San José Clean Energy

Business Plan

San José Council Study Session:

February 13, 2017

Overview

1. Community Choice Aggregation (CCA) Overview

2. San José Clean Energy (SJCE) Business Plan Review

3. Next Steps

4. Council Feedback

5. Public Comments

How Community Choice Aggregation Works

CCA: A Hybrid Approach to Utility Operations

IOU Purchases Power CCA Purchases Power POU Purchases Power

IOU Maintains Transmission Lines

IOU Provides Customer Service

IOU Maintains Transmission Lines

IOU Provides Customer Service

POU Provides Customer Service

POU Maintains Transmission Lines

Investor-Owned Utility

(IOU)

CCA Public Owned Utility

(POU)

Why CCA for San José?To meet local, state, and international

greenhouse gas (GHG) reduction

goals:

• Envision San José 2040 General

Plan

• San José Green Vision

(Goals 1, 2, 3)

• California Global Warming

Solutions Act (AB 32, SB 32)

• Paris Climate Change Agreement

Opportunities with a CCA

• Choice of Energy Providers

• GHG Emissions Reductions

• More Renewable Energy

• Local Jobs

• Local Control

Prior Council Direction and Discussion

San José Clean Energy Timeline

Step 1 Step 2 Step 3 Launch

Winter 2017 Spring/Summer 2017 Fall/Winter 2017 Early 2018

Pre-Planning and Due Diligence

Formation and Development

Preparation for Launch Launch Phase 1

• Outreach• Council Study Session• Business Plan

• Outreach• Hire Staff, Contractors, &

Consultants• Regulatory Submittals

• Hire Staff• Contracting• Customer Notifications• Transaction testing

• Enrollment• Opt-out process• Outreach• Prep for Phase 2

DECISION: Early 2017

• Whether to Proceed• Operational Model

DECISION: Spring-Summer 2017

• Budget/ Financing• Regulatory Submittals• Policy-setting

DECISION: Fall-Winter 2017

• Contract Awards• Rate-setting

Business Plan Key Assumptions

San José Clean Energy Goals(per Council direction from March 2016)

Increase the renewable energy in power mix to exceed the baseline

power mix offered by PG&E by a minimum of 10 percent;

Receive a share of CCA revenues for use on local, energy programs;

Deliver local renewable energy development and energy-efficiency

programs at or above current budget levels;

Ensure low-income program offerings are, at minimum, on par with

current PG&E offerings;

Provide the City with option to assume operations of CCA;

Keep customer rates cost competitive with PG&E’s rates; and

Reduce GHG emissions.

Governance StructureSingle Jurisdiction

Pros:

Maximum local control

Target programs specifically to

San José

Cons:

Mechanisms needed to limit

exposure to City General Fund

Examples:

CleanPowerSF

Lancaster Choice Energy

Pros:

Reduced financial risk

Less effort from City to launch

Cons:

Reduced control over decision making

Financial contribution unknown

Programs may be less targeted to San José

Examples:

Marin Clean Energy

Sonoma Clean Power

Peninsula Clean Energy

Joint Powers Authority (JPA)

Operational Structure

Full Staffing

• All CCA functions staffed internally

• CCA acquires its own financing

• Pros:

• Maximum control over quality of service and long-term decision making

• Cons:

• Possible financial risk

Minimal Staffing

• CCA employs program managers to manage contractors

• CCA acquires its own financing

• Pros:

• Flexible staffing levels

• Cons:

• Less control

• Possible financial risk

Third-party Turnkey

• CCA employs program managers to manage contractors

• CCA financing provided by third-party

• Pros:

• Flexible staffing levels

• Cons:

• Possibility of third party abandoning venture

• Reduced control

• Higher rates due to higher 3rd party borrowing rate

Able to operate with a mix of internal staff and contractors/ consultants

Most CCAs phase from minimal to full staffing

No examples of a turnkey CCA in CA

Organizational Chart – Full Staff ScenarioGoverning Body

City Manager

Executive Director

Director of Administration &

Finance

Finance Manager

Administrative Analyst (2)

Administrative Assistant

Contract Support:

Accounting

IT/Telecom

Director of Power

Resources

Power Contracts and Compliance Specialist

Power Resource Planning and Programs

Analyst (2)

Contract Support:

Energy Contract Attorney

ESP/Schedule Coordination

General Counsel & Director

of Government Affairs

Regulatory/Legislative Analyst

Contract Support:

CCE Association

Regulatory Attorney

Lobbyist (Sacramento)

Director of Marketing & Public Affairs

Community Outreach Manager

Account Services Manager

Account Representative

Community Outreach Specialist

Contract Support:

Graphic & Web Design

Data Management &

Call Center

Executive Assistant

Phase-In Schedule and Potential Size

Phase Start Eligibility

Total Accounts

Served

Percentage of Total

Load Served

1Jan. 2018

Municipal Facilities

1600 2%

2June 2018

Municipal, Residential, and

Small Commercial Customers

293,000 50%

3Nov. 2018

All Customers 300,000 100%

At full operation,

SJCE would serve:

300,000 accounts

Total load: 4,000

GWh/year

Peak demand:

1,000 MW

Annual revenues:

$350 million

Evaluated Power Supply Product Offerings

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037

RP

S El

igib

le S

har

e o

f P

ow

er

Sup

ply

100% Renewable

PG&E + 20%

PG&E + 10%

PG&E RPS Plan

RPS

Business Plan Findings

Comparison of Projected Rates

Indicative Rate Comparison in $/kWh

Rate Class2017 PG&E

Bundled Rate*SJCE RPS

SJCE 10% more Renewable

SJCE 20% more Renewable

SJCE 100% Renewable

Residential 0.19971 0.1913 0.1921 0.1953 0.2063Small Commercial 0.22515 0.2157 0.2166 0.2202 0.2326Medium Commercial 0.20053 0.1921 0.1929 0.1961 0.2071Large Commercial 0.17618 0.1688 0.1695 0.1723 0.1820Street Lights 0.21785 0.2087 0.2096 0.2131 0.2250Standby 0.14608 0.1399 0.1405 0.1429 0.1509Agriculture 0.17606 0.1687 0.1694 0.1722 0.1819Industrial 0.13985 0.1340 0.1345 0.1368 0.1445Total 0.18779 0.1799 0.1807 0.1837 0.1940

Initial Rate Savings in 2019 from PG&E Bundled Rate 4.2% 3.8% 2.2% -3.4%

Rate Comparison After Fully Operational 4.8 – 9.4% 4.5 – 8.9% 2.7 – 7.2% -2.7 – 1.3%

Financing SJCE

• Pre-launch and Phase 1: $5M

• Phases 2 and 3: $50M

• Ensure General Fund protection

• Financing Options include:

• Direct loan from a City fund

• External funding

– e.g. loan from financial institution, collateral arrangement,

vendor funding

GHG Emissions Reduction

Data taken from San Jose’s 2014 Greenhouse Gas Inventory: https://www.sanjoseca.gov/DocumentCenter/View/55505

*The natural gas category refers to use for heating and cooking in buildings, not for use in electricity generation.

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

PG&E SJCE 10%<GHG SJCE 20%<GHG

San

Jo

séG

HG

Em

issi

on

s -

20

14

(MT

CO

2e

)

Water

Waste

Wastewater

Natural Gas*

Electricity

Transport

-14% -28%

Economic Development Benefits

Total Electricity Savings CCA vs. PG&E

• A 3.8% rate reduction saves customers over $20M per year

• Create 100 new jobs in the San José Metropolitan Area

• Add $31M annually to the City’s economy

SJCE Programs

• SJCE programs could create additional jobs and add value to the

economy

• Programs could include:

• Business incentive programs for manufacturing and target businesses

• Solar programs

• Construction of local solar projects

Risks and Mitigation Strategies

Risk Category and Description Mitigation Strategies

Customer Participation• Customers can choose to opt-out• High opt-out rates reduce sales,

increase fixed cost per customer

• Maintain competitive rates• Tailor programs to local customer priorities• Provide customers with a high-level of service

and communication

PG&E Rate Competition• Low customer participation rates• Unfavorable future power market

conditions• Regulated charges could increase in

the future

• Diversify power contract portfolio• Maintain financial reserves and a rate

stabilization plan• Monitor PG&E rates and CCA charges• Ensure relatively low CCA overhead• Leverage CCA’s tax-exempt borrowing advantage

to reduce long-term power supply costs

Local, Agency, and State Policy• PCIA and other regulated charges

may reduce CCA competitiveness• State energy policy could create

burdensome energy procurement requirements

• Track and participate in relevant CPUC/CEC proceedings and legislation

• Develop bi-partisan support with emphasis on both environmental/equity and financial/economic benefits associated with a CCA

• Lobby for the same government-imposed charges on all CA utilities

Sensitivity Analysis

Business Plan Summary and Recommendations

Financially viable

Risks manageable

Would provide a variety of opportunities and benefits

Consider refining SJCE goals to account for:

• Economic Development Goals

• Risk Management Goals

• Environmental Goals

• Customer Rate Goals

Next Steps

Options for San Jose

Proceed with next steps for SJCE

Explore joining an existing JPA

Defer establishing SJCE

Take no action

Joining a JPA: Considerations

Financial contributions

Program offerings

Representation and voting

Ability to offer special programs to San Jose

residents and businesses

Liability in case of failure

Ability to terminate

San José Clean Energy Timeline

Step 1 Step 2 Step 3 Launch

Winter 2017 Spring/Summer 2017 Fall/Winter 2017 Early 2018

Pre-Planning and Due Diligence

Formation and Development

Preparation for Launch Launch Phase 1

• Outreach• Council Study Session• Business Plan

• Outreach• Hire Staff, Contractors, &

Consultants• Regulatory Submittals

• Hire Staff• Contracting• Customer Notifications• Transaction testing

• Enrollment• Opt-out process• Outreach• Prep for Phase 2

DECISION: Early 2017

• Whether to Proceed• Operational Model

DECISION: Spring-Summer 2017

• Budget/ Financing• Regulatory Submittals• Policy-setting

DECISION: Fall-Winter 2017

• Contract Awards• Rate-setting

Next Steps

• Return to Council with staff recommendations in

March-April 2017

• If directed by Council to proceed with SJCE,

addition of start up staffing in FY 17-18 budget;

launch Phase I in early 2018

• If directed by Council to explore joining a JPA,

additional time and resources will be needed

evaluate this option

Council Discussion