ 26,821,725 $ 13,758,305 $ 1,115,375 Operating Revenues 2016 compared to 2015 SCPA rapidly expanded its territory throughout Sonoma County through fiscal year ending 2015, peaking at just over 200,000 accounts. With the customer base holding fairly steady through fiscal year 2016, operating revenues were recognized at this larger customer base for an entire year for the first time. The result was a dramatic increase in operating revenues from the previous year. In addition to revenues from sales to retail customers, SCPA recognized approximately $1,407,000 in sales intended for resale. These were sales of excess energy procured by SCPA, but not necessary to cover its retail customer s demands. Operating Expenses 2016 compared to 2015 Expenses increased from fiscal year 2015 to 2016 as SCPA s customer base recently experienced significant growth. For both years, the largest expense was the cost of electricity provided to customers. Expenses for staff compensation, consulting, and other general and administrative expenses also increased in 2016, but at a lower level than the cost of energy. As shown in the table below, operations are heavily weighted with the cost of power supply, as SCPA strives to provide affordable electricity while maintaining an efficient organizational scale. (In Millions) $150 $100 $50 Operating Expenses $- Power Supply Other Power Supply Other Interest Charges 2016 compared to 2015 Interest charges decreased by $170,000 in 2016 as all debt was paid off early in /57

31 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL SUMMARY OPERATING SUMMARY: FISCAL YEARS ENDED JUNE 30: (In Millions) $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $ Total Revenues Total Expenses Increase (decrease) in net position ASSETS, LIABITLITIES, AND NET POSITION AS OF JUNE 30, 2016 Accounts receivable, net, 25% ASSETS Accrued revenue, 15% Accrued cost of electricity, 32% LIABILITIES & NET POSITION Other liabilities, 2% Other assets, 15% Cash and cash equivalents, 45% Net position, 66% Cash and cash equivalents $ 27,631,167 Accounts receivable, net 15,627,826 Accrued revenue 9,324,908 Other assets 9,025,128 Total Assets $ 61,609,029 Accrued cost of electricity $ 19,841,081 Other liabilities 1,289,208 Net position 40,478,740 Total Liabilities & net position $ 61,609, /57

32 SONOMA CLEAN POWER AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS ECONOMIC OUTLOOK Sonoma Clean Power completed the fiscal year with nearly 89% of all eligible customers participating across Sonoma County. SCPA will serve the County of Mendocino starting in June 2017, as SCPA continues its incremental expansion following the successful rollout of service to all of the eligible areas of Sonoma County (only the City of Healdsburg is ineligible due to its municipal utility). SPCA launched with deferred energy payments for energy as a way to reduce the need for bridging loans to cover cash flow, but SCPA will transition to standard payment terms in The agency will continue building cash reserves with three goals: reduce the cost of energy by improving credit profile and enabling cash collateral, make progress toward an investment grade credit rating planned for the end of 2020, and reduce general market risk by increasing the ability to subsidize rates through short-term periods. SCPA recently helped form a statewide trade association, the California Community Choice Association or CalCCA, to help advocate in the legislature and at the CPUC. The strength of this organization will start to materialize once the operating members (all of the operational CCAs in California) contract for lobbying services and hire staff. SCPA identifies the successful launch of CalCCA as a key strategy for reducing risk over the next few years. REQUEST FOR INFORMATION This financial report is designed to provide SCPA s customers and creditors with a general overview of the Organization s finances and to demonstrate SCPA s accountability for the funds under its stewardship. Please address any questions about this report or requests for additional financial information to 50 Santa Rosa Avenue, 5 th Floor, Santa Rosa, CA Respectfully submitted, Geof Syphers, Chief Executive Officer 9 32/57

33 BASIC FINANCIAL STATEMENTS 33/57

34 SONOMA CLEAN POWER AUTHORITY STATEMENTS OF NET POSITION JUNE 30, 2016 AND ASSETS Current assets Cash and cash equivalents $ 27,631,167 $ 12,726,406 Accounts receivable, net of allowance 15,627,826 12,178,959 Other receivables 1,041,433 - Accrued revenue 9,324,908 8,240,561 Prepaid expenses 20, ,506 Investments 7,007,726 - Total current assets 60,653,208 33,825,432 Noncurrent assets Capital assets, net of depreciation 201, ,042 Deposits 754, ,766 Total noncurrent assets 955, ,808 Total assets 61,609,029 34,336,240 LIABILITIES Current liabilities Accounts payable 657, ,941 Accrued cost of electricity 19,841,081 14,437,644 Other accrued liabilities 168, ,991 User taxes and energy surcharges due to other governments 463, ,112 Loan payable to Sonoma County Water Agency - 254,132 Total current liabilities 21,130,289 15,842,820 Noncurrent liabilities Loan payable to Sonoma County Water Agency - 1,386,405 Supplier security deposits - 3,450,000 Total noncurrent liabilities - 4,836,405 Total liabilities 21,130,289 20,679,225 NET POSITION Net investment in capital assets 201, ,042 Unrestricted 40,277,585 13,485,973 Total net position $ 40,478,740 $ 13,657,015 The accompanying notes are an integral part of these financial statements /57

35 SONOMA CLEAN POWER AUTHORITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FISCAL YEARS ENDED JUNE 30, 2016 AND OPERATING REVENUES Electricity sales, net $ 161,982,106 $ 96,366,719 Evergreen electricity premium 291, ,001 Electricity sales for resale 1,406,857 - Total operating revenues 163,680,820 96,552,720 OPERATING EXPENSES Cost of electricity 128,305,229 76,960,983 Staff compensation 1,665,149 1,257,990 Data manager 3,283,226 1,827,744 Service fees - PG&E 1,040, ,692 Consultants and other professional fees 890, ,845 Legal 474, ,718 Communications 858,491 1,011,082 General and administration 318, ,563 Depreciation 40,261 16,976 Total operating expenses 136,875,570 82,588,593 Operating income 26,805,250 13,964,127 NONOPERATING REVENUES (EXPENSES) Interest income 52,479 - Interest expense (36,004) (205,822) Total nonoperating revenues (expenses) 16,475 (205,822) CHANGE IN NET POSITION 26,821,725 13,758,305 Net position at beginning of period 13,657,015 (101,290) Net position at end of period $ 40,478,740 $ 13,657,015 The accompanying notes are an integral part of these financial statements /57

36 SONOMA CLEAN POWER AUTHORITY STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED JUNE 30, 2016 AND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from electricity sales $ 157,740,749 $ 85,369,650 Receipts from electricity sales for resale 365,424 - Tax and surcharge receipts from customers 2,428,922 1,656,692 Return of supplier security deposits (3,450,000) 3,450,000 Cash payments to purchase electricity (122,317,192) (68,998,820) Cash payments for staff compensation (1,612,583) (1,216,613) Cash payments for contract services (5,632,486) (2,785,284) Cash payments for communications (768,169) (1,070,161) Cash payments for general and administration (351,952) (221,181) Tax and surcharge payments to other governments (2,375,982) (1,355,547) Net cash provided (used) by operating activities 24,026,731 14,828,736 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Loan proceeds from bank notes and loans - 80,000 Principal payments on loan (1,640,537) (5,014,696) Deposits and collateral paid (560,200) (575,566) Deposits and collateral returned 145,300 1,040,800 Interest expense payments (40,049) (244,399) Net cash provided (used) by non-capital financing activities (2,095,486) (4,713,861) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (71,237) (118,154) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of certificate of deposit (7,007,726) - Interest income received 52,479 - Net cash provided (used) by investing activities (6,955,247) - Net change in cash and cash equivalents 14,904,761 9,996,721 Cash and cash equivalents at beginning of year 12,726,406 2,729,685 Cash and cash equivalents at end of period $ 27,631,167 $ 12,726,406 The accompanying notes are an integral part of these financial statements /57

37 SONOMA CLEAN POWER AUTHORITY STATEMENTS OF CASH FLOWS (CONTINUED) FISCAL YEARS ENDED JUNE 30, 2016 AND 2015 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 26,805,250 $ 13,964,127 Adjustments to reconcile operating income to net cash provided (used) by operating activities Depreciation expense 40,261 16,975 Revenue reduced for uncollectible accounts 815, ,178 Increase (decrease) in electricity procurement payments made directly from bank notes and loans - 280,172 (Increase) decrease in net accounts receivable (4,264,314) (7,272,924) (Increase) decrease in other receivables (1,041,433) - (Increase) decrease in accrued revenue (1,084,347) (4,395,324) (Increase) decrease in prepaid expenses 659,358 (670,552) Increase (decrease) in accounts payable 42, ,218 Increase (decrease) in accrued cost of electricity 5,403,437 8,254,614 Increase (decrease) in accrued liabilities 47,872 (893) Increase (decrease) in user taxes and energy surcharges due to other governments 52, ,145 Increase (decrease) in supplier security deposits (3,450,000) 3,450,000 Net cash provided (used) by operating activities $ 24,026,731 $ 14,828,736 NONCASH FINANCING ACTIVITIES During the year ended 2015, electrical procurement payments of $280,172 were made directly from a bank line of credit. The accompanying notes are an integral part of these financial statements /57

38 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY Sonoma Clean Power Authority (SCPA) is a joint powers authority created on December 4, 2012 and its members consist of the County of Sonoma, the cities and towns of Cloverdale, Cotati, Petaluma, Rohnert Park, Santa Rosa, Sebastopol, Sonoma, and Windsor as full participants, with full voting rights and powers. At June 30, 2016, SCPA is governed by a nine member Board of Directors appointed by each of the parties. SCPA was formed to study, promote, conduct, operate, and manage energy and energy-related climate change programs, and to exercise all other powers necessary and incidental to accomplishing these objectives. A core function of SCPA is to provide electric service that includes the use of renewable sources under the Community Choice Aggregation Program under California Public Utilities Code Section SCPA began its energy delivery operations in May Electricity is acquired from commercial suppliers and delivered through existing physical infrastructure and equipment managed by Pacific Gas and Electric Company. ACCOUNTING POLICIES SCPA s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). BASIS OF ACCOUNTING The Organization s operations are accounted for as a governmental enterprise fund, and are reported using the economic resources measurement focus and the accrual basis of accounting similar to business enterprises. Accordingly, revenues are recognized when they are earned and expenses are recognized at the time liabilities are incurred /57

39 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) CASH AND CASH EQUIVALENTS For purpose of the statement of cash flows, SCPA has defined cash and cash equivalents to include cash on hand, demand deposits, and short-term investments with an original maturity of three months or less. INVESTMENTS SCPA separately states an investment in a certificate of deposit with a six-month term that is not considered short-term. In accordance with GASB 31, the certificate is reported using a cost-based measure. It is accounted for on the Statement of Net Position at cost. CAPITAL ASSETS AND DEPRECIATION SCPA s policy is to capitalize furniture and equipment valued over $1,000 that is expected to be in service for over one year. Depreciation is computed according to the straight-line method over estimated useful lives of three years for electronic equipment and seven years for furniture and leasehold improvements. OPERATING REVENUE Revenue from the sale of electricity to customers is considered operating revenue. The vast majority of operating revenue is derived from these sales. Also included as operating revenue are sales of electricity to other retailers for resale. SCPA engages in this activity in order to unload excess energy that was procured, but not necessary to cover its retail customer s demands. REVENUE RECOGNITION SCPA recognizes revenue on the accrual basis. This includes invoices issued to customers during the period and electricity estimated to have been delivered but yet to be billed. Management estimates that a portion of the billed amounts will not be collected. Accordingly, an allowance has been recorded. ELECTRICAL POWER PURCHASED Electrical power sold to customers was purchased primarily through two energy suppliers, Constellation, an Exelon Company, and Calpine Corporation. SCPA also purchases renewable energy from other sources. The cost of power and related delivery costs have been recognized as cost of electricity in the statement of revenues, expenses and changes in net position. As part of the agreement with Constellation, SCPA is required to maintain a cash balance of $4,000,000 to ensure funds are available to purchase electrical power. This cash balance is included in cash and cash equivalents as presented in the statement of net position /57

40 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ELECTRICAL POWER PURCHASED (continued) SCPA purchases Renewable Energy Certificates (REC) to comply with external mandates and self-imposed benchmarks. The RECs purchased by SCPA are commonly called bundled, as they are purchased together with the associated renewable energy actually generated. SCPA procures RECs with the intent to retire them, and does not engage in the activity of building a surplus of RECs. An expense is recognized at the point that the cost of the REC is due and payable to the supplier. STAFFING COSTS SCPA pays employees semi-monthly and fully pays its obligation for health benefits and contributions to its defined contribution retirement plan each month. SCPA is not obligated to provide post-employment healthcare or other fringe benefits and, accordingly, no related liability is recorded in these financial statements. SCPA provides compensated time off, and the related liability is recorded in these financial statements. INCOME TAXES SCPA is a joint powers authority under the provision of the California Government Code. As such it is not subject to federal or state income or franchise taxes. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation of the current-year financial statements. SUPPLIER SECURITY DEPOSIT Certain energy contracts entered into by SCPA require the supplier to provide SCPA with security deposits. Similar to collateral, this will be held by SCPA in the event the energy supplier s generation facility is not operational within a contractually defined timeframe. If the facility is operational in time, then SCPA will return the deposit. At June 30, 2016, SCPA was not holding any such deposits /57

41 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND CASH AND CASH EQUIVALENTS SCPA maintains its cash in non-interest-bearing accounts at First Community Bank (FCB). California Government Code Section requires that First Community Bank collateralize amounts of public funds in excess of the FDIC limit of $250,000 by 110%. SCPA has no deposit or investment policy that addressed a specific type of risk that would impose additional restrictions beyond this code. Accordingly, the amount of risk is not disclosed. Risk is monitored on an ongoing basis. 3. ACCOUNTS RECEIVABLE Accounts receivable were as follows: Accounts receivable from customers $ 16,957,917 $ 12,693,603 Allowance for uncollectible accounts (1,330,091) (514,644) Net accounts receivable $ 15,627,826 $ 12,178,959 While the majority of account collections occur within the first few months following customer invoicing, SCPA estimates that a portion of the billed accounts will not be collected. SCPA continues collection efforts on accounts in excess of de minimis balances regardless of the age of the account. Although collection success generally decreases with the age of the receivable, SCPA continues to have some success collecting older accounts. Accordingly, accounts above de minimis balances are not written off. The result is that the allowance for uncollectible accounts at the end of a period includes both current and prior period allowances. SCPA records bad debts for its estimated uncollectible accounts as a reduction to the related operating revenue in the Statements of Revenues, Expenses and Changes in Net Position. Bad debt expense for 2016 and 2015 was $815,447 and $485,178, respectively. 4. CAPITAL ASSETS Changes in capital assets were as follows: Furniture & Leasehold Accumulated Equipment Improvements Depreciation Net Balances at June 30, 2014 $ 70,768 - $ (7,353) $ 63,415 Additions 98,212 $ 26,390 (16,975) 107,627 Balances at June 30, ,980 26,390 (24,328) 171,042 Additions 27,931 42,443 (40,261) 30,113 Balances at June 30, 2016 $ 196,911 $ 68,833 $ (64,589) $ 201, /57

42 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND DEBT LOAN WITH SONOMA COUNTY WATER AGENCY In April 2013, SCPA entered into an agreement with the Sonoma County Water Agency (SCWA) to reimburse the SCWA for services, costs, and expenses incurred by SCWA to investigate the feasibility of implementing a community choice aggregation program in Sonoma County during all periods through December 31, Beginning January 1, 2014, interest on the balance began to accrue at the rate of 3% per year, calculated on a simple interest basis. Beginning January 1, 2015, SCPA began making monthly payments of $25,000 to SCWA. In April 2016, SCPA paid off this loan ahead of schedule. Beginning Additions Payments Ending Year ended June 30, 2015 Sonoma County Water Agency $ 1,717,812 $ - $ (77,275) $ 1,640,537 Amounts due within one year (254,132) Amounts due after one year $ 1,386,405 Year ended June 30, 2016 Sonoma County Water Agency $ 1,640,537 $ - $ (1,640,537) $ - Amounts due within one year - Amounts due after one year $ - 6. DEFINED CONTRIBUTION RETIREMENT PLAN The Sonoma Clean Power Authority Retirement Plan (Plan) is a defined contribution (IRC 457(b)) retirement plan established to provide benefits at retirement to its employees. The Plan is administered by Principal Financial Group. At June 30, 2016, there were 12 plan participants. SCPA is required to contribute up to 6% of covered payroll as a match to employee contributions. SCPA contributed $73,000 and $43,000 during the years ended June 30, 2016 and 2015, respectively. Plan provisions and contribution requirements are established and may be amended by the Board of Directors /57

43 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND RISK MANAGEMENT SCPA is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; and errors and omissions. During the year ended June 30, 2016, SCPA purchased liability and property insurance from a commercial carrier. Coverage for property, general liability, errors and omissions and non-owned automobile was $2,000,000 with a $1,000 deductible. 8. COMMITMENTS AND CONTINGENCIES SCPA had outstanding power purchase commitments of approximately $276.2 million contingent upon construction of solar photovoltaic generation facilities that continue for twenty to twentyfive years from the commercial operation date of each project. SCPA will not own the operating system upon construction or have an option to buy the system after the contract period. Certain power purchase agreements required the posting of security deposits by the supplier to be held by SCPA as collateral in the event the facility is not operational within stipulated timeframes. These postings can be in the form of cash or letter of credit. SCPA had additional outstanding non-cancelable power purchase-related commitments of approximately $651.7 million for energy that have not yet been provided under power purchase agreements that continue to December 31, The following table is the approximated obligations on existing energy and renewable contracts. Year ended June 30, 2016 $ 120,200, ,800, ,200, ,900, ,700, ,300,000 $ 928,100,000 As of June 30, 2016, SCPA had outstanding non-cancelable commitments to professional service providers for services yet to be performed of $9.3 million through April 30, /57

44 SONOMA CLEAN POWER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND OPERATING LEASE During 2015, SCPA moved its office and entered into an 84 month non-cancelable lease for its office premises until June 30, The rental agreement includes an option to renew the lease for five additional years. Rental expense under this lease was $95,000 and $12,000 for the years ended June 30, 2016 and Future minimum lease payments under the lease are as follows: Year ended June 30, 2017 $ 113, , , , , ,993 Total $ 944, SUBSEQUENT EVENT On October 13, 2016, SCPA s Board of Directors authorized the expansion of services to the unincorporated areas of Mendocino County and the cities of Fort Bragg, Willits and Point Arena, with the start of service in June /57

45 Staff Update Item 3 To: From: Issue: Sonoma Clean Power Authority Customer Advisory Committee Kate Kelly/Director, Public Affairs & Marketing Legislative Update Date: November 30, 2016 Attached, please find Sonoma Clean Power s (SCP s) monthly Legislative Report. 45/57

46 Memorandum Katherine S. Brandenburg Policy Director tel fax DATE: November 14, 2016 TO: FROM: RE: Kate Kelly Katherine S. Brandenburg Monthly Legislative Update Political Update Now that the 2016 presidential election is behind us, California must look ahead and be cautious at the same time. Nationally, Republicans retained control of Congress but California voters elected a Democratic supermajority to the California Assembly and depending on late vote counts, possibly in the Senate. California s political leaders have enjoyed favored status under President Obama with its environmental movement. As you know, California has been at the forefront in both renewable energy production and clean energy innovation. Billions of dollars in federal tax incentives and research grants that could evaporate at any time have incubated both emerging sectors. The state s push to decarbonize the energy grid and electrify transportation is supported in part by tax credits and rebates that are entirely discretionary. While the solar energy industry is robust and enjoys a wide market, other programs are less able to wean off federal assistance. California s political leaders are aware that California s environmental, health care, and immigration policies may be challenged by President-elect Trump s administration. Since the Assembly and possibly the Senate have established a super majority, the leaders in both houses must be cognizant that their members may want the entire store instead of a few items when addressing legislation this session. If Senate President Pro Tempore de León and Speaker Rendon are unable to place controls on their members, it will be up to Governor Brown to control the spending. The Legislature will return on December 5 th for a swearing in ceremony and then will officially return the first week of January. Statewide Initiatives Of the 17 statewide initiatives, California voters passed all but four of the initiatives. Californians passed an extension for surtaxes on the state s highest income residents, a $2 per pack hike in taxes on cigarettes, and upheld the California Plastic Bag Ban. Locally, there were 430 tax and bond measures placed on local ballots, of which 80 percent were approved. The success of tax and bond measures this year emboldens unions and other liberal groups that have long opposed Proposition 13 property tax limits. Initially, Proposition 13 opponents were planning to put a modification of the iconic measure on this year s ballot, one that would remove its 1415 L Street, Suite 800 Sacramento, CA main bhfs.com 46/57 Brownstein Hyatt Farber Schreck, LLP

47 property tax limits for commercial property. However, they held off because the income tax extension, with many of the same backers, was headed for the ballot and they didn t want to muddy the political waters. We expect to see an effort to repeal Proposition 13 in either 2018 or Below is the breakdown of the 17 statewide initiatives. Proposition Title Yes Votes % No Votes % Yes 51 K-12 and Community College Facilities 5,090, % 4,343, % Yes 52 Medi-Cal Hospital Fee Program 6,511, % 2,823, % No 53 Voter Approval of Revenue Bonds 4,438, % 4,709, % Yes 54 Legislative Procedure Requirements 5,894, % 3,243, % Yes 55 Tax Extension for Education and Healthcare 5,861, % 3,548, % Yes 56 Cigarette Tax 6,100, % 3,537, % Yes 57 Criminal Sentences & Juvenile Crime Proceedings 6,024, % 3,424, % Yes 58 English Proficiency. Multilingual Education. 6,835, % 2,579, % Yes 59 Corporate Political Spending Advisory Question 4,712, % 4,239, % No 60 Adult Film Condom Requirements 4,230, % 4,983, % No 61 State Prescription Drug Purchase Standards 4,282, % 4,995, % No 62 Repeal of Death Penalty 4,356, % 5,057, % Yes 63 Firearms and Ammunition Sales 5,974, % 3,533, % Yes 64 Marijuana Legalization 5,428, % 4,236, % No 65 Carryout Bag Charges 4,194, % 5,163, % Yes 66 Death Penalty Procedure Time Limits 4,591, % 4,433, % Yes 67 Ban on Single-use Plastic Bags 4,925, % 4,483, % Sincerely, Katherine S. Brandenburg 2 47/57

48 Staff Report Item 4 To: From: Item: Sonoma Clean Power Authority Community Advisory Committee Geof Syphers, CEO Stephanie Reynolds, Internal Operations Manager Rebecca Simonson, Senior Power Analyst Nathan Kinsey, Account Executive Erica Torgerson, Customer Care Manager Mike Maher, CPA Review and recommend budget adjustments and changes to customer electric generation rates Date: November 30, 2016 Requested Actions Review and consider staff options for, and possibly make recommendations to the SCPA Board of Directors on, proposed adjustments to the Fiscal Year budget and rates. Background PG&E is expected to significantly increase the fees it imposes on SCP s customers, effective January 1, In response, staff requests consideration of an SCP rate adjustment to help keep customer costs competitive with PG&E. SCP is in a good position to provide such an adjustment, since it has outperformed its financial goals every year to date. The proposed rate adjustment will not harm the SCP s mission or programs, or require a change in policy. SCP has historically adjusted rates once per year to coincide with its fiscal year. New rates have started on July 1 and run through June 30 of the following year. This schedule was designed to provide rate stability for customers. The overall cost of electricity for SCP s customers, however, depends not only on SCP s generation charges, but also on PG&E s delivery charges and fees. Changes in PG&E s rates and fees can have a large impact on our customer s energy costs. For SCP to provide rate stability for our customers, SCP may need to consider rate adjustments that differ from our usual fiscal year cycle from time to time. 48/57

49 This item proposes an early rate adjustment for all SCP customers, in response to an expected large increase in PG&E fees and decrease in PG&E bundled costs. We present several rate adjustment scenarios, varying in amount and timing, and evaluate their impact to SCP s fiscal year budget and to SCP s adopted financial policy. PG&E implements about four rate changes per year, often in January, March, May and October. The company s January rate change is usually significant, and includes an update to delivery rates, PG&E generation rates and the Power Charge Indifference Adjustment or PCIA. The State law permitting community choice aggregators (CCAs) such as SCPA to form requires that investor owned utilities (IOUs) such as PG&E be allowed to recover the share of the [IOU s] estimated net unavoidable electricity purchase contract costs attributable to [the CCA s customers]. This requirement was put in place to ensure that PG&E s remaining bundled service customers do not pay more due to the departure of former PG&E customers now served by CCAs. The PCIA is the method approved by the CPUC for calculating these departed load costs. The current PCIA allows PG&E to recover, in each calendar year, the difference between PG&E s estimated power generation costs in that year, and a market price benchmark that is supposed to represent the market cost of generation in that year. The current PCIA calculation method was established before any community choice programs existed, and SCP and other CCAs contend that the PCIA calculation results in a fee that is higher than necessary to meet the requirements of State law. For example, the market price benchmark used to calculate the PCIA does not contain any element to reflect the market hedging value that PG&E receives from its long-term generation contracts. It also relies on short-term CAISO prices rather than on a diverse portfolio of generation assets. The calculation of the PCIA on an annual basis, which is not required by State law, puts CCAs at risk for having to deal with potentially large year-to-year changes in the fee (as occurred last year, when the fee doubled). Finally, the process for calculating the fee is also complex and could be gamed to the distribution utility s advantage. (The data used for the calculation is not publicly available.) Apart from these problems, because the CPUC allows IOUs to pass through all generation costs to ratepayers, the IOUs have no financial reason to reduce those 49/57

50 costs (which feed into the PCIA). PG&E s employees have no financial incentives to negotiate for lower supply contract costs, because PG&E shareholders don t benefit from such lower costs. The CPUC s rate regulation authority has been insufficient to overcome this lack of institutional incentives. As a result, SCP and other community choice programs have begun to investigate the PCIA calculation method in detail. At the direction of the CPUC, staff from SCP and Southern California Edison are leading a six-month workgroup process of interested stakeholders to explore possible changes to the PCIA calculation method. The goal is to make the process more transparent, to provide more certainty and stability in the amount of the PCIA, and to consider changes that would more accurately reflect the actual cost incurred by IOU and CCA customers are a result of CCA departing load. For now, however, the PCIA likely to be imposed by PG&E on January 1 will increase by approximately 25%. As a result, staff proposes to adjust SCP generation rates to address that increase. Discussion of Options Three different dates are considered for an early rate change, one of which would require making a recommendation in a single meeting. Date of Rate Change January 1, 2017 March 1, 2017 June 1, 2017 Number of Meetings to Review 1 CAC + 1 BOD 2 CAC + 2 BOD 2 CAC + 2 BOD The rate and fee comparison for several common rate schedules is shown in the following table. The prevailing rates for PG&E were adopted on October 1, /57

51 The changes PG&E is planning for January are shown in the next table. It is interesting to note that low income residential (E1L) customers and small business (A1) customers are hit the hardest with major increases to the PCIA, while large business (E19S) actually sees a reduction in the prevailing PCIA. Staff began the process of identifying potential adjustments to rates by preparing a set of possible no harm budget adjustments. This exercise set out to cut the budget without affecting any program activity or SCP s mission, and also updated the budget to reflect the planned roll-out of service to Mendocino County and other important changes. Cut planned contribution to reserves to 4% per Board Financial Policy B2 Renegotiation of fee associated with Noble contract for data management Add the month of June 2017 for increased energy expenses and income associated with Mendocino County enrollment Income and expenses associated with selling the excess 2016 energy associated with early deliveries from the Mustang solar facility Increase noticing and billing expenses associated with Mendocino enrollment 51/57

52 Reduction in technical consulting expenses due to increased ability by staff to take over technical work Increase in required collateral posting due to the minor delay in executing the Golden Hills wind project power purchase agreement (collateral was planned for the previous fiscal year, but was posted in the current year) Decrease in noticing costs associated with removing one of the two planned all-customer mailings Minor adjustments to departmental budgets to account for more accurate forecasting 52/57

53 Proposed Budget Adjustment Changes in Revenues 53/57

54 Proposed Budget Adjustment Changes in Expenses 54/57

55 Proposed Budget Adjustment Changes in Other Uses and Totals 55/57

56 A reduction of $4,467,000 in net income could support two attractive options as shown in the following table. One option is to adjust rates to produce equal costs to PG&E s proposed January 2017 rates on January 1, Another option is to adjust rates to produce a 1% savings relative to PG&E s proposed January 2017 rates but with no change implemented until March 1, Staff believe the second option is more attractive for several reasons. First, waiting until March would allow a final decision at the January 5, 2017 board meeting and more time for the committee and board to review. It would also be early enough to ensure that enrollment notices to new customers in Mendocino would go out at a time when SCP s rates are more favorable. Waiting until January to finalize SCP s new rates would also allow review of PG&E actual January 1 rates, rather than relying on PG&E s forecast of those rates. Finally, it would be much easier to implement a rate change with 6-8 weeks of advance notice following a board vote, allowing sufficient time for testing of the new rates. Staff s preferred option with 1.0% savings is shown in the following table, followed by several alternative scenarios. 56/57

57 After reviewing this information, staff ask the Community Advisory Committee to provide input on the following questions: 1. Should SCPA s Board adjust the agency s budget per the proposed budget amendment tables? 2. Should SCPA s Board adopt an early rate change? If so, by how much and when? The CAC may wish to recommend a January 1, 2017 rate change to the Board of Directors, or consider the later rate change options further at a later CAC meeting. 57/57