2023 POWER MIX AND
RATES + FINANCIAL
RESERVES POLICY
City Council
December 6, 2022
Lori Mitchell, Director
Zach Struyk, Assistant Director
Benefits
• CCA can start up operations
quickly
• Easy for customers to understand
rates under new service provider
• Establish customer confidence
Challenges
• IOU rates rise and fall, so do CCA
rates
• Volatile IOU added fees
• Limits ability to set rates that fully
recover costs
• Impacts ability to build reserves
RATE-SETTING IN THE PAST = FIX TO PG&E
STANDARD RATES
1 Common for Community Choice Aggregators (CCA) to fix rates to Investor-Owned Utility (IOU) standard rates
RATE-SETTING GOALS
1. Offer competitive and stable rates for electricity generation
2. Use cost-of-service model for setting rates
3. Build reserves to at least 180 days of operating expenses to strengthen financial position
2 COST-OF-SERVICE PROCESS
• Industry-accepted
framework for utility
rate-setting
• Determines the total
costs incurred by a
utility in providing
service to its customers
and the allocation of
those costs to customer
classes
3 DESIGNING RATES IN COMPETITIVE MARKET
4 *PG&E Rates
Recover
costs by
customer
class
Recover
costs
system-
wide
• Complete cost-of-service study to
ensure all costs are recovered and
financial goals can be met
• Review current rates to determine if
they recover costs
• Consider all competitive service
options (i.e., compare to PG&E)
• Design competitive rates
*PG&E rates are not necessarily representative of SJCE’s cost to serve.
COST-OF-SERVICE RESULTS AND
2023 POWER MIX AND RATES
5 2023 SJCE REVENUE REQUIREMENT
6 Main cost driver is Power Supply
Forecasted CY 2023 Total
Revenue Requirement (Millions)
Better Expected Worse
Power Supply Payments $343 $363 $390
Operations, General, Administrative and Interest Payments $34 $34 $34 Contribution to Reserve $66 $66 $66
Total Revenue Requirement $443 $463 $490
PCIA VOLATILITY
7 • In 2023, the PCIA
is expected to
be $0.24/MWh,
sharply
decreasing over
past 2 years
• Every 0.5₵/
kWh increase in
the PCIA
represents $18
million in lower
SJCE revenues
Note that the PCIA value is the average PCIA for the year. The date is when the PCIA changed to reflect the new rate for the rest of the calendar year
BUILD RESERVES, OFFER COMPETITIVE RATES
• GreenSource – Expected to be at small discount to PG&E (1-3%); 60% renewable energy
• GreenValue – Transition to GreenSource service
• TotalGreen – Maintain at $0.005 or $0.01 above GreenSource; 100% renewable energy
• SJ Cares – Increase the discount from 5% to 10% below GreenSource; 60% renewable energy (same as GreenSource)
SJCE customers are expected to save over $35 million in 2023 compared to 2022 8 Use forecasted margin between the cost-of-service and expected PG&E generation rates and added fees applicable in 2023 to build operating reserves for stable rates in the future
ENDING BALANCES
9 Forecasted CY 2023 Ending Balances ($ in Millions)
Better Expected Worse
CY2023 Unrestricted Cash net of Commercial Paper Loan repayment* $230 $185 $133 Operating Reserve in Days @$1M per day, Dec 2023 230 185 133 *Excludes $20 million Restricted Cash
Forecasted FY22-23 Ending Balances ($ in Millions)
Better Expected Worse
FY22-23 Unrestricted Cash net of Commercial Paper Loan repayment* $127 $97 $67 Operating Reserve in Days @$1M per day, June 2023 127 97 67 *Excludes $20 million Restricted Cash
SJCE FINANCIAL RESERVES POLICY
10 FINANCIAL RESERVES POLICY
Build and maintain at least 180 days of operating reserves • CCA best practice
• Recommended by Deloitte: 2023-2025 Strategic Framework • Benefits:
• Improve financial stability
• Provide stable rates
• Secure favorable commercial terms
• Important to receive an investment-grade credit rating 11 QUESTIONS?
• Recommendation:
• Adopt a resolution amending SJCE’s rate-
setting methodology and service options:
• Adopt cost-of-service rates for
GreenSource, TotalGreen, and SJ Cares.
• Suspend GreenValue service.
• Maintain 60% renewable energy for
GreenSource and SJ Cares.
• Maintain $0.005 or $0.01/kWh adder for
TotalGreen, 100% renewable service.
• Increase the SJ Cares discount to 10%
below GreenSource rates.
• Adopt a resolution approving the SJCE
Financial Reserves Policy that establishes
a framework to build reserves to at least
180 days of operating expenses.
• Staff:
• Lori Mitchell, Director
• Zach Struyk, Assistant Director
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