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1 MEETING DATE: December 16, 2015 PREPARED BY: Erik Steenblock, Environmental Programs Manager DEPT. DIRECTOR: Glenn Pruim DEPARTMENT: Public Works CITY MANAGER: Karen P. Brust SUBJECT: ENVIRONMENTAL COMMISSION RECOMMENDATIONS ON COMMUNITY CHOICE AGGREGATION (CCA) RECOMMENDED ACTION: City Council take the following actions: 1. Receive a report from the Environmental Commission titled Summary & Recommendations for Encinitas Regarding CCAs. 2. Provide direction to the City Manager. STRATEGIC PLAN: This item applies to the Environmental Focus Area, providing the City with options toward greenhouse gas emission reduction strategies. FISCAL CONSIDERATIONS: There are no direct fiscal impacts associated with the staff recommendation. BACKGROUND: On June 17, 2015, the City Council approved the Environmental Commission s FY Work Plan including Goal 6.B, Support and promote programs for commercial and residential buildings installation of energy and water efficiency improvements, electric vehicle charging infrastructure and on-site renewable energy sources and investigate the pros and cons of Community Choice Aggregation (CCA) in Encinitas and develop recommendations resulting in a report. The Environmental Commission adopted the report titled Summary & Recommendations for Encinitas Regarding CCAs on August 13, Item 10A 1 of 7

2 ANALYSIS: Recent changes in California law provide that individual cities and counties can choose to purchase their energy directly from providers, rather than through the traditional investor-owned utility. If a city elects Community Choice Aggregation (CCA), the energy is still delivered by the traditional utility over existing lines, but the community can select its energy sources in order to meet its own goals. Communities choose the CCA option for a number of reasons, such as lowering electric costs, supporting a local workforce, promoting renewable energy and meeting greenhouse gas (GHG) reduction goals. The report prepared by the Environmental Commission titled, Summary & Recommendations for Encinitas Regarding CCAs explains the present state of CCAs in California, the potential benefits and risks, and the proposed next steps for Encinitas. The report concludes the following: Community Choice Aggregation is an option for Encinitas. It may offer the alternative of providing more renewable energy without higher costs (or perhaps even with lower costs) and allow Encinitas to meet its CAP goals. However, developing a CCA has costs and risks. The City can proceed to analyze these risks with a number of low/no cost and no commitment steps immediately. We recommend that the City begin evaluating the formation of a CCA. The initial steps we recommend are: establishing a working group, coordinating with other nearby jurisdictions, enlisting the assistance of City staff, and beginning appropriate public outreach. These actions will allow the City to begin making a careful and measured determination of the appropriateness of a CCA for our community. ENVIRONMENTAL CONSIDERATIONS: The action being considered by the City Council is exempt from the California Environmental Quality Act (CEQA) because it is not a project under Section 15378(b)(5) of CEQA Guidelines. The action involves an organizational or administrative activity of government that will not result in the direct or indirect physical change in the environment. ATTACHMENTS: 1. Environmental Commission Report titled, Summary & Recommendations for Encinitas Regarding CCAs, dated August 5, Item 10A 2 of 7

3 Attachment 1 REPORT DATE: August 5, 2015 TO: City of FROM: Subcommittee on Community Choice Aggregation (CCA), SUBJECT: Summary & Recommendations for Encinitas Regarding CCAs FINAL DRAFT EXECUTIVE SUMMARY: Recent changes in California law provide that individual cities and counties can choose to purchase their energy directly from providers, rather than through the traditional investor-owned utility. (In Encinitas the traditional utility is SDG&E.) If a city elects Community Choice Aggregation (CCA) - the name for this new option- the energy is still delivered by the traditional utility over existing lines but the community can select its energy sources in order to meet its own goals. Communities choose the CCA option for a number of reasons- such as lowering electric costs, supporting a local workforce, or promoting renewable energy. There are three CCAs in California and many other communities are considering the CCA option. At this time the CCA option is generating a great deal of interest because a CCA can choose to buy 100% renewable energy and that allows communities to meet or make a significant impact on their Climate Action Plan (CAP) standards for Greenhouse Gas (GHG) reductions, as well as to allow for local control, to take advantage of competition in the electricity marketplace and to stabilize and possibly reduce rates. But while forming a CCA has great promise to help a community meet a range of other goals, it is a complicated process that has costs and risks, as well as benefits, for the City. It is important that City staff, City officials, and the community understand the process and make informed decisions as to whether Encinitas should actively pursue a CCA. This report explains the present state of CCAs in California, the potential benefits and risks and the proposed next steps for Encinitas. Since the formation of a local CCA may be a reasonable way to meet CAP requirements without major infrastructure development, we recommend actively proceeding with a number of low cost/no cost and no commitment steps that will enable the community to learn more about CCAs, assess whether a CCA is a good choice for Encinitas and begin to actively gather information on community support for a CCA. If the results of this first step are promising Encinitas would then be positioned to begin actively forming a CCA Item 10A 3 of 7

4 Background: Community Choice Aggregation (CCA) is an alternative to the present electrical supply system. Under the present system an investor-owned utility procures all the energy for its customers; delivers the energy through transmission and distribution lines; maintains those lines; reads the meters; bills the customer; collects the accounts; and manages special benefits programs such as conservation rebates. With a CCA the utility retains all of these functions except that the energy is purchased directly by the CCA for use by its members. In 1997, Massachusetts was the first state to pass a law to allow CCAs. Ohio, Rhode Island, New Jersey and Illinois followed. In 2002 California passed Assembly Bill (AB) 117 enabling the formation of CCAs. To establish a CCA a local jurisdiction must pass an ordinance forming the CCA. Once a CCA is formed, customers in its jurisdiction are automatically enrolled with an option to opt out if desired. Presently there are three CCAs in California: Marin Clean Energy, Sonoma Clean Power, and Lancaster Choice Energy. Two attempts to form CCAs in California have not successfully launched. San Francisco attempted to start a CCA in 2004, and the San Joaquin Valley cities began an initiative in Both faced strong opposition and have not gone forward. The City of San Diego has also been exploring formation of a CCA for almost two years with no progress. Interest in California CCAs is growing rapidly, particularly as a way to meet CAP goals for individual communities. Three counties and eighteen cities in the Monterey Bay region have approved conducting a feasibility study for a CCA. Torrance and eight other cities in the Los Angeles South Bay have passed resolutions to consider forming CCAs. Closer to Encinitas, Solana Beach has passed a resolution to conduct a feasibility study, and has engaged California Clean Power to conduct it. Structural Models for California CCAs: Presently there are three different structures used by California CCAs: 1. Joint Powers Authority (JPA) An independent public agency formed for the administration of multi-jurisdictional operations. Marin Clean Energy and Sonoma Clean Power use the JPA model. 2. Single Jurisdiction A city or county operates a CCA itself. The CCA becomes a unit of city government. The jurisdiction retains full and direct authority with the CCA reporting to the Mayor/City Council. This option may provide the most flexibility, but the community may be exposed to additional risks. Lancaster Choice Energy is a single-jurisdiction CCA. 3. Commercial For-Profit Vendor A private for-profit company manages the CCA, handling all aspects from startup to marketing to administration. California Clean Power is a company that offers this service. To date, California Clean Power does not have any customers but it is in the process of conducting feasibility studies for a number of communities, including Solana Beach. AB 117 does not dictate the goals of CCAs. They can be formed to support choice for community members, to support lower rates for customers, to provide a larger percentage of renewable energy for the community, to restructure rates so that different groups of customers experience different pricing, or to support community energy development, for example. Note that while some of these goals can achieved in tandem, others goals are not compatible with each other. Subcommittee on CCA - FINAL DRAFT Item 10A 05 Aug of 7

5 Current California CCAs: Marin Clean Energy (MCE) Marin Clean Energy was the first California CCA. It was formed in Marin s customers were all originally served by PG&E. Marin had a long history of disputes with PG&E. As a result the community was motivated both by a desire to be independent and by a goal of being more renewable. MCE phased in customers. It started with 8,000 customers, added 5,000 more a year later, and by 2015 added East Bay cities, and Napa County. MCE offers its customers three energy options: 50% renewable, 100% renewable, or 100% renewable that is all local solar. MCE s 50% renewable price is below PG&E s price (PG&E is at 33% renewable.). MCE s 100% renewable and 100% local are both slightly higher than PG&E s only option, which is 27% renewable. (For low energy users these average prices per month are: $82 for PG&E; $81 for MCE 50%; $86 for MCE 100%; and $109 for MCE all local.) MCE is a JPA. It has 20 full-time and two half-time employees and subcontracts other functions. Employees include energy procurement, management, administrative, public affairs, and legal staff. Sonoma Clean Power (SCP) Sonoma Clean Power was the second California CCA. SCP is a JPA, which includes six cities and the unincorporated areas of Sonoma County. It came online a year ago and has since added nearby cities such as Cloverdale, Petaluma, and Rohnert Park. SCP offers two energy choices: 36% renewable energy; and 100% renewable energy. SCP s 36% renewable energy is less expensive than the same amount of energy from PG&E (33% renewable) at $109 for SCP vs $116 for PG&E per month. SCP s 100% renewable is slightly more expensive than the same amount of energy from PG&E: $127 for SCP vs $116 for PG&E. Lancaster Choice Energy (LCE) The mayor and city council of Lancaster have declared their intention of being more sustainable. The City has also been challenged by an anemic economy and high unemployment. As a result the City has looked to a CCA to mitigate these problems as well as provide renewable energy. The mayor maintains that the CCA will promote local power generation and local jobs. Unlike MCP and SCP, LCE is a unit of city government and it reports to the Mayor and the City Council. Like MCE and SCP, LCE plans a phased launch. The first phase started in May 2015 with all municipal buildings as customers. Community Choice Energy in Encinitas: The City of Encinitas aims to be a leader in sustainability. Our Environmental Policy in the City of Encinitas Administrative Manual states that The City of Encinitas shall be a low energy use community that favors renewable resources over fossil fuels. It also states that the City will: reduce carbon emissions to 1990 levels by year 2020, per California Assembly Bill 32 (the California Global Warming Solutions Act of 2006).... and the City will: Work toward an economy that relies solely on practical, renewable energy sources. The formation of a local CCA with the goal of providing clean power would allow Encinitas to meet these goals. SDG&E is admirably ahead of schedule on SB X1-2. This bill mandates that electricity suppliers provide 33% of their power from renewable sources by SDG&E will hit that percentage this year (2015) and it expects to reach 40% shortly. Moreover, Governor Brown is promoting legislation to require all energy providers in California to reach 50% renewables by However, even if Governor Brown s Subcommittee on CCA - FINAL DRAFT Item 10A 05 Aug of 7

6 bill passes, there is a disconnect between the 2020 CAP requirements and the 2030 goals for statewide 50% renewables. A local CCA could get Encinitas to 100% renewables by 2020 and this would allow Encinitas to meet or make a significant impact on its mandated CAP GHG reductions on time. Electricity consumption is the second-largest source of GHGs in cities (the first is automotive emissions). As a result, Encinitas can pursue other alternatives to meet its CAP goals but none (except those affecting auto emissions) would have a bigger impact on GHG production. To-date CCAs have been able to provide power that is more renewable and at a lower cost than the traditional utility. However, CCAs are not without costs and risks. The costs for establishing a CCA depend on the structure established. The for-profit model offers lower up-front costs to the City by rolling initial costs into the overall overhead for the business, but that leaves fewer dollars for potential energy savings. The for-profit business essentially takes on some of the costs and receives some of the profits. Alternatively, establishing a JPA or a business unit in the city will require costs for a feasibility study, legal analysis, a bond for the CPUC, and eventually business start-up costs and initial energy contract costs. Again, these costs should eventually be amortized but they are likely to total $1 to $3 million. In a JPA these costs could be shared with other members. Many of the risks that could be associated with CCAs are mitigated by the bill that established CCAs itself. For example, all customers in a jurisdiction are automatically enrolled in the CCA unless they opt out, thus assuring a reasonable participation rate. Also, since the traditional utility is still charged with maintaining the transmission and distribution system and delivering the energy the CCA does not assume these risks. Still the CCA takes on the challenge of energy procurement. Because the CCA buys power from external sources found on the open market, its cost stability is a direct function of the market and its suppliers. Sudden changes in market prices can be mitigated by long term contracts but electricity markets are volatile and unmanaged changes can result in dramatic price changes. The CCA must also match its purchases to its energy load hourly and mismatches can incur added costs or even penalties. Finally, the CPUC still regulates the utility. Changes in utility costs or rate structures can dramatically change the cost comparison to the CCA. Recommendations: 1. Appoint a CCA Working Group (CCAWG). This group should be composed of diverse members so it can tackle multiple fronts: the Environmental Commission subcommittee, one or more council members, city staff members, residents, outside CCA experts, and members of the business community. The CCAWG should address key issues such as: a) identify the goals and objectives for an Encinitas CCA, and whether partnering with other jurisdictions is beneficial; b) identify any constraints (such as local generation requirements); c) define minimum offering objectives (for example - SDG&E is at 33%, so what level of minimum offering is best for us and is it achievable); and d) consider the pros and cons of alternative structures for a CCA. 2. Work with other jurisdictions. Connect and dialogue with other jurisdictions either through the CCAWG or through some other arrangements (for example, Mayors meeting together). Encinitas can learn from other jurisdictions and if Encinitas chooses to pursue a CCA a JPA with a one or more neighboring cities may be the most cost effective way to proceed. JPAs or other sharing structures need to be explored. 3. Actively work with City staff. Work with staff to determine where they can help and also where additional expertise may be needed on legal, financial and technical energy issues and risk Subcommittee on CCA - FINAL DRAFT 4 05 Aug Item 10A 6 of 7

7 analysis. Some of this expertise can be provided by City staff and other expertise will need to be contracted. City staff can also help with this planning assessment. The CCAWG members, along with City staff, can vet various alternative providers. 4. Start public outreach. The public must be part of the overall process. At this point, public outreach should include selection of people to support the CCAWG and finding ways to assure that the working group is inclusive but not so large as to be unworkable. As the working group makes progress it will need to find mechanisms to report out, and to develop a public outreach and engagement plan. Conclusion: Community Choice Aggregation is an option for Encinitas. It may offer the alternative of providing more renewable energy without higher costs (or perhaps even with lower costs) and allow Encinitas to meet its CAP goals. However, developing a CCA has costs and risks. The City can proceed to analyze these risks with a number of low/no cost and no commitment steps immediately. We recommend that the City begin evaluating the formation of a CCA. The initial steps we recommend are: establishing a working group, coordinating with other nearby jurisdictions, enlisting the assistance of City staff, and beginning appropriate public outreach. These actions will allow the City to begin making a careful and measured determination of the appropriateness of a CCA for our community. Subcommittee on CCA - FINAL DRAFT 5 05 Aug Item 10A 7 of 7