Memorandum SAN IPSE CAPITAL OP SILICON VALLEY. 2/f I IT- TO: HONORABLE MAYOR AND CITY COUNCIL. FROM: Kerrie Romanow

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1 STUDY SESSION: 2/13/17 CITY OF SAN IPSE CAPITAL OP SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL Memorandum FROM: Kerrie Romanow SUBJECT: SEE BELOW DATE: Approved Date 2/f I IT- SUBJECT: SAN JOSE CLEAN ENERGY BUSINESS PLAN BACKGROUND Community Choice Aggregation Overview Community Choice Aggregation (CCA) is an energy procurement model that allows local governments to pool or aggregate the electric load of their residents, businesses and institutions to purchase electricity on their behalf. The CCA program determines the source of electricity and sets the customer rates, while the existing Investor Owned Utility continues to provide transmission, distribution, and electricity billing. CCA has been in existence in the United States since California, under AB 117 (2002) is one of seven states that currently allow the formation of a CCA program. The enabling State statutes have certain requirements in order to implement CCA programs, including an adopted ordinance, identification of an administering entity, implementation plan, utility service agreement, and a customer enrollment plan. If a CCA, henceforth referred to as San Jose Clean Energy (S JCE), were to be implemented in San Jose, the program would offer the community a choice in its electricity provider, purchase cleaner power, set rates, retain revenue, and determine spending priorities locally. PG&E would continue to maintain the transmission and distribution infrastructure, deliver the energy, and bill customers. For these continued services, PG&E would charge CCA customers the same delivery rates as PG&E customers; these charges would be incorporated into the total CCA rates. If SJCE is launched, PG&E customers in San Jose would automatically be enrolled unless they chose to opt out. CCAs are required to notify customers of their ability to opt out (at no cost) multiple times in the 60 days prior to and 60 days after service start. After this initial period, the CCA can choose to set an administrative fee for opting out. Typically, CCAs allow customers to return as customers at any time with no fee. PG&E prohibits customers who opt out of a CCA after the first 60 days of service from returning to a CCA's service for one year. With SJCE, the community would have a choice in its electricity provider.

2 Page 2 CCAs can provide many community benefits, including significant environmental and economic benefits. CCA programs typically provide electricity options with a higher mix of renewable baseline energy than available from the incumbent utility; the percentage of renewables in baseline electricity from currently operating CCAs ranges from 35 percent to 50 percent. All operating CCAs also offer an optional 100 percent renewable option for a premium. PG&E recently began offering a 100 percent renewable option, called Solar Choice, to its customers. The rate analysis in the Business Plan (Exhibit ES-6) indicates that PG&E s rates are about 8 percent higher than SJCE s projected rates for 100 percent renewable power for a residential customer. CCAs are a primary component of climate action and/or sustainability plans as the establishment of such a program with an increased renewable power supply leads to an immediate and significant reduction in community GHG emissions. CCAs also allow local governments entities to have more control over rates and how the revenues are invested in the community. A CCA can offer rate structures and programs that are tailored to address a community s priorities and policies, including local economic development goals. For example, CCAs have implemented several programs such as net energy metering (NEM) programs that pay a higher incentive than PG&E to incentivize more rooftop solar; electric vehicle (EV) rate structures and incentives, low-income solar programs, and energy efficiency programs. CCA programs can also stimulate the local economy by investing in local renewable projects and incentivize manufacturing companies to site in San José by offering special manufacturing rates. There are currently five operational CCAs in California and another seven CCAs anticipate starting service in 2017 (see Attachment A for an overview of CCAs in California). As many as 20 other California communities are currently exploring the opportunity of creating a CCA. Within five years, approximately 50 percent of California s power load could be served by CCAs. Prior Council and Committee Direction At the March 1, 2016 City Council meeting, Council directed staff to proceed with a Request for Proposals (RFP) for an entity to develop, finance, launch, and operate a CCA program. Council directed staff to explore the single-jurisdiction CCA operational model allowing San José, not a third party, to manage the CCA program. Further, Council asked staff to return with an RFP framework prior to issuing it, and to return with additional program recommendations in the fall. Subsequently, the Mayor s March 2016 Budget Message, allocated $300,000 in one-time funding to conduct a technical study on San José s CCA program, also referred to as San José Clean Energy (SJCE). The direction from the March Budget Message, incorporated into the Council approved FY Budget, modified prior Council direction by focusing the RFP scope of work solely on a technical study that would help inform Council about whether to proceed with SJCE. In August 2016, Environmental Services staff began working with Bevilacqua Knight, Inc. (BKi) and their subconsultant EES Consulting ( EES ) to develop a technical study and business plan (henceforth referred to as the Business Plan ) for SJCE. On October 28, 2016, a Council Study Session was held to provide Council with information on the status of CCAs, the different CCA operational models, potential risks

3 Page 3 and issues, and to solicit feedback to help inform the business plan and future staff recommendations. The Study Session included insights from people with experience and expertise in the longest operating CCAs, Marin Clean Energy (established in 2010) and Sonoma Clean Power (established in 2014), an operational single-jurisdiction model (Lancaster Choice Energy, established in 2015), and a municipal utility (Silicon Valley Power) and offered the City Council the opportunity to ask questions on specific areas of concern. Staff received several questions from Council members and the community which are addressed in Attachment B. Current Status A preliminary draft of the Business Plan was completed in December An interdepartmental team consisting of representatives from the City Attorney s Office, Environmental Services, Finance, Office of the City Manager/Budget Office, and Office of Economic Development vetted the Business Plan and a public draft was released on February 3, ANALYSIS The purpose of this staff report and the Study Session is to review the draft SJCE Business Plan including key assumptions, governance and operational options, financial viability, and risks and related mitigation measures. The Study Session will once again offer the City Council the opportunity to ask questions and provide feedback which will inform staff recommendations and prepare Council for a decision on whether and how to proceed with SJCE at a March/April 2017 Council meeting. Key Assumptions in the Business Plan In order to complete an analysis of the financial viability of launching SJCE, the Business Plan included several key assumptions, detailed below. If Council decides to proceed with launching SJCE, it may choose to alter those details (e.g. phasing, goals, etc.) and additional analysis may be required. San Jose Clean Energy Goals San Jose s draft objectives for SJCE, as laid out in the March 1, 2016 Council memo, are to: 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 an option to assume operations of CCA; Keep customer rates cost competitive with PG&E s rates; and Reduce GHG emissions.

4 Page 4 During the development of the Business Plan, these seven overarching goals were given equal weight. These goals may be modified and/or prioritized, as desired, and then codified in SJCE s guiding policies if SJCE were to advance. Governance Models SJCE will have the option to operate as a single jurisdiction or as a member of an existing joint powers agency (JPA), each is detailed below: Single Jurisdiction Model: The single-jurisdiction model, typically governed by a City Council or Board of Supervisors, is characterized by full local control over policy decisions on rate-setting, power mix, and programs. All risk and liability fall solely on this single jurisdiction. The jurisdiction would develop contractual language to minimize risk to the General Fund, maintain adequate operating reserves, proactively track regulatory activities, and manage its energy portfolio. Lancaster Choice Energy and CleanPowerSF are examples of the single-jurisdiction model. JPA Model: The JPA model, typically governed by a Board of Directors, functions as an independent public agency, operating on behalf of its member jurisdictions with shared decision-making authority. This shared structure distributes the risks and liability across multiple jurisdictions, and minimizes risk to its member jurisdictions. San José could form its own JPA if it identified other interested jurisdictions or join an existing one. Marin Clean Energy, Sonoma Clean Power, and Peninsula Clean Energy are examples of the JPA model. The Business Plan assumes that SJCE will follow a single-jurisdiction model for analysis. At least two of the existing JPAs are open to including San José. If Council direction was to explore joining an existing JPA, further work to negotiate possible terms and evaluate pros and cons will be required. Operational Model Whether under a single-jurisdiction or JPA governance model, a CCA s day-to-day functions would typically be executed by a mix of in-house staff (Minimum Staff to Full Staff Scenarios) and consultants/contractors. Operational CCAs have typically relied more heavily on consultants/contractors during start-up and then phased in more in-house staff over time while leaving some activities (often data management and power procurement) outsourced. In a variation on the Minimum Staff Scenario, SJCE could contract with a third-party vendor (the third-party turnkey approach) which would still require a minimum level of program management staffing but would otherwise launch and operate SJCE including financing. There are currently no operational turnkey models. For analysis, the Business Plan assumes that SJCE will follow a Full Staff Scenario, phasing approximately 20 staff from pre-launch through full operations and utilizing consultants/contractors. A sample organization chart is in the Business Plan (Exhibit 3).

5 Page 5 Load and Participation Rates The Business Plan assumes a three-phase launch approach occurring over the course of approximately one year in order to allow for a smooth transition in SJCE s service. Phase 1 would launch with all municipal accounts (1% of accounts and 2% of load). Phase 2, launching 5 months later, would include all residential and small commercial customers (97% accounts, 50% load). Phase 3, another five months later, would add large commercial and industrial customers (2% accounts, 48% load). Given the limitations and rates of direct access (DA) customers, DA customers are not included in SJCE s load. There are approximately 600 DA customers (1 percent of customers), primarily large industrial, which use 20 percent of San Jose s annual electricity load. The Business Plan assumes a launch date of January 1, If Council were to direct staff to proceed with the formation and launch of SJCE, staff anticipates months from start up to program launch. SJCE s start date can change by six months and not affect the Business Plan s results and recommendations. Since customers are automatically enrolled and must opt out if they do not wish to participate, participation rates in CCAs are typically high (see Attachment A for CCA opt out rates). The Business Plan assumes an 85 percent and 75 percent participation rates for residential and commercial sectors respectively. Power Supply Scenarios To provide a foundation for final guiding policies, the Business Plan considered the following four resource portfolios: Match PG&E (30%, 37% by 2020, 50% by 2030) PG&E + 10%: 10% more renewable and GHG-free than PG&E PG&E + 20%: 20% more renewable and GHG-free than PG&E 100% renewables: 100% renewable/ghg-free Renewable resources refer to sources like solar and wind power while GHG free sources include nuclear and large hydroelectric power. For loads not fully served by renewable resources, the Business Plan assumed that SJCE would likely have a preference for GHG-free power in order to further reduce GHG emissions. As shown in the portfolios above, the Business Plan assumes a GHG-free power level that exceeds PG&E s planned GHG-free supply by the same percentage as the portfolios exceed PG&E s renewable percentage. At present, PG&E s power supply is 30 percent renewable and 59 percent GHG-free. The cost of each of the portfolios was also calculated assuming 10 percent of renewables coming from local sources in order to account for local economic development goals.

6 Page 6 Key Findings Reductions in Greenhouse Gas Emissions If SJCE were to operate with a 10 percent greater renewable energy in its baseline power supply than PG&E, SJCE could reduce an estimated 152,000 to 264,000 metric tons carbon dioxide equivalent (MT CO2e) per year starting in This equates to removing up to 56,000 passenger vehicles from the road and or the energy usage from nearly 28,000 homes each year 1 and represents a 10 percent to 18 percent reduction in San José s GHG emissions from electricity generation 2. The City of San José is driven by State legislation (Assembly Bill 32, California Global Warming Solutions Act) that requires a reduction in GHG emissions throughout the state to 1990 levels by the year 2020, and to 80 percent below 1990 levels by the year Staff is currently working on an Environmental Sustainability Plan (ESP) focused on water and GHG emissions, specifically related to energy and mobility. Given its potential impact on GHG emissions, SJCE could be a key measure in the ESP. The ESP is expected to be completed in September Rate Comparison The Business Plan (Exhibit ES-5) projects that SJCE could offer its customers a percent rate savings over PG&E. While SJCE s 100 percent renewable would be a 3.4 percent rate increase over PG&E s standard rates, the Business Plan (Exhibit ES-6) projects a 7.6 percent rate savings (using a residential customer comparison) over PG&E s comparable 100 percent rate under its Solar Choice Program. Financing For the pre-launch through Phase 1 of SJCE implementation, SJCE would require approximately $5 million in funding. For Phases 2 and 3 of implementation, it would require $50 million. Once the SJCE program is operational, these costs would be recovered through retail rates, typically within the first couple of years of operation based on the experience of operational CCAs. The following financing options are anticipated: 1. Direct Loan from a City Fund - The City would be secured by the CCA revenues once launched. The City would likely assess a risk appropriate rate for such a loan which is likely higher than the City earns for funds otherwise invested. This rate is estimated to be 4.0 percent to 6.0 percent per annum. All of the operational CCAs, Marin Clean Energy (MCE), Sonoma Clean Power (SCP), CleanPowerSF, Lancaster Choice Energy (LCE), and Peninsula Clean Energy (PCE), utilized this approach for some of their funding needs. For example, LCE, a single-jurisdiction model, received a loan from its General Fund for approximately $1.8 million. The loan carried a 3 percent interest rate and was for a term of 5 years

7 Page 7 2. Collateral Arrangement from City of San José The City could establish an escrow account to backstop a lender s exposure to the CCA. The City would agree to deposit funds in an interest-bearing escrow account that a lender could tap should the CCA revenues be insufficient to pay the lender directly. No operational CCAs have currently used this funding approach. 3. Loan from a Financial Institution MCE, SCP, and PCE utilized this approach for a portion of the funding needs. Silicon Valley Clean Energy, anticipated to launch in April 2017, was able to use this option to fund ongoing working capital. After members funded a total of $2.7 million in start-up funds, SVCEA has obtained a $20 million line of credit without collateral. 4. Vendor Funding The City can pursue arrangements with its power suppliers to eliminate or reduce the need for or size of funding for the start-up and operations. This could come in a number of forms such as a lockbox approach with a power provider. However, this approach is less transparent and the associated cost may outweigh the benefit of eliminating or reducing the need for a bank facility. LCE and CleanPowerSF utilized this approach. For example, the City of Lancaster's General Fund was protected through the terms of the security agreement, which restricted the pledge for the power purchase contract to deposits of LCE customer payments into a lockbox managed by a third party trustee. Revenue bond financing is not being considered due to restrictions in the San José City Charter. If Council directed staff to move forward with SJCE, Staff from Finance and Budget Office would need to evaluate the options to determine the best option for the City and SJCE. Programs By the end of the first three years of full operations, the Business Plan projects that SJCE can build up a reserve fund equivalent to three months of expenses. The fund is available to address contingencies, cost uncertainties, rate stabilization or other risk management factors faced by SJCE. Once this reserve is established, additional net revenues can be directed to other uses tailored to community interests and can include: rate reductions, local renewables development, and/or programs geared towards energy-efficiency, electric vehicles, low-income residents, and solar. Rate design programs, such as Net Energy Metering and special economic development rates to incentivize manufacturing, can be implemented sooner as these do not require large capital investments. Economic Development SJCE could have a variety of economic development benefits within San José, such as through special economic development rates to incentivize manufacturing (mentioned above) or job growth related to the local solar development. The estimated $23 million in electric bill savings to residents and businesses each year (full operation) under SJCE alone is estimated to result in:

8 Page 8 Over 100 additional jobs in the San José area $11.5 million in labor income $18.5 million total value added Risks and Mitigation Strategies As with any new endeavor, there are risks associated with SJCE. Of highest concern are those that could significantly lower the customer participation rate, such as SJCE having substantially higher rates than PG&E. The Business Plan (Exhibit 35) includes an overview of the risks, mitigation strategies, and risk severity associated with SJCE s primary risks. The primary risks include substantial increases in PG&E s surcharges, regulatory changes impacting a CCA s costs and authority, and high pricing and/or low availability of renewable power. While some of these risks have a moderate to high likelihood of occurring, the Business Plan proposes several strategies that are used by other CCAs to mitigate these risks such as establishing a rate stabilization fund, coordinating with the CCA community on regulatory issues, securing some long-term power supply contracts, and minimizing SJCE overhead costs. The Business Plan concludes that all of the risks present a low probability of causing SJCE to fail; however, these risks are important for Council to take into consideration as they weigh the pros and cons of proceeding and under which governance model. Summary and Recommendations The Business Plan concludes that SJCE, under a single-jurisdiction model, is financially viable and could yield a variety of benefits including cost savings, economic growth, greenhouse gas reductions, and enhanced program offerings. While risk is unavoidable, it is deemed to be manageable. Based on recommendations in the Business Plan, if SJCE proceeds to launch it should consider reviewing and refining existing goals to account for: 1. Economic development goals 2. Risk management goals 3. Environmental goals, such as the benchmark for the renewable portfolio target(s) and considering a GHG-free portfolio target 4. Customer rate goals Next Steps Following the Council Study Session on February 13, staff intends to host a community outreach meeting and incorporate both Council and public feedback into a final Business Plan and into Council recommendations for SJCE. Staff will return to Council in March/April 2017 with a recommendation on next steps.

9 Page 9 COORDINATION This staff report has been coordinated with the Departments of Finance, Planning, Building, and Code Enforcement, the City Manager s Budget Office, the Office of Economic Development, and the City Attorney s Office. /s/ KERRIE ROMANOW Director, Environmental Services For questions, please contact Kerrie Romanow, Director of Environmental Services, at (408) Attachment A CCA Programs in CA Attachment B SJCE Questions and Answers

10 Attachment A: CCA Programs in California CCA Entity Status Year Launched Type of Governance Renewable/ GHG Free Power Mix Options (%) 1 Approx. No. of Customer Accounts 2 Participation Rate Across Customers 1 Marin Clean Energy Marin and Napa County, cities of Benicia, El Cerrito, Lafayette, Richmond, San Pablo, Walnut Creek Operational 2010 (May) Joint Power Authority (JPA) 52/64 (base) 100/ Local/ ,000 86% 2 Sonoma Clean Power Sonoma and Mendocino Counties Operational 2014 (May) JPA 36/80 (base) 100/ , % 4 3 Lancaster Choice Energy City of Lancaster Operational 2015 (May) Single Jurisdiction 35/NA (base) 100/100 52,000 93% 4 CleanPowerSF City and County of San Francisco Operational (1 st phase) 2016 (May) Single Jurisdiction 5 35/N/A (base) 100/ ,000 (approx. 300,000 in service area) 98% 5 Peninsula Clean Energy San Mateo County Operational (phasing in customers) 2016 (October) JPA 50/70 (base) 100/100 78,000 (approx. 300,000 in service area) 99% 1 As of 2015, PG&E power mix is 30 percent renewables and approx. 50 percent greenhouse gas (GHG) free. 2 Data reported by CalCCA. 3 Include approximately 39,000 customers expected to be served in Mendocino County starting June figure 5 CleanPowerSF is administered by the San Francisco Public Utilities Commission for the City and County of San Francisco.

11 Attachment A: CCA Programs in California (cont d) CCA Entity Status Year Launched 6 Silicon Valley Clean Energy Santa Clara County, cities in Santa Clara County except Milpitas and San José Preparing for Launch 7 Apple Valley Choice Energy Preparing for Launch 8 Redwood Coast Energy Authority Humboldt County 9 East Bay Community Energy Alameda County 11 Valley Clean Energy Alliance Yolo County, City of Davis Preparing for Launch Forming JPA (County and 11 cities currently) Formed JPA; preparing for launch Est. April 2017 Est. April 2017 Est. May 2017 Est. Fall 2017 Est. March/ April 2018 Type of Governance JPA Single Jurisdiction N/A JPA/ Third Party Financing Renewable/ GHG Free Power Mix Options (%) Est. 50/100 (base) N/A Approx. No. of Enrolled Customers N/A (approx. 240,000 in service area) N/A (approx. 29,000 in service area) N/A (approx. 60,000 in service area) Participation Rate N/A N/A N/A JPA N/A N/A N/A JPA N/A N/A N/A 10 Monterey Bay Community Power Counties of Monterey, Santa Cruz, San Benito; cities of Capitola, Carmel, Del Rey Oaks, Gonzales, Greenfield, King City, Marina, Monterey, Pacific Grove, Salinas, San Juan Bautista, Santa Cruz, Scotts Valley, Seaside, Soledad and Watsonville 12 Los Angeles Community Choice Energy Los Angeles County Forming JPA Completed technical study Est. Spring 2018 JPA N/A N/A N/A Est JPA N/A N/A N/A

12 Attachment B: San José Clean Energy Questions and Answers This attachment provides responses to several questions from the community and City Council. The San José Clean Energy Business Plan has been referenced for additional detail. Q1. What is San José Clean Energy? Assembly Bill 117 (2002) enabled local governments to form Community Choice Aggregation (CCA) entities. A CCA is an energy procurement model that allows local governments to pool or aggregate the electric load of their community and to purchase electricity on their behalf. The CCA program determines the source of electricity and sets the customer rates, while the existing Investor Owned Utility (IOU) continues to provide transmission, distribution, and electricity billing. The City of San José s proposed CCA, San José Clean Energy (SJCE), would provide the same electricity service PG&E customers in San José now have but offer the community a choice in energy providers and enable City Council to have more local control over rates and programs. Q2. Are there other CCAs in California? There are five active CCAs in California: Marin Clean Energy, Sonoma Clean Power, Lancaster Choice Energy, CleanPowerSF, and Peninsula Clean Energy. Silicon Valley Clean Energy, serving all of Santa Clara County s cities except Milpitas and San José, expects to launch in April Approximately 70 percent of California cities (representing about 70% of California s population) have implemented, are planning to implement, or are considering implementing a CCA. Q3. Why is San José considering a CCA? San José would like to offer its community a choice in energy providers and have local control over rates and flexibility to implement programs to meet San José s environmental and economic goals. The benefits of having a San José CCA include: customer choice in energy providers, creation of local jobs, revenue generation, setting spending priorities based on local needs, more renewable energy, and decreased greenhouse gas emissions. Q4. Does a current PG&E customer have to enroll in SJCE? Current PG&E electricity customers would be automatically enrolled in SJCE. If a customer wanted to return to PG&E-only service, the customer could opt out of the CCA. The customer would be notified of the opt-out option both prior to and after launch. Q5. What kind of governance will SJCE have? CCAs have two primary governance models: single-jurisdiction and Joint Powers Authority (JPA). SJCE is envisioned to be a single-jurisdiction governance model. The SJCE Business Plan (Exhibit 2) lays out the governance option tradeoffs of each governance structures.

13 Q6. Could San José join another existing CCA? San José could explore joining an existing CCA but further evaluation of key terms is required such as costs to join the JPA, ability to have customized programs and pricing for San José, representation and voting rights for San José, potential liability to the General Fund, and termination options, if any. If San José decides to join another CCA it will have significantly reduced control over customer rates and the setting of environmental and economic goals. Q7. Will SJCE have the expertise to negotiate very complex power contracts? SJCE would follow the example of all other CCAs operating in California and contract with an experienced power supply scheduler and technical consultant to manage all power contracts and power purchase agreements (PPAs). There are many companies with expertise on power markets and contracts that rivals or exceeds that of the IOUs. Q8. What are the pros and cons of a CCA run by City staff vs. a third-party enterprise? SJCE could be run primarily by City staff with support from specialized consultants or it could use a turnkey approach and contract with a third-party to run and finance the CCA. The City Council would be the governing body in both scenarios. A turnkey scenario could reduce the City s upfront costs by providing staffing and financing but the risks could include: 1) departure of the third-party if the CCA was not financially healthy, 2) higher rates due to the difference in private/public borrowing rates, and 3) reduced control over the program. It is also important to note that there are no CCA turnkey models currently in operation. Q9. How will SJCE compete with PG&E? CCAs are structured to retain the existing PG&E customer base; any customer wishing to stay with PG&E will need to opt out of SJCE. Approximately 85 percent of all potential customers in existing CCAs have stayed with their CCA. Also, unlike PG&E, SJCE will not need to factor in a profit in its business model. SJCE s Business Plan (Exhibit ES-5) projects SJCE rates to be competitive with those of PG&E. In addition to competitive rates, SJCE could also offer attractive energy efficiency and solar programs and excellent customer service in order to retain customers and compete with PG&E. Q10. What programs will be offered under SJCE? CCAs are able to invest in CCA-related activity such as subsidized rates for certain sectors, energy efficiency programs, and local renewable development. If the City Council directs SJCE to proceed, it will provide direction on SJCE policy goals and associated programs to meet those goals.

14 Operational CCAs currently offer programs such as Net Energy Metering (NEM) that pay a higher incentive than PG&E for rooftop solar, electric vehicle incentives, solar incentives for low-income residents, energy efficiency services, and business incentives. Q11. Why would customers enroll in SJCE if they already have solar installations? SJCE could establish a NEM program that offers better program attributes such as incentives to install solar, higher rates to customers, and ability to cash out more frequently. All of the currently operational CCAs offer NEM programs which are across the board more favorable for NEM customers than the IOUs. Under a NEM program, net energy generation occurs if a rooftop solar customer generates more power than they use over the course of the year. If the customer can meet specific regulatory criteria related to net energy generation, then PG&E or the CCA can pay for that excess power and count it towards their renewable portfolio. Q12. What impact would SJCE have on the low-income energy programs? SJCE customers will continue to receive their California Alternate Rates for Energy (CARE), Family Electric Rate Assistance (FERA), and Medical Baseline discount within their PG&E delivery charges, with no need to reapply if SJCE started service. Q13. What is the projected cost of SJCE? The Business Plan estimates start-up costs of $5 million and initial program operation costs of $50 million. The initial seed funding of $5 million could be borrowed from the General Fund or another City fund and paid back with interest once it is fully operational. Operational CCAs have paid back start-up funding within the first couple of years of launch. The $50 million needed, primarily for power procurement contracts, could be borrowed through a bank loan or line of credit. The SJCE Business Plan assumes service launch in January of 2018 and projects that SJCE would break even by December of Any loans for initial start-up costs could be paid back at that time. Q14. What is the Power Charge Indifference Adjustment (PCIA) and how could it impact SJCE and other CCAs? The PCIA is a charge that is designed to keep an IOU s bundled customers indifferent when other customers leave bundled service. The PCIA is based on a methodology determined by the CPUC 1. It is calculated annually by subtracting the market price of wholesale power from the IOU s average cost of power supply in place at the time the CCA customer leaves PG&E. The risk that the PCIA poses is that it could cause SJCE s rates to exceed PG&E s and that there will be a resulting increased customer opt-out rate. The PCIA may increase 1 See D as modified by D

15 when PG&E must sell previously contracted power at times when wholesale power prices are much lower. Over time, the PCIA will vary, but it is expected that it will decline as market prices increase and grandfathered contracts expire. SJCE can join with other CCAs that are already participating in changes to the PCIA calculation process. There is currently a proceeding under way to increase the transparency and forecast certainty of the PCIA. SJCE can also establish a rate stabilization fund and maintain a balanced portfolio to mitigate volatility of the PCIA. Q15. What would be PG&E s role if SJCE were to be established? PG&E and SJCE would continue to work in partnership. SJCE would purchase cleaner energy on the customer s behalf, and PG&E would continue to maintain the grid, deliver energy, and send customers their bill. The transition to SJCE would be seamless for the customers. It is important to note that California law (SB 790) prohibits IOUs, such as PG&E, from advocating against a CCA with ratepayer funding. Q16. Why can t San José just push PG&E to do more renewables, if the goal is to have more renewable energy? PG&E already offers power products that are 50 percent and 100 percent renewable to all their customers through their Solar Choice program. The motivation to launch a CCA is to offer these products at lower cost, to increase the number of participants receiving the more renewable product, and to gain local control over electricity revenues, programs, and the location where new resources are sited (i.e. to increase local energy resources).