San José Clean Energy Business Plan Public Meeting March 15, 2017 Good Afternoon, My name is Kerrie Romanow, Environmental Services Director. Thank you for taking time out of your evening to get the latest updated on the unique and exciting opportunity that a Community Choice Aggregation (or CCA) program, which we’re currently calling San Jose Clean Energy, can offer to our community.

Overview Community Choice Aggregation (CCA) Overview San José Clean Energy (SJCE) Business Plan Review Next Steps Public Questions and Comments During this presentation, I will: Provide an overview of Community Choice Aggregation including: How a CCA works Why we’re considering a CCA The opportunities that it offers to San Jose Gary Saleba from EES Consulting, which prepared the Business Plan, has joined us today and will provide you with an overview on the San Jose Clean Energy (SJCE) Draft Business Plan including: Key Assumptions Key Findings Risks and Mitigation Strategies Summary and Recommendations I’ll conclude with a review of Next Steps and open up for your questions and feedback.

How Community Choice Aggregation Works I first want to make sure that everyone has a basic understanding of how a CCA works. CCA allows local governments to purchase and generate renewable electricity for businesses and residents. The existing investor owned utility (IOU), PG&E, would continue to maintain the transmission and distribution infrastructure, deliver the energy, and bill customers – customer experience is essentially seamless as they simply see a different line item for electric generation on their bill. PG&E customers in San José would automatically be enrolled unless they chose to opt out. [background: A State law passed in 2002 allows cities and counties to aggregate the buying power of individual customers within a defined jurisdiction and secure alternative energy supplies on a community-wide basis.]

CCA: A Hybrid Approach to Utility Operations Investor-Owned Utility (IOU) CCA Public Owned Utility (POU) IOU Purchases Power CCA Purchases Power POU Purchases Power IOU Maintains Transmission Lines IOU Maintains Transmission Lines POU Maintains Transmission Lines A CCA is like a hybrid of an investor-owned utility (like PG&E) and a publicly owned utility like Silicon Valley Power (Santa Clara) Whereas an IOU or a POU both purchase power, maintain transmission lines, and provide customer service, a CCA’s primary operational role is to purchase the power while the IOU remains the primary provider of the other customer service related to billing, power outages, etc. There are currently five operational CCAs in California and another seven CCAs anticipate starting service by the end of 2018. Approximately 70% of CA cities are either in an operational or soon to be operational CCA or considering starting/joining one. IOU Provides Customer Service IOU Provides Customer Service POU Provides Customer Service

Why CCA for San José? To meet local, state, and international greenhouse gas (GHG) reduction goals: Envision San José 2040 General Plan San José Green Vision  (Goals 1, 2, 3) California Global Warming Solutions Act (AB 32, SB 32) Paris Climate Change Agreement A CCA can offer San Jose’s opportunities to meet energy efficiency, renewable energy, and ultimately greenhouse gas (GHG) reduction goals locally (Envision San Jose 2040 General Plan and Green Vision goals 1, 2, and 3), state-wide (AB 32, 2006, SB 32 which addresses emission limits) and internationally (Paris Climate Change Agreement).  We do our best, but with our current programs, we are currently not making the rapid progress needed to meet them. ------------------ [Additional details: Envision San José 2040 General Plan - includes a goal to “…maximize the use of renewable energy sources” and adoption of a GHG Reduction Strategy. GP update of the GHG Reduction Strategy’s progress is underway for 2015-2016. San Jose Green Vision- Goal 1: Create 25,000 Clean Tech Jobs as the World Center of Clean Innovation Goal 2 is to reduce per capita energy use by 50 percent; Current: 8% decrease in per capita energy use since 2007 Goal 3 is for the City to receive 100 percent of its electricity from clean, renewable sources; Current: Percentage of renewable energy has increased incrementally from approximately 13% in 2007 to 24% in 2013 (primarily due to PG&E’s 22% renew power mix). In comparison, Marin Clean Energy was approximately 63% across its customers in 2014. Total MegaWatts (MW) of solar installed in San Jose has increased substantially since 2007 (from 5 to 72 MW in 2013) April 2015 Council direction to 1) prioritize the reduction of GHG emissions, along with ensuring a more sustainable water supply and transportation mode shift, in future Green Vision reporting and 2) “Broaden measures of usage of renewable sources of electricity to include the residential and business community.” At current rates, City will not move substantially towards its goal of 100% renewables and 50% reduction in per capita energy usage and would need to make substantial movement on these within a relatively short time. CCA is a viable option.

Opportunities with a CCA Choice of Energy Providers GHG Emissions Reductions More Renewable Energy Local Jobs Local Control As I mentioned, increasing the renewable content of our power and reducing GHG emissions are two primary opportunities available from a CCA. Equally exciting are other benefits that could be realized by launching San Jose Clean Energy:   Provide our residents and businesses with a Choice of energy providers Create Local Jobs through rate-savings and renewable power development projects Increase Local Control including rate-setting and local energy programs

Council Direction and Discussion San Jose originally began explored CCA in 2011 but still mostly untested and unclear regulatory climate. March 1, 2016 City Council meeting, Council directed staff to proceed with a Request for Proposals (RFP) for an entity to develop, finance, launch, and operate a CCA program, with direction to explore the single-jurisdiction governance model allowing San José, not a third party, to manage the CCA operations. Further, Council asked staff to return with an RFP framework prior to issuing it, and to return with additional program recommendations in the fall. Subsequent Mayor’s March 2016 Budget Message allocated $300,000 to conduct a technical study Council approved FY 2016-2017 Budget, modified prior Council direction by focusing the RFP scope of work solely on a technical study In August 2016, ESD hired a consultant to develop a technical study and business plan (referred to as the “Business Plan”) for SJCE. In October 2016, ESD had its first Council study session on SJCE with plans to return in early 2017 with a recommendation for next steps; included panel of representatives from Marin Clean Energy, Sonoma Clean Power, Lancaster Choice Energy, Silicon Valley Power We hosted our second study session on Feb. 13 We will return to Council on Mar. 21 with an informational update and then plan to go to Council on April 25 with recommendations for Council’s consideration

San José Clean Energy Timeline Step 1 Step 2 Step 3 Launch Winter 2017 Spring/Summer 2017 Fall/Winter 2017 Early 2018 Pre-Planning and Due Diligence Formation and Development Preparation for Launch Launch Phase 1 Outreach Council Study Session Business Plan Hire Staff, Contractors, & Consultants  Regulatory Submittals Hire Staff Contracting Customer Notifications Transaction testing Enrollment Opt-out process Prep for Phase 2 DECISION:  Early 2017 Whether to Proceed Operational Model DECISION: Spring-Summer 2017  Budget/ Financing Policy-setting DECISION: Fall-Winter 2017  Contract Awards Rate-setting We are currently in Step 1 of CCA in pre-planning. A preliminary draft of the Business Plan was completed in December 2016. An interdepartmental team consisting of representatives from the City Attorney’s Office, Environmental Services, Finance, Office of the City Manager/Budget Office, and Office of Economic Development vetted the Business Plan and a public draft was released on February 3, 2017. Staff expects to finalize the Business Plan and present recommendations at a March/April 2017 Council meeting. At that time, Council can decide whether or not to proceed and, if it chooses to proceed, what governance and operational models it would like to proceed with. If council authorizes proceeding with San Jose Clean Energy, steps 2 and 3 would follow. step 2 would require outreach, hiring and contracting (e.g. legal and finance), and drafting regulatory submittals; this phase would include council decisions on budget, financing, approval of regulatory submissions (adopted ordinance and Council-approved implementation plan), and organizational policy-setting. step 3 would require outreach, contracting (e.g. power, data management) and customer notifications; this phase would include council decisions on contractor awards and rate-setting

Business Plan Key Assumptions I’d now like to have Gary from EES consulting review the draft Business Plan. EES Start We’ll start with key assumptions that formed the basis for the Business Plan analysis.

San José Clean Energy Goals (per Council direction from March 2016) Increase the renewable energy in power mix to exceed the baseline power mix offered by PG&E by a minimum of 10 percent; Receive a share of CCA revenues for use on local, energy programs; Deliver local renewable energy development and energy-efficiency programs at or above current budget levels; Ensure low-income program offerings are, at minimum, on par with current PG&E offerings; Provide the City with option to assume operations of CCA; Keep customer rates cost competitive with PG&E’s rates; and Reduce GHG emissions. The seven initial SJCE goals set at the March 1, 2016 council meeting were to: Increase the renewable energy in power mix to exceed the baseline power mix offered by PG&E by a minimum of 10 percent; Receive a share of CCA revenues for use on local, energy programs; Deliver local renewable energy development and energy-efficiency programs at or above current budget levels; Ensure low-income program offerings are, at minimum, on par with current PG&E offerings; Provide the City with option to assume operations of CCA; Keep customer rates cost competitive with PG&E’s rates; and Reduce GHG emissions. These were given equal weight in the Business Plan.

Governance Structure Joint Powers Authority (JPA) Single Jurisdiction Pros: Maximum local control Target programs specifically to San José Cons: Mechanisms needed to limit exposure to City General Fund Examples: CleanPowerSF Lancaster Choice Energy Pros: Reduced financial risk Less effort from City to launch Cons: Reduced control over decision making Financial contribution unknown Programs may be less targeted to San José Examples: Marin Clean Energy Sonoma Clean Power Peninsula Clean Energy SJCE will have the option to operate as a single jurisdiction or as a member of an existing joint powers agency (JPA).   Single Jurisdiction Model: The single-jurisdiction model, typically governed by a City Council or Board of Supervisors, is characterized by full local control over policy decisions on rate-setting, power mix, and programs. Possible risk to the General Fund but the jurisdiction would: develop contractual language, maintain adequate operating reserves, proactively track regulatory activities, and manage its energy portfolio to minimize this risk. Lancaster Choice Energy and CleanPowerSF are examples of the single-jurisdiction model. JPA Model: The JPA model, typically governed by a Board of Directors, functions as an independent public agency, operating on behalf of its member jurisdictions with shared decision-making authority. distributes risks across multiple jurisdictions and minimizes risk to its member jurisdictions. Results in reduced control of decision making San José could form its own JPA if it identified other interested jurisdictions or join an existing one. Marin Clean Energy, Sonoma Clean Power, and Peninsula Clean Energy are examples of the JPA model. The Business Plan assumes that SJCE will follow a single-jurisdiction model for analysis. In terms of operational approach: Whether under a single-jurisdiction or JPA governance model, a CCA’s day-to-day functions would typically be executed by a mix of in-house staff (Minimum Staff to Full Staff Scenarios) and consultants/contractors. In a variation on the Minimum Staff Scenario, SJCE could contract with a third-party vendor (the “third-party turnkey” approach) which would still require a minimum level of program management staffing but would otherwise launch and operate SJCE including financing. There are currently no operational turnkey models. For analysis, the Business Plan assumes that SJCE will follow a Full Staff Scenario, phasing approximately 20 staff from pre-launch through full operations and utilizing consultants/contractors.

Phase-In Schedule and Potential Size Start Eligibility Total Accounts Served Percentage of Total Load Served 1 Jan. 2018 Municipal Facilities 1600 2% 2 June 2018 Municipal, Residential, and Small Commercial Customers 293,000 50% 3 Nov. 2018 All Customers 300,000 100% At full operation, SJCE would serve: 300,000 accounts Total load: 4,000 GWh/year Peak demand: 1,000 MW Annual revenues: $350 million The Business Plan assumes a three-phase launch approach occurring over the course of approximately one year in order to allow for a smooth transition in SJCE’s service. Phase 1 would launch with all municipal accounts (1% of accounts and 2% of load) Phase 2, launching 5 months later, would include all residential and small commercial customers (97% accounts, 50% load) Phase 3, another five months later, would add large commercial and industrial customers (2% accounts, 48% load) CCAs typically offer customers an opportunity to opt in early! Given the limitations and rates of direct access (DA) customers, DA customers are not included in SJCE’s load. There are approximately 600 DA customers (1 percent of customers), primarily large industrial, which use 20 percent of San Jose’s annual electricity load. The Business Plan assumes a launch date of January 1, 2018. If Council were to direct staff to proceed with the formation and launch of SJCE, staff anticipates 12-18 months from start up to program launch.   Since customers are automatically enrolled and must opt out if they do not wish to participate, participation rates in CCAs are typically high. The Business Plan assumes an 85 percent and 75 percent participation rates for residential and commercial sectors respectively.

Evaluated Power Supply Product Offerings Per the goals of SJCE, the City of San José would seek to maximize the use of local, cost-effective renewable generation resources while offering rates that are competitive with PG&E. The Business Plan considered the following four resource portfolios: Match PG&E (30%, 37% by 2020, 50% by 2030) PG&E + 10%: 10% more renewable and GHG-free than PG&E PG&E + 20%: 20% more renewable and GHG-free than PG&E 100% renewables: 100% renewable/GHG-free   Renewable resources refer to sources like solar and wind power while GHG free sources include nuclear and hydro power. For loads not fully served by renewable resources, the Business Plan assumes a preference for GHG-free power (e.g. sourced from large hydroelectric). At present, PG&E’s power supply is 30 percent renewable and 59 percent GHG-free. The cost of each of these portfolios was also calculated assuming 10 percent of renewables coming from local sources in order to account for local economic development goals.

Business Plan Findings

Comparison of Projected Rates Indicative Rate Comparison in $/kWh Rate Class 2017 PG&E Bundled Rate* SJCE RPS SJCE 10% more Renewable SJCE 20% more Renewable SJCE 100% Renewable Residential 0.19971 0.1913 0.1921 0.1953 0.2063 Small Commercial 0.22515 0.2157 0.2166 0.2202 0.2326 Medium Commercial 0.20053 0.1929 0.1961 0.2071 Large Commercial 0.17618 0.1688 0.1695 0.1723 0.1820 Street Lights 0.21785 0.2087 0.2096 0.2131 0.2250 Standby 0.14608 0.1399 0.1405 0.1429 0.1509 Agriculture 0.17606 0.1687 0.1694 0.1722 0.1819 Industrial 0.13985 0.1340 0.1345 0.1368 0.1445 Total 0.18779 0.1799 0.1807 0.1837 0.1940 Initial Rate Savings in 2019 from PG&E Bundled Rate   4.2% 3.8% 2.2% -3.4% Rate Comparison After Fully Operational 4.8 – 9.4% 4.5 – 8.9% 2.7 – 7.2% -2.7 – 1.3% SJCE could offer its customers a 2.2 - 4.2 percent rate savings over PG&E. While SJCE’s 100 percent renewable would be a 3.4 percent rate increase over PG&E’s standard rates, it is a 7.6 percent rate savings over PG&E comparable 100 percent rate under its Solar Choice Program Estimated ~$20M savings community-wide and $650K of that savings for City operations.

GHG Emissions Reduction -14% -28% Citywide emissions from electricity are represented in orange/yellow If SJCE were to operate with a 10 percent greater renewable energy in its baseline power supply, SJCE could reduce an estimated 152,000 to 264,000 metric tons carbon dioxide equivalent (MT CO2e) per year starting in 2019. This equates to removing up to 56,000 passenger vehicles from the road and or the energy usage from nearly 28,000 homes each year and represents a 10 percent to 18 percent reduction (ave. 14% shown above) in San José’s GHG emissions from electricity generation. With 20% - 21-36% reduction (ave. 28% shown above) and equal to 112,000 cars off the road each year --------------------- Sources: EPA Calculator, https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator https://www.sanjoseca.gov/DocumentCenter/View/55505 Data taken from San Jose’s 2014 Greenhouse Gas Inventory: https://www.sanjoseca.gov/DocumentCenter/View/55505 *The natural gas category refers to use for heating and cooking in buildings, not for use in electricity generation.

Economic Development Benefits Total Electricity Savings CCA vs. PG&E A 3.8% rate reduction saves customers over $20M per year Create 100 new jobs in the San José Metropolitan Area Add $31M annually to the City’s economy SJCE Programs SJCE programs could create additional jobs and add value to the economy Programs could include: Business incentive programs for manufacturing and target businesses Solar programs Construction of local solar projects With the 10%>RPS scenario, SJCE’s 3.8% rate reduction saves customers over $20 M/year $20 million rate reduction is estimated to create 100 new jobs in the San José Metro Area In aggregate, these benefits would add $31 million annually to the City’s economy

Financing SJCE Pre-launch and Phase 1: $5M Phases 2 and 3: $50M Lower borrowing costs for local governments Focus on protecting the General Fund Financing Options would be evaluated for best option For the pre-launch through Phase 1 of SJCE implementation, SJCE would require approximately $5 million in funding. For Phases 2 and 3 of implementation, it would require $50 million, primarily for power procurement. Once the SJCE program is operational, start up costs could be paid back within 2 years and the operation is projected to break even around the end of first year of operation. If Council directed staff to move forward with SJCE, Staff from Finance and Budget Office would need to evaluate the options to determine the best option for the City and SJCE.  

Risks and Mitigation Strategies High Customer Opt-out Rate Maintain competitive rates Tailor programs to local customer priorities Provide customers with a high-level of service and communication PG&E Rate Competition Diversify power contract portfolio Maintain financial reserves and a rate stabilization plan Leverage CCA’s tax-exempt borrowing advantage to reduce long-term power supply costs Track and participate in relevant CPUC/CEC proceedings and legislation For the pre-launch through Phase 1 of SJCE implementation, SJCE would require approximately $5 million in funding. For Phases 2 and 3 of implementation, it would require $50 million, primarily for power procurement. Once the SJCE program is operational, start up costs could be paid back within 2 years and the operation is projected to break even around the end of first year of operation. If Council directed staff to move forward with SJCE, Staff from Finance and Budget Office would need to evaluate the options to determine the best option for the City and SJCE.

Business Plan Summary and Recommendations Financially viable Risks manageable Would provide a variety of opportunities and benefits Consider refining SJCE goals to account for: Economic Development Goals Risk Management Goals Environmental Goals Customer Rate Goals The Business Plan concludes that SJCE is: financially viable could yield a variety of benefits including cost savings, economic growth, greenhouse gas reductions, and enhanced program offerings. While risk is unavoidable, it is deemed to be manageable. If SJCE proceeds to launch, it should consider updating existing goals to account for: Economic development goals Risk management goals Environmental goals, such as the benchmark for the renewable portfolio target(s) and considering a GHG-free portfolio target Customer rate goals I’ll now turn the presentation back over to Kerrie for next steps.

Next Steps Return to Council with additional information on March 21, 2017 Return to Council with staff recommendations on April 25, 2017 If directed by Council to proceed with SJCE: Addition of start-up staffing in FY 17-18 budget Possible to launch Phase I in early to mid 2018 (Kerrie start) Next steps are: Provide Council with additional information at March 21, 2017 council meeting Return to Council with staff recommendations on April 25, 2017 If directed by Council to proceed with SJCE - addition of start up staffing in FY 17-18 budget - launch Phase I in early to mid 2018

Questions and Comments