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 of an ordinance establishing San Jose Clean Energy and amending Title 2 of the San Jose Municipal Code to add a new department within the City of San Jose, the Community Energy Department; (b) Review draft San Jose Clean Energy Implementation Plan and Statement of Intent; (c) Review draft of the San Jose Clean Energy staffing plan; (d) Review draft of the San Jose Clean Energy funding strategy; and.(e) Review draft Community Advisory Committee framework. OUTCOME 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. EXECUTIVE SUMMARY In May 2017, City Council approved proceeding with the establishment of a San Jose CCE, referred to as San Jose Clean Energy (SJCE), under a single-jurisdiction model as a separate City department. It also established the following guiding framework: Rates: Offer at least one power mix option with a rate equal to or less than PG&E s rates Power Mix: o Offer at least one power mix option at 10 percent or more renewables than PG&E o Offer at least one power mix option offering that is 100 percent GHG-free energy Programs: o Establish San Jose-specific renewable energy and energy-efficiency programs o Maintain, at minimum, low-income programs at the same level as PG&E programs o Develop local renewable energy projects Risk Management: Pose minimal or no adverse impacts to the City s General Fund

HONORABLE MAYOR AND CITY COUNCIL August 8, 2017 Subject: San Jose Clean Energy Page 2 Community Input: Establish a Community Advisory Committee ---Reporting: For the first two years of SJCE's launch and operation, return to Council semiannually with updates on SJCE's financials and customer status Partnerships: Explore opportunities for formal partnerships and informal collaborations with existing CCEs to increase efficiencies, reduce capital requirements, share staffing and consultants, and reduce operating costs for such functions as data management services, joint power procurement, regulatory compliance, and legislative and regulatory advocacy Policies: o Set customer rates annually as part of the typical utility rate-setting process and allow for one mid-year adjustment in the event that PG&E adjusts rates to below the agency s low-cost rate option o Ensure that the S JCE reserve policy includes direction that sufficient reserves be accumulated, prior to launch of local programs, that would support wind down of operations in the unlikely event that S JCE is discontinued In alignment with previous Council direction, the City Manager is bringing forth the following: ordinance establishing SJCE and creating a new Community Energy Department for approval; and, draft Implementation Plan, staffing plan, funding strategy, and Community Advisory Committee framework for Council input. The City Manager will return with final documents, an ordinance to add a new title to the San Jose Municipal Code Title 26 establishing SJCE operation procedures, and ordinance to amend Title 4 to establish the San Jose Clean Energy Operating Fund, and budget actions for Council approval in late August 2017. Staff is targeting an April 2018 launch for the first phase of SJCE customers (i.e. municipal customers). BACKGROUND Community Choice Energy (CCE) offers the community a choice in electricity providers. CCEs will determine the source of electricity offered, set customer rates for energy, retain revenue, and determine spending priorities locally. The incumbent Investor Owned Utility (IOU), which is Pacific Gas and Electric (PG&E) in San Jose, will continue to charge customers to maintain the transmission and distribution infrastructure, deliver the energy, and bill customers. For these continued services, PG&E will charge CCE customers the same delivery rates as PG&E customers and these charges will be incorporated into the total CCE electric rates to its customers. CCEs can provide many community benefits, including significant environmental and economic benefits. To date, CCE programs have been able to provide choice in electricity options with a higher mix of renewable energy in their base power products than is available from the incumbent utility, at competitive rates. CCEs also allow local governments entities to have more direct control over rates and how any surplus revenues are reinvested in their communities. A CCE can offer rate structures and programs that are tailored to address a community s priorities and policies, including sustainability, greenhouse gas (GHG) reduction, and local economic

HONORABLE MAYOR AND CITY COUNCIL August 8,2017 Subject: San Jose Clean Energy Page 3 development goals. CCE programs can also stimulate the local economy by investing in local renewable projects and incentivize manufacturing companies to site in their communities by for qualifying entities. Since 2010, eight CCEs have launched in California and another four CCEs anticipate starting service in 2017 and 2018. Many other California communities are currently exploring the opportunity of creating a CCE. Within five years, approximately 50 percent of California s power load could be served by CCEs. At the May 16., 2017 City Council meeting, City Council approved proceeding with the establishment of a San Jose CCE, referred to as San Jose Clean Energy (SJCE), under the following guiding framework: Governance: Establish SJCE under a single jurisdiction model and as a separate City department Rates: Offer at least one power mix option with a rate equal to or less than PG&E s rates Power Mix: o Offer at least one power mix option at 10 percent or more renewables than PG&E o Offer at least one power mix option offering that is 100 percent GHG-free energy Programs: o Establish San Jose-specific renewable energy and energy-efficiency programs o Maintain, at minimum, low-income programs at the same level as PG&E programs o Develop local renewable energy projects Risk Management: Pose minimal or no adverse impacts to the City s General Fund Community Input: Establish a Community Advisory Committee Reporting: For the first two years of SJCE's launch and operation, return to Council semiannually with updates on SJCE's financials and customer status Partnerships: Explore opportunities for formal partnerships and informal collaborations with existing CCEs to increase efficiencies, reduce capital requirements, share staffing and consultants, and reduce operating costs for such functions as data management services, joint power procurement, regulatory compliance, and legislative and regulatory advocacy Policies: o Set customer rates annually as part of the typical utility rate-setting process and allow for one mid-year adjustment in the event that PG&E adjusts rates to below the agency s low-cost rate option o Ensure that the SJCE reserve policy includes direction that sufficient reserves be accumulated, prior to launch of local programs, that would support wind down of operations in the unlikely event that SJCE is discontinued

HONORABLE MAYOR AND CITY COUNCIL August 8, 2017 Subject: San Jose Clean Energy Page 4 Council directed the City Manager to return to Council in August 2017 with the required ordinances, plans, and budget actions for Council consideration to enable the start-up of S JCE in Fiscal Year 2017-2018. Council also directed staff to return to Council in fall 2017 with a framework for the Community Advisory Committee. ANALYSIS This memo details the necessary ordinances, plans, and a framework for the Community Advisory Committee for Council consideration so that staff can continue with timely start-up activities toward a targeted April 2018 launch for the first phase of SJCE customers (i.e. municipal customers). Ordinance Establishing San Jose Clean Energy The ordinance establishes SJCE and sets up a new Community Energy Department. Through Assembly Bill 117 ( AB 117 ), adding California Public Utilities Code section 366.2 et seq, the California Legislature authorized any city or county to aggregate the electricity load of its residents and businesses into a community-wide electricity program. The law requires adoption of an ordinance electing a CCE within its jurisdiction. The first part of the ordinance, which will not be codified, complies with the obligations of AB 117 and formally establishes the CCE, to be known as San Jose Clean Energy. The ordinance amends Title 2 of the San Jose Municipal Code to add a Community Energy Department and includes its functions, powers, and duties. The City may only submit the Implementation Plan (detailed below) once the ordinance establishing SJCE is effective (i.e. after a second reading of the ordinance and then a 30-day execution period). Therefore, approval of the establishing ordinance is a time-sensitive and necessary first step to allow for subsequent start-up activities toward a targeted April 2018 launch. Two additional ordinances will be presented to Council in late August 2017 to add a new title to the San Jose Municipal Code Title 26 and to amend Title 4 to establish the San Jose Clean Energy Operating Fund. The Title 26 ordinance will include the laws governing the operation of SJCE such as the SJCE organizational structure, granting authority to the Director of the Community Energy Department to purchase power on the spot market as necessary, authorizing the Director of the Community Energy Department to submit certain plans and reports to the regulators, providing for staffing, establishing a procurement process to secure large power supply contracts, and providing a framework for rate setting. Implementation Plan Development and certification of an implementation plan and statement of intent (hereafter referred to as the Implementation Plan ) is a requirement of California Public Utilities Code, Section 366.2(c)(3) and (c)(4), before a CCE can begin serving customers. The Implementation Plan must be adopted by City Council at a public hearing and then submitted to the California Public Utilities Commission (CPUC) for an up to 90-day review and response period. The

HONORABLE MAYOR AND CITY COUNCIL August 8, 2017 Subject: San Jose Clean Energy Page 5 Implementation Plan is intended to provide the CPUC with insight into a CCE s anticipated structure and operations and, once certified by the CPUC, allows for subsequent CCE start-up activities to occur. The implementation plan must contain all of the following components: An organizational structure of the program, its operations, and its funding; Rate-setting and other costs to participants; Provisions for disclosure and due process in setting rates and allocating costs among participants; The methods for entering and terminating agreements with other entities; The rights and responsibilities of program participants, including, but not limited to, consumer protection procedures, credit issues, and shutoff procedures; Provisions for termination of the program; and A description of the third parties that will be supplying electricity under the program, including, but not limited to, information about financial, technical, and operational capabilities. The statement of intent must provide for the following: Universal access; Reliability; Equitable treatment of all classes of customers; and Any requirements established by state law or by the commission concerning aggregated service. To date, the CPUC has certified eight Implementation Plans, all of which generally follow similar structure and content. The draft SJCE Implementation Plan (Attachment A) follows the lead of other successfully certified Implementation Plans while highlighting features that are unique to SJCE based on Council direction, departmental input, SJCE Business Plan assumptions, and operational CCEs standard practices. As other operational CCEs have done, SJCE can amend its Implementation Plan if there are material changes and it is directed to do so by the CPUC. For example, the City may set SJCE policies in the future and the type of power mixes may be impacted by the results of the procurements. Given that the City may only submit the Implementation Plan once the ordinance establishing SJCE is effective and that it must allow for the CPUC review period, staff will return to Council in late August 2017 with the final Implementation Plan for Council approval and will need to submit the Implementation Plan to the CPUC no later than mid-september 2017 to allow for an April 2018 launch. Staffing Plan The San Jose Clean Energy Community Choice Aggregation Business Plan, authored by EES Consulting, Inc. and presented to the City Council during the Clean Energy Study Session on February 13, 2017, outlined a proposed staffing plan for the Community Energy Department that includes incrementally increasing staffing to cover start-up and operational activities. The table

HONORABLE MAYOR AND CITY COUNCIL August 8,2017 Subject: San Jose Clean Energy Page 6 below shows the draft staffing plan by fiscal year. The plan is updated to reflect staff recommendation to include a Senior Analyst and the Director of Government Affairs/Legal Counsel positions to the initial work group to assist the new Director and the new department to effectively navigate through City processes.--------------------------------------------------------------------- City of San Jose Job FY SJCE Position Classification 17-18 Executive Director Director, Community Energy X Director of Marketing and Public Affairs Public Information Manager X Administrative Analyst Senior Analyst X Executive Assistant/Council Clerk Staff Technician X Account Representative Senior Office Specialist X Communication Specialist A Public Information Representative X Director of Government Affairs/Legal X Counsel Senior Deputy City Attorney Director of Power Resources Deputy Director X Regulatory/Legislative Analyst Legal Analyst X Director of Administration and Finance Division Manager X Finance Manager Principal Accountant X Power Supply Compliance Specialist Senior Analyst X Power Resource Planning and Program Analyst Senior Analyst X Power Resource Planning and Program Analyst Senior Analyst X Administrative Assistant Staff Specialist X Senior Public Information Community Outreach Manager Representative X Account Service Manager Senior Analyst X Communication Specialist Public Information Representative X Administrative Analyst Analyst X As of the date of this memorandum, the City has finalized the classification specification for its new Director, Community Energy U (3460) classification, and has begun the formal unit designation process. The proposed amendment to the City s pay plan that will officially create this classification will be brought to the City Council as a separate item on the August 8, 2017 City Council agenda (Item 2.8). Upon City Council approval, this classification will be brought to the Civil Service Commission in September 2017 for final adoption. Additionally, the City has selected an executive recruiting firm to conduct an executive recruitment for the Director of Community Energy position. The City anticipates that a Director will be selected by the end of September 2017. Once a final candidate has been selected by the City Manager, the candidate will be brought forward for confirmation by the City Council in FY 18-19

HONORABLE MAYOR AND CITY COUNCIL August 8,2017 Subject: San Jose Clean Energy Page 7 closed session. It is anticipated that the recruitments for the additional staff could begin prior to the Director hiring but that final selections will be made by the Director. During the process of fully staffing the Department it is possible that new City classifications may have to be created to perform specialized duties that have not been contemplated in any current City classification specifications. If this is necessary, the City will follow all existing policies and procedures to draft classification specifications and create these new classifications, including following the formal unit designation process. It is also possible that the timing of hiring positions between fiscal years may be revised based on input from the Director. Funding Strategy/ Financing Plan The initial start-up costs of approximately $5-6 million will be funded through the issuance of taxable commercial paper through the lease revenue commercial paper program. A separate City Council/San Jose Financing Authority memorandum will be brought forward in late August 2017 to seek the Council/Financing Authority approval of the commercial paper issuance for this purpose. The planned issuance of up to $6.5-7.5 million is projected to cover the initial start-up costs and 18 months of capitalizing the interest and commercial paper costs. The initial start-up costs include staffing and consultant services costs, operating costs, commercial paper costs, SJCE bond (posted with the CPUC), the PG&E service fee deposit, and reserves. A separate working capital financing will be required to support the phased-in implementation. It is estimated that up to $50 million will need to be financed in 2017-2018 and 2018-2019 to fund the City s capital requirements for operations, including deposits, reserves and working capital as described in the Implementation Plan, and to repay the initial start-up funding. Requisite deposits and operating reserves include the following: 1) operating reserves to address anticipated cash flow variations; 2) operating reserve deposits that will likely be required by the SJCE power suppliers; and 3) deposit with CAISO prior to commencing market operations. Financial consulting services will be used to determine the most advantageous structure of the working capital financing program for this phased-in implementation. Separate budget actions will be brought forward this fiscal year after that analysis is complete to ensure funding is available for the implementation. It is anticipated that the start-up funding financed from the lease revenue commercial paper program will be repaid from the proceeds of the working capital financing program. Community Advisory Committee Framework Community advisory committees (CAC) are a common feature in CCEs. Two examples can be found in Attachment B. Staff recommends that a SJCE CAC be established with the following guiding framework: Purpose: On a quarterly basis, the CAC would provide essential advice to the Mayor and City Council, City Manager, and the Director about all aspects of SJCE start-up and operations. As advisors, the members of the CAC could:

HONORABLE MAYOR AND CITY COUNCIL August 8, 2017 Subject: San Jose Clean Energy Page 8 o provide feedback and input on the development of strategy and operating principles or models o inform the prioritization and development of energy programs o identify areas of concern as well as innovative opportunities for reducing carbon emissions o monitor best practices of other CCEs, legislative and regulatory issues, and new energy developments o be liaisons to the community for purposes of advocacy and outreach. The City Council would be the final decision-making body. The CAC would act as expert advisors to the City Council. Size and Terms: The committee size should be nine and serve four-year terms. Inaugural members should serve staggered terms for purposes of continuity. Composition: The composition of the CAC should reflect the geographic, ethnic, and socio-economic diversity of the San Jose community. While the membership would ideally be individuals who live and work in the City of San Jose, consideration should be given to members from outside the City of San Jose who could bring expertise to advance the goals of SJCE. Two-thirds of the membership (6) should include those with expertise in community outreach, policy advocacy, and clean energy programs and consideration should be given to representation from industry, labor, education, not-for-profits, environmental associations, and advocacy organizations. The remaining members (3) should be at-large community members. Appointment: The CAC should be established as soon after the hiring of a Director as possible. Given the expertise that is needed for this advisory committee it is recommended that 6 of the members utilize and application process through the Council Appointment Advisory Commission (CAAC). The department should attend that selection process to answer questions about technical expertise. The remaining 3 members should be appointed as at-large members by the Mayor. EVALUATION AND FOLLOW-UP Staff will return to Council in late August 2017 with the final staffing plan, Implementation Plan, Community Advisory Committee framework, and the funding strategy. Staff will also return with the Title 26 ordinance establishing operating and reporting procedures and the budget actions, including amending Title 4 to establish the San Jose Clean Energy Operating Fund. Once the City Manager has made a final selection for the Director of the Community Energy Department, the candidate will be brought forward to the City Council for confirmation in closed session. It is anticipated that this will occur in September 2017.

HONORABLE MAYOR AND CITY COUNCIL August 8, 2017 Subject: San Jose Clean Energy Page 9 PUBLIC OUTREACH This memorandum will be posted on the City s website for the August 8, 2017 City Council meeting. --------------------- ------- ---------- COORDINATION This memorandum has been coordinated with the Departments of Environmental Services, Finance, and the City Attorney s Office. COMMISSION RECOMMENDATION/INPUT There is no commission recommendation or input associated with this action. FISCAL/POLICY ALIGNMENT The recommended actions support the City s 2017 Green Vision (Goals 2 and 3) and the Envision San Jose 2040 General Plan (Goal MS-2 and Appendix 8: GHG Reduction Strategy). CEOA Not a Project, File No. PP10-069, City Administrative Activities and File No. PP10-068, General Procedure and Policy Making. DAVID SYKES Assistant City Manager For questions, please contact David D. Sykes, Assistant City Manager, (408) 535-8185. Attachments: Attachment A - Draft San Jose Clean Energy Implementation Plan and Statement of Intent Attachment B - Examples of CCE Community Advisory Committees

ATTACHMENT A San Jose Clean Energy (SJCE) DRAFT COMMUNITY CHOICE AGGREGATION IMPLEMENTATION PLAN AND STATEMENT OF INTENT JULY 25, 2017

Table of Content: 1 - Firm Experience... 1 2 - Aggregation Process... 4 3 - Organizational Structure... 7 4-Start-Up Plan & Funding... 11 5 - Program Phase-In...14 6 - Load Forecast & Resource Plan... 16 7 - Financial Plan...26 8 - Rate Setting, Program Terms and Conditions...30 9 - Customer Rights and Responsibilities...34 10 - Procurement Process... 37 11 - Contingency Plan for Program Termination... 40 12-Appendices... 41 DATE

San Jose Clean Energy ("SJCE") is a City of San Jose, California ("City") municipal service formed for the purposes of implementing a Community Choice Aggregation ("CCA") serving the retail electric service customers within the jurisdictional boundaries of the City of San Jose. This Implementation Plan and Statement of Intent ("Implementation Plan") describes SJCE's approach for implementing a voluntary CCA program for electric customers within the jurisdictional boundaries of the City that currently take bundled electric service from Pacific Gas & Electric ("PG&E"). SJCE will provide electricity customers the opportunity to join together to procure electricity from the competitive market, with energy being delivered over PG&E's transmission and distribution system. The planned start date for the Program is April 2, 2018, the first business day in April, 2018. All current PG&E customers within SJCE's service area will receive information describing SJCE and will have multiple opportunities to choose to remain bundled customers of PG&E, in which case they will not be enrolled. Thus, participation in SJCE is completely voluntary; however, customers, as provided by law, will be automatically enrolled according to the anticipated phase-in schedule later described in Chapter 5 unless they affirmatively elect to opt-out. Implementation of SJCE will enable customers within SJCE's service area to take advantage of the opportunities granted by Assembly Bill 117 ("AB 117"), the Community Choice Aggregation Law. The City of San Jose's primary objectives in implementing SJCE are to provide cost competitive electric services; reduce electric sector greenhouse gas emissions ("GHGs") within the City; stimulate renewable energy development; promote energy efficiency and demand reduction programs; and sustain long-term rate stability for residents and businesses through local control. The prospective benefits to consumers include increased renewable and other low-ghg emitting energy supplies, stable and competitive electric rates, and the opportunity for public participation in determining which technologies are utilized to meet local electricity needs. Based on feedback received from Council and the community, SJCE will operate under the following guiding framework: Rates: Offer at least one power mix option with a rate equal to or less than PG&E's rates Power Mix: o Offer at least one power mix option at 10 percent or more renewables then PG&E o Offer at least one power mix option that is 100 percent greenhouse gas (GHG) free Programs: o Establish San Jose-specific renewable energy and energy efficiency programs o Maintain, at minimum, low income programs at the same level as PG&E o Develop local renewable energy projects Community Input: Establish a community advisory committee General Fund Impact: Minimal or no adverse impact to the City's General Fund CHAPTER 1 - Introduction 1

To ensure successful operation of the Program, SJCE will solicit energy suppliers and marketers through a competitive process and will negotiate with one or more qualified suppliers throughout the summer and fall of 2017. Final selection of SJCE's initial energy supplier(s) will be made by SJCE following administration of the solicitation process and related contract negotiations. Information regarding the anticipated solicitation process for SJCE's initial energy services provider(s) is contained in Chapter 10. The California Public Utilities Code provides the relevant legal authority for SJCE to become a Community Choice Aggregator and invests the California Public Utilities Commission ("CPUC" or "Commission") with the responsibility for establishing the cost recovery mechanism that must be in place before customers can begin receiving electrical service through SJCE. The CPUC also has responsibility for registering SJCE as a Community Choice Aggregator and ensuring compliance with basic consumer protection rules. The Public Utilities Code requires that an Implementation Plan be adopted at a duly noticed public hearing and that it be filed with the Commission in order for the Commission to determine the cost recovery mechanism to be paid by customers of the Program in order to prevent shifting of costs to bundled customers of the incumbent utility. On August, 2017, SJCE, at a duly noticed public hearing, considered and adopted this Implementation Plan, through Ordinance No. XX (a copy of which is included as part of Appendix A). The Commission has established the methodology that will be used to determine the cost recovery mechanism, and PG&E has approved tariffs for imposition of the cost recovery mechanism. With each of these milestones having been accomplished, SJCE submits this Implementation Plan to the CPUC. Following the CPUC's certification of its receipt of this Implementation Plan and resolution of any outstanding issues, SJCE will take the final steps needed to register as a CCA prior to initiating the customer notification and enrollment process. Organization of this Implementation Plan The content of this Implementation Plan complies with the statutory requirements of AB 117. As required by PU1 Code Section 366.2(c)(3), this Implementation Plan details the process and consequences of aggregation and provides SJCE's statement of intent for implementing a CCA program that includes all of the following: S Universal access; S Reliability; Equitable treatment of all customer classes; and S Any requirements established by state law or by the CPUC concerning aggregated service. The remainder of this Implementation Plan is organized as follows: 1 California Code, Public Utilities Code CHAPTER 1 - Introduction 2

Chapter 2: Aggregation Process Chapter 3: Organizational Structure Chapter 4: Startup Plan & Funding Chapter 5: Program Phase-In Chapter 6: Load Forecast & Resource Plan Chapter 7: Financial Plan Chapter 8: Rate setting Chapter 9: Customer Rights and Responsibilities Chapter 10: Procurement process Chapter 11: Contingency Plan for Program Termination Appendix A: Ordinance No. XX (Adopting Implementation Plan) The requirements of AB 117 are cross-referenced to Chapters of this Implementation Plan in the following table. AB 117 Cross References AB 117 REQUIREMENT Statement of Intent Process and consequences of aggregation Organizational structure of the program, its operations and funding Disclosure and due process in setting rates and allocating costs among participants Rate setting and other costs to participants Participant rights and responsibilities Methods for entering and terminating agreements with other entities Description of third parties that will be supplying electricity under the program, including information about financial, technical and operational capabilities Termination of the program IMPLEMENTATION PLAN CHAPTER Chapter 1: Introduction Chapter 2: Aggregation Process Chapter 3: Organizational Structure Chapter 4: Startup Plan & Funding Chapter 7: Financial Plan Chapter 8: Rate setting Chapter 8: Rate setting Chapter 9: Customer Rights and Responsibilities Chapter 9: Customer Rights and Responsibilities Chapter 10: Procurement Process Chapter 10: Procurement Process Chapter 11: Contingency Plan for Program Termination CHAPTER 1 - Introduction 3

Introduction This chapter describes the background leading to the development of this Implementation Plan and describes the process and consequences of aggregation, consistent with the requirements of AB 117. The City of San Jose began its preliminary assessment of a CCA program in 2010. The City reinitiated its efforts in 2016 and began investigating formation of SJCE in the City, pursuant to California state law, with the following objectives: Rates: Offer at least one power mix option with a rate equal to or less than PG&E's rates Power Mix: Offer at least one power mix option at 10 percent or more renewables then PG&E Programs: o Establish San Jose-specific renewable energy and energy efficiency programs o Maintain, at minimum, low income programs at the same level as PG&E o Develop local renewable energy projects Community Input: Establish a community advisory group General Fund Impact: Minimal or no adverse impact to the City's General Fund This framework serves as the foundation of this Plan. A technical feasibility study for a CCA serving the City was completed on February 27,2017. After nearly seven years of collaborative work by representatives of the City of San Jose, independent consultants, local experts and stakeholders, SJCE was officially formed in September, 2017. SJCE released a draft Implementation Plan in July 2017, which described the planned organization, governance and operation of the CCA Program. Following consideration of comments related to the draft document, a final Implementation Plan was prepared and duly adopted by the San Jose City Council. SJCE represents a culmination of planning efforts that are responsive to the expressed needs and priorities of the residents and business community within the City. SJCE plans to offer choices to eligible customers through creation of innovative programs for voluntary purchases of renewable energy, net energy metering to promote customer-owned renewable generation, energy efficiency, demand responsiveness to promote reductions in peak demand, customized pricing options for large energy users, and support of local renewable energy projects through offering of a standardized power purchasing agreement or Feed-In-Tariff. Commercial direct access customers are not included, as it is assumed that customers taking direct CHAPTER 2 - Aggregation Process 4

access service from a competitive electricity provider will continue to remain with their current supplier. Process of Aggregation Before they are enrolled in SJCE, prospective customers will receive two written notices in the mail, from SJCE. that will provide information needed to understand the SJCE's terms and conditions of service and explain how customers can opt-out of SJCE, if desired. All customers that do not elect the opt-out process specified in the customer notices will be automatically enrolled in SJCE, with service to begin at their next regularly scheduled meter read date no later than thirty days following the date of automatic enrollment, subject to the service phase-in plan described in Chapter 5. The initial enrollment notices will be provided to the first phase of customers in February, 2018. Initial enrollment notices will be provided to subsequent customer phases consistent with statutory requirements and based on schedule(s) determined by SJCE. These notices will be sent to customers in subsequent phases twice within 60 days of automatic enrollment. Customers enrolled in SJCE will continue to have their electric meters read and to be billed for electric service by the distribution utility (PG&E). The electric bill for SJCE customers will show separate charges for generation procured by SJCE as well as other charges related to electricity delivery and other utility charges assessed by PG&E. After service cutover, customers will have approximately 60 days (two billing cycles) to opt-out of SJCE without penalty and return to PG&E. SJCE customers will be advised of these opportunities via the distribution of two additional enrollment notices provided within the first two months of service. Customers that opt-out between the initial cutover date and the close of the post enrollment opt-out period will be responsible for program charges for the time they were served by SJCE but will not otherwise be subject to any penalty for leaving the program. Customers that have not opted-out within thirty days of the fourth enrollment notice will be deemed to have elected to become a participant in SJCE and to have agreed to SJCE's terms and conditions, including those pertaining to requests for termination of service, as further described in Chapter 8. Consequences of Aggregation Rate Impacts SJCE customers will pay the generation charges set by SJCE and no longer pay the costs of PG&E generation. Customers enrolled in SJCE will be subject to the Program's terms and conditions, including responsibility for payment of all SJCE charges as described in Chapter 9. SJCE's rate setting policies described in Chapter 7 establish a goal of providing rates that are competitive with the projected generation rates offered by the PG&E. SJCE will establish rates sufficient to recover all costs related to operation of SJCE and actual rates will be adopted by the San Jose City Council. CHAPTER 2 - Aggregation Process 5

Initial SJCE rates will be established following approval of SJCE's inaugural program budget, reflecting final costs from the SJCE Program's energy supplier(s). SJCE's rate policies and procedures are detailed in Chapter 7. Information regarding final SJCE rates will be disclosed along with otherterms and conditions of service in the pre- and post-enrollment notices sent to potential customers. Consistent with statutory requirements, once SJCE gives definitive notice to PG&E that it will commence service, SJCE customers will generally not be responsible for costs associated with PG&E's future electricity procurement contracts or power plant investments. Certain preexisting generation costs and new generation costs that are deemed to provide system-wide benefits will continue to be charged by PG&E to SJCE customers through separate rate components, called the Cost Responsibility Surcharge and the New System Generation Charge. These charges are shown in PG&E's electric service tariffs, which can be accessed from the utility's website, and the costs are included in charges paid by both PG&E bundled customers as well as CCA and Direct Access customers.2 Renewable Energy Impacts A second impact of SJCE will be an increase in the proportion of energy generated and supplied by renewable resources. The resource plan includes procurement of renewable energy sufficient to exceed California's prevailing renewable energy procurement mandate ("Renewable Portfolio Standards") for all enrolled customers. SJCE customers may also voluntarily participate in a 100 percent renewable supply option. To the extent that customers choose SJCE's 100 percent renewable energy option, the renewable content of SJCE's aggregate supply portfolio will further increase. Initially, requisite renewable energy supply will be sourced through one or more power purchase agreements. Over time, however, SJCE may consider independent development of new renewable generation resources. Energy Efficiency Impacts A third impact of SJCE will be an anticipated increase in local energy efficiency program investments and activities. The existing energy efficiency programs administered by PG&E should not change as a result of SJCE implementation. SJCE customers will continue to pay the public benefits surcharges to PG&E, which will continue funding energy efficiency programs for all customers, regardless of generation supplier. The energy efficiency investments ultimately planned for SJCE, as described in Chapter 6, will follow SJCE's successful application for and administration of requisite program funding (from the CPUC) to independently develop and administer energy efficiency programs within its jurisdiction. Such programs will be in addition to the level of investment that would continue in the absence of SJCE-administered energy 2 For PG&E bundled service customers, the Power Charge Indifference Adjustment element of the Cost Responsibility Surcharge is contained within the tariffed Generation rate. Other elements of the Cost Responsibility Surcharge are set forth in PG&E's tariffs as separate rates/charges paid by all customers (with limited exceptions). The CPUC recently opened a new Rulemaking exploring potential changes to the PCIA (R.17-06-026). CHAPTER 2 - Aggregation Process 6

efficiency programs. Thus, SJCE has the potential for increased energy savings and a further reduction in GHGs due to expanded energy efficiency programs. CHAPTER 2 - Aggregation Process 7

This section provides an overview of the organizational structure of SJCE and its proposed implementation. Specifically, the key agreements, governance, management, and organizational functions of SJCE are outlined and discussed below. Organizational Overview The San Jose City Council is responsible for establishing SJCE's policies and objectives and overseeing SJCE's operation. The City is in the process of hiring a Director, expected in September 2017, to be appointed by the City Council. The Director will report to the City Manager and manage the operation of SJCE in accordance with policies adopted by the City governing body, the City Council. The City will hire staff and contractors to manage SJCE's activities. These activities include support services (administration, finance and IT), marketing and public affairs (community outreach, key account management and customer advocacy), supply acquisition (energy procurement, trading, contract negotiation and system development) and legal and government affairs. Governance The Program will be governed by the San Jose City Council ("City Council"). The City Council's primary duties are to approve laws and policies, approve rates, and provide policy direction to the City Manager, who has responsibility for day-to-day operations, consistent with the policies established by the City Council. In the future, the City Council may establish special committees and sub-committees, as needed, to address issues that require greater expertise in particular areas. SJCE may also form various standing and ad hoc committees, as appropriate, which would have responsibility for evaluating various issues that may affect SJCE and its customers and would provide analytical support and recommendations to the City Council in these regards. Management SJCE is in the process of recruiting a Director, which will then need to be appointed by SJCE's City Manager upon concurrence of the appointment by City Council. Once appointed, the Director will report to the City Manager and will have management responsibilities over the functional areas of administration & finance, marketing & public affairs, power resources & energy programs, and government affairs in coordination with other City Departments. The Director may utilize a combination of internal staff and consultants. Certain specialized functions needed for SJCE operations, namely the electric supply and customer account management functions described below, may be performed initially by third-party contractors. Major functions of SJCE that will be managed by the Director are summarized below. Administration CHAPTER 3 - Organizational Structure 8

SJCE's Director will be responsible for managing the organization's human resources and administrative functions and will coordinate with the City's Human Resources and Public Works Departments, as necessary. The functional area of administration will include oversight of employee hiring and termination, compensation and benefits management, identification and procurement of requisite office space, and various other issues. Finance The SJCE Director, in coordination with the City Manager's Budget Office and the City's Finance Department, is also responsible for managing the financial affairs of SJCE, including the development of an annual budget, revenue requirement and rates; managing and maintaining cash flow requirements; arranging potential bridge loans as necessary; and other financial tools. Revenues via rates and other funding sources (such as a rate stabilization fund, when necessary) must, at a minimum, meet the annual budgetary revenue requirement, including recovery of all expenses and any reserves or coverage requirements that may be set forth in various agreements or bond covenants, for example. SJCE will administer a standardized set of electric rates and may offer optional rates to encourage policy goals such as economic development or low-income subsidy programs, provided that the overall revenue requirement is achieved. SJCE may also offer customized pricing options such as dynamic pricing or contract-based pricing for energy intensive customers to help these customers gain greater control over their energy costs. This would provide such customers - mostly larger energy users within the commercial sector-with greater rate-related flexibility than is currently available. SJCE's finance function will work with the City's Finance Department to arrange financing necessary for any capital projects, prepare financial reports, and ensure sufficient cash flow for successful operation of SJCE. The finance function will play an important role in risk management by monitoring the credit of energy suppliers and anticipated trends in power supply costs so that credit risk is properly understood and mitigated. In the event that changes in a supplier's financial condition or credit rating are identified, SJCE will be able to take appropriate action, as would be provided for in the electric supply agreement(s). Marketing & Public Affairs The marketing and public affairs functions include general program marketing and communications as well as direct customer interface ranging from management of key account relationships to call center and billing operations. SJCE will conduct program marketing to raise consumer awareness of SJCE and to establish the SJCE "brand" in the minds of the public, with the goal of retaining and attracting as many customers as possible into SJCE. Communications will also be directed at key policy-makers at the state and local level, community business and opinion leaders, and the media. In addition to general program communications and marketing, a significant focus on customer service, particularly representation for key accounts, will enhance SJCE's ability to differentiate CHAPTER 3 - Organizational Structure 9

itself as a highly customer-focused organization that is responsive to the needs of our community. SJCE will also establish a customer call center designed to field customer inquiries and routine interaction with customer accounts. The customer service function also encompasses management of customer data. Customer data management services include retail settlements/billing-related activities and management of a customer database. This function processes customer service requests and administers customer enrollments and departures from SJCE, maintaining a current database of enrolled customers. This function coordinates the issuance of monthly bills through PG&E's billing process and tracks customer payments. Activities include the electronic exchange of usage, billing, and payments data between PG&E and SJCE, tracking of customer payments and accounts receivable, issuance of late payment and service termination notices (which would return affected customers to PG&E's bundled service), and administration of customer deposits in accordance with credit policies of SJCE. The customer data management services function also manages billing-related communications with customers, customer call centers, and routine customer notices. SJCE will initially contract with a third party that that has demonstrated the necessary expertise to administer an appropriate customer information system to perform the customer account and billing services functions. Power Resources & Energy Programs SJCE must plan for meeting the electricity needs of its customers utilizing resources consistent with its policy goals and objectives as well as applicable legislative and regulatory mandates. SJCE's long term resource plans (addressing the 10-20 year planning horizon) will comply with California Law and other pertinent requirements of California regulatory bodies. SJCE may develop and administer complementary energy programs that may be offered to SJCE customers, including energy efficiency, net energy metering, and various other programs that may be identified to support the overarching goals and objectives of SJCE. SJCE will develop integrated resource plans that meet supply objectives and balance cost, risk, Council policy, and environmental considerations. The integrated resource plans will also conform to applicable requirements imposed by the State of California. Integrated resource planning efforts of SJCE will make maximum use of demand side energy efficiency, distributed generation and demand response programs as well as traditional supply options, which rely on structured wholesale transactions to meet customer energy requirements. Integrated resource plans will be updated and adopted by SJCE on an annual basis and coordinated with regulatory obligations. Electric Supply Operations Electric supply operations encompass the activities necessary for wholesale procurement of electricity to serve end use customers. These highly specialized activities include the following: CHAPTER 3 - Organizational Structure 10

S Electricity Procurement - assemble a portfolio of electricity resources to supply the electric needs of SJCE customers. S Risk Management - application of standard industry techniques to reduce exposure to the volatility of energy and credit markets and insulate customer rates from sudden changes in wholesale market prices. S Load Forecasting - develop load forecasts, both long-term for resource planning and short-term for the electricity purchases and sales needed to maintain a balance between hourly resources and loads. S Scheduling Coordination - scheduling and settling electric supply transactions with the California Independent System Operator ("CAISO"). SJCE will initially contract with one or more experienced and financially sound third-party energy services providers to perform all of the electric supply operations for SJCE. These requirements include the procurement of energy, capacity and ancillary services, scheduling coordinator services, short-term load forecasting, and day-ahead and real-time electricity trading, and support for associated regulatory submissions. Local Energy Programs A key focus of SJCE will be the development and implementation of local energy programs, including energy efficiency programs, distributed generation programs and other energy programs responsive to community interests. These programs are likely to be phased in during the first several years of operations. The implementation of these programs will follow the identification of requisite funding sources. SJCE will eventually administer energy efficiency, demand response, and distributed generation programs that can be used as cost-effective alternatives to procurement of supply-side resources. SJCE will attempt to consolidate existing demand-side programs into this organization and leverage the structure to expand energy efficiency offerings to customers throughout its service territory, including the CPUC application process for third party administration of energy efficiency programs and use of funds collected through the existing public benefits surcharges paid by SJCE customers. Governmental Affairs & Legal Services SJCE will require ongoing regulatory and legislative representation to manage various regulatory compliance filings related to resource plans, resource adequacy, compliance with California's RPS, and overall representation on issues that will impact SJCE and its customers. SJCE will maintain an active role at the CPUC, the California Energy Commission, the CAISO, the California legislature and, as necessary, the Federal Energy Regulatory Commission (FERC). The City may elect to retain outside legal services, as necessary, to administer SJCE, review contracts, and provide overall legal support related to activities of SJCE, this work would be done under the direction of the City Attorney's Office. CHAPTER 3 - Organizational Structure 11