2 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study 7. WHEREAS, a CCE Technical Feasibility St

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1 1 June 5, 2017 Item 20 Attachment 3 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study This Cost Share Agreement (AGREEMENT) is entered into by the City of Carlsbad, the City of Del Mar, the City of Encinitas, and the City of Oceanside (collectively, PARTIES, and individually, PARTY), to establish the responsibilities of each PARTY with respect to the preparation of a Community Choice Energy Technical Feasibility Study. RECITALS 1. WHEREAS, in 2002, the California State Legislature passed Assembly Bill 117, enabling Community Choice Aggregation (CCA); and 2. WHEREAS, Community Choice Aggregation is now more commonly and interchangeably referred to as Community Choice Energy (CCE); and 3. WHEREAS, Community Choice Energy enables various entities to serve as community choice aggregators to combine electrical loads of multiple end-use customers and provide power supply services, including facilitating the sale and purchase of electrical energy, transmission, and other services on behalf of the end-use customers; and 4. WHEREAS, State law authorizes any city, or group of cities operating as a joint powers agency, to serve as a community choice aggregator to combine the loads of its residents, businesses, and municipal facilities to reduce transaction costs to consumers, provide consumer protections, and leverage the negotiation of contracts; and 5. WHEREAS, prior to furnishing electricity to consumers, a community choice aggregator is required to file a CCE implementation plan detailing the process and outcomes of aggregation for adoption by the California Public Utilities Commission; and 6. WHEREAS, an adopted CCE implementation plan is required to address: a. the organizational structure of the CCE program, its operations, and its funding, b. rate setting and other costs to participants, c. provisions for disclosure and due process in setting rates and allocating costs among participants, d. the methods for entering and terminating agreements with other entities, e. the rights and responsibilities of program participants, including, but not limited to, consumer protection procedures, credit issues, and shutoff procedures, f. termination of the program, and g. 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; and Page 1 of 10

2 2 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study 7. WHEREAS, a CCE Technical Feasibility Study would evaluate the environmental, financial, economic, and technical implications and overall viability of establishing a CCE program among the PARTIES; and 8. WHEREAS, a CCE Technical Feasibility Study would provide the PARTIES with a basis upon which to determine whether further investment might be warranted to develop a CCE implementation plan; and 9. WHEREAS, the City of Carlsbad, City of Encinitas, City of Del Mar, and City of Oceanside, have each expressed interest in studying the feasibility of establishing CCE through Council resolution or by some other policy directive; and 10. WHEREAS, the City of Encinitas has agreed to prove project management and contract administration services on behalf of the PARTIES and to engage a consultant to prepare a joint CCE Technical Feasibility Study; and 11. WHEREAS, the PARTIES have agreed to share the costs of a joint,cce Technical Feasibility Study; and 12. WHEREAS, the PARTIES have agreed that the costs of the CCE Technical Feasibility Study will be based upon a scope of work to be finalized and unanimously agreed upon by the PARTIES, in general accordance with the tasks outlined in Exhibit A to this AGREEMENT and incorporated herein by this reference. AGREEMENT NOW, THEREFORE, the PARTIES mutually agree as follows: I. PURPOSE: The purpose of this AGREEMENT is to identify the PARTIES individual and collective responsibilities and cost-sharing obligations with respect to the preparation of a joint CCE Technical Feasibility Study. II. III. TERM: The term of this AGREEMENT shall commence once the AGREEMENT is fully executed by all PARTIES and shall end upon completion of the CCE Technical Feasibility Study. PARTY RESPONSIBILITIES AND PARTICIPATION: A. RESPONSIBILITIES OF PARTY LEAD: The City of Encinitas is hereby designated as PARTY Lead. The City of Encinitas will be responsible for overall project Page 2 of 10

3 3 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study management, administration of consultant contracts, ensuring the quality and timeliness of consultant work products, and coordinating and facilitating cooperation among the PARTIES and the consultant. B. RESPONSIBILITIES OF ALL PARTIES: Each PARTY agrees to participate in studying the feasibility of CCE, including the process of preparing a CCE Technical Feasibility Study and agrees to assign one (1) person to serve as its representative to participate in meetings (at least 80% of all meetings), participate in a consultant selection panel (as deemed appropriate by all PARTIES), and collaborate on developing strategies, making decisions, and reviewing work products and submittals. The PARTIES shall have full access to, and opportunity to provide comments on, all consultant work product, including working documents. IV. FUNDING: A. Each PARTY shall pay its share of expenses within sixty (60) days of receipt of an invoice from the PARTY Lead. The PARTY Lead shall send invoices to each PARTY on a quarterly basis based on an even distribution of costs over the Fiscal Year. Funds collected and not expended at termination of the AGREEMENT shall be refunded or credited to the PARTY that contributed the funds. B. The total cost incurred by each PARTY shall not exceed those shown in Table 1 without the prior written approval of each PARTY and amendment of this AGREEMENT by all PARTIES. The PARTIES will reimburse the PARTY Lead for overhead expenses associated with overall administration of consultant contracts and submittal of required work products associated with the CCE Technical Feasibility Study in an amount not to exceed 5% of the actual Study Cost. This overhead cost is included in the not to exceed cost shown in Table 1 of this AGREEMENT. C. The PARTIES estimate the total cost to prepare the CCE Technical Feasibility Study shall not exceed $262,500. That total cost will be divided between the PARTIES as shown in Table 1 below. The not-to-exceed costs allocated in Table 1 are based on each PARTY paying 10% of the Study Cost plus a per capita allotment. Page 3 of 10

4 4 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study Table 1. Cost Share Budget City Total Population Proportional Population Proportional Pop. Cost Fixed Cost Study Cost Admin Cost Total (+ admin) Encinitas 61, $ 26, $ 25, $ 51, $ - $ 51, Carlsbad 110, $ 47, $ 25, $ 72, $ 4, $ 77, Oceanside 172, $ 74, $ 25, $ 99, $ 6, $ 105, Del Mar 4, $ 1, $ 25, $ 26, $ 1, $ 28, Total 349,632 1 $ 150,000 $ 100,000 $ 250,000 $ 12,500 $ 262,500 V. AMENDMENTS TO THE AGREEMENT: This AGREEMENT may be amended upon unanimous consent of the PARTIES. No amendment shall be effective unless agreed to in writing by all PARTIES. VI. VII. VIII. IX. GOVERNING LAW: This AGREEMENT shall be governed and construed in accordance with the laws of the State of California. If any provision or provisions shall be held to be invalid, illegal or unenforceable, shall not in any way affect the validity, legality, and enforceability of the remaining provisions. In addition, each PARTY agrees to comply with all federal, state and local laws and ordinances applicable to the work to be performed under the terms of this AGREEMENT. WAIVER AND CONSENT: No term or provision hereof shall be deemed waived and no breach of any term or provision hereof shall be deemed consented to, unless such waiver or consent shall be in writing and signed by the PARTY alleged to have so waived or consented. No waiver by any PARTY of any term or provision hereof, whether express or implied, shall constitute a waiver by that PARTY of any other term or provision hereof. No consent by any PARTY to a breach of any term or provision hereof, whether express or implied, shall constitute a consent by that PARTY to a breach of any other different or subsequent breach of any term or provision hereof. DISPUTES: The PARTIES agree to mediate any dispute prior to filing suit or prosecuting suit against the other parties. In the event suit is brought upon this AGREEMENT to enforce its terms, each PARTY shall be responsible for its own attorneys fees and costs. APPLICATION OF PRIOR AGREEMENTS: This AGREEMENT constitutes the entire Agreement between the PARTIES with respect to the subject matter; all prior Page 4 of 10

5 5 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study agreements, representations, statements, negotiations, and undertakings are superseded hereby. X. TERMINATION: Any PARTY may terminate this AGREEMENT by giving written notice to the other PARTIES no less than 30 days prior to the effective date of termination. Termination of this AGREEMENT does not release any PARTY from its financial responsibilities as outlined in Section IV of this AGREEMENT. Upon termination, the terminating PARTY shall pay its cost share in full. XI. XII. XIII. XIV. ADVICE OF COUNSEL: Each PARTY acknowledges it has consulted with and been advised by its respective attorneys concerning the terms of this AGREEMENT, or that it knowingly declined to consult with or seek the advice of an attorney, and that it has executed this AGREEMENT after independent investigation. JOINT DRAFT: Each PARTY has had the opportunity to participate in the drafting and preparation of this AGREEMENT. Any construction to be made of this AGREEMENT or any of its terms or provisions shall not be construed against any one PARTY. WARRANTY OF AUTHORITY TO EXECUTE AGREEMENT: Each person executing this AGREEMENT on behalf of any PARTY hereto hereby warrants that he or she has authority to so execute this AGREEMENT in that capacity, that no other approval or consent other than that of the person executing this AGREEMENT is necessary for the due and legal execution of this AGREEMENT and that the PARTY on whose behalf the AGREEMENT is signed, including that PARTY s agents, officers and employees, is legally bound thereby as of the date the AGREEMENT is executed. COUNTERPARTS: This AGREEMENT may be executed in counterparts, with the same force and effect as if executed in a single, complete document. For purposes of this AGREEMENT, a facsimile or Portable Document Format ( PDF ) execution shall be considered as the equivalent of a wet ink signature, shall be deemed good and valid acceptance of this AGREEMENT, and shall be reasonably relied upon by all PARTIES. Page 5 of 10

6 6 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study IN WITNESS THEREOF, this AGREEMENT is executed as follows: For the City of Encinitas Signature Date Title Page 6 of 10

7 7 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study IN WITNESS THEREOF, this AGREEMENT is executed as follows: For the City of Oceanside Signature Date Title Page 7 of 10

8 8 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study IN WITNESS THEREOF, this AGREEMENT is executed as follows: For the City of Del Mar Signature Date Title Page 8 of 10

9 9 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study IN WITNESS THEREOF, this AGREEMENT is executed as follows: For the City of Carlsbad Signature Date Title Page 9 of 10

10 10 June 5, 2017 Item 20 DRAFT Agreement to Share Cost of Community Choice Energy Technical Feasibility Study EXHIBIT A: Scope of Work [Attach Scope of Work from Consultant Contract] Page 10 of 10

11 11 June 5, 2017 Item 20 Attachment 5 DRAFT SCOPE OF WORK FOR A COMMUNITY CHOICE ENERGY (CCE) TECHNICAL FEASIBILITY STUDY RFP Scope of Work: The CCE Technical Feasibility Study should determine whether the cities of Carlsbad, Del Mar, Encinitas and Oceanside could reasonably expect to establish and operate a successful CCE Joint Powers Agency (JPA) based upon a set of electricity supply scenarios that the JPA could provide to its residential and commercial customers. The Technical Feasibility Study should evaluate the environmental, financial, economic, and technical implications and overall viability of establishing a CCE program, and should provide adequate detail to inform the possible future preparation of a CCE Implementation Plan that could be certified by the California Public Utilities Commission (CPUC). 1) Rate Analysis and Comparison: a) The JPA will take some time to establish, so rate comparison should begin at the expected time of establishment (1 2 years from now). b) The Study should consider all applicable rate classes, as defined by SDG&E, including, residential, small commercial, agricultural, direct access, etc. c) Analysis should consider a range of possible renewable portfolio options, including, but not limited to 35%, 50%, 7575%, and 100% renewable energy, and various projected levels of customer selections of each option, with rate comparisons to current and projected SDG&E rates, including the SDG&E 100% renewable rate. d) Separate analysis should find for lowest possible rates within the requirements of state and federal rules (for example, 30% required renewable now; 33% in 2020, and 50% in 2030) e) The Study should include rate projections and comparisons at program launch, as well as at 5 years and 10 years after establishment? f) Comparison should be to rates proposed by SDG&E or likely to be proposed by SDG&E for those time periods (study should cite rate cases and CPUC/CEC publically available data, as well as applicable info from other utilities in the state). g) Analysis should consider the potential rate impacts of proposed or anticipated changes in net energy metering (NEM) and distributed energy resource (DER) requirements, battery storage capacity, electric vehicles and demand response capabilities. 2) Power Charge Indifference Adjustment (PCIA): The Study should specify the anticipated PCIA and how the PCIA was calculated. The PCIA should be projected year by year up to 10 years and should explain how these numbers were derived. 3) Projected Market Analysis: Analysis should include a comparison to projected market prices for both open market daily offers and opportunities for long term development purchases. It is important that comparisons consider the changing market dynamics and shifts in market pricing relative to peak/off peak supply and demand. Page 1 of 3

12 12 June 5, 2017 Item 20 4) Net Energy Metering: Analysis should include a scenario with NEM for all rooftop solar (or other DER) and maximum saturation of solar in the applicable communities. If NEM solar facilities (residences, businesses and schools, etc.) were paid for excess energy at wholesale rates and received checks for any excess energy production at the end of the year, what retail rates overall could the CCE maintain and be sustainable? 5) Local Solar: Technical study should consider the applicability of local solar, both rooftop and community solar, and alternatives for incorporating such solar as a resource for the CCE. As above, this analysis should take into account changing costs and changing demand profiles to accurately estimate costs and benefits. 6) Direct Access Customers: Technical study should specify and explain any facilities in the applicable cities that will need to be excluded from the analysis because of existing direct access or other (such as Electric Service Provider) arrangements that could significantly impact the size of market available to the CCE. 7) Opt Out Analysis: Analysis should consider program viability under various opt out rate scenarios (i.e., 2%, 5% and 10% opt out rates). While opt outs have been historically very low for CCEs, study should evaluate whether, and to what degree, the proposed SDG&E 100% renewable alternative or the possible expanded Direct Access program might impact opt out rates. Explore and explain reasonable impacts, if any.) 8) Regulatory and Legal Risk Analysis: Technical study should provide an economic and legal risk analysis of regulatory factors, commodity price changes, and any other significant risks that may be faced by the CCE and customers, and include a discussion of how to mitigate these risks. 9) CCE Administration Needs: Technical study should include a breakdown of administrative overhead costs, including manpower, both for initial setup and ongoing operations. 10) Program Funding Options: Prepare a conceptual program funding plan, including an analysis of common CCE program financing models and anticipated repayment scenarios for each. 11) Economic Impact: The technical study should broadly evaluate the potential economic impact of establishing a CCE. Analysis should consider employment impacts (cumulative and by job sector), consumer cost impacts, impacts on the local renewable energy industry, and any multiplier effect that might result within the local economy. 12) Project Timeline: The study should include a proposed timeline from completion of the Technical Feasibility Study to launch of the CCE, including major milestones and decision points. 13) CCE JPA Governance: Present optional CCE JPA governance models, including a comparative analysis of their pros and cons. Include options that would allow member agencies to implement programs tailored to their individual priorities regarding rates and renewable mix. Page 2 of 3

13 13 June 5, 2017 Item 20 Not to include in study at this time: This study does not need to provide a plan for outreach and communication with citizens (that will be handled by the cities themselves). Requirements for bidders: Bidders should demonstrate experience in CCE development or other similar projects, such as provision of Direct Access in California. Bidders should demonstrate experience in the California energy marketplace, commodity markets overall, a working understanding of the California Independent Systems Operator (CAISO) requirements (such as resource adequacy (RA) and penalties), and a knowledge of California Public Utilities Commission (CPUC)/legislative laws (such as filing requirements and SB 350). Bidders should demonstrate experience analyzing and forecasting rates and costs in California. Bidders should demonstrate experience analyzing and mitigating risks, including commodity risk, nonperformance risk, regulatory risk and legal risk. Bidders should provide a plan for review of the technical study by a citizens board or subcommittee of cities officials and time for adaptation to any substantial input or required changes. Bidders should provide a list of milestones for the project, a schedule of deliverables, and a timeline for payments. Bidders must meet all requirements of the City of Encinitas for standard processes, or specify in advance any requirements from which it will request an exemption. Price: Cities will accept bids for this RFP. Cities would prefer a fixed price for this study of not more than $150,000, and preferably less. However, higher bids will be entertained if the bidder can demonstrate that it can deliver a superior work product. Page 3 of 3

14 14 June 5, 2017 Item 20 Attachment 2 Community Choice Energy: a Primer April 2017 James Wang 1, City of Encinitas Environmental Commissioner 1. Introduction Community Choice Energy 2 (CCE) is an alternative to the traditional electrical supply system in which an Investor-Owned Utility (IOU) generates and/or procures the energy for its customers, delivers that energy through its transmission and distribution lines, maintains those lines, reads the meters, bills the customer, and collects the revenue. With a CCE, the IOU retains all of these functions except that the energy is purchased by the CCE. The CCE has little physical infrastructure. California's first CCE, Marin Clean Energy (MCE), launched in Sonoma Clean Power (SCP) was next in 2014, followed by Lancaster Choice Energy (LCE) in May LCE's launch took only about 22 months from initial concept to operation - it benefited both from the MCE and SCP experiences, as have three more California CCEs in the past year: Silicon Valley Clean Energy, Peninsula Clean Energy, and CleanPowerSF. As of March 2017, California has six operational CCEs. Several other California CCEs are nearly online, including Apple Valley Choice Energy, Central Coast Power, East Bay Community Energy, Inland Choice Power, Monterey Bay Community Power, Redwood Coast Energy Authority, and San Jose Clean Energy. Many other jurisdictions 3 have either started exploration, taken action, invested resources, or have applied for or received CCE certification from the California Public Utilities Commission (CPUC). The accelerating interest, investment, and growth in CCEs indicates that they provide benefits to their stakeholders. Will our region also benefit from a CCE? Several North San Diego County cities (including Del Mar, Solana Beach, Encinitas, Carlsbad, and Oceanside) seek to answer this question. The goal of this document is to provide a CCE overview to aid decision-makers in determining whether a CCE is right for their community. As such, the following subsections describe CCE programs and how they work, the risks and benefits of a CCE, an overview of how to start one, a set of Frequently Asked Questions, a Glossary, and References for further reading. 1 Information contained herein is based upon independent research conducted by the author, and is intended for reference only. 2 Community Choice Energy programs are also known as Community Choice Aggregation (CCA) programs. CCE and CCA are generally used synonymously, although CCA is the only legal name recognized by the CPUC. 3

15 15 June 5, 2017 Item 20 Community Choice Energy: a Primer 2. What Is A CCE? Community Choice Energy is a local, governmental program that buys electrical power on behalf of its users. They require approval of an ordinance by the jurisdiction or jurisdictions wanting to create a CCE. Generally, the jurisdiction(s) 4 that start the CCE have well-defined objectives which may include cleaner power, lower-cost, local control and choice, or a combination of these. The agency administering the CCE program may also elect to administer energy efficiency programs and other greenhouse gas emissionreducing activities to support a local Climate Action Plan. The most important characteristic is that the CCE has the choice of which goals to pursue and implement. A CCE is not a power company in the traditional sense. It is not involved with power generation, transmission, or distribution. For example, most electricity bills have two distinct sections: one is for electricity generation, while the other is for delivery. It is only the generation section that a CCE replaces. Instead, the CCE buys power on the open market, which is then sent to the CCE's customers over the utility's power lines. After switching from a utility, a CCE customer sees little difference in their electricity bill except for a line or two describing the source of the power. With a CCE, the delivery section is unchanged: the CCE's energy is delivered through the same infrastructure that the local utility uses and maintains. The service, metering, and billing processes are identical to that used by the utility, as are the delivery costs. Since the CCE has no power plants and buys all of its power, it has flexibility in determining its power mix. Because of the increasing number of independent power producers, the energy market has grown substantially in the past few years. Buyers have a wide selection of vendors selling power from different sources, including coal, natural gas, nuclear, solar, wind, geothermal and others. The numerous producers creates a competitive marketplace advantageous to buyers. A CCE is a complex organization. It entails all the considerations that a business has, as well as a few that are special to a CCE: jurisdictional ties, legal requirements as a Load- Serving Entity, compliance with state regulations, and the relationship it must develop with its local utility. Fortunately, because California now has several CCEs with more on the way, building a CCE is not uncharted territory; roadmaps are available. There are many resources and consultants. And because CCEs are community-oriented, most of their documentation is open 5 and available to the public - much of it is online. 4 CCEs often comprise multiple jurisdictions to take advantage of economy of scale. In that case, an interjurisdictional agency such as Joint Powers Authority (JPA) is formed for the express purpose of CCE administration. The JPA structure is familiar and often used for water, fire or transit agencies. 5 Often, all records (except for employee data) are available. 2/10 April 2017

16 16 June 5, 2017 Item 20 Community Choice Energy: a Primer 3. Risks and Benefits A CCE has all the risks and benefits of a business, plus has some that are unique to a CCE CCE Risks Possible risks: a) Management and Administration: The CCE must be run efficiently. Its margins must be small but positive, and mishaps must be anticipated. b) IOU Dependency: A CCE depends on the IOU for delivery, accounting, billing, and physical infrastructure. A CCE in the San Diego area would need to coordinate with SDG&E to investigate, form and implement a CCE program. Currently, there are no CCEs in SDG&E territory. c) Sufficient Number of Customers: A CCE benefits from economy of scale; an oftmentioned minimum size is 100,000 customers. For example, Encinitas with a population of about 60,000 would have to team with other jurisdictions to achieve this size. d) High Opt-Out Rate: When a CCE goes online, by default, all customers are switched from their utility to the CCE. However, they are given in advance at least four notices of the pending change, and they may choose to stay with their utility. And when they are CCE customers, they may switch back to the utility at any time. Customers who choose to stay with the utility are choosing to opt-out of the CCE. A high opt-out rate reduces the number of CCE customers 6. e) Contract Risks: A CCE buys power from the open market, and its cost stability depends on its suppliers. Changes in market prices can be mitigated by long-term contracts but electricity markets are volatile. Unmanaged changes can result in dramatic price changes. The CCE is not at risk of losing power, but may be a vulnerable to price spikes. The CCE must match its purchases to its energy load hourly, and mismatches can incur added costs or penalties. f) Regulatory Changes: Laws and regulations relevant to a CCE could change. Regulatory decisions may not favor customers 7 or CCEs. g) Implementation Difficulties and Utility Opposition: Investor owned utilities have substantial resources and experience and may challenge the formation of a CCE, through legal means or via public outreach. CleanPowerSF originally ran into financial difficulties because of opposition from PG&E. 6 Although a high opt-out rate is possible, they generally have been below 10%. The opt-out rate for the new Peninsula Clean Energy CCE was 2%. The PCE Board allowed for an opt-out rate of 15%. 7 A recent example is the July 3, 2015 CPUC decision which flattened tiered rates. Since this change decreases the attractiveness of rooftop solar installations, this decision was widely regarded as IOUfriendly and contrary to consumer and environmental interests. 3/10 April 2017

17 17 June 5, 2017 Item 20 Community Choice Energy: a Primer h) Power Charge Indifference Adjustment (PCIA) or Exit Fees. PCIA fees are fees paid to IOUs for customers who switch to a CCE. This fee compensates the IOU for losses from long-term power-purchase agreements. The CPUC allows this fee. PCIA fees are typically a few cents per kilowatt-hour, but since margins are thin, a small charge can make a big difference in a CCE s bottom line CCE Benefits A local CCE may benefit its jurisdictions in multiple ways: a) Environmental: A CCE program can provide the quickest means to achieve a significant and targeted reduction in greenhouse gas emissions by allowing local decision makers to control the renewable energy mix in their electrical supply. b) Options and Flexibility: A local CCE is responsive to its customers. Based on customer input, it can vary the power options offered. Typically these options may range in cost and percentage of renewable energy. c) Lower Cost and Rate Stability: Because a CCE program can procure energy from multiple providers on the open market, it can take advantage of competition and can minimize costs. One of the goals of a CCE program can be assure long term rate stability. d) Revenue Stays Local: As a locally controlled and operated energy provider, a CCE program can implement policies and incentives (like promoting local solar and energy efficiency projects) to support local business and allow revenues to recirculate within the local economy. e) Local Generation Is Encouraged: CCEs generally pay small local generators market rates (or better) for their energy. These producers could be rooftop solar panels or wind turbines. IOUs tend to pay only wholesale (not market) rates for such excess power 8. To encourage local production, some CCEs pay above market rates for local power. f) Job Creation: The CCE itself creates a small number of jobs. Additional jobs are created if there are incentives to generate power locally. g) Public Image: Businesses and citizens are attracted to cities with a clean and environmentally-concerned image. An active CCE demonstrates that the city cares about reducing their impact on climate change. h) Stable and Reliable Customer Base: Electricity customers tend to be stable they don t frequently change suppliers, and few will voluntary terminate their service. Furthermore, few customers will default on their bills. Since CCE s are communityoriented, they are generally favorably regarded by their customers. 8 Net metering legally requires IOUs to buy excess power. However, IOUs are not generally inclined to be a buyer of electricity from small sources. 4/10 April 2017

18 18 June 5, 2017 Item 20 Community Choice Energy: a Primer i) No Shareholders: CCEs are typically non-profit organizations with a responsibility to serve their community. 4. Starting A CCE Starting a CCE is not a simple task, and involves issues of project management and program design, community engagement, technical and energy services, data management and customer enrollment, legal matters, and financing. This document is introductory in nature so only a cursory mention of these issues is possible here. 1. Project management and program design. The main issue here is governance: what structure will the CCE s administering agency take? For a group of cities, a Joint Powers Authority (JPA) is a popular and common form because it is familiar to city governments, it is flexible, can accommodate latecomers, and is a distinct legal entity with its own finances. 2. Community engagement. As with any municipal enterprise, public support is essential. Many people do not know what a CCE is, and a city cannot expect them to accept it without some education. Because public support is inertial and takes time, public outreach must be started early. 3. Technical and Energy Service Expertise. Like any business, a CCE success is dependent upon the cost of its goods and the price it receives. The energy market is complex and takes special knowledge. It is essential that a CCE has staff familiar with the energy market and risk management. Furthermore, a CCE must optimize its contracts so that it can respond to short- and long-term changes to its demands. 4. Data management and customer enrollment. A CCE must provide reliable and accurate customer billing and support. It must interface with the utility that provides the necessary infrastructure, and compatible Electronic Data Interchange Services must be set up. 5. Legal. A CCE must comply with local, state, and utility regulations for businesses and utilities. It must also comply with the usual business issues such as employee policies and benefits, conflict-of-interests, and insurance. 6. Financing. The CCE must raise both start-up capital and working capital. The start-up capital is necessary so the CCE can sign contracts even before it has any incoming revenue. The working capital is necessary for ongoing operations. Fortunately, now that California now has several financially-successful CCEs, lenders are not so worried about loaning money to them. None of these topics is simple. Fortunately, the heightened interest in CCEs coupled with their open nature yields an abundance of public information. And expert consultants are available for every item there is no need to learn to fly solo, nor would it be prudent. 5/10 April 2017

19 19 June 5, 2017 Item 20 Community Choice Energy: a Primer 5. Frequently Asked Questions Because CCEs are a popular topic now, many CCE FAQs are available on the Internet For convenience, here are some common questions: 1. As a customer, will my bill go up? One of the early steps in forming a CCE program is to conduct a detailed technical feasibility study. This study combines experiences from earlier CCEs with forecasts of future conditions, all in the context of the proposed region. It is like a business plan tailored to CCE requirements. An essential part of the study is the economic feasibility. If the CCE is not able to offer competitive rates that are attractive to prospective customers, then the CCE is not likely to be considered feasible. CCEs typically give its customers multiple choices about their power mix. For example, MCE offers three choices 12 : 1) Light Green with 50% renewable power; 2) Deep Green, with 100% renewable power, and 3) Local Sol, with 100% locallygenerated power. These three options have different costs; the first one is cheaper than PG&E, the second is about the same, and third one is a few cents per KW/Hr more than PG&E. As a customer, you choose which choice you want; depending upon your choice, your bill may go down, stay about even, or go up. 2. Will my CCE electricity be reliable? Yes, similar to utilities, CCEs are backed by the California Independent System Operator (CAISO) which is required to maintain the availability of power, statewide. 3. It sounds like a big hassle to set up a CCE program. Why do it when my power from SDG&E works so well? The answer to this question is largely the reason for this document. There are many reasons: more renewable power, satisfying the goals of local Climate Action Plans, lower costs, local control, community orientation, job creation, keeping local revenues local. 4. I like SDG&E. Won t they go out of business? Not likely. Investor owned utilities in California buy most of the energy they deliver to their customers and do not markup the price of this energy. Rather, their profits are made on their capital investments: transmission lines, substations, etc. The CPUC regulates their rates of return and assures that they receive adequate returns. The investor owned utilities will continue to receive returns on these investments through the delivery portion of the bills for CCEs. Because the CCE s electricity is /10 April 2017

20 20 June 5, 2017 Item 20 Community Choice Energy: a Primer subject to the same delivery charges, the utilities are still assured their return on investment. 5. I don t want to pay for the cost of building a new business like a CCE - I don t want to pay through my taxes, nor do I want to pay through my electricity rates. CCEs are self-supporting through their revenue stream. They are not funded by taxes or general funds. In fact, one of the principles of CCE organization is to keep its finances completely separate from its jurisdictions. That way, even if the CCE fails financially, the city s finances are untouched. CCEs do need startup capital. This capital is usually financed through a combination of loans and bonds. Since a CCE has a customer base that tends to be stable, reliable, and predictable, these financial commitments are usually paid back quickly often within a year. After that, the CCE s working capital comes from their revenue stream. 6. Glossary CAISO - The California Independent System Operator: The organization responsible for managing the electricity grid and system reliability within the former service territories of the three California utilities. California Energy Commission (CEC): The state regulatory agency with primary responsibility for enforcing the Renewable Portfolio Standards law as well as a number of other, electric-industry related rules and policies CCA Community Choice Aggregation (also known as Community Choice Energy and Municipal Aggregation): a legal vehicle that allows local governments and some special districts to pool (or aggregate) their electricity load in order to purchase and/or develop power on behalf of their residents, businesses, and municipal accounts. A CCA is an energy supply model that works in partnership with the region s existing utility which continues to deliver power, maintain the grid, and provide customer service and billing. CCE Community Choice Energy: an alternate name for Community Choice Aggregation that avoids the somewhat confusing term aggregation. CleanPowerSF: San Francisco s CCE, administered by the San Francisco PUC (which is not the California PUC that also has its offices in San Francisco). CPUC California Public Utilities Commission: The state agency with primary responsibility for regulating IOUs, as well as Direct Access and CCA entities. Electric Tariffs: The rates and terms applied to customers by electric utilities. Typically there are different tariffs for different classes of customers and possibly for different supply mixes. Feed-in Tariff: A tariff that specifies what generators who are connected to the distribution system are paid. Integrated Resource Plan: A utility's plan for future generation supply needs. 7/10 April 2017

21 21 June 5, 2017 Item 20 Community Choice Energy: a Primer IOU Investor Owned Utility: an organization which provides electrical and gas services to the public. IOUs are regulated by state, county, and/or city public utility commissions under state laws. JPA a Joint Powers Authority: an entity in which multiple public authorities may jointly exercise any power common to all of them. LCE Lancaster Choice Energy: The City of Lancaster s CCE. LEAN Energy The Local Energy Aggregation Network (LEAN): a non-profit, membership organization dedicated to the accelerated expansion and competitive success of CCE clean energy nationwide. LEAN provides support to cities and communities that are considering and going forward with CCEs. MBCP Monterey Bay Community Power: MCE (formerly Marin Clean Energy): - The first CCA in California serving Cities within the Counties of Marin and Napa. Net Metering: a program that that allows customers to earn a financial credit for energy generated from their on-site system and provided to their utility. Opt-Out: Community Choice Aggregation is, by law, an opt-out program. Customers within the borders of a CCA are automatically enrolled within the CCA unless they proactively opt-out of the program. Peninsula Clean Energy: The CCE serving the Bay Area Peninsula. Power Cost Indifference Adjustment (PCIA): A charge applied to customers who leave utility service to become CCE customers. The charge is meant to compensate the utility for costs that it has previously incurred to serve those customers. PPA (Power Purchase Agreement): The standard term for bilateral supply contracts in the electricity industry. PG&E Pacific Gas and Electric Company: Utility for Northern California. Renewable Energy Credits (RECs): The renewable attributes from RPS-qualified resources which must be registered and retired to comply with RPS standards. Resource Adequacy (RA): The requirement that a Load-Serving Entity own or procure sufficient generating capacity to meet its peak load plus a contingency amount (15 percent in California) for each month. RPS Renewables Portfolio Standard: Established in 2002 under SB1078, accelerated in 2006 under SB107 and expanded in 2011 under SB2, California's Renewables Portfolio Standard (RPS) is one of the most ambitious renewable energy standards in the country. The RPS program requires investor-owned utilities, electric service providers, and Community Choice Aggregators to increase procurement from eligible renewable energy resources to at least 33% of total procurement by SCE Southern California Edison: Utility for most of Southern California, but not San Diego County. SCP Sonoma Clean Power: A CCE serving Sonoma County and Sonoma County Cities SDG&E San Diego Gas and Electric: The utility serving San Diego County. Silicon Valley Clean Energy: One of California s newest CCEs, serving the Silicon Valley in the Bay Area. 8/10 April 2017

22 22 June 5, 2017 Item 20 Community Choice Energy: a Primer Wholesale Power: Large amounts of electricity that are bought and sold by utilities and other electric companies in bulk at specific trading hubs. Quantities are measured in MW s, and a standard wholesale contract is for 25 MW for a month during heavyload or peak hours (7am to 10 pm, Mon-Sat), or light-load or off-peak hours (all the other hours). 7. References Recommended reading: 1. Nicholas Armour, Adam Montgomery, David Kong, and Qian Yang, USC Price School of Public Policy, Community Choice Aggregation in Torrance, CA: A Pre-Feasibility Study Environmental Policy, City of Encinitas Administrative Manual, October 8, Marin Clean Energy (MCE) Sonoma Clean Power (SCP) LEAN Energy - This site has a wealth of introductory CCE information. 6. Lancaster Choice Energy (LCE) Monterey Bay Community Choice Power(MBCP) San Diego Energy District (SDED) Community Choice Aggregation in California: Operational Models and Best Practices. LEAN Energy, May Taking Community Out of Community Choice: Why California Clean Power Might Not Be the Right Choice for Your Community. Local Clean Energy Alliance, June California%20Clean%20Power%20Memo.pdf 11. Frequently Asked Questions about San Diego Gas and Electric and Community Choice Aggregation Schedule CCA-INFO: Information Release to Community Choice Aggregators SDG&E web page on Community Choice Aggregation. 9/10 April 2017

23 23 June 5, 2017 Item 20 Community Choice Energy: a Primer 14. Inland Choice Power: Community Choice Aggregation Business Plan, December 8, Prepared by EES Consulting, Inc., Kirkland WA CleanPowerSF: Peninsula Clean Energy: South Bay Clean Power: Los Angeles County Community Choice Energy: Silicon Valley Clean Energy: Chula Vista nails down plan to buy electricity - Council to consider funding; fight with SDG&E expected. San Diego Union, May 21, CEC CCA Guidebook: Video FAQ from the March 2017 San Diego CCE Forum for CCE Decisionmakers with answers by Mayor Rex Parris, Supervisor Dave Pine, Executive Director Rick Bishop of the Western Riverside Council of Governments, and others: 10/10 April 2017

24 Towards Electricity Decarbonization Options for Community Choice Energy in Del Mar, California Daniela Battaglioli Master's of Advanced Studies in Climate Science and Policy 24 June 5, 2017 Item 20

25 2 25 June 5, 2017 Item 20 Authorship Daniela Battaglioli Candidate for Master s of Advanced Studies Degree in Climate Science and Policy Scripps Institution of Oceanography University of California, San Diego Contact: daniela.battaglioli@gmail.com LinkedIn: Date: June 13 th, 2017 Acknowledgements I would like to acknowledge the individuals that helped devote their time and expertise to this brief. Many thanks to the members of my Capstone Advisory Committee: Dr. Alan Sweedler of San Diego State University, Dr. Donald Mosier of Scripps Research Institute, Dr. Henry Abarbanel of the University of California, San Diego/Scripps Institution of Oceanography, Dr. Lynn Russell of Scripps Institution of Oceanography, and Dr. Ellie Farahani. I'd like to also thank all members of the Del Mar Sustainability Advisory Board, as well as Del Mar City Staff and representatives from the other Coastal North County cities. I appreciate being welcomed to their monthly meetings and their assistance with my research. Additionally, I d like to thank Rebecca Boyles from Marin Clean Energy and Amy Sinclair from CleanPowerSF for their help with data collection. I d like to thank Barbara Hale from the San Francisco Public Utilities Commission for her assistance. I d like to acknowledge the assistance from San Diego Gas & Electric and Pacific Gas & Electric for data collection and interpretation. Thanks to David Andresen for his review of this work. Finally, I could not have completed this brief and the entirety of my graduate coursework without the constant support of my family, friends and MAS CSP cohort. A special thank you to A. Checco for helping me grow during the extent of this program. Disclaimer This brief does not necessarily reflect the views or endorsement of the individuals or organizations mentioned above. This brief summarizes many complex issues related to electricity generation and pricing. For the sake of clear communication, some of the more technical details have been simplified or omitted. The scope of this report is to provide accessible, objective and up-to-date information regarding the options for Community Choice Energy programs for Del Mar and the pertinent benefits and risks that might be associated with such a program. Any errors are those of the author.

26 3 26 June 5, 2017 Item 20 Table of Contents Executive Summary... 4 Introduction... 5 Community Choice Energy... 7 Background... 7 Benefits & Risks of CCE... 9 Options Option 1: Forming a JPA Option 2: Joining Solana Beach Conclusion References Appendix 1: Resources Appendix 2: Renewable and GHG-free Energy Appendix 3: Information on Exit Fees Appendix References... 39

27 4 27 June 5, 2017 Item 20 Executive Summary This policy brief summarizes the benefits and risks associated with Community Choice Energy (CCE) also known as Community Choice Aggregation programs. CCE programs allow cities, counties or joint powers to pool their electricity demand to purchase power from suppliers directly with the intention of offering customers lower rates and increasing the amount of renewable energy on the grid. CCE has become increasingly popular among Californian cities to introduce competition into the electricity market. Currently, there are nine CCEs in the state that have launched, and by 2020 it is estimated that CCEs will serve nearly 18 million Californians. The benefits and risks of CCE have been analyzed specifically for the City of Del Mar, in San Diego County, California to explore their options towards decarbonizing the electricity sector. As part of Del Mar s Climate Action Goals, the city plans to reach 100% renewable energy by CCE has been proposed as a tool to reach this goal. This brief found several potential benefits and risks for this program as well as compared two options Del Mar may have to launch a CCE program. CCE programs success rely on offering customer s competitive rates. Because renewable energy prices are dropping, CCEs can take advantage of this to purchase renewable energy at lower prices than what the Investor-Owned Utility (IOU) can currently offer. While established CCEs across the state have been able to offer competitive rates, they have, and will continue to face, major challenges. These include increasing exit fees, induced competition, IOU opposition, and risk of customer s opting out to remain with the IOU. These risks can be mitigated by working closely with the IOU, informing and engaging with the community, monitoring critical legislation and advocating for CCE programs. CCE programs also benefit the community by giving them a voice to choose where their power comes from. Also, the revenue generated from this program can be reinvested into the community and help incubate green innovation. By investing in local projects, jobs are created, boosting the region s economy. And finally, CCE programs cut greenhouse gas emissions by purchasing more renewable energy from existing sources and investing in new generation. When looking at Del Mar s options for CCE, forming a Joint Powers Association (JPA) appears to have more benefits and fewer risks than joining Solana Beach s CCE in the future. This is attributed to Solana Beach s plan to fully-outsource their CCE program to companies that would run all aspects of the program. The main risks to using an out-sourced, turn-key CCE program are conflicts of interest, misaligned goals and risks to investment. Overall, a JPA option might best serve the interests of Del Mar and its residents. However, to better quantify the benefits and risks of this type of program, a more in-depth technical study would be required.

28 5 28 June 5, 2017 Item 20 Introduction Climate Consensus For several decades, climate scientists have agreed the body of scientific evidence overwhelmingly supports the idea that humans are affecting global climate. In the latest assessment report published in 2014, the Intergovernmental Panel on Climate Change (IPCC) stated unequivocally that since the 1950s, the earth s temperature has been warming at unprecedented rates, and human-driven emissions of greenhouse gases (GHGs) are extremely likely to have been the dominant cause of the observed warming. 1 The science is also clear that fossil fuel burning is the largest source of anthropogenic GHGs. 1 The effects of climate change are expected to be expansive and expensive, impacting not only the environment but also societies health, safety, growth and security. 1 Fossil fuels historic role in the economic and political advancement of nations since the Industrial Revolution is irrefutable. However, an impasse has been reached. If mankind continues to rely upon fossil fuel-based technologies, thereby embedding them deeper within the societal fabric, we ultimately threaten civilization's long-term safety and prosperity. To learn more about climate change and how it threatens society, please see the resources included in Appendix 1a. Dark Clouds, Silver Linings Decarbonization, or reducing the GHG emissions from a process, requires moving away from GHGemitting, conventional fuels towards renewable resources. Ultimately, an energy transformation will be needed to profoundly decarbonize the global economy. 2 This will involve decarbonizing the electricity sector. 2 Figure 1: Decarbonization: moving away from GHGemitting conventional fuels towards renewable energy. In the United States, the electricity sector accounted for about 30% of 2015 GHG emissions. 3 In 2016, it is estimated that 27% of California s electricity was generated from renewable resources. 4 The state s Renewable Portfolio Standard requires every

29 6 29 June 5, 2017 Item 20 energy provider in the state to achieve 33% and 50% renewable energy procurement by 2020 and 2030, respectively. 5 While this is a step in the right direction, there is room for improvement. Many Californian cities, including Del Mar, Solana Beach, Encinitas, Carlsbad, and Oceanside (here forth referred to as the Coastal North County Cities (CNCCs)), have acknowledged this and set their own climate action goals. 6 The CNCCs have each created plans to reach deeper emission reductions and increase their share of renewable energy procurement. Del Mar s Climate Action Plan (CAP) aims to achieve 50% and 100% renewable energy supply by 2020 and 2035, respectively. 7 This goal is critical for reaching Del Mar s emission reduction targets. 7 Currently, customers in the San Diego area have virtually no choice but to get their power from the local Investor-Owned Utility (IOU), San Diego Gas & Electric (SDG&E). SDG&E s 2015 power mix consisted of 35% renewables 8, and they have 45% renewable energy contracted for While these numbers exceed California s minimum requirements, there is a big gap between what SDG&E plans to provide in the future and what cities like Del Mar need to meet their climate action goals. Additionally, SDG&E s rates have consistently been some of the highest across the nation, and have increased. After a 10.9% rate increase in January , SDG&E recently filed for an additional rate hike for Therefore, an alternative should be developed that can offer more choice, substantially decarbonize the grid, and lower or meet SDG&E s rates. Assessing a Path Forward The remainder of this brief will explore one direction Del Mar can go to try and achieve these goals. As mentioned in the Del Mar CAP, Community Choice Energy (CCE) (also known as Community Choice Aggregation (CCA)) is an option for increasing the purchase of renewable energy used for electricity. 7 The details of CCE programs will be outlined in the following section including its benefits, challenges and uncertainties. Then the options for CCE in Del Mar will be discussed and compared. The information

30 7 30 June 5, 2017 Item 20 presented is intended to inform the Del Mar city council and the sustainability advisory board. Figure 2: The CCE purchases energy on behalf of the community, SDG&E continues to deliver the electricity, and as a result the community can benefit. Community Choice Energy Background Community Choice Energy (CCE) is a program that allows cities, counties or joint powers to pool their electricity demand and purchase electricity from suppliers directly. CCE programs partner with the incumbent IOU so the IOU continues to transmit and distribute the electricity through their existing infrastructure. Additionally, the IOU remains responsible for line maintenance and billing. This allows for the purchase of energy from sources that reflect the community s interests and goals. In Del Mar s case, purchases would reflect more renewable energy in the power mix, with the hope of reaching 100% by Over the last 7 years, CCE has grown in California, fundamentally changing the structure of the retail electricity market. There are currently nine operational CCEs and

31 8 31 June 5, 2017 Item 20 at least three more set to launch in These programs have introduced competition into the electricity market, providing their customers choice. As of today, over 3.3 million people in California, or about 5% of the energy market, participate in CCE programs. 13 This number is expected to grow to 17.6 million by 2020 based on existing and planned CCE programs across the state, including the San Diego region. 13 Figure 3: Map of existing, planned and in progress CCE programs in California. (Data Source: adapted from graphic from DeShazo, Gattaciecca, & Trumbull. 12 ) Despite the boom in CCE programs, they are still nascent in California. Assembly Bill 117, the legislation that permitted Community Choice in California was passed in , but the first program, Marin Clean Energy (MCE), was not launched until The next was Sonoma Clean Power (SCP), that launched in After that point, the frequency of CCE launches increased. The most recent program in San Jose gained approval on May 16 th, The evidence of program performance only spans a few years in most cases. However, the information available illuminates the benefits as well as challenges and uncertainties of CCE programs. Relevant resources on CCE are included in Appendix 1b.

32 9 32 June 5, 2017 Item 20 Benefits & Risks of CCE Key Findings Benefits Risks Competitive Rates Local Control & Choice Incubate Innovation Job Creation Reduce GHG emissions Exit Fees Induced Competition IOU Opposition Customer Opt-out Competitive Rates The CCE program success is highly dependent on the ability to maintain competitive rates with the IOU. Without competitive rates, most customers would opt out, especially those most sensitive to price hikes and those who don t prioritize environmental benefits. The risks to CCE programs primarily relate to their ability to keep rates low and competitive. CCEs tend to offer two rate plans differing in renewable energy content and price. The base option offers an energy mix with a higher percentage of renewables than the IOU, usually between 35% and 75% This option s GHG-free content is typically between 60 and 77% The second option is 100% renewable, GHG-free energy. Based on data from MCE 20, SCP 21, and CleanPowerSF 22, about 1-4% of their customers currently choose the 100% renewable energy option. However, community outreach can increase these percentages and CCEs are pushing. Marin Clean Energy is the only CCE to date that offers a third option for 100% renewable energy generated from local solar. 23 For more information about renewable and GHG-free energy, see Appendix 2. The CCE program s ability to offer lower rates for more renewable energy can be attributed to:

33 10 33 June 5, 2017 Item 20 Flexibility in energy purchases. Unlike the IOU, that may be locked into older, more expensive energy contracts, a CCE can take advantage of new, lower energy prices. Solar and wind have seen massive drops in capital costs, making them competitive at utility-scale with high-efficiency natural gas plants (Figure 4). 24 Natural gas prices have also recently hit 20-year lows. 24 Not-for-profit status. Unlike the investor-owned monopoly, the CCE does not forward profits to owners. Since IOUs have a guaranteed rate of return for their investments, there is no real incentive to spend time searching for the best deals. Therefore, taking on pricey projects and purchasing high-cost contracts from merchant distributors does not pose threats to their bottom-line. Any extra costs are passed on to customers through rate increases. Instead, CCEs must compete with the IOU and strive to make the best deals. CCEs also benefit from the ability to use tax-exemptions when financing energy generation projects. 25 Figure 4: Utility-scale wind and solar PV power purchase contract prices (represented by yellow and grey circles) from 2008 to The black dashed line represents the Energy Institute of America s natural gas price projections. Dollar amounts adjusted to 2015 dollars. Wind and solar contracts are becoming increasingly competitive with high-efficiency natural gas plants. (Data Source: adapted from Wiser, Barbose & Bolinger. 24 )

34 11 34 June 5, 2017 Item 20 CCE Rate Trends Historically, existing CCEs base option has usually been able to maintain rate parity with the local IOU. Customer s savings tend to start large, around 2-5% when the CCE launches. 23 Figure 5 shows the price trends for Marin Clean Energy s two energy products, the base option, Light Green, and 100% renewable option, Deep Green. Over time, Light Green remains similar in cost to Pacific Gas & Electric (PG&E) but has experienced stretches marked by higher total rates. MCE has been able to offer electricity rates that were cheaper than the local IOU about 70% of the time. 29 Table 1 shows current residential rates for MCE, SCP and Peninsula Clean Energy (PCE) compared to PG&E rates. From Table 1, it is evident that each of the three CCEs currently offer % savings for their base option and offer 100% renewable energy at % premiums compared to the local IOU s standard mix. Figure 5: The chart shows MCE s rates for Light Green (base option) and Deep Green (100% renewable option) from mid 2012 to early 2017 in comparison with PG&E s rates. This graphic is not updated to include their newest rate reduction, effective 4/1/17, which brings Light Green rates below PG&E. (Data Source: adapted from MCE s graphic provided upon request. 20 )

35 12 35 June 5, 2017 Item 20 Table 1: This table shows key information about three CCE program s base and 100% renewable options: the amount of renewable and GHG-free energy offered, current rates, and the rate difference compared to PG&E. *This value was derived from dividing the total electricity rate of each rate option by its renewable energy content. PG&E s rates varied from /kwh for MCE and PCE to /kwh for SCP. To calculate total energy rates, the appropriate PG&E rate was used for each CCE based on Cost Calculators and average monthly usage 445 kwh for PCE and MCE customers, and 510 kwh for SCP customers. (Data Sources: MCE 26, SCP 27, and PCE s 28 Current Cost Calculators based off PG&E s E-1 rate schedule. Renewable energy content from 2015 Power Content Labels ) Based on an average residential customers monthly bill, current CCE rates mean $0.25 $2.25 savings for the base options and $ $17 extra for 100% renewable energy options (see Figure 6). Despite total rates being higher for 100% renewable energy, CCEs offer a much more efficient way to purchase renewables. When rates are divided, or normalized, by the renewable energy content offered, 100% renewable energy options were about a third the cost of PG&E s standard mix. Even the base options were about half to threequarters PG&E s rates. Overall, CCEs offer more renewable energy for deeply discounted rates compared to the IOU. Risks to maintaining competitive rates The ability to maintain competitive rates has and will continue to be challenged by the following: Exit Fees Exit fees are often referred to as the largest risk to CCEs ability to maintain rate parity. Currently, the Power Charge Indifference Adjustment (PCIA) is the exit fee set by the California Public Utilities Commission (CPUC) that intends to shelter remaining IOU

36 13 36 June 5, 2017 Item 20 customers from having to pay more because of CCE customers departure. Exit fees would apply until all old long-term contracts expire. For the San Diego area, it is likely some form of exit fee will be issued until at least 2041 (the year SDG&E s current lengthiest long-term contract expires). 30 The PCIA is set using projected market results, and is never adjusted to account for real market outcomes. If set too high, the fee threatens the ability for a CCE to keep their total electricity rates at or below IOU rates. If set too low, the remaining IOU customers will experience costs shifting onto them. Given the 211% increase in PG&E s PCIA over the last three years 12, CCEs have criticized the methods for setting the PCIA as being opaque, unjustifiable and intended to hurt CCEs. IOUs have argued, in parallel, that the fees aren t high enough to protect customers that either choose to stay with the IOU or do not have a choice. Establishing a fair exit fee has been difficult, and many argue impossible using the PCIA methodology. On April 25 th, 2017, the California IOUs proposed an alternative to the PCIA. Called the Portfolio Allocation Methodology, or PAM, this would be a new way of assessing exit fees. IOUs argue that the PAM will alleviate cost shifting and result in fairer exit fees. However, many questions remain about how this change would affect CCEs if implemented. Ultimately it will come down to exactly what expenses the utilities include into the PAM calculation. CCEs are currently analyzing the proposed change to determine the risk. Generally, if the IOUs are pushing for the PAM it is likely because exit fees for CCEs would increase, alleviating the alleged inequity to IOU customers. It is uncertain how large of a risk exit fees, whether the PCIA or PAM, will be for CCEs in the future. However, CCEs would benefit from connecting with existing CCEs to monitor and legislation and regulatory changes and advocate for CCE interests. More information about exit fee risks, please see Appendix 3. Induced Competition The pattern of CCE rate savings decreasing after launch has been attributed to increasing PCIA fees as well as the market competition induced by CCE programs. Existing CCEs put pressure on the IOU, and the monopolies have been responding. Some have already begun renegotiating and selling long-term contracts to achieve more competitive generation rates. 31 This narrows the margin between CCE and IOU

37 14 37 June 5, 2017 Item 20 rates and will likely become more of an issue with time as more of the IOU s long-term contracts expire. This is a risk that is a direct result of injecting competition into the market place, but continually striving to maintain a reliable and flexible energy portfolio that balances environmental goals with the lowest possible costs will help keep CCEs viable. IOU Opposition Historically, the local IOU has pushed back against CCEs looking to launch in their territory. CCEs in the Bay Area battled against PG&E s multi-million dollar marketing campaign and influence with the CPUC. Legislation was passed in 2011 to promote fairness by restricting the IOU s ability to lobby against CCEs. 32 However, there are still ways that IOUs can oppose CCE programs. In August 2016, SDG&E filed a request with the CPUC to create an independent lobbying arm, called Sempra Services Corp., that could legally market against CCE programs. 33 SDG&E was the only IOU in the state to do so. The CPUC gave SDG&E approval conditional upon supplying more evidence that Sempra Services was a sufficiently independent entity. 34 In December 2016, the CPUC suspended the SDG&E s lobbying arm because of failure to provide sufficient evidence that they were following the rules. 34 While under the suspension, Sempra Services met with San Diego officials and made comments on CCE at a County Board of Supervisors meeting in February This violated the suspension, and is currently being investigated by the CPUC. Currently, it is unclear if SDG&E will face repercussions. In April, the CPUC gave SDG&E s marketing arm full approval. 35 Given recent events, there will likely be strong opposition to any CCE started in SDG&E s service territory. CCE programs will likely benefit from launching strong outreach initiatives to educate community members and counteract lobbying efforts from the IOU. Customer Opt-out When CCE programs launch, all customers in the service area are automatically opted-

38 15 38 June 5, 2017 Item 20 in, but have the choice to opt-out. If competitive rates are not maintained, there is a greater risk of customers opting-out. The higher the opt-out rate, the smaller the customer base and less secure the CCE program becomes. High-opt out rates can quickly deteriorate the financial stability of the CCE program. 36 Not only would customer opt-out lead to lower than anticipated retail margins, but could leave the CCE stuck with excess power. Having to sell extra electricity on the spot market can mean selling it at a loss. 36 However, to mitigate this risk, CCEs can plan energy purchases using best available data from existing CCE program s opt-out rates. For example, existing CCE s opt-out rates vary from about 5-18%. 12,20-22 Having a well-balanced and diversified energy portfolio with a mix of short-term and long-term contracts can keep the program flexible. 37 Existing CCEs also suggest strengthening community engagement to prevent opt-out. 38 Local Control & Choice By design, a CCE program should align power purchases and investments with community goals. Not only does this get community-members in touch with the sources of their electricity, but it can also: Advance plans and objectives. For Del Mar, this would mean choosing to purchase energy from more renewable sources to support their Climate Action Goals. Also, revenue generated through the CCE can be reinvested in additional energy projects and programs. Give customers a choice. Del Mar s residential, municipal, and commercial electricity customers can choose to get their electricity from CCE or opt-out to receive their power from SDG&E. Promote community engagement. Opening the decision-making process to the public promotes transparency. It also helps ensure the CCE considers the needs and preferences of community members when setting rates and planning for local energy programs and projects.

39 16 39 June 5, 2017 Item 20 Incubate Innovation The revenue generated from CCE programs can be used to invest in energy generation and storage, and other local programs that support equity, environmental justice, and innovation. CCE s non-profit status allows for capital investment in both supply and demand-side resources. Local generation reduces reliance on long-distance transmission lines and cuts down on related costs. With lower solar prices and incentives offered by CCEs and government programs, local generation can play an important role in ensuring communities energy security and improve power quality. 39 Large-scale local renewable generation. Local large-scale generation investment helps CCEs diversify, secure and expand their access to renewable energy. Existing CCEs have invested in building large-scale local renewable energy generation (Table 2). In addition to building their own energy projects, these CCEs purchase energy contracts from local generation facilities and invest in the replacement of older less, efficient technologies. 40 PCE s 20-year contract to build a 200 MW solar farm represents the largest local generation project by a CCE to date. 41 SCP s floating solar project is particularly innovative. The solar installation, the largest project of its type in the United States, will float on top of irrigation water storage ponds. This will supply new renewable energy while reducing water evaporation. 12 Program Large-scale Project Capacity MCE Solar One Facility 10.5 MW SCP Floating Solar Project 12.5 MW PCE Solar Farm 200 MW Table 2: CCE large-scale local generation projects. All currently being built or in planning process. (Data source: DeShazo, Gattaciecca, & Trumbull) Local distributed generation. Distributed solar is incentivized by Net Energy Metering (NEM). CCEs offer better NEM compensation rates when customers sell their excess distributed solar energy back to the grid. In most cases, the compensation rates offered are 2-4 times higher than what the IOUs offer. 12 This has resulted in SCP paying customers $690,000 last year; similarly, MCE paid their

40 17 40 June 5, 2017 Item 20 customers over a million dollars in The CCEs create better opportunities to bring more clean energy onto the grid by offering superior NEM incentives. Energy-efficiency. Energy efficiency programs have been created through CCEs to encourage lighting and water conservation. These programs can be combined with the incentives already offered by the local IOU. Programs can be tailored to best serve the community s needs. For example, MCE focuses their energy-efficiency programs to benefit the low-income households and small commercial customers in their service area. 12 As of this year, MCE has provided nearly a half million dollars in rebates and thousands of energy audits. 12 Through their energy-efficiency programs, MCE reports saving nearly 8 million gallons of water. 42 Accelerating the future of clean technology. The clean technology sector is rapidly advancing and innovating. For example, up-and-coming innovations like in-home or large-scale battery storage, solar roofing tiles, and electric public transportation 43 could all become part of CCE pilot-programs. In fact, Assembly Bill 2514 states that CCEs are to procure storage equal to 1% of their 2020 annual peak load, with installation no later than Working with other organization such as CleanTech San Diego 45, or the well-established Los Angeles CleanTech Incubator (LACI) 46 could boost these efforts. The versatility and range of opportunities for CCEs to invest in innovative technology to encourage decarbonization allows communities like Del Mar to tailor projects to fit their needs and goals. Job Creation Through investments in local generation and innovation, CCEs can boost the local economy. Both short-term and permanent jobs can be created from renewable energy generation projects construction, operation and maintenance. Other CCEs across the state have been successful in facilitating this growth. MCE reports supporting nearly 2,800 California jobs. Since the cost of living in the Del Mar area is high, the new jobs created are less likely to be accessed by existing Del Mar residents, however, the jobs created may still be considered local if they are filled by people in the San Diego area. The benefits of these new projects would boost green jobs both locally and on the larger state level.

41 18 41 June 5, 2017 Item 20 Decrease GHG Emissions By purchasing more renewable energy, with emphasis on supporting new generation, CCEs have been able to cut down on GHG emissions and spur deeper decarbonization of the electricity sector. Within the last twelve months, the combined efforts of established CCEs have resulted in total emission reductions of 600,000 metric tons of CO 2 equivalents. 12 With current California carbon pricing, this results in over 7.5 million dollars saved. 12 Given the projected increase in CCE participation in California, it has been determined that CCE programs could help exceed the state s Renewable Portfolio Standards by four percentage points, bringing the state s power mix up to 37% renewables by However, a CCE s ability to decarbonize is dependent on what renewable energy purchases they make. When renewable energy is produced, it creates two energy products. The first is the actual electricity and the second is a Renewable Energy Credit (REC). There are three categories, or buckets, of renewable energy products available on the market, and they are not all created equal. Bucket 1: In-state renewables. These renewables are generated in the state and they are delivered with their corresponding REC. This is considered bundled because the energy and the credit are attributed to the same purchaser. These are the highest value renewables on the market. California RPS standards require a minimum of 75% of energy provider s renewable energy purchases to be Bucket 1. Bucket 2: Firmed and shaped renewables. This refers to renewable energy that is still considered bundled, but the sources may come from out-of-state facilities or may occasionally be firmed and shaped with non-renewable resources to account for renewable energy s intermittency issues during peak demand hours. Bucket 3: Unbundled RECs. This category is purchased to claim RPS-eligibility for electricity produced by non-renewable sources. Essentially, this equates to greenwashing dirtier energy and does not support renewable energy generation in the state.

42 19 42 June 5, 2017 Item 20 When accounting for the use of Bucket 3 unbundled RECs, the GHG emissions of a CCE may actually increase compared to the local IOU. For example, it was estimated that Lancaster Choice Energy emits 1% more GHG than their local IOU for the same amount of electricity delivered. 12 Despite displaying larger renewable energy content in their portfolio, a substantial amount comes from Bucket 3 renewables. Regulations are in place to limit their use to a maximum of 10% of energy provider s power portfolio. 47 Because unbundled RECs are the cheapest form of renewable energy products, it is more common to see CCEs use them in the initial periods of service, and phase out their use as they become financially secure. MCE, for example, launched using larger shares of Bucket 3 renewables, but has since decided to limit them to 3% of their portfolio. 12 Other CCEs, including SCP and PCE, do not purchase Bucket 3 renewables at all. 48 The ability to balance decarbonization and maintain competitive rates is in the discretion of the CCE. Careful analysis is necessary to determine the ideal energy mix. SDG&E s High Renewables Option. Currently, SDG&E offers a program called EcoChoice that allows customers to choose to pay a premium for 50, 60, 70, 80, 90 or 100% renewable energy. 49 Figure 6 shows SDG&E s current EcoChoice monthly rate premiums for each renewable energy percentage offered. Also displayed are the current rate savings and premiums of CCE program s options by their corresponding renewable energy percentages. From this figure, it is apparent that while CCE s offer rate savings for their base options, SDG&E s rates are consistently more than their standard mix. It is also important to note EcoChoice is a limited program, that accepts opt-ins until its share of the state s Green Tariff Shared Renewables allocation is met or until 2019, whichever comes first. 50 Currently, information online is unclear about how rates may change for EcoChoice customers in the future, and SDG&E representatives could not provide clarification. EcoChoice is currently supplied by a temporary pool of solar facilities that will be used until new renewable energy generating facilities come online. 50 These new generation facilities are being built specifically as part of the Green Tariff program. 50

43 20 43 June 5, 2017 Item 20 Figure 6: This chart shows the monthly premiums of SDG&E s EcoChoice program and the premiums or savings associated with three CCE programs across the state. (Data sources: SDG&E EcoChoice Current Cost Calculator based on average SDG&E customer monthly usage of 486 kwh. 46 MCE 26, SCP 27, and PCE s 28 Current Cost Calculators based on average monthly residential usage of 445 kwh for PCE and MCE customers, and 510 kwh for SCP customers.) Improving Quality of Life. Decarbonizing the CCEs power mix has broader implications for the Western United State s most vulnerable populations. By increasing renewable energy purchases, CCEs can lower the purchase of energy from nonrenewable sources across the West. Most conventional power plants coincide with areas of higher-risk, lower-income populations. 12 The reduction in local pollution from decreased power-plant emissions may improve air-quality for those who would benefit most. Options In Del Mar s case, the formation of a Joint Power Association (JPA) to run a CCE would be the most likely path forward. The only viable alternative to this would waiting to join another near-by CCE in the future. Since there are currently no CCE s in the SDG&E service territory, this option is not presently available. However, with Solana Beach moving forward with their turn-key CCE, joining an existing program may soon become an option. The benefits and risks of creating a JPA will be compared to joining Solana Beach s turn-key CCE.

44 21 44 June 5, 2017 Item 20 Option 1: Forming a JPA Benefits Key Findings Risks Economy of Scale Retain Local Control Investment Security Learning from Experience Record of Financial Security Slower to Launch Forming a JPA, a governance structure already familiar to the CNCCs of San Diego, would be one way to govern a CCE program. First, it is important to verify that the CNCCs would provide a large enough customer base for CCE. Generally, a JPA-run CCE will serve a large number of accounts (around 100,000 or more) because it includes multiple jurisdictions and can benefit from pooling more demand. 51 The number of CNCC households has been used as a proxy for the number of possible electricity accounts. Figure 7 shows the number of households in each jurisdiction. However, it is assumed that Solana Beach will be creating their own CCE and not be participating in the JPA Number of Households by Jurisdiction Del Mar: 2,125 Solana Beach: 5,657 Encinitas: 23,465 Carlsbad: 42,216 Oceanside: 64,200 Oceanside 47% Del Mar 1% Solana Beach 4% Encinitas 17% Carlsbad 31% Figure 7: This chart shows the individual and total number of households in the Coastal North County cities. The uncertainty associated with the number of total households is ± 4 %. (Data sources: U.S. Census Bureau s 2015 American Community Survey. 52 ) Figure 8 shows the total number of households under this probable scenario as well as the possibility of Carlsbad not participating. Applying a conservative opt-out rate of 20% gives the total number of households that would likely participate in either scenario. Since this calculation excludes all non-residential accounts, the actual customer base would be larger. Non-residential customers also use more electricity Total Households: 137,663 Data from 2015 American Community Survey - U.S. Census Bureau

45 22 45 June 5, 2017 Item 20 monthly, so the aggregate demand would significantly increase once they are factored in. Additionally, the customer base could feasibly increase if other jurisdictions have interest in joining. 52 Economy of Scale The larger the pool of electricity customers, the better deals a CCE can make on power purchase agreements and other service contracts. By conventional wisdom, a strong base of around 100,000 accounts or more is vital to ensure the program can exploit the economy of buying in bulk. 51 Additionally, this means the program s fixed costs are divided by a larger number of people. 53 However, the exact numbers the Coastal North County area required for success would need to be determined through a technical study. While 100,000 is a benchmark, there are examples of programs run successfully with smaller numbers of customers. For example, CleanPowerSF and Lancaster Clean Energy both have customer bases of under 100, They are both enterprise fund model CCEs, however, which are structured differently from a JPA. Figure 8: The first possible scenario assumes Solana Beach is proceeding with their own CCE, so total households was recalculated excluding Solana Beach s contribution. The second scenario assumes that neither Solana Beach nor Carlsbad will participate. Applying a 20% opt-out rate, the total number of households in either scenario that can be reasonably expected to participate was calculated. Values have an uncertainty of ±4%. (Data sources: U.S. Census Bureau s 2015 American Community Survey. 52 ) Retain Local Control The JPA s Board of Directors would be formed by representatives of Del Mar and the

46 23 46 June 5, 2017 Item 20 other Coastal North County jurisdiction s that wish to participate. Decisions made by the JPA s Board of Directors reflect each participating jurisdiction s goals and objectives. This ensures that the CCE s revenue and reserves will be reinvested within the community to target specific issues or goals. Investment Security JPA s add security to the investment of starting a CCE. Legal firewalls are created between the CCE s potential future liabilities and the jurisdictions assets. 12 The financial protection a JPA provides to its participating members is one of the main draws because it helps mitigate the risks of CCE. 54 The entire surplus gained from running a CCE program may be reinvested into other beneficial projects; locking the benefits into the community. Learning from Experience Historically, most CCEs in California have used the JPA model, while the rest have used an enterprise fund. The oldest and most well-established programs, MCE and SCP, use JPAs and offer examples for how CCEs can be successfully run. Documents outlining the steps and best practices 37 for establishing a CCE have been made available to the public with the hope that other communities looking to set up a CCE program will use the collective knowledge gained to build even stronger programs. Because MCE and SCP are the oldest programs in California, they have accrued the most information about their JPA-run CCE program s performance. The economic and environmental implications of operating their CCEs can be quantified Record of Financial Security Financial trends from the last three years show the two CCEs grew in total net position, Figure 9, a measure akin to net worth. Continually increasing net position indicates the CCE can provide consistent and reliable service to the community and can contract energy at lower costs and on more favorable terms. 57

47 24 47 June 5, 2017 Item 20 (Millions) Total Net Position $44 $44 $39 $34 $30 $29 $24 $19 $14 $10 $13 $14 $9 $4 ($1) ($0.1) Additionally, both Sonoma Clean Power s and Marin Clean Energy s Current Ratios, the ratio of current assets to current liabilities, has increased from 2014 to 2016 (Figure 10). In 2016, both CCEs had Current Ratios above two. Generally, if the ratio is above this value, it signifies the organization can comfortably and reliably meet short-term financial obligations. 57 Marin Clean Energy Sonoma Clean Power Figure 9: Marin Clean Energy and Sonoma Clean Power s Total Net Position from 2014 through Generally, the higher the total net position, the more worth is attributed to that organization. (Data sources: MCE 55 and SCP s , 2015 and 2016 Financial Reports) Overall growth for Sonoma Clean Power and Marin Clean Energy is represented in Figure 11 as annual total revenue and total expenses. Both CCE s expenditures have grown each year, but so have their revenues. In fact, revenues have consistently exceeded expenses. Annual net income has increased each year for both CCEs. Figure 10: Marin Clean Energy and Sonoma Clean Power s current asset: current liability ratio from 2014 to The higher the ratio, the more likely an organization can pay its short-term obligations. (Data sources: MCE 55 and SCP s , 2015 and 2016 Financial Reports) The financial history of these JPAbased CCEs indicate a strong financial future. Financial growth and long-term viability boost confidence in the program, and could allow CCEs to gain credit. Existing CCEs established goals to obtain an investment grade credit score within 5 years of launching 58. Whether a CCE will be financially stable is undoubtedly influenced by the risks mentioned previously.

48 25 48 June 5, 2017 Item 20 Financial Growth $160 $140 Annual Net Income $16.2 M $24.3 M (Millions) $120 $100 $80 $60 $1.6 M $4.0 M $13.8 M $40 $20 $1.1 M $ Marin Clean Energy Sonoma Clean Power Total Revenue Total Expenses Total Revenue Total Expenses Figure 11: Marin Clean Energy and Sonoma Clean Power s financial growth from In orange, the annual net income is also displayed. (Data sources: MCE 55 and SCP s , 2015 and 2016 Financial Reports) Slower to Launch The main disadvantage to forming a JPA is that it can take longer to get the program off the ground. This will be impacted by the jurisdiction s level of commitment and enthusiasm. If proper education and advocacy can be promoted, getting all jurisdictions on the same page, this process can be expedited. Since Del Mar is already a member of the San Dieguito River Park JPA and the Metro Wastewater JPA it may be possible to create subcommittee or faction within either existing JPA to start a CCE program. In this case, there wouldn t be the need to start a new JPA, but some cities who may not be existing members of those JPAs would have to join. This could ultimately speed up the process of launching the CCE.

49 26 49 June 5, 2017 Item 20 Option 2: Joining Solana Beach Benefits Key Findings Risks Faster to Launch Conflict of Interest Misaligned Goals Risks to Investments Solana Beach is pursuing a fully-outsourced model. In this model, one or more companies are hired to act as the intermediary between Solana Beach and the energy providers. 59 However, the Board of Supervisors still has the final say on all decisions. 59 This outsourced approach to CCE has never been used in California, but has been used in other states. Currently seven states throughout the country have legislation in place allowing CCE programs. While lessons can be learned from other state s experiences, there is a knowledge gap about how successful these programs would be in California. This uncertainty should be considered when reviewing the following information. Faster to Launch A single jurisdiction can launch a turn-key, fully-outsourced CCE relatively quickly. Because the burden of creating a JPA and sourcing experienced staff is taken up by the company, it makes the CCE program seem like a lighter lift. Parties looking to establish a partnership with turn-key companies should not be rushed, however, and all details about the agreement must be clearly and carefully set forth to minimize the following risks. Conflict of Interest The company that analyzed the feasibility of CCE in Solana Beach, California Clean Power (CCP), had something to gain if they steered Solana Beach towards the turn-key

50 27 50 June 5, 2017 Item 20 approach. CCP appears to serve as both the CCE evaluator and services provider under its business model. This risks objectivity and potentially introduces a conflict of interest that should be carefully evaluated. Misaligned Goals In other states, for-profit companies operating the CCE usually prioritize lowering electricity rates while maximizing their profits 60. However, since Californian communities, like Del Mar, have multiple goals they wish to achieve through a CCE program, including making strides towards decarbonizing the electricity sector. This means that, depending on how diligently oversight is conducted, there could be limited community choice. To thoroughly perform oversight, the city may be taking on a large commitment. This detracts from the idea that using a company lightens the lift. The introduction of intermediary companies also reduces the benefits passed onto the community by transferring a portion of the revenue to the companies for their services. This undermines the goals of CCE and weakens its position to launch innovative and valuable community programs and projects. Risks to Investments Using a turn-key approach can set up a CCE for financial risks. First, the customer base is much smaller than that of a JPA. This makes fixed costs more strenuous and decreases the economy of scale substantially. Based on Solana Beach s census information, there would be under 6,000 residential households available to participate. All the benefits from having a larger customer base would be proportionally reduced and may disappear completely. The community is placed at a disadvantage when the CCE program s financial and operational details are not transparent. There may also be little protection to the city if the firm exits contracts or doesn't fight to make the best deals on energy contracts possible. If energy prices fluctuate drastically and profits are lost, there is a risk of the company backing out and leaving the program and the customers stranded.

51 28 51 June 5, 2017 Item 20 CCP has assessed options for fully out-sourced CCEs for other communities, including San Mateo County. An independent consulting firm, Pacific Energy Advisors (PEA), reviewed CCP s assessment for San Mateo and found that the risks associated with using the outsourced model substantially outweigh prospective benefits In that same assessment, PEA found CCP s claim to make a 10-year rate savings commitment dubious. Over a ten-year planning horizon, it is literally impossible to know what utility rates and wholesale power prices will be, so offering a comparative rate guarantee seemed speculative. 61 This casts doubts on the fully-outsourced business practice. Also in the review, the analysts noted the sales approach used by CCP appears to run counter to the competitive procurement processes typically observed by public entities. This eliminates the ability to evaluate CCP s proposal alongside similar offers from other qualified suppliers in the future. 61 Conclusion The benefits and risks of CCE are crucial to understanding the potential for this type of program in Del Mar. Among existing CCEs, there has been a record of maintaining rate competitiveness, but not without its challenges. The biggest risk to keeping prices competitive in the future is expected to be increasing exit fees. However, the competition induced by CCE programs, opposition by SDG&E, and customers opting-out of the CCE all pose risks to offering competitive electricity rates. CCE risks can be mitigated by increasing local outreach and education, developing a working partnership with SDG&E, working with existing CCEs, monitoring related legislation and regulatory changes, and advocating for CCE programs. Buying renewable energy through a CCE is far more economically efficient than purchasing it through the IOU. Other benefits from CCE programs include providing a

52 29 52 June 5, 2017 Item 20 voice to the community, investing in innovation, creating jobs, and supporting the decarbonization of the electricity sector. When comparing possible options for establishing a CCE program in Del Mar, it appears the JPA model is the most feasible. The fully-outsourced model that will be used by Solana Beach has never been tried in California and there is much uncertainty surrounding the benefits and risks of this model. However, with the available information, it appears that using a JPA provides the most benefits and least risks. In the future, an in-depth technical study would help quantify the benefits and risks associated with CCE for Del Mar. References 1 Pachauri, R. K., Allen, M. R., Barros, V. R., et. al (2014). Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Geneva. Retrieved from 2 Ribera, T., Sachs, J., Colombier, M. et al. (2015, September). Pathways to Deep Decarbonization Executive Summary. Paris. Retrieved from 3 U.S. Environmental Protection Agency. (2017, April 14). Sources of Greenhouse Gas Emissions. Retrieved from 4 California Energy Commission. (2016, December 22). Tracking Progress - Renewable Energy. Retrieved from 5 California Public Utilities Commission. (2017). California Renewables Portfolio Standard (RPS). Retrieved from 6 Center for Sustainable Energy. (2016). Equinox Indicators. Retrieved from equinox/dashboard 7 City of Del Mar. (2016, June 6). Climate Action Plan. Retrieved from 8 San Diego Gas & Electric. (2016) Power Content Label. Retrieved from

53 30 53 June 5, 2017 Item 20 9 California Energy Commission. (2016, December 22). Current Renewable Procurement Status. Retrieved from 10 San Diego Gas & Electric. (2017, January). Electric rates to be adjusted early Retrieved from illinsert.pdf?nid= San Diego Gas & Electric. (2017, April 17). Application of San Diego Gas & Electric Company (U 902- E) for Approval of Its 2018 Electric Procurement Revenue Requirement Forecasts and GHG- Related Forecasts. Retrieved from 12 Deshazo, J. R., Gattaciecca, J., & Trumbull, K. (2017). The Promises and Challenges of Community Choice Aggregation in California. Los Angeles. Retrieved from 13 Hancock, A. (2016, March 10). Community Choice Energy: A California transformation in one decade. Retrieved from 14 Midgen. (2002). Assembly Bill 117 (State of California, United States). Retrieved from df 15 Cheng, N. (2017, May 16). San Jose approves clean energy program. Retrieved from Marin Clean Energy. (2016) Power Content Label. Retrieved from 17 Sonoma Clean Power. (2016) Power Content Label. Retrieved from 18 Peninsula Clean Energy (2017). Energy Options. Retrieved from Mix-Template2015.pdf 19 Lancaster Choice Energy (2017). Your Options. Retrieved from 20 Boyles, R. - Marin Clean Energy Representative (2017, May 9) Personal communication via Sonoma Clean Power (2017) 2016 Annual Report.

54 31 54 June 5, 2017 Item Sinclair, A. - Marin Clean Energy Representative (2017, May 11) Personal communication via Marin Clean Energy. (2017). 100% Local Solar Energy. Retrieved from 24 Wiser, R., Barbose, G., & Bolinger, M. (2017, March). Retail Rate Impacts of Renewable Electricity: Some First Thoughts. Lawrence Berkeley National Laboratory. Retrieved from 25 EES Consulting, Inc., & Bevilacqua-Knight, Inc. (2016, December 9). Inland Choice Power Community Choice Aggregation Business Plan. Retrieved from CCA_CVAG_WRCOG_SBCOG_Final_Feasibility_Study%20_12_08_16.pdf 26 Marin Clean Energy. (2017) Residential Cost Calculator. Retrieved from 27 Sonoma Clean Power. (2017) Example Residential Electric Charges. Retrieved from 28 Peninsula Clean Energy. (2017). Residential Cost Calculator. Retrieved from 29 Penn, I. (2017, April 30). Public energy programs save customers money - at least in the beginning. Retrieved from story.html 30 San Diego Gas & Electric. (2017, February 28). FORM 10-K (Annual Report). Retrieved from 31 Rivard, R. (2017, May 3). Under New SDG&E Plan, Customers Who Leave Could Keep Paying for Decades. Retrieved from decades/ 32 Leno. (2011). Senate Bill 790 (State of California, United States). Retrieved from 33 Smith, J. E. (2016, August 19). SDG&E shareholders and green groups headed for face-off? Retrieved from news/environment/sdut-cpuc-clears-sdge-ccalobbying-2016aug18-story.html 34 Trageser, C. (2017, March 3). State Commission Investigating SDG&E for Lobbying Against Community Energy Program. Retrieved from

55 32 55 June 5, 2017 Item Trageser, C. (2017, April 12). SDG&E's Affiliate Approved to Lobby on Community Choice Amid Ongoing Investigation. Retrieved from 36 Pacific Energy Advisors, Inc. (2016, January 8). Peninsula Clean Energy CCA Risk Analysis Summary Table. Retrieved from Energy-CCA-Technical-Study.pdf 37 California Community Choice Association. (2017). Best Practices of Existing CCAs in California. Retrieved from 38 Marin Clean Energy. (2017). CCA Resources. Retrieved from 39 United States Department of Energy & Federal Energy Regulatory Commission (2007). The Potential Benefits of Distributed Generation and Rate-Related Issues that May Impede their Expansion. Retrieved from 40 Sonoma Clean Power. (2017). Archives. Retrieved from 41 Peninsula Clean Energy. (2016). Community Information Guide. Retrieved from Energy-CCA-Technical-Study.pdf 42 Marin Clean Energy. (2017). Homepage. Retrieved from 43 Tesla. (2017). Tesla Solar. Retrieved from 44 Skinner (2010). Assembly Bill Retrieved from 45 CleanTech San Diego. (2017). CTSD Homepage. Retrieved from 46 LACI. (2017). La Kretz Innovation Campus. Retrieved from 47 California Public Utilities Commission. (2017). 33% RPS Procurement Rules. Retrieved from 48 Peninsula Clean Energy. (2016, December). Policy on Unbundled Renewable Energy Credits (RECs). Retrieved from 11-final.pdf 49 San Diego Gas & Electric. (2017). EcoChoice Current Cost Calculator. Retrieved from

56 33 56 June 5, 2017 Item 20 / 50 San Diego Gas & Electric. (2017). EcoChoice. Retrieved from 51 Marshall, S. (2017, March 10) Presentation at 2017 San Diego CCA Conference. 52 American FactFinder. (2015). Table of Households and Families: Del Mar, Solana Beach, Encinitas, Carlsbad, & Oceanside, California. Retrieved from 53 Hale, B. CleanPowerSF (2017, May 18). Personal Communication via phone. 54 California Clean Power (2016, April 22). City of Solana Beach: Community Choice Aggregation Technical Analysis. Retrieved from 55 Marin Clean Energy. (2016). Financial Statements, 2014, 2015, and Retrieved from 56 Sonoma Clean Power (2016). Financial Statements, 2014, 2015, and Retrieved from 57 Keating, E. (2008, September 10). Understanding Financial Statements. Retrieved from Statements.pdf 58 Peninsula Clean Energy. (2017). Goals & Policies. Retrieved from Nestande, B. (2016, June). Submittal to the Board of Supervisors: County of Riverside: Community Choice Aggregation/Community Choice Energy Implementation. Retrieved from: 60 California Alliance for Community Energy. (2016, October). Good Energy is a Bad Deal. Retrieved from 61 Pacific Energy Advisors, Inc. (2015, June 24). Community Choice Aggregation Fully Outsourced Service Model Assessment. Retrieved from al_6.2

57 34 57 June 5, 2017 Item 20 Appendix 1: Resources A. Resources about Climate Change NASA Climate Change Climate Central The Climate Reality Project The Solutions Project IPCC Department of Energy B. Resources on CCE Existing CCE s websites: Marin Clean Energy Sonoma Clean Power Peninsula Clean Energy Lancaster Choice Energy CleanPowerSF Silicon Valley Clean Energy Redwood Coast Energy Authority Apple Valley Choice Energy Upcoming CCE s websites: East Bay Community Energy LA Community Choice Energy Valley Clean Energy Alliance CCE Advocates California Community Choice Alliance Climate Action Campaign Coastal North County Advocates Clean Power Exchange LEANEnergy U.S

58 35 58 June 5, 2017 Item 20 Appendix 2: Renewable and GHG-free Energy Renewable and GHG-free energy are not completely interchangeable terms. Renewable resources can either be regenerated within a human timescale through natural processes, or are incapable of being depleted.i GHG-free resources include eligible renewables as well as non-renewable resources. Figure A2-1 shows a list of California s eligible renewable and GHG-free resources. Renewable Resources Solar Photovoltaics & Concentrating Solar Power Wind On & Off-Shore Geothermal Biopower Biogas, biodiesel & biowaste Small Hydroelectric Under 40 MW Ocean Thermal, wave & tidal current (Non-renewable) GHG-free Resources Nuclear Large Hydroelectric Over 40 MW Figure A2-1: Renewable and GHG-free resources based on California s Renewable Portfolio Requirements. (Data source: 2015 California RPS Commission Guidebook) Despite being considered GHG-free, some GHG emissions are expected when looking at the full lifecycle of these energy technologies. This usually stems from the production of these technologies. However, because currently these emissions are unavoidable and small compared to conventional fossil fuels, they are granted the label GHG-free. Figure A2-2 shows the difference between GHG emissions from renewable and non-renewable resources. Renewables emit significantly less over their lifetime. The two non-renewable, but GHG-free resources are nuclear and large-scale hydroelectric power. Nuclear requires radioactive materials that are not renewable and produces toxic waste products. Large hydroelectric is not considered renewable because it can have negative ecological impacts and is not considered sustainable.

59 36 59 June 5, 2017 Item 20 Large hydroelectric has also be attributed to reservoir emissions. These unintended emissions occur when newly dammed areas experience biological death and decomposition due to the water s stagnation, releasing carbon into to atmosphere. ii Figure A2-2: This plot shows the expected GHG emissions from various electricity generation technologies. Note: hydroelectric is displayed as a renewable resource, but for California s RPS only small-scale (less than 40 MW of generation) is considered renewable. (Data Source: IPCC, 2011: IPCC s Working Group III Special Report on Renewable Energy Sources and Climate Change Mitigation.)

60 37 60 June 5, 2017 Item 20 Appendix 3: Information on Exit Fees Exit fees, often referred to as the largest risk to CCEs ability to maintain rate parity, are set by the CPUC. Exit fees are intended to prevent cost shifting onto remaining IOU customers in the wake of CCE customers departure. This is important because it protects IOU customers who do not have the ability to choose their energy provider. The Power Charge Indifference Adjustment (PCIA) fee will vary depending on the value of the IOU s power purchase agreements made in the past and the current market value of electricity. iii As already mentioned, renewable energy and natural gas have reached historic lows. If the cost of energy remains low or continues to fall, the PCIA will result in a critical fee for CCE customers. PCIA = IOU s portfolio costs market value The 2017 Energy Outlook from the Energy Institute of America (EIA) forecasts that natural gas prices are predicted to increase slightly from iv However, natural gas prices are highly dependent on the availability of gas and oil and the cost of extraction. Renewable energy will likely experience the fastest and greatest growth because of lower capital costs and state policies encouraging its use. ii Better technology is expected to lead to lower renewable energy prices in the future. Including available federal tax credits, wind and solar units will be among the most competitive sources of new generation in ii,1 If renewable energy prices decrease as projected, the PCIA would likely to remain a burden to CCEs. However, the annual change will be uncertain. Exit fees are vintaged meaning fees are ascribed to departing customers based on the date they leave the IOU s service, so that they are responsible for generation costs incurred on their behalf before their departure to a CCE. v To better understand how the PCIA poses a risk to CCEs, Figure 3 diagrams how the PCIA factors into a customer s bill. The transmission and distribution charges do not differ for CCE and the IOU, SDG&E in this example. However, the PCIA charge is only applied to the CCE customer s bills. When added on top of CCE s generation charges, 1 when levelized costs of electricity and levelized avoided costs of electricity are considered. For more information see:

61 the bill approaches the SDG&E total. To maintain rate parity, the CCE generation charges must remain significantly lower to account for the PCIA fee. Figure A3-1: Illustrative diagram showing the components of electricity bills for CCE customers compared to SDG&E customers. (Not to scale). Based on MCE, SCP, and PCE s data, current generation charges are between 10 and 30% lower than SDG&E s generation fees. This reflects the CCEs ability to get better deals on energy contracts. Based on MCE s PCIA data from 2015 and 2016, the PCIA constituted 5-15%vi of the CCE customer s total bill. This translates to MCE customers having paid $19 million in fees in 2015 and an estimated $43 million in 2016.i This reflects 96% and 27% PCIA increases approved in January 2016 and 2017, respectively. Controversy around this fee stems from the CCE legislation that states IOU s energy contract costs are only recoverable through the PCIA if they are unavoidable.vii Because CCEs must submit binding notices of intent, it has been argued that the IOU should be able to better plan and anticipate customer departures. CCE advocates argue that if the IOUs renegotiate long-term contracts, refuse to extend existing contracts, work to sell off power to others in the market, and plan for smaller customer loads, then the IOU shouldn t be stranded with more energy than necessary, or at least not enough to impose debilitating PCIA fees. A spokesperson for SDG&E said the company is open to renegotiating or selling long June 5, 2017 Item 20