City of Santa Monica
California

Staff Report
2671

Introduction and first reading of an ordinance to Join Los Angeles Community Choice Energy (LACCE), Appoint a Director and Alternate to LACCE Board, and Request Regular Updates From Staff

Information

Department:Public Works, Office of Sustainability & EnvironmentSponsors:
Category:07. Ordinances

Recommended Action

Recommended Action

Staff recommends that the City Council:

1.     Introduce for first reading the attached ordinance (Attachment A) approving the Los Angeles Community Choice Energy Joint Powers Agreement (Attachment D).

2.     Authorize the City Manager to negotiate and execute the necessary documents to join the Los Angeles Community Choice Energy (LACCE) program.

3.     Designate one representative and two alternates to serve as a director of the Board of the Los Angeles Community Choice Energy.

4.     Direct staff to provide regular updates to Council on the most recent developments and provide recommendations on future action.

Staff Report Body

Executive Summary

Community Choice Aggregation or Community Choice Energy (CCA/CCE) offers a unique opportunity for local governments to procure renewable electricity on behalf of their communities. This mechanism has the potential to significantly reduce greenhouse gas emissions and create value for communities through lowered utility costs and investment in local energy projects and programs.

 

Staff has evaluated potential options to implement CCA and recommends Council authorize moving forward with the most viable program to allow further evaluation, without limiting the City’s options in the future. This would involve joining the Los Angeles Community Choice Energy (LACCE) which offers the opportunity for Santa Monica to be part of a county-wide energy consortium. Becoming a member of LACCE would allow Santa Monica to participate in critical initial decisions regarding the structure and operation of the program and evaluate if it will meet the City’s needs. At the same time staff would continue to evaluate a second option, creation of a Santa Monica-specific CCA, which could be administered by California Choice Energy Authority (CCEA) or by a third-party vendor.

 

In April 2017, Los Angeles County approved the Joint Powers Agreement to launch Los Angeles Community Choice Energy (LACCE). Three cities joined initially, setting off a 180-day period in which cities are invited to join as initial members at no cost. New members joining after the December 2017 deadline to adopt an ordinance will likely be financially responsible for the initial procurement of their own community’s power.

 

In November 2017, staff and stakeholders received analysis from California Choice Energy Authority (CCEA) to implement a Santa Monica-specific CCA. CCEA could provide the administrative and regulatory services necessary to launch and operate a CCA in Santa Monica. If the City decided in the future to move forward with that option instead of LACCE Council would retain authority to establish renewable energy targets, utility rates and local energy programs that could be funded by ratepayer revenue.

 

The two plans are detailed in comparison below:

 

 

Table 1. Comparison of CCA Options for Santa Monica

 

Los Angeles Community Choice Energy

Santa Monica Community Choice Authority,

served by:

California Choice Energy Authority

(City of Lancaster)

Third-Party Vendor

Overview

-LA County (LAC) + eligible cities (up to 88)

-LAC to anchor JPA, seed start-up costs ($10M)

-Seeking $50M loan

-Receive Lancaster’s services through CCEA

-Retain local control and revenue

-Service fees remitted to Lancaster

-City to bid services for startup and operation

-Operate like Water Resources

Start Up

-Board member to participate in strategic planning

-Council sets procurement & environmental goals, rates

-CCEA to procure on behalf of SM

-Council sets procurement & environmental goals, rates

-Vendor to procure on behalf of SM

Governance

-One city, one vote

-Weighted vote option (SM is third largest)

City Council/Staff – procurement goals, rates, programs

CCEA Board – contracts, procurement

City Council/Staff – procurement goals, rates, programs

 

Cost to City

-Start up: none (LAC to seed $10M)

-Operating: unknown

-$2.4M for startup

-none, vendor could work ‘at risk’

Advantages             

-No upfront cost

-Operational

-Purchasing power & lower cost of admin

-Limits liability and operational burden

-Timing/Speed

-Control over rates, renewable content

- Opportunity for centralized utility

-Revenue to City

-Ability to achieve carbon reduction goals

-No upfront cost

-Timing/Speed

-Direct control & autonomy

- Opportunity for centralized utility

-Revenue to City

-Ability to achieve carbon reduction goals

Disadvantages             

-Timing/Speed

-Influence

-Revenue sharing unknown

-Recent structural and procurement decisions are disconcerting

-Enhanced diligence & advocacy

-Not yet operational

-Upfront cost

-No control over contracts & procurement

-Admin/Finance integration

-Ongoing fee

-Requires staffing

-Not structured to advance energy projects & programs

-Not yet operational

-Requires staffing

-Integration into existing operations

-Steep learning curve

 

Staff recommends that Council introduce for first reading the attached ordinance (Attachment A) to join LACCE now to allow for continued evaluation of both options without incurring costs for joining after the December 2017 deadline. As LACCE is currently in a formative stage, Santa Monica’s representative to the LACCE Board will be able to help shape the environmental goals, financial management and program design. Should the City determine that LACCE is not serving its interests, Santa Monica would be able to withdraw from the LACCE JPA without penalty provided the City gives 180 days advance notice and if the CCA has not purchased power on Santa Monica’s behalf.

 

Staff recommends that Council appoint a Director and two alternates to represent the City in LACCE. Staff recommend that the appointed Director participates earnestly to ensure LACCE is prepared to meet Santa Monica’s needs and is managed according to best practices.

 

On a parallel path staff will continue to evaluate the option to implement a single-city CCA, so that the City may choose to proceed with that option if LACCE proves not to be beneficial to Santa Monica.

 

The two CCA models (LACCE and CCEA) are not mutually exclusive, and both programs can be evaluated concurrently. Staff is assessing the opportunities and limitations of components of each CCA option for supporting the City’s goals of achieving carbon neutrality by 2050 or sooner, maintaining a low-cost for implementation, and providing community benefits and reinvestment opportunities for local programs.

 

Background

On January 13, 2015, Council adopted a non-binding resolution to join 12 cities from the South Bay and Westside, in what is collectively known as South Bay Clean Power (SBCP), to assess the feasibility of a sub-regional CCA (Attachment G). After securing resolutions from 13 cities, South Bay Clean Power approached LA County to take the lead in financing the feasibility study for a countywide CCA.

 

On June 30, 2016, the County of Los Angeles published the feasibility study in the form of a Business Plan. The Business Plan determined that a CCA is feasible and could result in cost-savings for residential and commercial electricity customers.

 

On September 27, 2016, the LA County Board of Supervisors (LACBOS) passed a motion to authorize the Chief Executive Officer to engage stakeholders, determine the CCA governance structure and begin negotiations with eligible and interested cities.

 

On February 14, 2017, staff provided an update to Council on the Los Angeles Community Choice Energy (LACCE), the South Bay Clean Power initiative, and the single-city option (Attachment H). Council directed staff to continue exploring all three implementation options and adopted a set of goals and objectives when considering the merits of each. Council appointed Councilmember McKeown to represent the Council on this issue.

 

On April 18, 2017, the LACBOS adopted the Joint Powers Agreement document, which interested cities could adopt in order to join LACCE.

 

On May 25, 2017, the City of Calabasas became the first city to adopt the enabling ordinance to join LACCE. This moment initiated a 180-day window by which initial members may join, without a bar of entry that may be imposed after the initial 180 days. Since then, a total of nine cities have also joined LACCE (at the time of writing).

 

On August 4, 2017, the LACCE Board of Directors held its first meeting. The agenda covered chair and secretary appointments, interim Executive Director approval, budget approval, and authorization to issue RFPs for power supply, scheduling, communication and legal services. LACCE indicated its intent to begin operation in January 2018 to initially provide electricity to County municipal accounts.

 

On October 2, 2017, the City Manager entered into a professional services agreement with California Choice Energy Authority (CCEA), a Joint Powers Authority administered by the City of Lancaster, to prepare a pro forma analysis and implementation plan for a single-city CCA option for Santa Monica.

 

On October 4, 2017, the LACCE Board of Directors held its third meeting. During this meeting, results from an RFP to provide electricity to County municipal accounts included power from nuclear and coal sources, which are not sustainable or environmentally friendly. The Board directed staff to negotiate with the top three bidders to ensure that procured power will not include nuclear and coal.

 


Figure 1. Overview of CCA Activity

 

 

Discussion

Community Choice Aggregation or Community Choice Energy (CCA or CCE) allows local governments to purchase and sell electricity to customers in their jurisdictions as an alternative to traditional investor owned utility (IOU) power procurement (California IOUs are Pacific Gas and Electric Company, San Diego Gas & Electric, Southern California Edison and Southern California Gas Company).

 


Figure 2. How CCA/CCE Works

 

Local governments ‘aggregate’ the electrical demand of their community and procure power on their behalf. The incumbent investor-owned utility still conveys that power to all customers and provides one utility bill to all customers (Southern California Edison is Santa Monica’s incumbent investor-owned utility). The relationship between the CCA and the IOU is shown in Figures 2 and 3.

 

Figure 3. Comparison of Roles of IOU, CCA and Municipal Utility

 

The portion of the utility bill that is associated with energy generation is remitted back to the local government. CCAs are established by a local ordinance voted on by the governing body of a county, city or special district (e.g. local water agency or public utility district).  No public vote or referendum is required. CCA’s are opt-out programs, which means that utility customers are defaulted into becoming a CCA customer and must actively opt-out to remain with the incumbent IOU.

 

Community Choice Aggregation (CCA) offers a unique opportunity for jurisdictions to provide lower cost energy from renewable resources, reduce greenhouse gas emissions (GHG) and promote local economic development through local energy projects and programs. CCA in California has primarily been implemented through Joint Powers Authorities (JPAs) in order to increase purchasing power, reduce administrative and regulatory burden and to increase GHG reductions and community benefits.

 

With any CCA, the governance structure, finance model, risk profile, oversight authority, administration, and other costs and benefits are critically important to consider. These factors become increasingly more complex when more stakeholders are involved with different interests. However, many successful CCAs have worked across many jurisdictions to provide clean power, green jobs and valuable energy programs to their constituents.

 

CCAs should achieve at least cost parity, if not lower rates, compared to the incumbent IOU to be successful. This is particularly challenging when the IOUs impose exit fees (also known as PCIA for Power Customer Indifference Adjustment) on CCA customers who leave the IOU, potentially stranding long-term contracts and expenses. CCAs have had little to no control or insight into the formula that determines these fees and fees are set annually typically within months of being assessed. The California Public Utilities Commission is presiding over this subject and will make a ruling in the near future. Advocating for CCAs at proceedings that govern utility rules at the California Public Utilities Commission (CPUC) is necessary to limit the assessment of impact fees or increase transparency over them. A CCA must establish a strong reserve fund, from successfully providing energy service, to help absorb the impacts of exit fees.

 

Ultimately, CCAs are vehicles that can provide long-term value to communities through locally tailored programs and investments that support:

·         Energy efficiency;

·         Renewable energy;

·         Energy resilience through battery storage and demand response (reducing peak energy demand when the cost of energy is high);

·         Electrification of transportation (private, transit and commercial); and

·         Smart grid applications (appliances, energy loads and stored energy that can be controlled remotely to lower utility grid energy demand)

 

These types of programs and investments are possible when a CCA has successfully launched and is governed by members that are aligned in vision and goals.

 

Evaluation of Options

Staff is evaluating three options to implement Community Choice Aggregation (CCA):

1)     South Bay Clean Power (SBCP);

2)     Los Angeles Community Choice Energy (LACCE); and

3)     Single-city option

Over the course of the year, staff and Councilmember McKeown have:

·         met repeatedly with representatives from each CCA to learn about their proposals and ask questions; 

·         met regularly with counterparts in the Westside and South Bay cities to share updates and monitor changes;

·         explored a single-city option by way of a pro forma analysis and implementation plan;

·         included the Task Force on the Environment and its CCA subcommittee to explore the issues in greater detail; and

·         commissioned the UCLA Luskin Center for Policy Innovation (UCLA) to provide an unbiased analysis of the City’s options.

South Bay Clean Power

South Bay Clean Power (SBCP) had convened the original working group of cities to explore CCA two years ago. SBCP provided to its cities a business plan on February 15, 2017, and later a financial strategy and risk analysis on July 18, 2017.

 

SBCP’s business plan models its approach based on the most recent and most successful CCA launches in California. It advocates for hiring a third-party to perform at-risk, taking no upfront payment until the program launches successfully.

 

SBCP also advocates for utilizing portfolio managers, which are companies and nonprofits (the latter are typically owned by other public power entities) that provide an integrated suite of power sector services: planning, origination, contract management, buying and selling power and settlement (when procured power is different from consumed power). Contracting with these companies allows CCAs to diversify their energy portfolios by subsequently contracting with multiple suppliers and apply industry-standard energy risk management analytics and practices. This practice was utilized by Silicon Valley Clean Energy, a CCA program recently established in northern California, which enabled it to achieve an $18 million line of credit without a municipal guarantee.

 

The SBCP financial strategy recommends a $2.5 million start-up loan that would primarily be used as collateral deposits to Southern California Edison (SCE) and regulatory authorities and to fund nominal staff expenses. An additional $5 million loan would be required to provide collateral requirements for purchasing power. Both of these loans would require up to a $5 million municipal guarantee from one or two member cities.

 

The financial strategy offers four scenarios: base case (least green option), cheaper power, greener power and full decarbonization. Under all scenarios, SBCP would be able to remain competitive with SCE’s rates, including the exit fees. Figure 4 shows SBCP’s financial model for utility rates that provide a base case and full decarbonization.

 

Figure 4. SBCP Financial Model CCA Revenue & Rate Comparison

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBCP’s proposal utilizes the best practices of California CCA’s in initiation, financing and operations to ensure a fast and lean program launch, maximize deployment of local energy resources, and manage regulatory and market risk. The challenge for cities of this model is the initial up-front costs and financial guarantees that would be required of the founding members.

 

UCLA’s analysis of SBCP found that:

·         Because a number of other cities have already joined LACCE, if Santa Monica were to join SBCP, it would likely be the largest City, in terms of energy load; and

·         the prospective member cities are more similar to Santa Monica in terms of median income and demographics, which could imply that the participating communities have similar environmental goals and are less constrained by financial hardship; and

·         the prospective member cities are more similar to Santa Monica in terms of climate zone, which is coastal, cooler and cheaper to serve power to due to the relatively stable electrical demand; and

·         SBCP’s conceptual non-energy operating costs are significantly lower than most operating CCAs.

 

While most Westside and South Bay cities agree that SBCP’s proposal was more aligned with their goals and was more financially and structurally sound than the LACCE proposal, many expressed hesitance over the barriers to providing a financial guarantee and contributing staff time to initiating a new JPA. To date, no city has committed or expressed firm interest in launching a SBCP JPA.  Staff concurs with these concerns and does not recommend any further action with regard to joining SBCP.

 

Los Angeles Community Choice Energy

From December 2016 to March 2017, the County worked with relevant stakeholders and interested cities to negotiate a JPA to govern the LACCE program. On April 18, 2017, the Los Angeles County Board of Supervisors unanimously approved a motion to begin the implementation of LACCE, including the creation of the JPA and allocation of $10 million in funding needed to begin pre-operation and start-up activities.

 

Cities that execute the LACCE JPA within 180 days of LACCE’s formation will become Initial Participants of the program. Initial Participants will benefit from the $10 million loan from Los Angeles County and will not have to commit any funds of their own.

Furthermore, Initial Participants will have the opportunity to make important foundational decisions at the inception of LACCE. These include establishing committees to ensure sound governance and hiring an Executive Director to oversee LACCE operations.

 

County staff and consultants retained by the County are currently directing the majority of LACCE actions. LACCE will start Phase I for County facilities in January 2018, Phase II (commercial accounts in the unincorporated county and in cities) by mid-2018 and Phase III (residential customers) by the end of 2018.

 

On August 4, 2017, the LACCE Board of Directors held its first meeting. The agenda covered chair and secretary appointments, interim Executive Director approval, budget approval, and authorization to issue RFPs for power supply, scheduling, communication and legal services. The second meeting on September 7, 2017 addressed several administrative and start-up issues and began the process for recruiting a permanent Executive Director. LACCE currently has RFPs out for a wide range of services including power supply products and services for Phase I (only County municipal accounts to be serviced), power schedule coordination, legal services, and communication services (such as website and branding). 

 

LACCE’s approach is outlined in its business plan, which demonstrates that a County CCA program is financially viable and would provide significant benefits for the County’s residents and businesses (Attachment C). LACCE’s electric portfolio will be managed by a third-party electric supplier, at least during the initial implementation period. Through a power services agreement, LACCE will obtain full service requirements electricity for its customers, including providing for all electric, ancillary services and the scheduling arrangements necessary to provide delivered electricity. The business plan predicts electricity rates would be between 5.4 percent lower to 6.3 percent higher compared to SCE rates depending on the percentage of renewable energy that is provided.

 

LACCE’s business plan indicates that utilizing standard industry risk management techniques will be employed to reduce exposure to the volatility of energy markets and insulate customer rates from sudden changes in wholesale market prices.

LACCE is the first and largest CCA JPA in Southern California and has committed funding from LA County, which eliminates the need for financial guarantees from members.

 

LACCE prepared an implementation plan and business plan in August 2017 which includes a financial analysis (Attachments B & C). The financial analysis shows that:

 

·         LACCE’s program relies on a $50 million loan, which would be used to repay the County’s $10M startup loan and be paid off in 10 years; and

·         LACCE could earn approximately $6.7 million in program surplus over 10 years.

 

At this point staff cannot determine what procurement goals LACCE will achieve, what, if any, local return Santa Monica would receive, or what kinds of sustainable energy programs would be created that could benefit Santa Monica residents if Santa Monica were to join. These are decisions that would have to be made by LACCE Board members once LACCE is successfully operating and has sufficient reserves.

 

UCLA’s analysis of LACCE found that:

·         in a high membership scenario, Santa Monica would be the third largest member in terms of energy load, after Carson and the Unincorporated County; and

·         median income is more varied across current and prospective member cities, which could imply that some communities will be more concerned with reducing costs rather than achieving environmental goals; and

·         climate zones are more varied, which means that Santa Monica’s coastal zone, which is cheaper to serve power to, could subsidize climate zones that are more expensive to serve power to; and

·         LACCE’s conceptual non-energy operating costs are significantly lower than most operating CCAs.

 

LACCE offers a politically and financially expedient option for cities to bring CCA to their communities. LACCE has political and financial backing from the LA County Board of Supervisors. LACCE requires minimal involvement from member city staff and no financial commitment.

 

Staff and the Task Force on the Environment are concerned that LACCE may oversimplify the needs of its members and that Santa Monica’s sustainability goals may be limited by less progressive members if it joins.  Joining LACCE would require vigilance and advocacy from the appointed Board member, staff and community stakeholders to ensure that Santa Monica’s needs and goals are not diminished by the larger group of members. As a Board member, the appointed Director and staff could work in concert with other like-minded cities to form a voting bloc that would advance shared interests in high renewable content and innovative distributed energy resource programs that support local solar energy and electric vehicles. This would require a high-level of coordination with the Task Force on the Environment, City Council and like-minded cities, but it is feasible within existing resources.

 

The Task Force on the Environment adopted a motion to declare a list of requirements for Santa Monica’s membership to LACCE, including procurement goals, programmatic goals and structural changes. The full list of requirements is presented later in this report.

 

Single-City CCA

Staff is also evaluating an alternative option to become its own CCA. As a single-city CCA, Council would establish procurement goals for renewable energy, set utility rates and develop projects and programs funded by ratepayer revenues but would also likely require a significant initial financial commitment from the City, ongoing implementation and staffing costs, and an increased level of financial risk relative to the other CCA options.

 

On October 2, 2017, the City Manager entered into a professional services agreement with California Choice Energy Authority (CCEA). CCEA is a JPA created by the City of Lancaster, the state’s only active single-city CCA, and the City of San Jacinto, to provide other cities the opportunity to implement a CCA within their own community. Per the agreement, CCEA has provided to the City a pro forma analysis and implementation plan that describes what a potential Santa Monica CCA would look like and how it could operate. As part of the agreement CCEA will also work with the City to submit the implementation plan with a statement of intent to the California Public Utilities Commission (CPUC) to receive certification, which would allow the City to launch its own CCA, if Council chose to do so at a future date.

 

Santa Monica’s CCA launch and operating services could be provided by city staff and supplemented by a third-party selected by competitive bid, or by CCEA.

 

Under CCEA, the City would become an associate member of the JPA and that membership would be governed by a corresponding agreement which lays out each member’s responsibilities, costs, and obligations. Each associate member contract would have unique qualities that allow each City to tailor its relationship to be most beneficial and most appropriate for that City.

 

The City of Lancaster’s City Council serves as the CCEA Board of Directors providing the legislative and operational oversight of the corresponding contractual relationships with associate member agencies. This structure would allow each member agency to benefit from the knowledge and experience Lancaster has gained without ceding control to the JPA. This model would allow the City to determine a rate structure based on the cost of procuring renewable energy and directly receive revenue that could be used to finance energy projects and programs for Santa Monica.

 

Table 2. Distribution of Powers between Santa Monica and the CCEA Board

City of Santa Monica

CCEA

·         Local governance and oversight

·         Rate setting

·         Back office operations as desired

·         Community outreach

·         Marketing

·         Regulatory and legal affairs

·         Rate analysis

·         Financial projections

·         Project scheduling

·         Load forecasting

·         Electronic data exchange

·         Power procurement

·         Investor-Owned Utility (IOU) relations

·         Marketing assistance

·         Guidance to city council and management

·         Call center

·         Banking and accounting functions

 

CCEA would contract with the City of Lancaster to perform an agreed upon scope of work for the associate member. Being that each contract is unique, each City may choose which services are important, which can be done in-house, and which should be performed under the CCEA.

 

The pro forma analysis and implementation plan was developed utilizing current energy market and rate conditions, estimating the level of capital required for the City to move through the CCA start-up and phase-in periods, identifies specific duties, addresses how the City would interface with consultants and other third parties, and develops organizational structures that outline the operational functions and duties.

 

The current pro forma and implementation plan assumes that Santa Monica joins CCEA for administrative and energy procurement services, however this does not explicitly require the City to utilize CCEA for any services. The results of the study are summarized below and are included in the implementation plan (Attachment E):

 

·         Santa Monica must offer electricity rates between 4.3 and 6.8 cents/kWh in order to be competitive with SCE’s rates, plus additional fees and charges (Table 3)

·         Santa Monica would need to provide an estimated $2.4 million to launch the first 6 months of operation (Tables 4 & 5)

·         The City’s program could become self-sufficient within 16 months, depending on the type of power procured, and generate $53 million in cumulative net surplus over the 10-year forecast timeline (Table 6)

 

Table 3. Comparison of Rates & Fees

 

SCE 2018 Rate & Fee Forecast

SM CCA

Customer Class

Generation Rate (cents/kWh)

Surcharges, including Exit Fee (cents/kWh)

Franchise Fee (cents/kWh)

Competitive Rate (cents/kWh)

Residential

8.329

1.88

0.076

6.373

Small Commercial

8.08

1.206

0.073

6.801

Medium Commercial

7.694

1.568

0.070

6.056

Large Commercial

7.355

1.299

0.067

5.989

Industrial

6.837

1.062

0.062

5.713

Ag and Pumping

6.400

0.963

0.058

5.379

Street Lighting

4.425

0.002

0.040

4.383

Traffic Control

6.367

0.854

0.058

5.455

 

Table 4. Estimated Startup Costs

 


Table 5. Total Financing Requirements

Start-Up Cost Category

Cost ($)

1)      Implementation Costs

$600,000

2)      CPUC Deposit

$100,000

3)      Lockbox Reserve

$500,000

4)      Additional Cash Flow Needs

$1,200,000

TOTAL

$2,400,000

1) Implementation costs (detailed in previous table); 2) CPUC deposit required if Santa Monica initiates process to form a CCA; 3) Lockbox Reserve offers externalized collateral for power supplier, all ratepayer revenue will pass through the lockbox and be paid to the power supplier before net revenue is remitted to the City, shielding the General Fund; 4) Additional Cash Flow Needs help to provide funds necessary to procure power before revenue service is initiated.

 

Table 6. Cash Flow Analysis

 

The study anticipates that the startup costs can be repaid and a rate stabilization reserve be established within the first five full years of operation. These estimates are preliminary and would be refined if the City pursues further implementation.

 

If Council determined at a future date that it wanted to operate as a single-city CCA, Council would need to approve the implementation plan and adopt an ordinance in order to proceed with certification by the California Public Utilities Commission (CPUC).

 

Implementing a single-city CCA would be an ambitious endeavor at a time when Council has identified a litany of ambitious Strategic Goals and initiatives on behalf of the community. It would require the need for additional staff and technical consultants and would require that the City bear financial risk and obligation. The City of Lancaster currently employs 4.5 FTE staff to manage power procurement, regulatory engagement, community programs, customer service, contracts and accounting for Lancaster Choice Energy.  At this juncture staff recommends that, due to the major financial start-up costs and staffing costs, establishing a single-city CCA should not be the City’s first priority. 

 

UCLA Comparative Study & Analysis

Staff commissioned the UCLA Luskin Center for Innovation (UCLA) to conduct a comparative analysis of all three options (Attachment F). Researchers reviewed all official documents available and interviewed the key stakeholders and representatives of the three CCA options, as well as their consultants. They compared their recommendations, financial strategies and business plans, and discussed key elements with CEOs and staff of existing CCAs, as well as industry experts specialized in energy procurement, regulatory and legal affairs, data management and billing.

 

All three CCA options were evaluated seeking to answer the following key questions and criteria that reflect the City’s goals:

1)     Which CCA structure best provides Santa Monica with decision making autonomy toward local programs to achieve its environmental goals?

2)     Which option best protects the City against financial risk and provides the most resilient structure to future legislative, regulatory and competition risks?

3)     Which option offers the greatest economies of scale that would support future opportunities?

 

The UCLA study doesn’t make a specific recommendation with regard to which option Santa Monica should choose, however its thorough evaluation of the benefits and risks of each option have helped to inform staff’s recommendations.  Below is a summary of the findings of the UCLA study:

 

CCA Size, Viability, Voting and Economy of Scale

SBCP is the least operationally ready of the options. As there are no current members, and some of the cities included in its feasibility study have joined LACCE, SBCP would likely be smaller than LACCE if it is established. This means that Santa Monica would have greater influence in decisions made by this CCA as one of the leading cities if it were to join (or take the lead on establishing a SBCP JPA). However, forming SBCP would require additional time and resources which would increase the financial exposure of the initiating city, and delay the CCA launch considerably.  UCLA confirmed that the business plan and financial strategy of SBCP provides innovative recommendations on how to address energy procurement and become an advanced CCA. The ideas in the SBCP Plan could be used by Santa Monica and other cities as a model to advocate for revision of some of LACCE’s early decisions if it were to join the LACCE Board, in an effort to improve the viability of the LACCE CCA and better align it with Santa Monica’s stated goals.

 

LACCE is operationally ready and will likely have the largest membership of the three CCA options evaluated. This may mean less influence for Santa Monica, in terms of its direct vote. However, as the potentially largest CCA in California, this option could also provide the city with greater financial stability, greater economies of scale, and a stronger voice for the future legislative and regulatory discussion that lay ahead.  Given that a CCA’s success must precede its ability to provide environmental benefits, LACCE’s large size probably best positions Santa Monica to provide environmental benefits in the long term. Its county-wide membership also offers member cities the opportunity to collaborate, share resources, and potentially amplify their regional impact at many other levels.

 

Members of large CCAs in northern California established in the past decade have tended to reach a consensus before voting, which also demonstrates that cities which join a CCA usually tend to work collaboratively rather than antagonistically and tend to share similar goals and ambitions. Even though the Los Angeles County unincorporated area represents an important share of the load, the LA County LACCE Board Director still only has one vote, unless a weighted vote is called. Based on existing CCAs’ experience so far, weighted votes tend to be infrequent and, in many cases, have yet to occur at all.

 

One benefit associated with greater membership is that LACCE expects energy rates to become even cheaper with each additional joining member. The LACCE Business Plan (Attachment C) notes, “As additional Cities are added, it is expected that LACCE rates will be reduced even more when compared to SCE's.”

 

Moreover, economies of scale and autonomy are not necessarily mutually exclusive, as they depend on the design and policies set by the CCA. Even large CCAs can empower their member cities when it comes to local decisions and investments. Finally, participation in a larger CCA would offer Santa Monica the ability to form coalitions with other like-minded cities and influence the strategy and direction of the entire CCA.

 

California Choice Energy Authority’s single-city option would offer Santa Monica full autonomy over rates, power mixes, and programs. However, Santa Monica would not have a vote in decisions made by the CCEA’s JPA Board, including entering into power contracts. Because of this it is even more important that the values underlying the power procurement of CCEA align with Santa Monica’s values. Additionally, Santa Monica would likely not benefit from the economies of scale offered by a larger CCA if it were to join CCEA. CCEA uses a restricted bank account to reduce member cities’ financial risk called a “lockbox”, which seems to be an idea appreciated by energy providers and some of the financial institutions, and should be studied further by the city or the forming CCA.

 

Renewable Energy and Local Programs

All options have the potential for Santa Monica to immediately achieve 100% renewable electricity. LACCE plans to offer a 100% renewable energy product and allows individual cities to default their customers into that product. As no decisions have been finalized for SBCP, if and when it is established the joining cities could vote to decide to offer a 100% renewable option and could vote to decide if cities have the option to default enroll their customers. As Santa Monica would have full autonomy over product with CCEA, they could choose to also offer a 100% renewable energy product.

 

Joining CCEA would provide Santa Monica with complete autonomy over the financing and implementation of local programs. While a portion of revenues would be used to pay CCEA for their services, Santa Monica would have full control over the remaining revenues for local programs.

 

LACCE and SBCP’s JPAs will determine how to allocate budgets for local programs. Although Santa Monica would not have full autonomy over the use of CCA revenues for programs, the economies of scale offered by larger CCAs could mean that more revenues per MWh are available to finance programs.

 

With LACCE, revenues will be collected through the JPA. Some of the revenues will be used for operational costs and some will be used for JPA-wide programs. While it is up to the JPA Board how to distribute revenues, it is likely that a portion of the revenues will be allocated to member governments. The portion that is returned to member governments can be used in line with local preferences. Additionally, LACCE noted that not every program will be desirable for each member, so members can pick and choose their participation in some JPA-wide programs.

 

As a single-city CCA, Santa Monica would have guaranteed autonomy over revenues not needed for CCEA, any vendors or other operating costs and could decide to use those revenues to support programs.

 

UCLA’s study makes clear that the current most feasible option for the City to pursue at this point is to join LACCE and once on the Board attempt to influence the establishment and operation of the CCA so that it closely aligns with Council’s stated goals.  The single city/CCEA option is the next feasible option because it would provide the City with a significant amount of autonomy to pursue and meet its renewable energy goals, however it would also involve a significant financial and staff commitment to establish and operate it.  The SBCP model is the least operationally ready option.  While it has a strong conceptual business plan it doesn’t currently have a sponsor to fund its creation and therefore it isn’t likely to be established in the near future.

 

Task Force on the Environment

On November 20, the Task Force voted unanimously to declare the following points as requirements for Santa Monica’s continued membership in LACCE:

1)     None of the energy procured will come from coal.

2)     100% of the energy procured will be renewable by 2030. (Southern California Edison has a goal of 50% by 2030).

3)     The CCA will comply with state energy goals. (i.e.50% energy efficiency by 2030)

4)     The structure of CCA procurement should take a portfolio management approach to properly account for the value of distributed energy resources including demand response and energy efficiency. The JPA should integrate Portfolio Management Services such as analysis and planning, contract origination and management, operations, and settlements. The services will allow multiple energy suppliers such as individual power plants, fuel suppliers and local Distributed Energy Resources. This will also diversify risk.

5)     20% of the energy generated will come from local sources by 2030.

6)     Profits generated will assist Santa Monica to install 1,000 Electric Vehicle chargers total by 2025 in Santa Monica

7)     None of energy procured will be nuclear by 2030 for the entire county

8)     Public education programs focusing on energy efficiency and conservation will be implemented

9)     LACCE Customers will be provided with smart meters and user interface by 2025

10) The City will have control over revenue surpluses generated by Santa Monica customers and all of these revenues must be directed toward sustainable energy projects

11) The JPA will integrate a Distributed Energy Resources Aggregator to provide virtual power plant services

12) The JPA will hire data and billing services that support Distributed Energy Resources to collect interval data as opposed to monthly averages

13) The JPA will form a Community Advisory Committee as soon as possible

14) LACCE must invest in new renewable energy generation from the Southern California region

 

Also on November 20, 2017 the Task Force adopted the following motion: The Task Force strongly recommends Task Force member David Pettit be appointed by Council as a second alternate to the LACCE Board.

Recommendations

Staff recommends that Council introduce for first reading the attached enabling ordinance to join LACCE and appoint a Board Director and two alternate representatives to participate in the formative decision-making process that will guide LACCE for years to come.

 

According to the terms of the LACCE JPA: “The governing body of each Party shall appoint and designate in writing one regular Director who shall be authorized to act for and on behalf of the Party on matters within the powers of the Authority. The governing body of each Party shall appoint and designate in writing up to two alternate Directors who may vote on matters when the regular Director is absent from a Board meeting. The person appointed and designated as the regular Director shall be an elected or appointed member of the governing body of the Party. The persons appointed and designated as the alternate Directors may be an elected or appointed member of the governing body of the Party, an appointed member of an advisory body of the Party, a staff member of the Party or a member of the public who meets the following criteria:

 

Any alternate Director that is a member of the public must have demonstrated knowledge in energy-related matters through significant experience in either: 1) an electric utility or company, agency, or nonprofit providing services to a utility, 2) a regulatory agency or local government body overseeing an electric utility or a company, agency, or nonprofit providing services to such an agency, 3) an academic or nonprofit organization engaged in research and/or advocacy related to the electric sector.”

 

The events that take place over the next four months will be crucial to determine if LACCE is a viable option for Santa Monica to implement CCA. Summer is an optimal period to initiate electrical service as summer rates are the highest and most lucrative in terms of revenue.

 

During the January and February 2018 meetings, the LACCE Board will cover: 1) the hiring of an Executive Director; 2) the formation of a Community Advisory Committee; 3) procurement and environmental goals. In March, LACCE will initiate an RFP process to procure power for commercial, industrial and municipal accounts in member cities, with an intent to serve by June. The Director to be appointed will need to work with city staff, the Task Force on the Environment, like-minded cities and LACCE staff to ensure that the goals, objectives and organizational structure of LACCE are such that they serve Santa Monica’s interests within this short period of critical decision-making.

 

Should the City determine that LACCE does not serve its interests, Santa Monica may indicate its intent to terminate its membership 180 days in advance of doing so. This advance notice will limit the liability and obligation that the City might bear if LACCE were to procure power on Santa Monica’s behalf.

 

Staff will continue to evaluate the single-city CCA options and the financial feasibility and risk associated with pursuing those options in the coming months and will be prepared to make a recommendation to Council regarding the ultimate viability and benefit of one of those options if it becomes necessary.  If in the future the Council decides that continued participation in LACCE is not within the City’s best interest, staff would return to Council with a recommendation to approve the initial mandatory steps and move forward in a timely manner to establish a single-city CCA.  As a single-city CCA, the City could elect to work with CCEA, with another JPA or any third-party contractor that provides CCA services. Third-party contractors offer the option to provide CCA services ‘at-risk’, receiving no payment until the CCA has successfully launched.

 

 

Financial Impacts and Budget Actions

There is no financial impact associated with any of the recommended actions.  Should the appointed Director determine that the City should opt out of LACCE in the future, staff will return to Council with any recommendations for future action along with any financial impacts and budget actions related to those recommendations at that time.

 

 

Meeting History

Dec 5, 2017 5:30 PM  City Council Special Meeting
draft Draft