CITY OF WEST HOLLYWOOD STATUS & UPDATE PRESENTATION

AUGUST 2017 CITY COUNCIL MEETING

South Bay Clean Power CCA Development Status 1. February 14, 2017- City Council of Santa Monica passes resolutions to continue exploring

SBCP option and directs staff to review and report back on JPA and Business Plan drafts 2. February 15, 2017 - SBCP draft Business Plan submitted to All Cities 3. February 21, 2017 - City Council of West Hollywood passes resolutions to continue exploring

SBCP option and directs staff to review and report back on JPA and Business Plan drafts 4. March 21, 2017- Redondo Beach City Council votes 2-1-1 to continue exploring SBCP option

and directs staff to review and report back on JPA and Business Plan drafts 5. April 4, 2017 - Torrance City Council votes continue exploring SBCP option and directs staff to

review and report back on JPA and Business Plan drafts 6. April 18, 2017 - City of Carson City Council votes to continue exploring CCA options including

SBCP Business Plan 7. April 18, 2017 - Redondo Beach City Council with new Mayor & Council Members votes 3-2 to

continue exploring SBCP option and directs staff to review and report back on JPA and Business Plan drafts

8. April 24, 2017 - Malibu City Council votes to continue exploring SBCP option and directs staff to review and report back on JPA and Business Plan drafts

9. May 8, 2017 - Culver City City Council votes to continue exploring CCA options including SBCP Business Plan

10. May 23, 2017 - City of Palos Verdes Estates votes to continue exploring CCA options including SBCP Business Plan

11 . June 7, 2017 - Santa Barbara CCA Forum - presentation of SBCP as JPA of CCA member 12. June 14, 2017 - Joe Galliani and Supervisor Shelia Kuehl meeting 13. July 17, 2017 - Presentation to Malibu Sustainability Sub Committee 14. July 18 & 19 - Delivery of SBCP Financial Reports and Supporting documents to All Cities. 15. July 19, 2017- Financial Reports meeting with Santa Monica Advisory Committee members.

ATIACHMENT5

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FINANCIAL STRATEGY _ .. , ........ -.......... ~- --Energy RISI< Management Services to.- Sou1h Bay Qean Power a.-&-.,._. .. ,. .................

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1. Business Plan : details governance and operational structure, explains RFP design & contracting process, and agency development 'roadmap' - incorporates numerous proven risk management best practices from CCA & public power industry

2. Financial Strategy: presents modeling results, analyzes key regulatory risks, provides startup loan table & products/ tranches/ terms expected, and concludes with "Contingency Plan" for SBCP

3. Portfolio Manager Q&A: interviews 5 leading public power nonprofits & companies that provide utility-grade energy risk management services to CCAs, including their strategies for dealing with key regulatory risks

South Bay Clean Power Financial Strategy

Five-year forecast horizon & near-term risk analysis

Focused on the startup, launch and early operational phases of South Bay Clean Power.

Primary purpose is to explain and quantitatively demonstrate the feasib ility and effectiveness of the CCA's financial strategy during the period when debt is:

1. Used to collateralize and launch the program and 2. Subsequently paid off with net revenues

generated over the initial years of operations.

THERE IS TOO MUCH REGULATORY RISK TO ACCURATELY FORECAST BEYOND THIS TIME PERIOD

"Contingency Plan" included to best manage risks that are outside of SBCP's control

FINANCIAL STRATEGY

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About the Financial Reports Delivered by South Bay Clean Power

To assist SBCP in meeting our timeline, we are providing three "industry firsts": 1. Fully transparent model results, with both annual tables

and detailed monthly energy, financial and cash-flow outputs that allow full verification of the results ;

2. A detailed description of the modeling methodology; 3. A 250+ process step Gantt chart:

1. Details the inter-dependent launch steps for SBCP member governments, key staff, committees, regulators, SCE and key CCA contractors to launch the program.

2. Identifies the "critical path" and specifically which tasks have to be executed on time so as not to delay overall launch date.

FINANCIAL STRATEGY

CCA Industry In Period of ~ UNPRECEDENTED Regulatory Risk ~

Regulators entertaining proposals to revise how power contract costs and benefits allocated between utilities and CCAs (PCIA - PAM 'market transformation')

• May represent market transformation that significantly lowers net revenues experienced by existing California CCAs - likely implemented - 2020

• CCAs have to be designed in anticipation of this - no time to launch & change course

Regulators considering reopening Direct Access

• If expanded risk of compromising financial performance of CCAs in multiple ways

• CCAs need to be designed to compete against ESPs

CPUC examining credit-worthiness of CCAs in multiple venues

• Risk of fin ancial liabilities on utility customers could cause CPUC to use statutory authori ty to make members of CCA JPAs assume fi nancia l liabil ity for JPA itself -or block/ suspend CCA operations

NONE of these risks can be mitigated- SBCP & Regional JPA of CCAs were designed in anticipation of

these risks

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Risk Management in SBCP & Regional JPA of CCAs Design

SBCP consultant identified PC/A risks in 2014 -7 publicly detailed risk & proposed CCA designs to mitigate in Feb 2016 (regulatory filing) -7 formalized recommendations in SBCP Business Plan in Feb 2017.

SBCP Financial Strategy (includes risk analysis) reflects th is approach

To help manage these risks, we recommend SBCP:

1. Re ly on Portfol io Manager for energy risk management services, including active market operations ;

2. GOVERNANCE, CONTRACTING, AND OPERATIONAL best practices in SBCP Business Plan are broadly designed as risk management actions that insulate CCA from financial shocks and help shield municipal it ies from liability for those financial shocks (by demonstrating highest diligence);

3. Proactively form the Regional JPA of CCAs using SBCP Business Plan design -for economy of scale, lower costs & coordinated planning without compromising LOCAL CONTROL

What Best Practices Have Already Been Proven?

r~'\ SILICON VALLEY ~CLEAN ENERGY

REDWOOD COAST Energy Authority

Since our SBCP Plan was published in February:

Both CCAs we based design recommendations on (Silicon Valley & Redwood Coast) have launched successfully & exceeded expectations:

1. Industry-leading Energy Risk Management (ERM) policies and real-world capabilities.

2. Energy operations provided by power Portfolio Managers

3. Ground-breaking financial strategies - least risk to municipalities (lenders recognize superior risk management)

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Key Financial Report Modeling Results 1. June/ July 2018: program launch (if cities move forward soon) 2. By YE 2019: net revenues of $40 million (a strong position going into the market transformation

period);

3. By YE 2019: $2 .5 mill ion spent on Distributed Energy staff and programs as well.

4. Assumes: 0.5% to 1 % rate decreases and 60% carbon-free supply, of which 37-39% would be renewable. (SCE estimated at-45% carbon-free and -36% renewable during that time.)

5. All startup debt would be repaid by Sept/ Oct of 2019 - absolving municipalities of any guarantees for initial financing prior to high-risk 'market transformation' period.

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• Assumed -$5 million in guarantees for $7.5 million in term debt + a $20 million line of credit w/ no guarantee (based on Silicon Valley's recent success in negotiating a similar financial package)

24 MONTH SNAPSHOT CASHFLOW ALLOCATION & DEBT SERVICE FORECAST

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MODEL RESULTS

We have prepared four scenarios to provide SBCP cities with a range of insights into how varying ower costs and rate decreases are forecasted to impact the financial erformance of the CCA:

SCENARIOS FOR COMPARISON SOUTH BAY CLEAN POWER SCENARIOS

The 'Base Case· scenario provides an initial point of comparison with SCE. The CCA matches SCE's estimated renewable a nd carbon content, and sets rates such that customers would pay the same under either CCA or SCE bundled service.

The 'Cheaper Power' scenario holds the Base Case assumptions steady but decreases generation rates by 2% in ail years as compared to SCE. It is included to provide insight into the impact of rate decreases on th CCA. And do s not efiect oli

GREENER POWER

'Greener Power' launches and maintains a 60% carbon-free supply through year five, with re newable supply growing from 35% to 45%, and a 1 % generation rate decrease relative to SCE. (Between 201B·2022, we estimate SCE at 44% ~ 50% carbon free, with 34% ~ 39% renewable content.)

DECARBONIZATION

'Decarbonjzatian' launches at 60% carbon· free with 35% renewable, and grows ta 100% carbon-free with 50% renewable by 2022 -with a 0.5% rate decrease compared to SCE.

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GREENER POWER SCENARIO DECARBONIZA TION SCENARIO

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SCE Rate

CCA REVENUE ALLOCATION & SCE RETAIL RATE COMPARISON

(weighted t o CCA customer basel S/M \\ k

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CCA REVENUE AUOCATION & SCE RETAIL RATE COMPARISON

(weighted to CCAcustomer base)

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Customer Phase-In Timeline

MAKE-OR-BREAK risk factor in any CCA's startup financing strategy is the customer phase-in schedule.

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Highest-level dynamic: result of SC E's rate structures and the PCIA charge (revenues from customers fluctuate widely over the course of Customer Phase-In Allocation by Load the year):

1. Non-residential customers cause losses for the CCA 8 months out of the year - but bring in substantial net revenues in June -September (high demand charges in summer)

2. Residential is more stable - but minimal net revenues

Consequently, the phase-in strategy in these model runs: 1. Enrolls primarily nonresidential customers in June 2018 to

maximize initial net revenues; 2. Balances the winter decline in revenues by enrolling remaining

residential customer base in October 2018; 3. Adds all remaining nonresidential customers in June 2019 to

achieve full enrollment and net revenues. PROVEN CCA BEST PRACTICE & CLEARLY FORECASTED IN MODEL RESULTS

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Power Portfolio Managers - A Key Point of Difference

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Companies and nonprofits (owned by public power) that provide integrated suite of power sector services:

1. Planning

2. Origination & Procurement

3. Contract Management

4. Active Power Market Operations and Settlements.

'New Normal' for best-in-class CCAs - deploys utility grade operations & transparency 'off the shelf

Allows CCAs to diversify their energy portfolios sourced form multiple suppliers & Distributed Energy

Lowers municipal guarantees for financing - enhances CCA credibility with lenders! Fast-tracks education of how to apply energy risk management in practice.

Critical Advantages of Regional JPA of CCAs

1. Superior energy risk management services provided in a standardized fashion across CCAs

2. Economy of Scale = low overhead costs 3. Enhanced credit & liquidity anticipated 4. Coordinated (optimized) planning anticipated 5. Distributed Energy services and analytics 6. Close coordination between SCE & CCAs 7. Expert staff capabilities & agency 'roadmap' brings

energy risk management know-how in-house NO LOSS OF LOCAL CONTROL for CCAs: 1. Member CCAs control their own portfolio choices, financials

& rate setting - by design 2. Member CCA Executive Directors run the Regional JPA as

its Board - functions as their staff This allows Regional JPA to scale - proven public power best practice (27 such agencies across USA)

• •

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NEXT STEPS & TIMELINE

Aug/Sept 201 7: SBCP Advisory Committee reviews plans, municipalities finalize SBCP JPA agreement, introductions & conversations with lenders for initial loan (if directed), engagement with other CCA initiatives regarding Regional JPA of CCAs

Oct: startup loan executed by lead City, Executive Director hired (w/ operational experience) & RFP for Services released

Nov: meetings with SCE & CPUC advisor, Implementation Plan finalized

Dec: SBCP JPA formed, JPA Citizen Committee formed & contracts for services executed

TBD/ optional (recommended): Regional JPA of CCAs formed

Jan 2017 - June 2018: implementation process (with second financing round closing March 2018)

June/July 2018: program launch at -30% Phase 1 enrollment

October 2018: Phase 2 enrollment for 50%

May/June 2019: Phase 3 for 100% enrollment

SUPPORTING DOCUMENTS

Delivered to date:

Business Plan, Financial Strategy (regulatory risk analysis), full Excel modeling results, Portfolio Manager Q&A, financial package from Silicon Valley, Energy Risk Management policies and Portfolio Manager contracts from Silicon Valley & Redwood Coast- actionable & best-in-class examples to inform SBCP.

Supporting deliverables to be provided in Aug/ Sept:

1. Gantt Chart with 'critical path': 250+ process steps to stay on-track for launch (& boost RFP response by lowering barrier to entry for contractors)

2. JPA Member Risk Analysis (for use by counsel to explore legal liabilities & verify recommendations)

3. Competitive Analysis of SCE vs. CCA

4. Draft Executive Director RFQ, interview questions & candidate lists for dissemination (from other CCAs)

5. Draft RFP for Services & vendor lists (from other CCAs and market surveys)

Startup Loan Table on next slide:

1. -$2.2MM covers -$900k in staff/overhead/expenses costs and $1 .5MM collateral held by regulators & SCE - slow start, ramps up in Jan/Feb 2018 through launch

2. Municipal guarantee, or could also be provided directly via contributions as loan to CCA

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