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CCA Pilot ProjectUpdate

Petaluma, California

October 10, 2007

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Topics

• Project Overview

• Renewable Energy Supply: Highlighting MarinCounty’s Current CCA Initiative

• Process & Timeline for CCA Implementation

• Key Issues for Implementation

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CCA Pilot Project Overview

CCA Pilot Project

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CCA Pilot Project Participants

•Berkeley

•Emeryville

•Oakland

•Pleasanton

•Richmond

•Vallejo

•Beverly Hills

•West Hollywood

•San Marcos

•Marin County

•Los Angeles County

•San Diego County

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

Berkeley

3%Beverly Hills

5%

LA County

36%

West Hollywood

3%Marin County

9%

Emeryville

1%

Oakland

12%

Pleasanton

4%

Richmond

4%

Vallejo

3%

San Marcos

4%

San Diego County

16%

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Project Scope & Status

StatusTask

Phase 2:

FutureFinal Evaluation

Mostly CompleteImplementation Plans

FutureTemplate Application and Outreach

Mostly CompleteMonitor Implementation Plans At CPUC

CompleteRenewable Resource Development Roadmap

Mostly CompletePilot Communities Decision Support

CompleteRecommendation To Pilot Communities

CompleteBase Case Evaluation

CompleteInitiate Pilot Communities’ Participation

CompletePilot Communities Selection

Mostly CompleteMonitor CPUC Proceeding

Phase 1:

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Project Approach

Phase 1 Feasibility Assessment:

Compares Rates Under a CCA to the Utility’s Rates

1. Request information from utility regarding customers andelectricity sales for primary customer classifications.

2. Use statistical hourly load profiles and load projections to modelhourly electric loads for customers within the municipality.

3. Assemble prototypical supply portfolios with mix of powerpurchase contracts, renewable purchases, generation and shortterm 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 statusquo (utility service – generation rates).

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Utility Rate Projections Are Benchmark For CCAPerformance

* 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 rateincrease would double or triple the financial benefits of forming a CCA in many cases.

PG&E Electric Rate History and FForecast

(System Average Rate)

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Customer Mix and Usage Characteristics Are ImportantEconomic Factors

• Low-use residential load is more challenging to serve on a cost competitive basis due to AB1Xrate caps and other rate design issues.

• Rate differentials across customer classes have narrowed since 2005; however, jurisdictionswith greater prevalence of commercia industrial customers will continue to have a betterchance of offering lower rates.

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PG&E Average Generation Rates - 2007

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Summary of FindingsCCA Generation

• Local governments can offer lower rates by using capitalstructure 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 byapproximately 15% for the same asset.

• A benefit can be obtained by partnering with andprocuring power from another public agency, such asNCPA or SCPPA.

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Summary of Findings (Cont’d)CCA Wholesale Electric Purchases

• For the majority of participants, significant cost savings arenot achievable by simply purchasing wholesale power onbehalf 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 generationcosts incurred after the CCA assumes procurementresponsibility 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.

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Summary of Findings (Cont’d)CCA Renewable Energy Cost Impact

• Increasing use of renewable resources has a very minorimpact 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 theprogram to 40% was found to increase overall customerrates by 1% to 2%.

—CCA financing of renewable assets/contracts caneliminate cost increases associated with renewableenergy.

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Study ResultsAchieving 40% Renewable Energy Through CCA – Asset Based Supply Strategy

Under study assumptions,CCA costs are from 1% to11% lower than the IOU’srates (on average) over the20-year study period.

Access to cost-basedrenewable power, financedwith tax-exempt debt,provides savings.

Savings over study period equals the difference between total CCA cost of service and theIOU’s generation charges over the 20-year forecast period, expressed as a percentage of totalelectric bills.

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Build 40% Renewable

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Larger CCA Programs Offer Better Economics

• AB 117 provides that cities and counties can join together to offer CCAservice 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 individualimplementation.

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Renewable Energy Supply:Highlighting Marin County’s Current

CCA Initiative

CCA Pilot Project

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• Maximize renewable energy supply, subject to thefollowing 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 (GreenTariff).

— Begin operations by purchasing power from existing generatingfacilities and contracting for operating/administrative servicesfrom an experienced, financially stable supplier.

— Seek to partner with an experienced public power developer topurchase a minimum of 125 MW of renewable power from newrenewable generating facilities as soon as practical (e.g. by 2013).

Marin CCA – Power Supply Plan Principles

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Marin CCA – What Renewable Percentage Could Be Achieved With Rates at or Below Utility?

• Could maintain approximate rate parity by starting at25% and increasing to over 50% in 2013.

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• Including renewable energy in a CCA’s power supplyportfolio will impact program generation rates.

• For the Marin CCA, determining this balance has thefollowing implications:—Accepting a level of renewable power supply below

51% in 2013 (and beyond) will likely result in a slightcost savings relative to Utility.

— Increasing renewable power supply above 51% in 2013(and beyond) will likely result in additional costsrelative to Utility.

Marin CCA – Implications of Analysis

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Does Renewable Energy Consumption Mitigate Natural Gas Price Risk?

• If natural gas supplies are significantly reduced (pricesincrease), potential price risk is effectively mitigated byincreasing amounts of long-term renewable energypurchases.

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• Estimated rate impact of a 100% renewable supply portfolio is $8 permonth for a typical household during the first year of CCA operation.

• GHG reductions, based on 100% renewable energy supply, areestimated at 470,000 to 830,000 metric tons per year.

Can A 100% Renewable Supply Portfolio Be Achieved?

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• Renewable generation is not subject to the fuel pricerisk associated with conventional generating resources.

• Fuel price risk is eliminated for the portion of a supplyportfolio that is met by retained renewable generatingcapacity and/or long-term renewable energy contracts.

• Meeting program energy supply with intermittentrenewable resources presents operational challenges –use of Renewable Energy Certificates (RECs) canmitigate this potential issue.

Implications of Increased Renewable Energy Consumption

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Process & Timeline for CCAImplementation

CCA Pilot Project

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CCA Implementation Approaches

• Cities and counties electing to offer CCA to theirconstituents can choose to organize in one of the followingways:—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 Countiesjointly offer CCA within their collective jurisdictions)

• The CCA entity (City, County or JPA) would adopt anImplementation Plan and register as a CCA with thePublic Utilities Commission.

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CCA Implementation Timeline

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

Complete Feasibility Study(30-90 Days)

Establish Basic Program Goals

and Objectives (30-90 Days)

Develop Business Plan(90-120 Days)

Develop Draft ImplementationPlan (30-60 Days)

Prepare, Publish andEvaluate RFP/RFQfor Program Energy

Supply (90-120 Days)

Develop Draft Governance

Documents (JPA, if applicable,and CCA Agreements: 90-120 Days)

Form JPA (Coincides withDocument Development Timeline)

Negotiate with Potential

Program Suppliers andSign Power Supply

Contract (30-60 Days)

Finalize Implementation Planand Submit to CPUC (30 Days)

CCA Registration (30 Days)

Commence ServiceDelivery

CCA Implementation - Key Milestone Schedule(Monthly Time Intervals)

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CCA Implementation Issues

CCA Pilot Project

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Understanding Potential Risks of a CCA

Status Quo

• Uncertain rates

• No local control

• Profit centered decision-making

• Minimum RPS compliance(20%)

Community Choice

• Rates may exceed IOU in someyears (generally +/- 5%)

• Potential IOU opposition

• Customer willingness toparticipate

• Supplier performance

• Political accountability

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Implementation Issues

The following implementation issues are discussed and/or resolved in boththe Business Plan and Implementation Plan, providing a CCA withmultiple opportunities to review, revise and refine its approach to eachissue:

• 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

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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

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NCI Contacts

John Dalessi | Director

jdalessi@navigantconsulting.com

916.631.3200

Kirby Dusel | Associate Director

kdusel@navigantconsulting.com

916.834.0684