PG&Es Response to South San Joaquin Irrigation Districts - - PowerPoint PPT Presentation

PG&E’s Response to South San Joaquin Irrigation District’s Municipal Services Review and Proposed Takeover

September 22, 2014

PG&E’s Commitment to Safety, Reliability and Affordability

Introduction – Dylan George

2

This is Not Your Ordinary Municipal Services Review: An Unprecedented Request

Introduction – Dylan George

3

• There is no record of any similar LAFCo approval of an

expansion of this magnitude by a special district.

• There is no record of any LAFCo approving an eminent

domain expansion by which a special district seizes the assets of an operating utility.

• This would be, by far, the largest eminent domain

takeover of a utility in California in decades.

• With this MSR, SSJID is asking LAFCo to approve a

“change of organization” that would massively expand SSJID to over 10 times its current size, essentially creating a giant new special district.

The correct issue for LAFCo to decide is not whether SSJID is capable of providing retail electric service, but “would the reorganization be in the best interest of the agency and the community it serves?”

Overview

Introduction – Dylan George

4

1. Is SSJID prepared for what they are trying to do? 2. Would customers suffer a degradation of reliability? 3. Can SSJID deliver on its promise to save customers 15%? 4. Who would lose in an SSJID takeover? 5. Are the legal and financial risks too great?

Introduction – Dylan George

5

Overview

• 1. Operating the System – Jeff Deal, P.E., Director, Electric

Maintenance and Construction Central Valley Region

• 2. Reliability – Raj Beasla, Director of Local Presence,

Central Valley Region

• 3. Financial – Vijay Bhaskaran, Financial Analyst
• 4. Reduction of Services – Aaron August, Director,

Customer Care Central Valley Region

• 5. Legal Analysis – George Soneff, Partner, Manatt, Phelps

& Phillips, LLP

Is SSJID Prepared for What They Are Trying to Do?

Jeff Deal, P.E. Director, Electric Maintenance and Construction Central Valley Region

Operating the System – Jeff Deal, P.E.

7

Where were you on August 24, 2014 at 3:20AM?

PG&E Customer Recovery Data

Operating the System – Jeff Deal, P.E.

8

24 Hours Later 70,000 Customers

Operating the System – Jeff Deal, P.E.

9

Napa Earthquake – Base Camp

“For the past 50 years, SSJID has been in the electric business— generating clean hydroelectric power and selling it

• n the wholesale market. Now we simply want to close the

loop and also serve retail customers.” “SSJID’s current senior management has over 65 years of experience in electric utility management and power marketing.”

Source: SSJID Website , SSJID LAFCO Application Justification of Proposal

Operating the System – Jeff Deal, P.E.

10

Is SSJID Prepared for What They Are Trying to Do?

SSJID’s Emergency Response Plan: “SSJID will become a member of the California Utilities Emergency Association (“CUEA”) whose members will provide mutual assistance to SSJID during periods of emergency.”

Operating the System – Jeff Deal, P.E.

11

Vague Staffing and Emergency Response Plan

SSJID’s Staffing Plan:

• 1 Operations Managers
• 2 Full Time 4-Person Line Crews
• 3 Journeyman Troublemen
• 56 Other “Experienced Electric Utility Staff”

12

Evolution of the Grid

Power flows one-way from generation power plant to retail customer appliances and equipment Long Distance Transmission connects power plants to local distribution grids Local Distribution connects to homes,

• ffices, and factories

Customers use electricity in homes and businesses

Operating the System – Jeff Deal, P.E.

13

Evolution of the Grid

Future State – Power Flows in Many Ways Customers generate and use electricity requiring sophisticated metering and control systems

Operating the System – Jeff Deal, P.E.

PG&E Local Electrical Workers

Engineering Phones Dispatch Electricians Control Room Operators

35 Troublemen 135 Linemen

Technicians

Operating the System – Jeff Deal, P.E.

15

Control Center Operations

California ISO

16

SmartGrid in Progress

Home Energy Reports

Engaged Consumers

Customer Energy Management Energy Storage

Smart Markets Smart Utility

Outage and Load Management

PG&E is using SmartGrid technologies to provide customers with benefits today

Would Customers Suffer a Degradation of Reliability with SSJID?

Raj Beasla Director of Local Presence, Central Valley Region

Reliability – Raj Beasla

18

PG&E Reliability Statistics Within Proposed Takeover Area

166.6 162.4 85.4 144 78 98 92.6 78.3 69.4 20 40 60 80 100 120 140 160 180 2006 2007 2008 2009 2010 2011 2012 2013 *2014

Average Interruption of Service (Minutes)

*2014 projected based on YTD data SAIDI: System Average Interruption Duration Index

Reliability – Raj Beasla

19

PG&E Reliability Statistics Within Proposed Takeover Area

2.229 1.909 0.716 1.512 0.908 1.139 1.074 0.799 0.538

0.5 1 1.5 2 2.5 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Average Frequency of Interruption

*2014 projected based on YTD data SAIFI: System Average Interruption Frequency Index

SSJID Acknowledges They Cannot Improve Reliability

“changing the provider of retail electricity from PG&E to SSJID could stimulate economic activity by offering reduced rates and improved quality of service and reliability.”

• SSJID MSR (3/04/14) Page 21

(emphasis added) “changing the provider of retail electricity from PG&E to SSJID could stimulate economic activity by offering reduced rates and improved quality of service and reliability.”

• SSJID MSR (9/09/14) Page 21

(emphasis added)

Reliability – Raj Beasla

20

What it Takes to Deliver Safe and Reliable Power

Reliability – Raj Beasla

21

5-Year Plans 20-Year Plans 10-Year Plans FLISR Storm Rooms Vendor Agreements Backup Equipment Materials Trained Workforce Smart Grids Emergency Communications Plans Smart Meters

Substation

   

Circuit #2 Circuit #3 Circuit #1

22

FLISR Scheme – Normal Configuration

Reliability – Raj Beasla

3000 Customers Served Without FLISR With FLISR Confirm CB Open 45 mins 1 min

Substation

   

Circuit #2 Circuit #3 Circuit #1

Circuit Failure

23

FLISR Scheme – Fault Location

Reliability – Raj Beasla

Circuit Failure

3000 Customers Served Without FLISR With FLISR Confirm CB Open 45 mins 1 min Determine Fault Zone 45 mins <1 min

Substation

   

Circuit #2 Circuit #3 Circuit #1

24

FLISR Scheme – Isolation

Reliability – Raj Beasla

3000 Customers Served Without FLISR With FLISR Confirm CB Open 45 mins 1 min Determine Fault Zone 45 mins <1 min Restore Healthy Zones 30 mins <1 min

Circuit Failure

Substation

   

Circuit #2 Circuit #3 Circuit #1

FLISR Scheme – Service Restoration

25

Reliability – Raj Beasla

3000 Customers Served Without FLISR With FLISR Confirm CB Open 45 mins 1 min Determine Fault Zone 45 mins <1 min Restore Healthy Zones 30 mins <1 min 120 mins <3 mins

Substation

   

Circuit #2 Circuit #3 Circuit #1

Circuit Failure

26

FLISR Scheme – Service Restoration

Reliability – Raj Beasla

Substation

   

Circuit #2 Circuit #3 Circuit #1

3000 Customers Served Without FLISR With FLISR Confirm CB Open 45 mins 1 min Determine Fault Zone 45 mins <1 min Restore Healthy Zones 30 mins <1 min 120 mins <3 mins Final Repair - Minutes 60 60 Sustained Cust-Inter. 3000 1000 Customer Outage Mins 360,000 60,000

67% Fewer Sustained Customer Interruptions 83% Fewer Customer Outage Minutes

27

FLISR Scheme – Return to Normal

With SSJID FLISR Will Not Work

Reliability – Raj Beasla

SmartMeter™ enabled tools allow customers to see exactly how they're using energy so they can make informed decisions that help reduce their bills.

More Reliable Service SmartMeter™ provides for two-way communication between PG&E and the grid allowing us to quickly identify outages and resolve other services problems. See Your Daily Energy Use It’s as easy as going online to see a detailed history of your energy usage and costs, up to the previous day.

28

SmartMeter™

Get Alerts About Your Usage Energy Alerts, made possible by SmartMeter™ technology, let you know when you’re moving into higher-priced electric tiers so you can manage your energy use and save. Smart Devices and Smart Homes If you opt in to the Home and Business Area Network (HAN), your SmartMeter™ could connect to the smart devices in your home so they can automatically respond to energy usage from the grid.

Reliability – Raj Beasla

29

PG&E’s Electric System Within Proposed Takeover Area

• PG&E has 8 substations that serve the proposed

takeover area

• SSJID has proposed a total of 4 substations
• Purchase 2 from

PG&E

• Build 1 - Jack Tone
• Share 1 with MID-

Clough

Reliability – Raj Beasla

30

PG&E’s Electric System Within Proposed Takeover Area

PG&E has a unique system

• 17kV, which is

unusual and not an industry standard

• Requires special
• rders for parts and

maintenance

• Specific equipment

requirements to serve the area Special Equipment to Serve Unique System: PG&E’s Mobile Transformer

Reliability – Raj Beasla

31

Reliability with SSJID is Uncertain

MSR Finding 41 Accurately forecasting the reliability of SSJID’s proposed retail electric system for the purpose of comparing it to PG&E is not possible because SSJID has yet to provide service and address issues that would establish its reliability rating.

• SSJID MSR (9/9/2014) Page 114

Can SSJID Deliver on its Promise to Save Customers 15%?

Vijay Bhaskaran Financial Analyst

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's?
• 2. Is PG&E's estimate of cost of power more realistic than MRW's?
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's?
• 4. What is the assumed purchase price?
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large

municipalization?

• 8. Should the 2014 starting point reflect actual PG&E rates?

Financial – Vijay Bhaskaran

33

SSJID’s Proposed Takeover Will Increase Rates for Customers (Not Provide a Discount)

Correcting errors will increase Customers’ bills by >16%

• SSJID attempts to demonstrates feasibility by

“engineering” PG&E’s 30-year rates

• SSJID relies on a flawed 2010 estimate for asset valuation

and no expertise on upfront costs necessary to “sever” the distribution system from PG&E’s

• SSJID has no expertise on the level of ongoing

investments necessary to maintain a safe and reliable distribution system

• SSJID has insufficient funds from Tri-Dam to subsidize the

Electric Business

SSJID Acknowledges Risk of Flawed Assumptions

“While it appears that SSJID’s plan is financially feasible, this conclusion is based on a certain set of

• assumptions. If one or more of these assumptions is

inaccurate, it could affect the financial feasibility of SSJID’s plan to provide retail electric service and protect customers from increased rates..”

• SSJID MSR (9/09/14) Page xi

(emphasis added)

35

Financial – Vijay Bhaskaran

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's?
• 2. Is PG&E's estimate of cost of power more realistic than MRW's?
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's?
• 4. What is the assumed purchase price?
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large

municipalization?

• 8. Should the 2014 starting point reflect actual PG&E rates?

Financial – Vijay Bhaskaran

36

SSJID’s Financials Engineered by “High” PG&E Rates

15 20 25 30 35 40 2010 2015 2020 2025 2030 2035 2040 2045 2050

Average Electric Rate in Proposed Area (Cents/kWh)

PG&E Forecast MBMC Forecast MRW Forecast

Unrealistic rate forecast over 30 years

10 years 2014-2024 20 years 2024-2044 PG&E 2.0% 1.5% PA Consulting 2.1% 1.4% MBMC 2.7% 1.8% MRW 2.7% 2.6% Scenario Rate CAGR

1.7% 2.1% 2.6%

> $700M

SSJID Uses GDP Inflation as Input for Rate Forecast

PG&E Rates have been lower than Inflation

0.0¢ 2.0¢ 4.0¢ 6.0¢ 8.0¢ 10.0¢ 12.0¢ 14.0¢ 16.0¢ 18.0¢ 20.0¢ 22.0¢ 24.0¢

(¢ / kWh)

1/1/2014 Rate at CPI = 18.0¢ 1/1/2014 Authorized Rate = 16.3 ¢

System Average Bundled Rates

SSJID Manipulates Current PG&E Data in Proposed Area

Correcting for PG&E’s starting point reduces value by $42M (10-yr) and $233M (30-yr)

PG&E MRW/MBMC

2014 Rates (cents/kWh)

Actual (1/1/2014 Rates and 2013 Usage) Revised Rates Error

Industrial 14.41 $ 16.55 $ 15% Small Commercial 19.51 $ 21.33 $ 9% Large Commercial 17.51 $ 19.07 $ 9% Residential 17.39 $ 17.32 $ 0% Agriculture 19.55 $ 16.12 $

• 18%

Street Lighting 15.93 $ 19.57 $ 23%

Financial – Vijay Bhaskaran

39

PG&E MRW/MBMC

2013 Load (GWh)

Actual Recorded Load

Revised Loads

Error Industrial 110 121 10% Small Commercial 54 55 2% Large Commercial 50 51 3% Residential 284 282

• 1%

Agriculture 20 19

• 4%

Street Lighting 4 4 1% 522 533 2%

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's?
• 4. What is the assumed purchase price?
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large

municipalization?

• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

40

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's?
• 4. What is the assumed purchase price?
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large

municipalization?

• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

41

SSJID Has Not Adequately Studied Upfront Acquisition Costs

Total Acquisition Cost = Fair Market Value (FMV) of Assets + Severance and Stranded costs Payable to PG&E

• utside takeover area

+ Severance incurred by SSJID inside takeover area + Financing Costs

Financial – Vijay Bhaskaran

42

Upfront Acquisition Costs PG&E MBMC/ MRW Fair Market Value 438M $ 217M $ Severance + Stranded Costs payable to PG&E 101M $ 34M $ Severance Costs incurred by SSJID 83M $ 55M $ Financing 6M $ 3M $ Total 629M $ 310M $

43

SSJID Has Not Adequately Studied Upfront Acquisition Costs

SSJID has ignored going concern value and not addressed unit cost pricing and depreciation methodology issues. Replacement Cost New Less Depreciation (RCNLD) is the methodology that PG&E has used to conduct its analysis of the “fair market value” The law specifically allows this method and PG&E is confident that a court would find it “just and equitable.” Black and Veatch has updated its 2009 study for new/retired capital, inflation, and depreciation

Financial – Vijay Bhaskaran

SSJID Has Not Adequately Studied Upfront Acquisition Costs

Real costs that will be incurred before acquisition

Upfront Acquisition Costs PG&E MBMC/ MRW Fair Market Value 438M $ 217M $ Severance + Stranded Costs payable to PG&E 101M $ 34M $ Severance Costs incurred by SSJID 83M $ 55M $ Financing 6M $ 3M $ Total 629M $ 310M $

Financial – Vijay Bhaskaran

44

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's?
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large

municipalization?

• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

45

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's?
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large

municipalization?

• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

46

SSJID’s Manipulation of Electric Operation Costs

$0M $2M $4M $6M $8M $10M $12M $14M

2002 2004 2006 2008 2010 2012 2014

On-Going Capital Expenditures 2014 Real Dollars

MSR - Mar 2014 Purported PA Consulting Estimate PG&E - Apr 2014 PG&E Actual Investment PA Consulting Actual Estimate PG&E - 11-year Average MRW - Aug 2014

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's? YES
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large municipalization?
• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

48

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's? YES
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline?
• 6. Should in-lieu taxes be consider as a part of the economic model?
• 7. Is there a need to assume that SSJID will be considered a large municipalization?
• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

49

SSJID’s Financial Plan has Other Flaws

(Specifically Against LAFCo Directives)

Financial – Vijay Bhaskaran

50

• SSJID does not include In Lieu Property Taxes and

Franchise Fees in the financial model despite promising to pay them

• MSR ignores directive from LAFCo that worst case

scenario of “Large Municipalization” should be assumed until CPUC makes a determination

• Greenhouse Gas Allowances reduce for entire

California Sector; MRW first assumed SSJID’s will increase, then revised to be flat after 2020. PG&E assumes decline consistent with ARB Policy

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's? YES
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline? YES
• 6. Should in-lieu taxes be consider as a part of the economic model? YES
• 7. Is there a need to assume that SSJID will be considered a large municipalization? YES
• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

51

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much?

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's? YES
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline? YES
• 6. Should in-lieu taxes be consider as a part of the economic model? YES
• 7. Is there a need to assume that SSJID will be considered a large municipalization? YES
• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

52

SSJID’s Proposed Takeover Will Increase Rates

$352 $119 $8 ($51) ($152) $(200) $(100) $- $100 $200 $300 $400 $500

SSJID Revised MSR (MBMC) Starting with actual rate and load data Including Taxes and Fees Large Municipalization Exit Fees Using PA's actual rate escalation

Net Cash Flow, 2044 $M 2014-2024 2025-2044

SSJID’s Proposed Takeover Will Increase Rates

$352 ($152) ($226) ($591) ($1,242) ($651) $(1,400) $(1,200) $(1,000) $(800) $(600) $(400) $(200) $- $200 $400

SSJID Revised MSR (MBMC) Correcting errors (starting point, Large Muni, Taxes, PA's actual escalation) PG&E's Capital Expenditures PG&E Rate Forecast B&V Asset Value and PG&E Severance Costs Charging rates equal to PG&E

Net Cash Flow, 2044 $M 2014-2024 2025-2044

16%

SSJID Cannot Subsidize Electric Plan with Tri-Dam

Equity Needed Equity Available

SSJID’s Business Plan is NOT Feasible

2011 Actual 2012 Actual 2013 Actual 2014 Expected Tri-Dam Distributions $ 14.0M $ 7.3M $ 7.3M $5.2M Net Nonoperating Revenues $ 14.1M $ 9.8M $ 11.1M SSJID Water Net Profit/Loss $ (14.7M) $ (15.8M) $ (12.5M) Total $ (0.6M) $ (6.0M) $ (1.4M) First Year Subsequent Years 15% Discount $ 46M $ 42M Equal to PG&E $ 33M $ 23M

Financial – Vijay Bhaskaran

55

SSJID Issues Matrix - LAFCo Considerations

Financial Feasibility Will the rates under SSJID's plan be less or more than PG&E's rates and by how much? 16% MORE

• 1. Is PG&E's rate forecast more realistic than MRW's? YES
• 2. Is PG&E's estimate of cost of power more realistic than MRW's? YES
• 3. Is PG&E's estimate of ongoing capital expenditures more realistic than MRW's? YES
• 4. What is the assumed purchase price? $629M (Total Acquisition Cost)
• 5. Will Greenhouse Gas Allowances decline? YES
• 6. Should in-lieu taxes be consider as a part of the economic model? YES
• 7. Is there a need to assume that SSJID will be considered a large municipalization? YES
• 8. Should the 2014 starting point reflect actual PG&E rates? YES

Financial – Vijay Bhaskaran

56

Who Would Lose in an SSJID Takeover?

Aaron August Director, Customer Care Central Valley Region

58

SSJID Acknowledges that Public Purpose Programs Will be Lost “SSJID’s retail electric plan would result in less public benefit programs spending than what is estimated to be provided by PG&E.”

• SSJID MSR (9/9/14) page xiii

Reduction of Services – Aaron August

Nationally Recognized Public Benefit Program

“top utility for delivering clean electricity to its customers and implementing effective energy programs”

• Ceres, Clean Edge

59

60

PG&E Public Purpose Programs and Customer Benefit Offerings

• CARE (California Alternate

Rates for Energy)

• FERA (Family Electric Rate

Assistance)

• Medical Baseline
• ESAP (Energy Savings

Assistance Program)

• REACH (Relief for Energy

Assistance through Community Help)

• LIHEAP (Low Income

Energy Assistance Program)

• RCx (Retrocommissioning

Program)

• Tax Credits
• Energy Efficiency Financing
• Retrofit Incentives
• Savings By Design (SBD)
• Rethink HVAC
• Economic Development Rate

Program

• Self-Generation Incentive

Program

• California Solar Initiative
• Rule 20A (Undergrounding

System) * partial list

Segment Key

Considerations:

• ‘Big Data’ Analytics
• Ability to mobilize new &

innovative programs based on local customer feedback

• Local, dedicated Energy

Advisors

Energy Efficiency is Our Business

Reduction of Services – Aaron August

61

Within the incorporated cities of Escalon, Manteca and Ripon in 2013

Who Would Lose in a “Less Public Benefit Programs” Environment?

Scaled to Support the Solar movement?

Considerations:

• 25% of all the Nations Solar resides in the

PG&E System

• Growth in Grid complexity requires high

degree of technical ability

• SSJID Financials are driven by the need to

grow sales to cover fixed costs, not reduce them.

8 15 20 15 20 38 100 95 71 126 275 327 50 100 150 200 250 300 350 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Solar Sites Connected Year

Residential PV Interconnections

2003 to September 12th 2014

Escalon Manteca Ripon Grand Total

Reduction of Services – Aaron August

64

How Much Would be Lost in a “Less Public Benefit Programs” Environment?

Summary of non-res energy usage and savings

Within the incorporated cities of Escalon, Manteca and Ripon in 2013

Customer Incentives kWh Usage Customer Accounts MANTECA INC $1,204,428 171,962,776 3,590 RIPON INC $105,745 17,491,115 672 ESCALON INC $96,947 10,385,290 469 Totals $1,407,120 199,839,181 4,731

Considerations:

• Comprised of the largest employers in the area
• Programs span efforts to directly educate and incentivize customers to

purchase energy efficient products to innovative partnerships with local

• rganizations that provide technical support and increase adoption
• How would an SSJID Revenue Model support Energy Efficiency?

Reduction of Services – Aaron August

65

Customer Advocacy: SSJID Water Operations Rely Heavily on Tri-Dam Revenue

Year Water Revenue Water Expenses Water System Loss

2013 $13.1 million $25.6 million (-$12.5 million) 2012 $9.2 million $25 million (-$15.8 million) 2011 $9.3 million $24 million (-$14.7 million) 2010 $11.6 million $22.3 million (-$10.7 million) 2009 $18 million $23.4 million (-$5.4 million)

Source: SSJID Annual financial reports available on the SSJID website

Considerations:

• Water System expenses have significantly exceeded revenue
• ‘Historical’ Tri-Dam revenues have created a cash surplus,

recent Tri-Dam revenues trending down, with this year projecting even worse

• What impact might this have on water rates?

Future Tri-Dam Revenue is Uncertain

Tri Dam Project and Authority: Distributions to OID from TDP/A no longer provide the dependable financial support they

• nce did.

1. Tri Dam has challenges: a. A depressed power market yielding poor wholesale prices b. High operational expenses c. Implementation of a capital improvement program to address life-cycle replacement needs d. No plan on how to address a), b), or c). 2. While the new Santa Clara Power Contract will firm up the bottom of the wholesale market during this unprecedented meager and protracted economic recovery, more needs to be done to improve the bottom line. See attached Tri Dam Trend Curves. 3. Attached is a projection of Tri Dam Project revenues through 2023 using Santa Clara Power Contract revenue “projections.” Distributions next year are projected at $8 million to OID, same as the last 3 years, and still $3 million a year less than the “good

• l days.”

a. Long-term average distributions look to be $11 million a year in 2013 dollars, not adjusted for inflation, which lessens this value.

Source: Minutes of Oakdale Irrigation District board meeting; October 15, 2013 (pages 6-7)

Future of Water in California is Uncertain

Are the Legal and Financial Risks Too Great?

George Soneff Partner, Manatt, Phelps & Phillips, LLP

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Map of the Border Area

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Map of Competitive Zones

“Scenario 1: Contract Solely with PG&E” . . . “Scenario 2: Contract with MID and PG&E” . . . “Scenario 3: Contract Solely with MID and Construct Underbuilds” . . . “Scenario 4: Construct Underbuilds for All Border Areas”

• SSJID MSR (9-09-14) Page 97-98

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Options for Border Area

“MSR Finding 30 . . . SSJID has proposed, as its preferred option, to enter into an agreement with MID to serve customers within the border area and construct additional facilities to serve remaining PG&E customers. However, while MID has studied and found it feasible to serve these areas, and has agreed to work with SSJID on this issue in the future, MID has not made any formal commitment to enter into a wholesale metering agreement with SSJID or to serve border area customers. . . .”

• SSJID MSR (9-09-14) Page 98

(emphasis added)

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SSJID’s Preferred Option

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MID Has Not Agreed to SSJID’s Preferred Option

“Border area customers who would be served by MID currently get to choose whether they want to be served by PG&E or MID. If SSJID entered into an agreement with MID, border area customers would not get to decide whether they want their service provider to be MID, and they would not have the ability to prevent a rate increase due to the change in service providers. MID customers within San Joaquin County are not able to vote in MID elections. Likewise, Modesto LAFCo is not responsible for ensuring the provision

• f adequate and efficient services to areas outside Modesto
• County. Finally, San Joaquin LAFCo does not have the

authority to evaluate and make decisions regarding MID’s services and boundaries within San Joaquin County.”

• SSJID MSR (9-09-14) Page 24

(emphasis added)

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Border Customers Have No Choice

Will the 1500 border area customers have a choice of who their service provider will be? NO

“SSJID’s plan would also affect border area customer rates as existing PG&E customers would be shifted to MID, and pay rates set by MID. As described in Chapter 5

• f the MSR, it is expected that about half of residential

customers would experience rate increases and half would experience lower rates. Non-residential customers would likely pay lower rates. Border area customers would also no longer have access to PG&E public purpose programs or CARE program rates.”

• SSJID MSR (9-09-14) Page 24

(emphasis added)

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Rates Will Go Up For Some Border Area Customers

Will their rates go up? YES

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Public Purpose Programs Will Be Lost

Will the same level of public benefit programs be provided? NO

“. . . SSJID’s plan could result in a loss of $182,852 in public benefits spending if MID takes over service.”

• SSJID MSR (9-09-14) Page 161

“In addition, the SSJID retail electric plan would likely result in less public benefit programs spending than what is currently provided by PG&E in the border area.”

• SSJID MSR (9-09-14) Page 162

Disenfranchised Customers Under SSJID’s Plan

227 Cal.App.4th 484 Court of Appeal, Fifth District, California CITY OF PATTERSON, Plaintiff and Appellant, v TURLOCK IRRIGATION DISTRICT, Defendant and Respondent. F067629 | Filed June 25, 2014 “In short, the purported evil that City’s application seeks to redress—an irrigation district imposing charges for electrical services on customers who cannot vote in district elections because they reside outside the district’s boundaries—has not been identified by the Legislature as a problem that the annexation of territory is intended to redress.” (Id. at 487-88)

A similar situation in Stanislaus County led to a lawsuit:

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• 1. No hollow shells. AB 2484 fills the gap between local

enthusiasm and fiscal reality. The bill’s key reform requires LAFCo to deny a district’s request to exercise a latent power if the district can’t pay for the new service. When local boosters want their special district to deliver a popular service, AB 2484 requires LAFCo to ask the tough question: who’s going to pay? Unless the district can point to revenues from special taxes, benefit assessments, or fess, the bill requires LAFCo to say ‘no.’ By imposing fiscal discipline on LAFCos and special districts, AB 2484 avoids what some observers call hollow shells; governments with promising surfaces, but empty inside.

• 5/21/08 (emphasis added)

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LAFCo’s Role

California Senate Local Government Committee Report

Senator Gloria Negrete McLeod, Chair

MSR Finding 79: “SSJID has stated that it will continue to use its current capital asset maintenance and improvement planning process with the addition of the retail electricity service. However, because SSJID does not maintain an adopted CIP or equivalent document, and the retail electric plan has not been incorporated into the District’s capital expenditures plan, it is difficult to evaluate and determine the long-term effects of retail electricity service on District ability to identify, plan, prioritize, and fund necessary facility improvements for existing plus new services.”

• SSJID MSR (9-09-14) Page 191-192

(emphasis added)

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SSJID’s Lack of a Capital Improvement Plan

Determination 2: Present and planned capacity of public facilities and adequacy of public services, including infrastructure needs or deficiencies Refers to the status of existing and planned public facilities and its relationship to the quality and levels of service that are, can and need to be

• provided. Infrastructure needs and deficiencies can be evaluated in terms of

supply, capacity, condition of facilities, and service quality with correlations to

• perational, capital improvement, and finance plans. Maps and explanatory

text that clearly indicate the location of existing facilities and proposed facilities, including a plan for the timing and location of new or expanded facilities need to be included. The identification of the anticipated service level needs to be tailored to the 5-10, and 30 year sphere horizons.

• Source: San Joaquin LAFCo service review policies rev. 2/8/2008 page 3

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San Joaquin LAFCo Service Review Policies

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The Eminent Domain Litigation Plan

• There is no record of any LAFCo approving an eminent

domain expansion by which a special district seizes the assets of an operating utility.

• Compensation trial by jury
• Valuation based on “highest price”

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SSJID Price Proposals – LAFCo Must Decide?

March 3, 2014 Draft MSR: MSR Determination 57 “. . . San Joaquin LAFCo could condition the approval of SSJID’s plan on any purchase price up to $736 million to ensure the financial feasibility of SSJID’s plan.” September 9, 2014 Draft MSR: MSR Finding 57 “. . . San Joaquin LAFCo should condition the approval of SSJID’s plan on any acquisition cost up to $310 million or other amount to be determined that ensures the financial feasibility of SSJID’s plan.”

Conclusions

Dylan George Government Relations Representative

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The Changing SSJID Story

“The Supplement further stated that SSJID can provide retail electric service at a discount of 15 percent or more compared to PG&E’s retail rates by contributing equity from its cash reserves to reduce debt and contributing a portion of its annual Tri-Dam revenue to stabilize rates after applying PA’s wholesale power prices.”

• SSJID MSR (11/15/11) Page 110

(emphasis added) “MSR Finding 54: SSJID’s plan to provide retail electricity could provide a 15 percent rate discount to PG&E rates. The provision of a rate discount would not require SSJID to make ongoing equity contributions, beyond an initial investment to acquire PG&E’s distribution facilities. SSJID’s retail electric plan does not rely on surplus water or wholesale power revenues to subsidize service.”

• SSJID MSR (9/09/14) Page 142

(emphasis added)

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The 15% Rate Discount is Far From Certain

“Should future conditions not allow the District to continue providing a 15 percent rate discount, the District could adjust rates to reduce the rate discount below 15 percent or to eliminate the discount entirely, resulting in an increase in the District’s operating revenue. This would result in an increase in the cost of electricity service for

• customers. Further adjustments that would increase the

cost of service above the cost of PG&E service are also possible.”

• SSJID MSR (9/9/14) page 153

(emphasis added)

The correct issue for LAFCo to decide is not whether SSJID is capable of providing retail electric service, but “would the reorganization be in the best interest of the agency and the community it serves?”

Conclusion

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86

1. Is SSJID prepared for what they are trying to do? 2. Would customers suffer a loss of reliability? 3. Can SSJID deliver on its promise to save customers 15%? 4. Who would lose in an SSJID takeover? 5. Are the legal and financial risks too great?