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Staff Reportowx of MEETING DATE: 12/15/15 ITEM NO: ' a COUNCIL AGENDA REPORT DATE: DECEMBER 7, 2015 TO: MAYOR AND TOWN COUNCIL FROM: LAUREL PREVETTI, TOWN MANAGERVAe t SUBJECT: INFORMATION REPORT ON COMMUNITY CHOICE ENERGY AND DIRECT THE TOWN MANAGER TO RETURN WITH AN ORDINANCE AND OTHER IMPLEMENTING DOCUMENTS FOR THE JANUARY 19, 2016 COUNCIL MEETING. RECOMMENDATION: Provide feedback on Community Choice Energy (CCE) and direct the Town Manager to return with an ordinance and other implementing documents for the January 19, 2016 Council Meeting. BACKGROUND: Authorized by California law, CCE enables city, town, and county governments to pool the electricity demand within their jurisdictions to directly procure or generate electrical power supplies on behalf of the residents and businesses in their communities. The main driver for interest in CCE programs in California is the opportunity to accelerate the shift to renewable and low greenhouse gas (GHG) emitting energy sources in support of climate action objectives. While electric supply is handled by the CCE program, the electricity grid and customer service remain with the incumbent utility (PG &E). Three CCE programs now operate in California - Mann Clean Energy, Sonoma Clean Power, and Lancaster Choice Energy. DISCUSSION: Four agencies, Sunnyvale, Cupertino, Mountain View, and the County of Santa Clara (for its unincorporated areas) began the exploration of CCE. Each agency has already contributed $170,000 for startup costs and formed the Silicon Valley CCE Partnership (SVCCEP — www.svcleanenergy.org). PREPARED BY: MATT MORLEY y Director of Parks and Public Work Reviewed by:[—W-/Assistant Town Manager !"/ 'own Attorney PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: INFORMATION REPORT ON COMMUNITY CHOICE ENERGY AND DIRECT THE TOWN MANAGER TO RETURN WITH AN ORDINANCE AND OTHER IMPLEMENTING DOCUMENTS FOR THE JANUARY 19, 2016 COUNCIL MEETING. DECEMBER 7, 2015 DISCUSSION (cont'd): The four agencies employed a consultant to conduct an initial study to assess the viability of the program. On December 1, 2015, Cupertino became the first City Council to agree to and proceed with the JPA. The other three originating agencies are scheduled to hear the item at their boards in December or January. Subsequently eight other communities in Santa Clara County have stepped forward and expressed interest in the prospect of multi jurisdictional CCE. In addition to Los Gatos, Campbell, Gilroy, Los Altos, Los Altos Hills, Monte Sereno, Morgan Hill, and Saratoga have all taken the requisite preparatory step of authorizing PG &E to provide detailed electrical data for their jurisdictions. With the potential inclusion of these jurisdictions, a more detailed Technical Feasibility Study (Technical Study), the results of which are shared in Attachment A, was conducted. Moving forward with this step in the process did not require any expense by the Town and allowed for the collection of real data to feed into the analysis. This information is intended to provide the Town Council, community, and staff with enough information to determine if CCE is the right choice for Los Gatos. The CCE program has been developed with a governance structure composed of a Joint Powers Authority (JPA), made up of representatives from the elected bodies of the member jurisdictions. The JPA will be its own entity and will make all decisions pertaining to the JPA, including procuring the energy supply, determining the "green" energy mix, and making operating decisions. The agreement that will be used to establish the JPA is provided as Attachment 2. All participating agencies must sign the agreement by March 31, 2016. When a community decides to create or join a CCE, all customers within that jurisdiction are automatically enrolled in the CCE. However, customers can choose to opt out and remain with or go back to PG &E. In existing programs, 80 to 90% of customers have chosen to stay with the new local agency as their electricity provider. State law requires a minimum of four direct mailings to the customer base providing information on how to opt out of the program. These mailings will be conducted by the JPA. Under CCE, PG &E would continue to provide essential services as a partner, delivering the electricity over existing infrastructure, maintaining the power lines, sending bills, and providing customer service. The utility bill would continue to look the same as it currently does. The Technical Study looked at multiple variables in a prospective program. Three scenarios were designed to evaluate a broad range of portfolio characteristics for purposes of demonstrating the inherent tradeoffs that exist when deciding between available resource options. The prospective supply portfolios were constructed in consideration of certain key objectives. These objectives generally focused on the achievement of rate competitiveness, GHG emissions reductions, and increased use of renewable energy PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: INFORMATION REPORT ON COMMUNITY CHOICE ENERGY AND DIRECT THE TOWN MANAGER TO RETURN WITH AN ORDINANCE AND OTHER IMPLEMENTING DOCUMENTS FOR THE JANUARY 19, 2016 COUNCIL MEETING. DECEMBER 7, 2015 DISCUSSION (cont'd): resources relative to PG &E. Two of the scenarios showed cost savings while the third showed parity with PG &E rates, all with environmental benefits. These scenarios were constructed for the feasibility analysis only. The actual offerings through the JPA will be set by the JPA board. The following table from the Technical Study highlights the findings: SVCCE Supply Primary Objectives of Total Renewable Energy Content as % Anticipated GHG Emissions Savings Anticipated SVCCE Customer Cost Scenario Supply Portfolio of Total Supply (Year Impacts (Year 1; 1; Year r r Achieve GHG emissions Scenario 1 parity (with PG &E) on a YEAR 1 = 36% YEAR 1 = YEAR 1 = 47 projected basis while Change ge average savings exceeding PG &E's YEAR 10 = 49% YEAR 10 = ° YEAR = 3 /° expected proportion of RPS- eligible Changge e overage savings Scenario 2 Increased renewable energy procurement plus o YEAR 1 = 51 /o YEAR 1 = 20% YEAR 1 = 3% 20% GHG emissions reduction overage savings reductions (relative to YEAR 10 = 66% incumbent utility) YEAR 10 = 20% YEAR 10 = I% reduction average savings Scenario 3 Maximize GHG -free u YEAR 1 = 76% YEAR 1 = 60% YEAR 1 = "Zero" power procurement (RPS- reduction impact eligible renewable energy plus additional YEAR 10 = 76% ° EAR 10 = 86 /° YEAR 10 = "Zero" pp y) while GHG -free supply) reduction impact maintaining general The Technical Study provides a look at the risks involved with many aspects of CCE. Some of the risks are highlighted here: Loss of Capital - In order to establish the JPA, participating jurisdictions are asked to provide startup capital. Should the JPA fail to launch, the Town could lose some or all of its startup capital investment. The Town's percentage share is estimated at $150,000 and is further described in the Fiscal Impact section below. Energy Mix - The energy mix within the Technical Study was used to provide examples based on available knowledge of energy costs and availability. The JPA will experience unique market forces that could affect cost and availability, which would ultimately affect user rates. The Technical Study included a sensitivity analysis to determine the likelihood of rates exceeding those set for PG &E, concluding only a slight chance of that happening. Users also retain the right to opt out of the program at any time. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: INFORMATION REPORT ON COMMUNITY CHOICE ENERGY AND DIRECT THE TOWN MANAGER TO RETURN WITH AN ORDINANCE AND OTHER IMPLEMENTING DOCUMENTS FOR THE JANUARY l9, 2016 COUNCIL MEETING. DECEMBER 7, 2015 DISCUSSION (cont'd): Liability of Member Jurisdictions- The purpose for establishing a JPA is to carry the risk associated with that activity within the JPA. The JPA would provide the risk management element for the Town as it will exist as its own legal entity with bonding and insurance. Additional risk elements also exist and are analyzed within the Technical Study. There have been multiple public outreach meetings provided by the SVCCEP to provide information for this effort. Town staff is currently working to bring an informational meeting to Los Gatos to provide the opportunity for local residents to hear about and provide input on the program. CONCLUSION: Interest in the CCE model is spreading beyond Santa Clara County, with more than 20 communities throughout California now evaluating and/or pursuing CCE, including San Mateo County, Alameda County, and a collaboration among Monterey, Santa Cruz, and San Benito Counties. Staff recommends that the Council provide input on Community Choice Energy (CCE) and direct the Town Manager to return with an ordinance and other implementing documents for the January 19, 2016 Council Meeting. ALTERNATIVES: Alternatively, the Council could opt to not participate in CCE and remain with PG &E. In choosing this option, the Town would achieve state mandated alternative energy use of 33% by 2020 and 50% by 2030. COORDINATION: This report has been coordinated with the Finance Department and the Office of the Town Attorney as well as with SVCCEP. PUBLIC OUTREACH: As noted above, the SVCCEP has conducted multiple public outreach meetings. Town staff have requested an additional coordinated public meeting for Los Gatos and the surrounding cities to further ensure the public is informed. Program information and meeting details will be provided through the Town's website, social media, and outreach to the Los Gatos Weekly Times. Additionally, should the Council wish to proceed, notice of the implementing ordinance will be published in a local newspaper as is required. PAGE 5 MAYOR AND TOWN COUNCIL SUBJECT: INFORMATION REPORT ON COMMUNITY CHOICE ENERGY AND DIRECT THE TOWN MANAGER TO RETURN WITH AN ORDINANCE AND OTHER IMPLEMENTING DOCUMENTS FOR THE JANUARY 19, 2016 COUNCIL MEETING. DECEMBER 7, 2015 FISCAL IMPACT: The establishment of a JPA requires initial funding for startup costs. The JPA structure is set up to recover these costs and return them to the agencies within four years. The total startup costs for the JPA have been estimated at $2.9M. A breakdown of these costs is provided on page 47 of the Technical Study. Each interested agency is being asked to contribute based on the amount of energy used within the jurisdictions. Should the Council choose to participate, the Town's share of the startup cost, including a contingency, has been set at $150,000. The table below highlights contributions from each jurisdiction. This amount was recently increased to add a contingency amount in order to help minimized the risk for future funding requests by the JPA. Jurisdiction Campbell (in Progress) -- Phase 2 and 3 $100,000 w/Contingency $150,000 Cupertino $170,000 $350,000 $450,000 Gilroy -- $100,000 $150,000 Los Altos -- $100,000 $150,000 Los Altos Hills $25,000 $25,000 Los Gatos $100,000 $150,000 Monte Sereno $25,000 $25,000 Morgan Hill -- $100,000 $150,000 Mountain View $170,000 $350,000 $450,000 Santa Clara County (Unincorporated) $170,000 $350,000 $450,000 Saratoga -- $100,000 $150,000 Sunnyvale $170,000 $350,000 $450,000 Total $680,000 $2,050,000 $2,750,000 ENVIRONMENTAL ASSESSMENT: This is not a project defined under CEQA, and no further action is required. PAGE 6 MAYOR AND TOWN COUNCIL SUBJECT: INFORMATION REPORT ON COMMUNITY CHOICE ENERGY AND DIRECT THE TOWN MANAGER TO RETURN WITH AN ORDINANCE AND OTHER IMPLEMENTING DOCUMENTS FOR THE JANUARY 19, 2016 COUNCIL MEETING. DECEMBER 7, 2015 Attachments: 1. Draft Silicon Valley Community Choice Energy Technical Study 2. Draft Joint Powers Authority Agreement