CCA Pilot Project Update Petaluma, California October 10, 2007 Topics Project Overview Renewable Energy Supply: Highlighting Marin County s Current CCA Initiative Process & Timeline for CCA Implementation Key Issues for Implementation 1 1
CCA Pilot Project CCA Pilot Project Overview 2 CCA Pilot Project Participants Berkeley Beverly Hills San Diego County 16% Berkeley Beverly Hills 3% 5% Emeryville Oakland Pleasanton Richmond West Hollywood San Marcos Marin County Los Angeles County San Marcos 4% Vallejo 3% Richmond 4% Pleasanton 4% LA County 36% Vallejo San Diego County Oakland 12% Emeryville 1% Marin County 9% West Hollywood 3% Total Peak Demand: 2,500 MW Total Annual Energy: 12,000 GWh Approximately 8% of current load of PG&E, SCE and SDG&E Renewable Energy Target At 40%: 4,800 GWh or 1,800 MW 3 2
Project Scope & Status Task Status Phase 1: Monitor CPUC Proceeding Pilot Communities Selection Initiate Pilot Communities Participation Base Case Evaluation Recommendation To Pilot Communities Pilot Communities Decision Support Mostly Complete Complete Complete Complete Complete Mostly Complete Phase 2: Renewable Resource Development Roadmap Implementation Plans Monitor Implementation Plans At CPUC Final Evaluation Template Application and Outreach Complete Mostly Complete Mostly Complete Future Future 4 Project Approach Phase 1 Feasibility Assessment: Compares Rates Under a CCA to the Utility s Rates 1. Request information from utility regarding customers and electricity sales for primary customer classifications. 2. Use statistical hourly load profiles and load projections to model hourly electric loads for customers within the municipality. 3. Assemble prototypical supply portfolios with mix of power purchase contracts, renewable purchases, generation and short term purchases. 4. Layer in costs for administration, operations, metering, billing, exit fees (CRS) and other fees charged by the utility. 5. Compare total cost of CCA service to costs incurred under status quo (utility service generation rates). 5 3
Utility Rate Projections Are Benchmark For CCA Performance 2 5 PG&E Electric Rate History and F (System Average Rate) Cents Per kwh 2 0 1 5 1 0 5 0 1 9 8 0 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 0 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 * PG&E s total rate has increased at an annual average of 4.41% since 1980 (Source: CEC). * Study used a projected utility rate of increase of 1.7% (red line) through 2024 based on known utility resources and assumed efficient utility procurement at market prices. * Less conservative utility rate assumptions would significantly improve the CCA rate comparisons made in the study; e.g., use of a 3% (yellow line) average utility rate increase would double or triple the financial benefits of forming a CCA in many cases. 6 2 0 1 4 2 0 1 6 2 0 1 8 2 0 2 0 2 0 2 2 2 0 2 4 Customer Mix and Usage Characteristics Are Important Economic Factors PG&E Average Generation Rates - 9 8 Cents per kwh 7 6 5 4 3 2 1 0 R e s i d e n t i a l S m a l l M e d i u m L a r g e I n d u s t r i a l C o m m e r c i a lc o m m e r c i a lc o m m e r c i a l S t r e e t A g r i c u l t u r a l L i g h t i n g Low-use residential load is more challenging to serve on a cost competitive basis due to AB1X rate caps and other rate design issues. Rate differentials across customer classes have narrowed since 2005; however, jurisdictions with greater prevalence of commercia industrial customers will continue to have a better chance of offering lower rates. 7 4
Summary of Findings CCA Generation Local governments can offer lower rates by using capital structure advantages available to public agencies: Access to supply resources financed with tax-exempt debt No equity return/profit No taxes Electricity and/or natural gas prepayment Capital structural advantage can reduce average costs by approximately 15% for the same asset. A benefit can be obtained by partnering with and procuring power from another public agency, such as NCPA or SCPPA. 8 Summary of Findings (Cont d) CCA Wholesale Electric Purchases For the majority of participants, significant cost savings are not achievable by simply purchasing wholesale power on behalf of retail customers from the same sources as IOUs. Cost responsibility surcharges neutralize most known difference between utility rates and competitive market prices. A CCA would incur administrative costs and incremental utility fees of 3% to 5% that must be recovered through its rates. A CCA would avoid utility supply contracts or generation costs incurred after the CCA assumes procurement responsibility for its customers. Avoidance of future utility procurement and/or generation investments has significant value. Rate stability and predictability can be achieved through longer-term contracts. 9 5
Summary of Findings (Cont d) CCA Renewable Energy Cost Impact Increasing use of renewable resources has a very minor impact on CCA generation rates. Study assumed renewable premium of 1.8 cents per kwh or 40% relative to fossil fueled generation. Evaluated purchasing from a mix of wind (66%), geothermal (25%), biomass (8%) and solar (1%) resources. Doubling the renewable energy used to serve the program to 40% was found to increase overall customer rates by 1% to 2%. CCA financing of renewable assets/contracts can eliminate cost increases associated with renewable energy. 10 Study Results Achieving 40% Renewable Energy Through CCA Asset Based Supply Strategy Savings On Monthly Bills 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Under study assumptions, CCA costs are from 1% to 11% lower than the IOU s rates (on average) over the 20-year study period. Access to cost-based renewable power, financed with tax-exempt debt, provides savings. Community 12 Community 11 Community 10 Community 9 Community 8 Community 7 Community 6 Community 5 Community 4 Community 3 Community 2 Community 1 Build 40% Renewable Savings over study period equals the difference between total CCA cost of service and the IOU s generation charges over the 20-year forecast period, expressed as a percentage of total electric bills. 11 6
Larger CCA Programs Offer Better Economics AB 117 provides that cities and counties can join together to offer CCA service through creation of a joint powers agency. Larger programs offer several advantages: Reduced overhead and startup costs Load diversity benefits More opportunities for generation and potentially transmission investment Can improve CCA margins by 20% to 30% relative to individual implementation. 12 CCA Pilot Project Renewable Energy Supply: Highlighting Marin County s Current CCA Initiative 13 7
Marin CCA Power Supply Plan Principles Maximize renewable energy supply, subject to the following constraints/terms: Program generation rates should remain at or below PG&E. Maximize development of local renewable resources. Develop rate tariff that allows Program participants to pay premiums for increased renewable energy consumptions (Green Tariff). Begin operations by purchasing power from existing generating facilities and contracting for operating/administrative services from an experienced, financially stable supplier. Seek to partner with an experienced public power developer to purchase a minimum of 125 MW of renewable power from new renewable generating facilities as soon as practical (e.g. by 2013). 14 Marin CCA What Renewable Percentage Could Be Achieved With Rates at or Below Utility? Could maintain approximate rate parity by starting at 25% and increasing to over 50% in 2013. Cents Per kwh 1 8 1 6 1 4 1 2 1 0 8 6 4 2 0 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 6 0 % 5 0 % 4 0 % 3 0 % 2 0 % 1 0 % 0 % % of Energy Marin Renewables Utility Renewables Marin Rates Utility Rates 15 8
Marin CCA Implications of Analysis Including renewable energy in a CCA s power supply portfolio will impact program generation rates. For the Marin CCA, determining this balance has the following implications: Accepting a level of renewable power supply below 51% in 2013 (and beyond) will likely result in a slight cost savings relative to Utility. Increasing renewable power supply above 51% in 2013 (and beyond) will likely result in additional costs relative to Utility. 16 Does Renewable Energy Consumption Mitigate Natural Gas Price Risk? If natural gas supplies are significantly reduced (prices increase), potential price risk is effectively mitigated by increasing amounts of long-term renewable energy purchases. Cents Per kwh 1 8 1 6 1 4 1 2 1 0 8 6 4 2 0 2013 2015 2014 2021 2020 2019 2018 2017 2016 2024 2023 2022 Marin Rates Utility Rates 17 9
Can A 100% Renewable Supply Portfolio Be Achieved? Estimated rate impact of a 100% renewable supply portfolio is $8 per month for a typical household during the first year of CCA operation. GHG reductions, based on 100% renewable energy supply, are estimated at 470,000 to 830,000 metric tons per year. Cents Per kwh 1 8 1 6 1 4 1 2 1 0 8 6 4 2 0 2015 2014 2013 2012 2011 2010 2009 2022 2021 2020 2019 2018 2017 2016 2024 2023 1 0 0 % 8 0 % 6 0 % 4 0 % 2 0 % 0 % % of Energy Marin Renewables Utility Renewables Marin Rates Utility Rates 18 Implications of Increased Renewable Energy Consumption Renewable generation is not subject to the fuel price risk associated with conventional generating resources. Fuel price risk is eliminated for the portion of a supply portfolio that is met by retained renewable generating capacity and/or long-term renewable energy contracts. Meeting program energy supply with intermittent renewable resources presents operational challenges use of Renewable Energy Certificates (RECs) can mitigate this potential issue. 19 10
CCA Pilot Project Process & Timeline for CCA Implementation 20 CCA Implementation Approaches Cities and counties electing to offer CCA to their constituents can choose to organize in one of the following ways: Become a CCA directly by enacting an ordinance (single City/County pursues CCA independent of others) Pass an ordinance to offer CCA through participation in a Joint Powers Agency (multiple Cities and/or Counties jointly offer CCA within their collective jurisdictions) The CCA entity (City, County or JPA) would adopt an Implementation Plan and register as a CCA with the Public Utilities Commission. 21 11
CCA Implementation Timeline CCA Implementation - Key Milestone Schedule (Monthly Time Intervals) CCA Registration (30 Days) Develop Business Plan (90-120 Days) Negotiate with Potential Program Suppliers and Sign Power Supply Contract (30-60 Days) Complete Feasibility Study (30-90 Days) Develop Draft Implementation Plan (30-60 Days) Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr January 2007 April 2009 Establish Basic Program Goals and Objectives (30-90 Days) Prepare, Publish and Evaluate RFP/RFQ for Program Energy Supply (90-120 Days) Develop Draft Governance Documents (JPA, if applicable, and CCA Agreements: 90-120 Days) Form JPA (Coincides with Document Development Timeline) Commence Service Delivery 22 Finalize Implementation Plan and Submit to CPUC (30 Days) CCA Pilot Project CCA Implementation Issues 23 12
Understanding Potential Risks of a CCA Status Quo Uncertain rates No local control Profit centered decisionmaking Minimum RPS compliance (20%) Community Choice Rates may exceed IOU in some years (generally +/- 5%) Potential IOU opposition Customer willingness to participate Supplier performance Political accountability 24 Implementation Issues The following implementation issues are discussed and/or resolved in both the Business Plan and Implementation Plan, providing a CCA with multiple opportunities to review, revise and refine its approach to each issue: Governance City Council JPA Board Organization Internal staffing vs. third party contracts Roles during startup vs. long term Ratesetting Policies Rate design Process, including customer notice and input Customer rights and responsibilities Financing Startup activities, staffing, utility fees, systems Working Capital Generation investments 25 13
Implementation Issues (Cont d) Contracts JPA Agreement Supplier Agreements (electric supply, customer services) Utility Agreements Resource Plan Sales forecast, phasing, opt-outs Supply Renewable energy Reserves Demand side resources Risk Management Allocation of risk among customers and third parties Plan for program termination 26 NCI Contacts Kirby Dusel Associate Director kdusel@navigantconsulting.com 916.834.0684 John Dalessi Director jdalessi@navigantconsulting.com 916.631.3200 27 14