|Over the past 18-24 months, the County and the City of Davis have been investigating the feasibility of and options to implement a Community Choice Energy (CCE) program in their communities. Such programs are also known as a Community Choice Aggregation (CCA) program under the Public Utilities Code. Key steps during this planning and feasibility phase have included: 1) working with The Energy Authority to complete a detailed technical study, 2) consideration of program management and governance options, 3) conducting extensive public outreach, and 4) forming a Board subcommittee (with Supervisors Chamberlain and Saylor), to guide the process and provide feedback.
The results of the technical study were shared with the Board of Supervisors/City Council in March 2016 and indicated that it is feasible to establish a local CCE program that delivers more renewable energy while offering consumer choice at competitive rates. Based on these findings, as well as its independent analysis and consideration of public input, the Board and Council passed resolutions that approved proceeding with the work necessary to form a new JPA for implementation of a local CCE program. In addition, the Board and Council directed their respective staffs to continue the process to establish and launch a local CCE program.
Since March 2016 the County and City have focused efforts on the formation of a Joint Powers Authority (JPA) and the development of a timeline for activities leading to the launch of the program. A joint CCE planning team consisting of the City Council CCE subcommittee, Board of Supervisors CCE subcommittee, City and County staff, legal counsel, and LEAN Energy has been formed to provide direction on JPA and CCE program formation. It is important to note that the City of Woodland recently appointed a Council subcommittee and authorized its staff to participate in these discussions.
Following preliminary meetings between County and City staff during the Summer, the joint CCE planning team has met four times since August. Key outcomes include:(1) development of a draft JPA agreement (Attachment B), and governance structure, (2) updated project budget estimates, (3) development of a CCE formation workplan and schedule, (4) shared staffing assignments to prepare for JPA establishment and program launch, (5) name selection for the CCE and development of a draft mission statement, and (5) updated financial proforma incorporating Woodland energy loads, PG&E’s September 1st rate adjustments, and exit fee increases. (The updated financial information continues to project that the local CCE program will be cost competitive with PG&E rates.)
The joint City/County CCE planning team agreed on a target launch date of Fall 2017. The actions recommended in this staff report allow the County and City to stay on this ambitious launch timeline.
JPA Formation and CCA Ordinance
Section 366.2(c)(12)(B) of the Public Utilities Code expressly contemplates the creation of a JPA so that the county and a city or cities can “participate as a group in a community choice aggregation program." The County and each city can exercise this option by doing two things: 1) entering into a Joint Powers Agreement forming a JPA under Section 6500, et seq. of the Government Code; and 2) adopting an Ordinance electing to implement a community choice program within its jurisdiction as required by Section 366.2(c)(12)(A).
An Ordinance that complies with the requirements of Section 366.2(c)(12)(A) is included as Attachment C to this staff report. Adoption of an Ordinance requires two public hearings, the first to introduce the ordinance and the second to adopt it. Also provided is a final draft of the JPA Agreement and supporting resolution establishing the Valley Clean Energy Alliance as recommended by the joint County/City CCE planning team that has been meeting on this topic for several months. The City Attorney and County Counsel’s Office drafted the JPA document and ordinance working from documents approved by other jurisdictions forming similar CCE programs (e.g. San Mateo County/Peninsula Clean Energy).
The JPA document establishes the framework for operation of the CCE program. Key provisions of the JPA document address:
Adoption of the resolution forming the JPA requires the County to appoint two members to the VCEA Board (Section 3.1). Staff is recommending that the Board of Supervisors appoint two members to the VCEA Board to facilitate scheduling of the first JPA Board meeting in November or early December.
- Governance, membership, and voting (Article 3)
- Roles and responsibilities of the VCEA Board (Section 3.3)
- Recovery of initial start-up loans by County and City (Section 5.3.2)
- Addition of new member jurisdictions and withdrawal of existing members (Article 6)
Project Timing and Workplan
A summary project workplan, based on successful JPA formation and program launches in the counties of Marin, Sonoma and San Mateo is highlighted in the table below. The workplan is divided into three phases: (1) Pre-Planning & Due Diligence (complete), (2) Davis/Yolo CCE Planning and Development (current, nearing completion), and (3) Preparing for Launch (future).
Phase 1 has been completed and the joint County/City CCE planning team has moved into Phase 2. The remaining elements of Phase 2 and Phase 3 will commence following approvals by the Yolo County Board of Supervisors and the Davis City Council to form VCEA and pass the CCE Ordinance. It is anticipated that the program will begin serving customers in the City of Davis and unincorporated Yolo County in October 2017. Additional communities such as Woodland may choose to join VCEA with service beginning in 2018.
February 2015 – March 2016
April – November 2016
December 2016 - October 2017
|Pre-Planning & Due Diligence
||Community Outreach; Davis+Yolo CCE Planning and Development
||Preparing for Launch
- Advisory Committee Formation
- Initial outreach to County and key stakeholders
- Workshops and community education
- CCE technical study
- Select CCE management option
- CCE program development & JPA Agreement drafted
- Passages of local ordinances
- Ongoing community outreach
- Issue RFP for additional vendor services: marketing, technical, data management
- Plan for JPA staffing, including CEO search, and long term working capital
- Convene JPA Board
- Website and collateral devt.
- Develop and submit implementation plan to CPUC
- RFP and contract for power supply and energy services
- Utility service agreement, deposits and Bond
- Regulatory registrations
- Call center, marketing & customer noticing
Elements of phase 2 include seating of the VCEA Board, which until the program reaches 5 member agencies, shall consist of two Board members from each participating jurisdiction. Once the VCEA Board is seated, potentially in late November/early December, it will take over from where the current joint City/County CCE planning group leaves off. Key early VCEA Board actions are anticipated to include recruitment/hiring of an Agency CEO and consideration of vendor contracts in the areas of marketing and public outreach, technical and energy services, and data management/call center. It is also anticipated that the VCEA CEO will be supported by existing County/City staff, project consultants and an advisory committee until such time that additional working capital is secured and Agency staff can be hired. Other phase 2 and 3 steps are articulated in the matrix above.
Building on the data and analysis in the technical study, the selected technical consultant will transition from feasibility analytics to power product design, development of VCEA’s Implementation Plan (which must be certified by the CA Public Utility Commission) and preparation of an energy services RFP to initiate the process of power procurement and power scheduling support. In addition, work will begin with PG&E to ensure a smooth program launch and completion of the utility service agreement which codifies the business relationship between VCEA and PG&E. Additionally, the technical team will support VCEA in selection of its portfolio design, rate setting, and development of complimentary energy programs such as net energy metering, energy efficiency and feed in tariff.
Communications and Outreach
To date, outreach has focused on key stakeholder groups and local government education coupled with several public workshops and tabling at community events. An informational flyer, FAQs and a place-holder webpage has also been developed. As the program moves into implementation, a much more robust public outreach program, including multi-ethnic and multi-lingual outreach, will be developed and will include the following elements:
Project Budget and Future Financing
- VCEA logo, branding and website (www.valleycleanenergyalliance.org has been reserved)
- Collateral development including a short video
- Continued public workshops and community events
- Ongoing meetings with key stakeholder groups (e.g business, environmental), commercial and large energy users
- Local press outreach and earned media
- Paid media such as newspaper ads, billboards, bus-backs, and radio spots
- Digital and social media including push communications through Next Door and other local social media outlets
- At least 4 customer notices (the minimum required by law) which will be a combination of letters/postcards sent to all electricity customers in Davis and unincorporated Yolo County
In March, 2016 the City Council authorized a contribution of $500,000 to support CCE planning and program implementation. In September 2016, the County Board of Supervisors matched that amount for a total seed capital budget of $1,000,000; a copy of the project budget is included as Attachment D. This initial funding covers project hard costs such as consultants, public outreach, and early JPA staffing. It does not include soft costs such as county/city staff to support project implementation; however, all county and city costs associated with program implementation are fully reimbursable through the early revenues of VCEA, generally within 1-3 years of initial program revenue.
In addition, the Technical Study included a detailed operating proforma, recently updated in September, which shows estimated customer rate savings of 2.9% over PG&E and a $15 million dollar reserve over the first 10 years. The addition of Woodland is estimated to achieve a 4.6% rate savings and a $24 million dollar reserve. This proforma will continue to be updated and refined in the coming months and will be used to support bank underwriting for the working capital credit discussed in the next paragraph.
VCEA will require additional working capital to “bridge” the existing $1,000,000 in seed capital approximately six months prior to program launch. This type of credit covers negative cash flow in the first few months of program operations and is intended to get VCEA “over the hump” from pre-launch to early operations until it reaches stable revenues. The amount of working capital needed is entirely dependent on the size of VCEA’s customer enrollment, early staffing/Agency expenses, the cost of power, and required utility bond and deposits.
Based on currently operating CCE programs, initial working capital can range from a low of $5M to a high of $15M or more depending on the program’s size. This debt is usually short term (e.g. a 1-2 year line of credit) and is often provided by a third-party lender, although it can be municipally financed as well. Interest rates are currently very favorable; under 3%. Please note that the amount of pre-revenue credit needed to support the program will require a credit guaranty which is usually provided by one or more members of the CCE Agency. VCEA’s guaranty requirement, likely to be less than $3M, will be released soon after revenues begin flowing (usually within 12 months or program launch) and the Agency is ready for longer-term, unsecured debt and larger lines of credit.
This basic structure of third party financing (generally a line of credit) with a credit guarantee to support the pre-revenue portion of the credit has been used in successful CCE launches including Marin Clean Energy, Sonoma Clean Power and Peninsula Clean Energy. As noted in the Finance section, staff will be returning to the Council in the future for consideration of a method to provide working capital to VCEA.