HomeMy WebLinkAboutCM Grand Jury Response on 'Marin Clean Energy: Pull the Plug'I at
Agenda Item No: R
Meeting Date: February 16, 2010
SAN RAFAEL CITY COUNCIL AGENDA REPORT
Department: City Manager
Prepared by: Ken Nordhoff, City Manager City Manager Approval:
SUBJECT: Consideration of a Resolution of the City Council of the City of San Rafael
Approving and Authorizing the Mayor to Execute the City of San Rafael Response to the 2009-2010
Marin County Grand Jury Report Entitled "Marin Clean Energy: Pull the Plug"
BACKGROUND:
The 2009-2010 Marin County Grand Jury has issued its report, dated December 2, 2009, entitled "Marin
Clean Energy: Pull the Plug." In addition to reviewing project plans, budgets, reports and other relevant
documents, the Grand Jury conducted interviews with representatives and staff of the County, the Marin
Energy Authority ("MEA"), members of the Board of Supervisors, representatives of the firm of
consultants that prepared the business plan, consultants hired to review the business plan, and
representatives of PG&E, the California Independent System Operator and the California Public Utilities
Commission.
The Grand Jury's report describes the constitution and goals of the MEA, its proceedings to date, the
Marin Clean Energy business plan, and what it perceives as the risks, benefits, and possible alternatives of
the program. The Grand Jury report concludes that "the costs of the Marin Clean Energy (MCE) program
remain undefined and the benefits are likely to be minimal. We believe there are alternative approaches
that will better serve the community than the unproven and risky one now being proposed by the Marin
Energy Authority (MEA)."
The Grand Jury issued its report during the 90 -day period provided for the member entities to review the
draft power purchase agreement with Shell Energy of North America and to consider opting out of the
Marin Clean Energy program. The Grand Jury's Report was made available to the City Council for its
meeting of January 4, 2010, at which time the Council considered whether to opt out of the MEA.
Following lengthy public comment and Council discussion, the City Council declined to take action to
opt out of the program.
ANALYSIS:
The Grand Jury has requested that San Rafael and other individual members of MEA respond to all of its
14 findings and the first three of its four recommendations. The Grand Jury's findings and
recommendations are set out on pages 15-17 of the report, a copy of which is attached hereto. Among the
FOR CITY CLERK ONLY
File No.:
Council Meeting:
Disposition:
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Pate: 2
Grand Jury's findings are that the Marin Clean Energy business plan is inadequate, that the process
followed by MEA is insufficiently transparent and participatory, that member agencies have fallen short
on their efforts to pursue alternative programs with PG&E and neighboring jurisdictions, that the actual
costs to the ratepayers is not presently known, that the risks of the program for ratepayers is too great, and
that "placing this complex, expensive and volatile business venture in the hands of rotating city/county
elected officials charged with other obligations, presents the Marin taxpayers with an unacceptable risk."
The Grand Jury recommends that the Marin Clean Energy program be abandoned, and that the MEA and
its participating members work instead on public/private partnerships with foundations, governmental
agencies and PG&E. In the event the program is not abandoned, the Grand Jury recommends that the
governing bodies of the participating local agencies each demonstrate their understanding of and
commitment to the project by voting at a publicly noticed meeting prior to committing their respective
agencies to final membership, and that the full contract, including all terms, conditions, and pricing be
provided to all parties prior to the final opportunity to withdraw.
On January 7, 2010, the MEA Board issued a response to the Grand Jury's report, which disputes the
majority of the Grand Jury's findings and recommendations and responds to them in detail. Staff
believes that the MEA response fully responds to the Grand Jury's findings and recommendations,
contains a great deal of technical information fundamental to the Marin Clean Energy program and within
the expertise of the MEA staff and Board, and is generally consistent with the City Council's comments
concerning the program on January 4. Therefore, staff's proposed response to the Grand Jury
incorporates the majority of the MEA Board response, but also includes additional responses highlighting
San Rafael's own actions with regard to the Marin Clean Energy program and the City's other programs
to address the reduction of greenhouse gas emissions.
ACTION REQUIRED:
The City is required to respond to the Grand Jury Report. Penal Code section 933(c) states in part:
"No later than 90 days after the Grand Jury submits a final report ... the governing body of
the public agency shall comment to the presiding Judge of the Superior Court on the
findings and recommendations... [contained in the report]."
To comply with this statute, the City's response to the Grand Jury report must be approved by Resolution
of the City Council and submitted to the Presiding Judge of the Marin County Superior Court and the
Foreperson of the Grand Jury on or before March 2, 2010. A proposed Resolution is attached that would
approve the City's response.
OPTIONS:
The City is required to respond, however, the Council could make changes to the proposed response and
then adopt the Resolution and revised response. Alternatively, the Council could return the response to
staff for further response and return to the Council for its March 1 meeting.
.MOI)rIM0IZY Y CoW
Staff recommends that the City Council adopt the attached Resolution approving the proposed response to
the Grand Jury report and authorizing the Mayor to execute the response.
ATTACHMENTS:
Resolution with attached proposed response
Exhibit A: Grand Jury report dated December 2, 2009
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF SAN RAFAEL APPROVING AND AUTHORIZING THE
MAYOR TO EXECUTE THE CITY OF SAN RAFAEL
RESPONSE TO THE 2009-2010 MARIN COUNTY GRAND
JURY REPORT ENTITLED "MARIN CLEAN ENERGY:
PULL THE PLUG"
WHEREAS, pursuant to Penal Code section 933, a public agency which receives a Grand
Jury Report addressing aspects of the public agency's operations, must comment on the Report's
findings and recommendations contained in the Report in writing within ninety (90) days to the
Presiding Judge of the Superior Court with a copy to the Foreperson of the Grand Jury; and
WHEREAS, Penal Code section 933 specifically requires that the "governing body" of the
public agency provide said response and, in order to lawfully comply, the governing body must
consider and adopt the response at a noticed public meeting pursuant to the Brown Act; and
WHEREAS, the City Council of the City of San Rafael has received and reviewed the
2009-2010 Marin County Grand Jury Report, dated December 2, 2009, entitled "Marin Clean
Energy: Pull the Plug" and has agendized it at this meeting for a response.
NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San
Rafael hereby:
1. Approves and authorizes the Mayor to execute the City of San Rafael's response to
the 2009-2010 Marin County Grand Jury Report entitled "Marin Clean Energy: Pull the Plug", copy
attached hereto.
2. Directs the City Clerk to forward the City's Grand Jury Report response to the
Presiding Judge of the Marin County Superior Court and to the Foreperson of the Marin County '
Grand Jury.
I, Esther Beirne, Clerk of the City of San Rafael, hereby certify that the foregoing
Resolution was duly and regularly introduced and adopted at a regular meeting of the San Rafael
City Council held on the , by the following vote to wit:
AYES: Councilmembers
NOES: Councilmembers:
ABSENT: Councilmembers:
ESTHER C. BEl NE, City Clerk
RESPONSE TO GRAND JURY REPORT FORM
Report Title: Marin Clean Energy: Pull the Plug
Report Date: December 2, 2009
Response By: City Council of the City of San Rafael
Title: Mayor and City Council
FINDINGS:
• We agree with the findings numbered F3, F4, F12, F13 (See Attachment A
incorporated herein.)
• We disagree wholly or partially with the findings numbered Fl, F2, F5, F6, F7, F8, F9,
F10, F11, F14 (See Attachment A incorporated herein.)
RECOMMENDATIONS:
• Recommendation numbered R3 has been implemented.
(Attach a summary describing the implemented actions.) (See Attachment A
incorporated herein.)
• Recommendations numbered N/A have not yet been implemented, but will be
implemented in the future.
(Attach a timeframe for the implementation.)
• Recommendations numbered N/A requires further analysis.
• Recommendations numbered RI, R2 will not be implemented because they are not
warranted or are not reasonable. (See Attachment A incorporated herein.)
DATED:
ATTEST:
Esther Beirne, City Clerk
Number of pages attached: 7
Signed:
ALBERT J. BORO, Mayor
ATTACHMENT 'W'
RESPONSE OF THE CITY OF SAN RAFAEL TO GRAND JURY REPORT
"MARIN CLEAN ENERGY: PULL THE PLUG"
Findings:
F1: Disagree.
The Marin Energy Authority which will be overseeing Marin Clean Energy is a
new government agency, but is not a new "level of government," and Marin
Clean Energy is to be financed solely with ratepayer revenues that do not cost
the member agencies or the Marin Energy Authority any general funds. The City
of San Rafael is currently reducing some municipal services; however, other than
paying the City's proportionate share of two independent reviews procured for
the business plan and the power purchase agreement with Shell Energy of North
America, the City has not been required to contribute any funds to the Marin
Energy Authority.
F2: Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference. At its meeting of May
19, 2008, the San Rafael City Council specifically discussed whether an advisory
public vote should be required prior to the City's decision to join the Marin Energy
Authority, and the majority of the Council opposed such a public vote. The issue
was raised again at the Council's meeting on December 1, 2008, but the Council
proceeded to act to join the Marin Energy Authority without requiring a public
vote.
F3: Agree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F4: Agree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F5: Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F6: Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F7: Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F8: Partially Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference. It is true, however that
the City of San Rafael has successfully partnered with other local agencies in the
community to work towards reduction of greenhouse gas ("GHG") emissions.
The City partnered with PG&E, the Central Marin Sanitary Agency ("CMSX) and
Marin Sanitary Service to conduct a feasibility study for a "Food to Waste"
program to convert local food waste to energy. The study was accepted by the
City Council in 2009, and CMSA has commenced work on the design phase in
coordination with Marin Sanitary Service.
F9: Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
Despite its involvement in the Marin Energy Authority and Marin Clean Energy,
the City of San Rafael has continued actively to pursue other avenues to reduce
GHG emissions. In addition to the "Food to Waste" project mentioned in
response to Finding F8, in April 2009, the San Rafael City Council adopted a
Climate Change Action Plan ("CCAP") for the City that is intended to guide the
City of San Rafael's government and community in complying with governmental
requirements for the reduction of GHG emissions, and in responding to climate
change generally.
The CCAP includes programs to increase the proportion of renewable power
offered to residents and businesses, including supporting the efforts of the Marin
Energy Authority. However, the CCAP has nearly 50 other recommended
programs for reduction of GHG emissions in such areas as transportation,
building standards, materials reuse and recycling, and business development.
The City has been working and continues to work diligently on the
implementation of the goals and programs set forth in the CCAP. For example,
a task force of local agency representatives has labored extensively over the
past year to develop a model green building ordinance with detailed green
building standards for residential and nonresidential construction, which the San
Rafael City Council adopted on February 1, 2010.
F10: Partially Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F11: Disagree.
As of the date of this response, the Grand Jury's finding is no longer current. On
February 4, 2010, the Marin Energy Authority Board approved a power purchase
agreement with Shell Energy of North America for Phase I, which includes
pricing, and notice to customers has commenced. Details on the approved
agreement may be obtained from the staff reports for the Marin Energy Authority
Board meeting of February 4.
F12: Agree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
F13: Agree.
F14: Partially Disagree.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference.
Recommendations:
R1: This recommendation will not be implemented.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference. For those reasons and
others, the San Rafael City Council, at its regular meeting of January 4, 2010,
elected not to opt out of Marin Clean Energy and the Marin Energy Authority.
R2: This recommendation will not be implemented.
See Marin Energy Authority Response to Grand Jury Report approved January
7, 2010, attached hereto and incorporated by reference. As noted above, the
City of San Rafael continues to work cooperatively with PG&E and other local
agencies on various efforts to reduce GHG emissions, and the City's participation
in Marin Clean Energy will not diminish those ongoing efforts.
R3: This recommendation has been implemented.
In addition to other public meetings held by the Marin Energy Authority Board,
the San Rafael City Council has held several public meetings, and its staff has
worked extensively, to review and clarify the documentation for Marin Clean
Energy and to educate both the Council and the citizens of San Rafael about the
workings of the program. As noted above, on January 4, 2010, the City Council
held another public meeting and received extensive public comment. A motion to
opt out of Marin Clean Energy was made and died for lack of a second, and the
Council thereby elected not to opt out of the program.
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RESPONSE TO
marlfl energy
GRAND JURY REPORT
authority
Approved by the Board of Directors of the Marin Energy Authority at its
Regular Meeting on January 7, 2010
F1: Partially Disagree.
The Marin Energy Authority (MEA) is a new government agency, but is not a'new level of
government', and is to be financed with ratepayer revenues that do not cost the member
agencies or MEA any general funds. The implied argument that general funds are at risk
is false.
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F2: Disagree.
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MEA, per the enabling legislative statute (AB117), does not submit its Marin Clean Energy
(MCE) program to a direct vote of the public on the program itself in advance of the
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program's implementation. The representative vote is through the publicly elected
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representatives who serve on the MEA Board. Furthermore, the MCE program has been
submitted to a vote of the public's elected representatives in their constituent cities, towns
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and in the county.
Via the extensive hearing process used to evaluate risks and opportunities from the Marin
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Clean Energy Program, the standards of transparency and consumer protection have and
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will be honored and preserved. In addition, information about the MCE program will be
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provided to every ratepayer (homes and/or businesses with an electricity bill), using 4
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notices of their individual right to vote themselves out of the program. Extensive
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information on MEA, MCE, energyproducts, and ratepayer ri hts will be provided to each
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residence and business. in the service area during this period of time. All documentation
has been available to the public on a 24 hour basis on the agency's website,
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www.marinenergVauthoritV.org.
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The voting public has been participating in the process through dozens of public meetings,
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and ratepayers have the additional opt -out opportunities provided during the official opt -
out period. This process will occur over a 120 day period with 4 opportunities to vote for
each ratepayer. Once enrolled in the MCE program the ratepayer can still opt out at any
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time, but there is a possibility they will pay a nominal exit fee to the agency to cover any
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stranded costs of prior energy procurement made on their behalf.
F3: Agree.
Only the cities that did not join MEA have denied their ratepayers the opportunity to vote
on whether to participate in the program (via the opt -out procedure).
califcrnia
AB 32
With respect to cities that do not opt -out, their residential and commercial customers will
be transferred to the MCE program, at which point they will have 4 ballots to vote
themselves out if they choose. Only cities that remain in the agency allow their ratepayers
this choice.
Mar -in
Glean
F4: Agree.
Energy
See item F2 and F3 above.
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F5: Disagree.
The Board of Supervisors as well as the staff and Chair of MEA have held numerous meetings
with PG&E over the last four years to explore and determine whether PG&E could or would offer
programs to 1. decrease greenhouse gas emissions on a level comparable to that offered by the
MCE program, 2. increase focus on energy efficiency programs in Marin County, and 3. offer
special partnership programs to help Marin meet its AB 32 obligations and internally, locally
established goals. No substantive proposal was ever submitted to the Marin County Board of
Supervisors or to the staff, Chair or Board of Directors of MEA.
PG&E stated that they would only partner with the County and other jurisdictions if the
jurisdictions left the MCE program, and if there was no Request for Proposals (RFP) process.
PG&E refused to participate if they were required to compete with other bidders. Discussions with
MEA were terminated by PG&E in April, 2009.
F6: Disagree.
The Business Plan is an extremely detailed document, prepared in cooperation with energy
industry experts. The Business Plan underwent two independent peer reviews. Both peer reviews
found the plan to be comprehensive and containing no fatal flaws. In addition, the draft
Implementation Plan, dated November 18, 2009, was made available to the Grand Jury as
requested and provides an even higher level of specificity and detail, as it is more current. The
Grand Jury's Report does not make reference to the detailed information contained in the draft
Implementation Plan, approved by the MEA Board on December 3, and submitted to the CPUC
on December 4. The Implementation Plan is, in effect, an update to the Business Plan.
F7: Disagree.
The MCE Business Plan does not state that the construction of owned assets is a requirement for
the success of the Marin Clean Energy program. While potentially advantageous, it is neither
necessary for "owned" facilities to be used for program success, nor is it "highly unlikely" that
MEA will be able to successfully locate and support projects within Marin County to meet its local
generation goals. Distributed generation, for example, has tremendous potential in Marin County,
and is a stated goal of the program.
Future energy sources could be developed by private companies which sell to MEA, by joint
projects between MEA, other governments and private companies, or via public financings by
MEA. Each specific project proposal will be analyzed for economic feasibility, land use issues,
and environmental impacts at the appropriate time in the future. With a potential renewable
energy source capability over five times the size of maximum electricity demand within the
borders of Marin County, MEA is confident that some projects will be located in Marin over time.
Others will benefit our entire North Bay economy.
F8: Partially Disagree.
While neighboring communities have launched successful programs, the quantity of greenhouse
gas reduction projected by MEA is over 50 times greater with MCE than by using all other
programs combined, including the implementation of a Solar and Energy Efficiency District
(SEED) Program in Marin (using AB 811 property -based financing mechanism), and all other
locally based energy efficiency and renewable energy initiatives.
The major obstacle with all the other possible greenhouse gas reduction initiatives is that they
require General Fund monies. Only the MCE program offers non -General Fund revenue to
support efficiency and renewable energy programs at no cost increase to the ratepayer. The
costs to all jurisdictions to address AB32 goals are projected to be $394 million (California Air
Resources Board data), and the establishment of MCE avoids 2/3 of that cost.
F9: Disagree
There has been no slowdown in implementation of County energy efficiency programs (quite the
opposite), nor has there been a slowdown of CREBs and other energy programs within the Marin
communities; and MEA staff has applied for multiple federal, state, and local grants for renewable
energy and energy efficiency projects, all while exploring the feasibility of the MCE program. MEA
is not a distraction but the most significant tool for local agencies to employ as the costs and
challenges of meeting AB 32 requirements are considered. In fact, the investigation and analysis
of CCA within Marin has been a complimentary process in developing these other energy
programs that may reduce greenhouse gas emissions. A significant portion of the analysis
completed throughout CCA investigation has informed discussion and analysis focused on other
complimentary energy programs and has heightened Marin's overall analysis to climate
mitigation, greenhouse gas emissions reductions and renewable energy promotion.
F10: Partially Disagree.
There are risks associated with any new venture, but MEA staff and board members have
identified and worked to mitigate all major rate payer risks and all risks to member jurisdictions.
The remaining risk is that at sometime during MCE program operation, a ratepayer may identify
an opportunity to purchase cheaper electricity (with less renewable energy content) by
transferring generation service back to the incumbent utility. While this circumstance is not
anticipated, Marin residents will be afforded a choice with respect to electric generation service
and may base their service preference on any factor (such as price and/or renewable energy
content), they so choose. If ratepayers so desire, they may, at any time, opt out of MCE (but may
have to pay a nominal exit fee in the event of certain market conditions, similar to that charged by
PG&E).
F11: Disagree.
The Contract elements are complete for both Phase I and Phase 11 ratepayers. Pricing
methodology is stated and understood, based on indicative bids submitted in July, and will be
finalized prior to contract execution by the Executive Director and Chair of MEA in the Spring of
2010 and again in early 2011 for Phase 11. It is not possible for anyone, including PG&E, to know
in advance of the execution of any power supply contract, what the price of energy will be on any
given day because of the nature of the business of energy supply.
MEA's default position is that its costs of its energy in Phase I and Phase If must be "at or below
PG&E's projected costs", or there will be no executed contract. The MEA Board passed a
resolution at its November 4'h meeting assuring that MEA will NOT execute the contract unless
Light Green Customers' (who will enjoy a minimum of 25% qualifying renewable energy content
as compared to the 15% provided by PG&E) costs are at or below PG&E's projected costs. It is
worth noting that California's current Renewables Portfolio Standard requires all electric utilities to
provide a minimum of 20% of energy deliveries from qualifying renewable generating resources
by 2010, and PG&E will not meet this target until at least 2012.
F12: Agree.
Most residential customers will not be enrolled into MCE until Phase 11 which is scheduled to
occur in early to mid- 2011. The pricing for Phase 11 customers will be known prior to execution of
the Phase 11 confirmation agreement.
F13: Agree.
F14: Partially disagree.
With the exception of the County loan of $540,000, and any other potential loans or loan
guarantees provided by public agencies, taxpayers have no risk associated with the MICE
program. Elected representatives manage the policy formation for numerous complex issues in
their respective cities and in the County, including land use, public works projects, transportation,
and energy. Furthermore, 1 in 4 Californians receive their electricity from public utilities, which
generally charge their ratepayers 20% less than the investor-owned utilities and are governed by
elected boards. MEA and the MCE program is only 'new' in the sense that it is a hybrid model
between the public utilities and investor owned utilities that supply all energy, that is gas and
electricity both. MCE will only be responsible for the procurement of electricity, and PG&E will
remain responsible for transmission, distribution, and maintenance. Taxpayers will actually have
less risk because MCE will provide rate stability and rate -setting control at the local level. There is
considerable risk to the taxpayers of each jurisdiction of not doing MCE, as the costs associated
with implementing AB32 mitigations will constitute a considerable drain on every jurisdiction's
general fund.
Recommendations
R1: This recommendation will not be implemented.
The risks of implementing MCE are understood and manageable, and the opportunity to reduce
green house gas emissions, pursue energy independence and long term price stability, and reap
the local economic benefits of this program should not be abandoned out of fear, political
opposition or lack of understanding. In fact, the MEA board believes that it may be significantly
more risky to forego consideration of MCE program implementation in consideration of projected
AB32 compliance costs burden on general funds and highly volatile natural gas markets (which
are currently favorable for the CCA program). Furthermore, the MEA Business Plan anticipates,
in addition to the on-going use of the expert technical advisory committee, the formation of an
Energy Commission comprised of local citizens with technical expertise in rate -setting,
generation, procurement, energy efficiency, renewable energy generation, etc.
R2: This recommendation will not be implemented.
As described in response to F5 above, cooperative approaches have been tried and, in some
cases, are continuing. For example, PG&E has worked with local Marin governments, including
MEA representatives, to implement an Energy Efficiency Partnership program detailed in a
previous Grand Jury report.(2005) on the County Sustainability Team. PG&E is unable to provide
additional service and funding in Marin County without violating CPUC requirements for fairness
across the PG&E territory.
The so-called bureaucracy of MEA is not expensive, and costs nothing to member jurisdictions'
general funds, unlike all other energy programs suggested by the Grand Jury. MEA estimates
that the fully -loaded staff cost will comprise only 3% of the annual budget.
No other possible programs that reduce greenhouse gas emissions, such as SEED, Energy
Efficiency, solar panels on public buildings, etc., approach the projected level of greenhouse gas
emissions reductions that Can be obtained by MCE.
R3: This recommendation will not be implemented.
The Councils and BOS are following proper analytical, public notice and public hearing
procedures for the County and the other governmental member agencies of MEA to approve or
reject membership of their respective agencies in the MEA. As previously stated, the final
decision on participation rests with the individual ratepayers, who will have four opportunities to
opt out in the 120 day opt -out period.
R4: This recommendation will not be implemented.
To avoid compromising the negotiation process, to avoid abrogating the confidential nature of the
bidding process, or of the information submitted by the bidders, and/or MEA's pricing strategy, the
final contract will only be released publicly after execution. As stated previously, pricing will be
refreshed and will be known with certainty prior to the execution of the contract for both Phase
and Phase II.
2009-2010 MARIA COUNTY CIVIL CRA/917 JURY
Marin Clean Energy: Pull the Plug
Date of Report: December 2, 2009
EXHIBIT "A"
Marin County Civil Grand jury
Marin Clean Energy: Pull the Plug
SUMMARY
Programs to preserve the environment clearly serve the interests of all Marin residents.
The Grand Jury strongly supports the goal of achieving greater use of renewable and
alternative energy sources as a means of reducing greenhouse gases. The issue explored in
this report is not the need for "going green", but rather how to achieve that goal in a
manner that can be measured for success. The Grand Jury has concluded that the costs of
the Marin Clean Energy (MCE) program remain undefined and the benefits are likely to be
minimal. We believe there are alternative approaches that will better serve the community
than the unproven and risky one now being proposed by the Marin Energy Authority
(MEA).
The MEA, a recently formed Joint Powers Authority (JPA), is proposing the creation of the
NICE program. The intent is to provide a higher percentage of electricity from renewable
sources than is currently available through Pacific Gas & Electric (PG&E). This energy
would be resold to residents, businesses and municipalities in the participating
communities. The MEA Board would establish rates and policies and would eventually
own and operate commercial power generating facilities. The transmission and distribution
of electric power, as well as maintenance and billing, would continue to be performed by
PG&E. Natural gas would not be part of this program.
The county and eight municipalities have expressed a tentative willingness to join, while
the cities of Corte Madera, Larkspur and Novato have declined. The MEA Board has
scheduled a final vote on February 4, 2010 regarding whether to proceed with the proposal_
Unless a city council or the Board of Supervisors (BOS) decides to withdraw, that
community will automatically be a participant.
According to the 2008 Community Choice Aggregation (CCA) Business Plan, the JPA
plans to borrow approximately $6.4 million during its initial year for start-up and working
capital, An additional $15.8 million of working capital will be required in subsequent
years. The availability and sources of these funds have not been determined. Emphasis
will be placed on providing long-term stability by eventually owning and operating
renewable energy resources such as geothermal power plants, and wind and solar farms.
To achieve this goat MEA plans to borrow an additional $475 million.
The MEA Board of Directors, composed of one elected official from each of the
participating jurisdictions, will have responsibility foi signing contracts for the purchase of
December 2, 2009 Marin County Civil Grand Jury Page 1 of 23
Marin Clean Ene . Pull
power, setting rates for consumers, and overseeing the construction and financing of new
generating facilities. MEA projects it will have approximately 100,000 customers who will
be paying the costs of this new layer of bureaucracy.
Protecting the environment is in everyone's best interests. We believe there are many
pathways to accomplish this, but any solution must be achievable and measurable. More
stringent national and state regulations are requiring all energy producers to meet increased
carbon neutral standards. PG&E will be required to meet these standards as well. In these
economically challenged and difficult times, we question the decision to put the county into
the business of operating commercial power generation facilities, a function not usually
associated with the government of a small county.
The Grand Jury recommends that the MCE program be abandoned. We strongly urge the
county and MEA to step away from their adversarial public posturing and seriously work
with PG&E. No matter what has happened before, the time has come to foster
cooperation. Efforts and money need to be directed toward forming a public/private
partnership that will create an effective clean energy program that will help the county and
cities achieve present and future environmental goals.
To PG&E we say, return to the table and work with Marin County. We support the efforts
of all communities to work toward a more favorable mix of renewable energy. We also
recognize that you have the expertise and the financial strength to be California's leader in
protecting the environment. We ask you to partner with Marin to become a model for
reducing greenhouse gas (GHG) emissions. It is a mutually beneficial goal.
Citizens of Marin are being led down a costly and extremely risky path not yet traveled by
any other community in California. All costs incurred by MCE must be home by the
ratepayers as they are its sole source of revenue. An increment above the cost of power
will be added to the ratepayer bill to cover all operating and financing expenses. Finally,
MCE could present unforeseen legal and financial risks to the participating cities, the
County of Mann, and the citizens as taxpayers. Every dollar expended by MEA must be
recovered from the ratepayers. Therefore, it is the Grand Jury's recommendation that the
Marin Clean Energy program be abandoned.
BACKGROUND
The passage of the CCA law in 2002, Assembly Bill 117 (AB 117), enabled local
governments to assume an active role in managing their electricity supplies through the
selection of generation sources, investments in new power facilities, and rate setting: Once
formed, a CCA is responsible for providing the energy commodity to its ratepayers. The
existing utility provider, PG&E, remains responsible for the delivery, service, and billing of
the electrical product as well as the supply of natural gas_ To reap the benefits, the CCA
will need to plan for financing, development, ownership, and operation of electric
generating resources. Since passage of the law, many California communities have
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Marin Clean Energy: Pull the Plug
investigated, researched, and/or attempted to form a CCA. As of the writing of this report,
no CCA has yet been created in California.
MEA was formed in December 2008. As stated in the business plan, the county and
participating cities would form a partnership to facilitate efforts to reduce greenhouse gas
emissions from energy, provide more renewable energy choices, and create price stability.
By June of 2009, this Authority counted among its tentative members the County of Marin
and the cities of Belvedere, Fairfax, Mill Valley, Ross, San Anselmo, San Rafael, Sausalito
and Tiburon. The legislation created clear off -ramps so that communities could withdraw
during the study period. To date, Corte Madera, Larkspur and Novato have elected not to
pursue membership.
Marin Clean Energy is the CCA program proposed by MEA to buy power directly from a
contracted supplier in order to increase the percentage of renewable energy provided to
participating customers. Under its current business plan, the MEA would sign a 5 -year
contract with an independent service provider to supply the energy. At some point, long
term financing would be sought to actually begin the purchase and/or construction of
renewable energy sources, i.e., wind farms, large-scale solar installations, biomass, and
geothermal. According to the proposal, the MCE program would reduce Marin's
greenhouse gas emissions, increase price stability, fuel small locally based green
businesses, and enable local decision-making over the source, rate, and mix of electrical
power used in Marin.
Legislation and executive orders are having a powerful impact on the rapid move toward .
carbon -neutral production. These mandates will force PG&E and all other energy suppliers
to move aggressively toward renewable and carbon -free production. Energy innovation is
changing daily. As a result, legislative and regulatory bodies are quickly adopting policies
and procedures to take advantage of the latest technology. The most current and important
legislative programs to be enacted are:
• California's landmark green Iegislation was signed three years ago (AB32),
requiring the reduction of greenhouse gases to 1990 levels by 2020.
• California's existing Renewable Facilities Program seta goal ofhaving 20% of
retail electricity generated from renewable sources by 2010. This program is
designed to establish a competitive, self-sustaining renewable energy supply while
increasing the near-term quantity of renewable energy generated within California.
On September 17, 2009, Governor Schwarzenegger signed Executive Order
S-21-09, requiring that at least 33% of the state's energy creation and use by 2020
will be from renewable energy. A major purpose for this Order is to assure that
utilities will have access to renewable power sources outside of California in order
to meet the state`s aggressive goals.
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• AB 811 passed in July 2008, allows California cities and counties the ability to
offer low-interest loans for energy -efficiency projects and solar panels to
homeowners and small businesses. Relieved of high up -front costs, residents would
repay the loans through assessments on property tax bills. If the home is sold, the
outstanding loan balance is taken over by the new owner.
Two solar bills were signed into law in California on October 12, 2009. AB 920
requires owners of solar or wind generation systems to be compensated for any
surplus energy that they produce. SB32 was passed to encourage solar installations
on large commercial spaces such as parking facilities and warehouse rooftops.. The
Bill requires utility companies to purchase excess solar electricity at a set rate over
a twenty-year period.
METHODOLOGY
Like any new program or project that is in the development stage, MEA is subject to
change as new information comes to light. The difficulty for the Grand Jury has been to
determine what and when changes have been made. The 2008 CCA Business Plan was
produced in April 2008. Since its publication, significant changes have been made.
However, the documentation for these changes is absent. The business plan is an outdated
document_
The Grand Jury interviewed representatives and staff of the County of Marin,
representatives and committee members of the MEA, and members of the Board of
Supervisors (BOS). Interviews were also conducted with representatives of several of
Marin's municipalities. In addition, interviews were conducted with consultants of the firm
that prepared the business plan, as well as independent consultants hired to review that
plan. Representatives of PG&E, the California Independent System Operator (CAISO) and
the California Public Utilities Commission (CPUC) were also interviewed.
Jurors attended council meetings of municipalities participating in MEA, meetings of the
MEA Board and its working committees, and meetings of the BOS. Individuals
representing opinions or organizations that support and oppose the proposed CCA also
were interviewed.
The Grand Jury reviewed information including budgets, business plans and independent
reviews of CCA viability, MEA studies and reports, minutes of MEA, the Board of
Supervisors and municipal council meetings, and archived video and Power Point
presentations from MEA and the BOS.
CCA programs considered by four other California communities were studied for
applicable comparison to,the proposed NICE program. A significant body of literature on
the formation, risks and benefits of a CCA was also studied. For more detail on the
Iillvlillativn cansIdered by the Grand Jury, please relur to the bibliography at the end of this
report.
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Marin Clean Energy: Pull the Plug
DISCUSSION
The following discussion is designed to enable Marin's elected officials and the citizens
they represent to fully appreciate and understand the scope and implications of the decision
they are about to make. Due to the complexity of the issue, most citizens have not taken
the tit„P to review the 1 nn+ page 1.� _p«ines ; Y an OFv.-nil-u-s-alternative options.
The major questions are:
• Do consumers and municipalities understand this complex plan and what it
will mean to them?
• How does the opt -out policy work?
• How many households and businesses will opt -out?
• If the opt -out number is large, will the remaining pool of customers be enough
to support MEA's fixed expenses?
• Does the MEA Board have the professional expertise to compete in what has
been a historically volatile and highly competitive business?
• Does it make sense to create a new level of bureaucracy by putting the county
into the power business at a time when core services are being severely
reduced?
• Will NICE accomplish the environmental goals outlined by MEA? What will
the benefits be and at what cost? Where is the cost benefit analysis?
Organization of MEA
MEA is governed by a Board of Directors, composed of one elected representative from
each of the participating jurisdictions. The primary duties of the Board are to establish
program policies; set rates; provide policy direction to the Executive Director, and
determine staffing, and compensation. The day-to-day operations of NICE will be under
the direction of an Executive Director to be hired by the Board of Directors.
During the initial stage of the program, most of the operational responsibilities will be
performed by the third party electric provider. These will include the technical functions
associated with managing electric supplies and retail customer accounts. In the long-term,
MEA may choose to have these functions performed by internal staff.
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Where Do We Stand Today?
At this time, the MEA member cities, towns and the BOS, are in a 90 -day period to review
the contract that has been drafted with Shell Energy of North America, (US) PL. The MEA
board is currently scheduled to vote on formation of the MCE program on February 4,
2010. The absence of a vote to withdraw would result in the wholesale transfer of all
PG&E customers in those respective jurisdictions to MCE.upon contract execution.
Transfer of service will follow a phased approach:
• Phase I -municipal, commercial, industrial, and some residential accounts (20% of
the customer base) by June 2010;
• Phase II -all remaining commercial and residential accounts (80% of the customer
base) by January 2012.
As proposed, all utility customers within the unincorporated area of the County of Marin
and the participating cities and towns in the JPA, will automatically have their electricity
supplied by MCE instead of PG&E unless they take affirmative action not to participate
(opt -out). Regardless of the consumer's election, as owner of the electric transmission and
distribution network, PG&E will continue to transmit the electricity to homes and
businesses, maintain all physical infrastructure, and process billing.
Resource Procurement Strategy:
In May 2009, MEA issued a Request for Proposal (RFP) for the supply of electric energy_
The RFP requested that the bidders provide two fixed prices:
• Light Green with a minimum of 25% renewable energy
• Deep Green with 100 % renewable energy
Of the twelve bidders to the RFP three were deemed acceptable. Shell was selected as the
prime candidate. The contract is based on the standard "Master Power Purchase and Sale
Agreement" Version 2.1 (4/25/2000) developed by Edison Electric Institute. Although a
good basis from which to start, this version of the Master Agreement by no means covers
all of the requirements and unique Marin conditions and contingencies that would be
involved in the supply of energy from renewable sources. Selected sections have been
released, but a complete contract has not been available for a comprehensive review.
The objective of MEA is to provide Light Green energy (25% renewable) to the ratepayer
at a price at or below PG&E's generating price. The promised rate to "meet or beat" only
applies to year one for Phase 1. Firm prices for Phase I will not be known until the
completion of the 90 -day review period, after the city and town councils have voted on
their final participation in the JPA. The price for Phase 11 residential 180% of the prograrm
base) may not be set or known until late 2011 or early 2012. No such guarantee has been
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- Marin Clean Energy: Pull the Plug
made for Phase II customers. In making this statement MEA is comparing its probable
price to the projected PG&E generating rates. Energy pricing can be very volatile, and use
of historical data may not always reflect future rates.
It is purported by MEA that the firm price for Deep Green energy (100% renewable
sourced) will be offered at a premium price of 5 to 10% above the Light Green option. It
remains speculative how much this will actually be until the contract is executed. Based on
information reviewed, the Grand Jury believes this projection to be low.
As of the publication date of this report, MEA has developed a Phase I contract with Shell
Energy of North America, in first position as the energy service provider. The Phase I
pricing when set in February 2010, is to be for a period of 5 years, starting June 1, 2010. In
addition to this contract, the MEA must file an Implementation Plan with the CPUC_ It is
expected to be filed in December 2009.
MEA estimates that of those customers who do not opt -out of MCE, 80% will elect the
Light Green option and 20% will opt for the Deep Green alternative. Although not revealed
in available public documents, MEA representatives have stated at public meetings that
customers not choosing the Deep Green option will be automatically enrolled in the Light
Green option.
How Will These Goals Be Achieved?
The goal of MEA for the first 5-10 years is to provide customers of the Light Green option
a rate offering at or below the projected rates of PG&E, and an estimated Deep Green rate
at a 5 to 10% premium. The electrical service provider will act as a commodity broker but
might not generate the power to fulfill the conditions of the contract. This power will have
to be purchased from existing renewable sources. No new sources will necessarily be
developed.
MEA plans to acquire and own renewable sourced generation facilities. The objective over
the next 20 years is to progressively meet the demand with a mix of solar, wind, biomass,
and geothermal power. Assuming that reserves can be accumulated to provide debt service,
ownership or part ownership of renewable sourced power is envisioned. The belief is that
ownership should help stabilize price volatility and reduce energy price risk. Renewable
generation does not require a fossil fuel source.
A key aspect of the business plan is that it will benefit Marin County by bringing new jobs
and employment to the local economy. The Marin County General Plan envisions the main
population and business centers are to be in the City Centered Corridor along Highway
101. Open space and agricultural are to be concentrated in West Marin. Considering the
size and topography of each sector, there is very little opportunity to develop large wind
and solar installations. The most feasible power generating installations in the City
Centered Corridor would be limited to solar panels on rooftops of businesses, parking
facilities and homes. With all of the environmental restrictions in West Marin, it would be
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Marin Clean Energy: Pull the Plug
difficult to imagine any major solar or wind project surviving the environmental review
stage. The business plan states that large generation facilities may also be developed or
purchased in areas outside of Marin such as Solano and the Altamont Pass. The potential
for increased employment and new job opportunities in the county appears to be very
limited.
The business plan that was introduced in April 2008 has become a moving target that needs
updating. Since that time, some of the assumptions, dates and financials have changed due
to new information and decisions. For example, the plan stated that the default plan for
customers would be the 100% renewable product, now called Deep Green. As publicly
stated in presentations by MEA, the default plan has subsequently been changed to the
Light Green product of 25% renewable. The decision to switch default positions reduces
revenue while not materially reducing expenses. In addition, the order in which customers
will be added to the program was modified, and will have an impact on the timing of
revenue and expenses. These adjustments may have been quantified, but they are not
reflected in the plan.. Presentations given to the participating cities have contained updated
projections that differ from the plan.
Financing is another concern. The plan identifies approximately $6.4 million needed for
working capital to initiate the program, i.e. purchase the power to bring municipal and
commercial customers on line. Traditional costs to be covered include payroll, consultants,
contractors, and deposit requirements. The need for credit may increase by $15.8 million to
serve Phase II customers. This working capital provides for power purchases and overhead
prior to the time MEA develops its own generation facilities. At that time, MEA plans to
seek a final round of long-term financing, estimated to be $475 million, in order to support
development of renewable generation facilities.
The original "seed" money for the MEA consists of a series of grants and a January, 2009
loan from the Marin County BOS in three distributions totaling $540,000 to date. This loan
is to be repaid during the first year of operation. If the MEA does not proceed, it is unclear
how the county taxpayers will be repaid. The entity will have no assets or cash flow until
the actual delivery of power and the collection of the payments for that "power.
If a government entity guarantees, endorses or collateralizes loans to the MEA, there is
financial risk to the taxpayers. While there may be some financing alternatives available to
the MEA, it would appear that it will have to rely on the credit of, or collateral from, some
other entity in order to be deemed "creditworthy". On October 13, 2009, the BOS was
advised that it will be asked to provide a guarantee to enable MEA to borrow $2 million.
This funding will occur prior to the planned contract execution of February 2010, Total
initial credit projections indicate the need for working capital and start-up could exceed
$22 million.
Following the start-up of the program, the long -tern intent of the MEA is to develop and
own renewable generation capabilities. Financing appears to be more feasible since that
event would not occur until the program had an established ratepayer base in addition to
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having built up some reserves during the early years of operation. With proven cash flow
and the ability to use the developed generation sources as collateral, the MEA would find
receptivity in the markets and would probably be able to accomplish long-term financing to
build the sources of power and repay the earlier incurred debt. The burden of repayment
will be on the ratepayers. This may be reflected in higher monthly utility bills. If financing
fails, MEA will be in the business of purchasing power indefinitely.
Opt -Out Provision
Once operational, all participating cities and the county will be transferred to the MCE
program. As noted by multiple studies, this project is dependent upon the automatic
transfer of all customers. The participation level that is critical to success may not be
achieved if the consumer is required to opt -in. ABI 17 allows the nine members of the
MEA Board to vote for formation. Consequently, all customers within the participating
jurisdictions would automatically be transferred to MCE without customer or voter
approval.
A recent New York Times article (November 17, 2009) explains that the sign-up rate for
alternative renewable programs run by utilities is only about 2%, despite growing public
interest. Solar and wind power generally are more costly than power generated by fossil
fuels. The article goes on to say that while many people support alternative energy in
principle, they personally may not want to spend hundreds of dollars more for electricity,
especially in the current economic environment.
The burden of choice, therefore, is placed upon the individual customer. Residents will be
required to respond to the MCE opt -out notification if they prefer to stay with PG&E.
MCE plans to send out four such notifications over a 120 -day period; beginning 60 days
prior to automatic transfer. The following attributes of the opt -out provision remain to be
addressed in public documents:
How much will the ratepayers pay in penalties and exit fees if they opt -out after
the 120 -day period?
How will ratepayers be notified of the opt -out process and the effective dates of
withdrawal?
Benefits
MEA sees implementation of the MCE program as the best tool available to achieve
significant progress toward its goals. MCE continues to be perceived as the major driving
force to reduce greenhouse gas emissions in Marin County. Benefits may include:
Customer Choice: The cities and county will have the ability to choose
different renewable energy levels and benefit from long-term cost competition.
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• Cost Stability: Costs may be locked in through power purchase agreements and
owned generation assets.
• Focus on Customer Needs: The MCE program will bring value to customers by
setting rates that are tailored to local needs.
• Local Control: Policy direction and rate setting will be the responsibility of the
MEA board.
• Greenhouse Gas Reduction: The MCE program will aid in reducing GHG
levels and help reduce potential compliance costs of AB32. MCE can help by
increasing local consumption of renewable energy.
Risks
The business plan explicitly states that a quantitative risk analysis will be included in a
future revision or supplement. Two independent reviews of the business plan repeatedly
referred to the need for specific areas to be studied in such a review. The Grand Jury has
requested the risk analysis on multiple occasions; it has not yet been provided. Consultants
have informed the Grand Jury that further analyses of the contract and pricing may be
performed immediately before and after contract execution. The specifics of these reviews
are not outlined; whether these reviews will cover the depth of risk analysis suggested by
peer reviews is unknown.
In an effort to better inform their elected officials, the participating city managers and the
County Administrator contracted for an additional review of the service contract. Released
by MRW and Associates on November 20, 2009, this report highlights significant risks to
MCE customers. The report explores the volatility of energy pricing and encourages MEA
to clarify that it may not "meet or beat" PG&E rates going forward. It recommends that
MEA develop and publicize their proposed rate structure, identify and address unknown
costs in the contract and potential rate discrepancies as Phase 11 customers are brought on-
line. The Grand Jury strongly urges all participants in MEA to review this report and all
others available on the MCE website.
The following risks have been identified by the Grand Jury through its research and are
categorized as either near-term or long-term. The Grand Jury recognizes that there may be
ways to mitigate these risks, but they should be made clear to all involved. With a few .
exceptions, the risks of MEA are actually risks to the ratepayers who are its sole source of
revenue.
Near -Term Risks
The Contract. The timing of the contract with a supplier may result in a price that does not
meet the commitment of MEA to be at or below PG&E's price. As a result, if the MCE
program does not go forward, all costs incurred to date will remain with the county. If the
contract does deliver the promised price, then additional ratepayer concerns will be:
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Marin Clean Energy: Pull the Plug
• How do the Deep Green rates compare to the current utility rates?
• How will termination fees be determined in the event MCE customers opt -out?
• How are uncertainties about the number of participants being addressed?
• Will a deposit be required?
• Have all potential costs been delineated in the contract?
Competitive Action. PG&E may take aggressive action to prevent the loss of customers to
the MCE program. Such action might include customer outreach; legislative; regulatory
and legal challenges, and the introduction of innovative public/private programs. The
challenges could significantly impact MCE if ratepayers elect to remain with PG&E. The
cost incumbent in combating such competitive action has not been quantified, and could be
significant.
Market Movement Energy costs are subject to volatile changes. MEA, along with all other
buyers and sellers, will be subject to market volatility. PG&E may find it possible to
ameliorate the effects of volatility as a high percentage of its generation costs have been
fully amortized. With the intensity of legislative activity in this area, costs for renewable
energy will likely increase with demand; therefore, long-term contracts may not prove
advantageous for MEA. The.Grand Jury has been told by various sources that the firm
price for Deep Green energy (100% renewable sourced) will be offered at a premium cost
over Light Green energy. It remains speculative as to how much this premium will be until
the actual fixed contract prices are known.
Credit Availability. As already noted elsewhere, MEA will need to borrow money for start
up and working capital before selling any electricity or owning any assets. The county has
loaned funds thus far which, according to recent, MEA presentations, total $540,000_
Repayment is expected during the first year. Larger sums will require more formal credit
accommodations, which may be available only with some assistance from the county, or
one or more cities. On October 13, 2004, county staff informed the BOS that ifthe'program
goes forward, MEA may need to request guarantees from the county and participating
cities in order to secure credit. It should be noted that even if the cities do not guarantee
MEA credit, it is possible that they would be exposed to future legal action.
Reduced Ratepayer Rase. The CCA legislation provides that all ratepayers in participating
cities and the county will be included in the MEA unless they take specific action to opt -
out. Once a contract is signed for a specific amount of power, any reduction in the number
of ratepayers will mean the MEA will have excess power that must be sold at the current
market price. For this reason the business plan states that a "termination fee" will be
charged to those that elect to return to PG&E after the initial opt -out period. Neither the
amounts nor the calculation formula has been determined. The composition of the
ratepayer base is highly skewed to the small business and residential ratepayers, a
significant benefit to MEA. Marin demographics include few large users such as the Marin
Municipal Water District (MMWD) that would pose risk if they elect to opt -out and return
to PG&E.
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Legislative and Regulatory Changes. The CCA concept has yet to be activated in
California. Any start-up assumes risk that the rules may change. In the New York Times
article previously cited, an example of regulatory risk is illustrated with a Florida Power
and Light green power program called "Sunshine Energy". The program was terminated
last year by the Florida State Public Service Commission, after an audit discovered that
promised solar power facilities were far behind schedule and approximately 76% of
homeowners' payments went to administrative and marketing expense instead of providing
renewable energy.
Organization and Staffing. The appointed members of the MEA Board have little or no
professional experience in the management of an electric utility company. It is essential
that the key managers and staff members should, in addition to managerial and leadership
abilities, have knowledge and prior experience in the electric utility business. Expertise in
the procurement of power, rate setting, load forecasting, planning, risk management, and
customer service will be essential. According to the Business Plan, key positions such as
the Executive Director, Policy Analyst, and Sales and Marketing Manager were to be hired
prior to the completion of the negotiations of the power supply contract(s). At this time,
MEA has not identified individuals ready to step into these positions. Significant risk
exists if there is a lack of personnel possessing proven track records.
Long -Term Risks
The business plan envisions MEA reducing its reliance on a contract from a single supplier
by purchasing or constructing facilities to produce renewable energy. Any look into the
future must include the possibility that this industry will be substantially different. Some
of the short-term risks remain, and some additional considerations are apparent.
Technology Change. New technology will almost certainly alter the energy markets. More
efficient solar and wind driven energy production is under development. Tidal and other
concepts may be perfected. Tools, such as smart meters that focus on managing the demand
side for energy, are already being implemented. This rapidly changing landscape calls for
experienced and highly qualified experts to monitor and anticipate changes. For example,
such an undertaking as purchasing or building a large scale production facility that is less
than state-of-the-art would pose far-reaching consequences for MEA. Failure to anticipate
large-scale changes in technology or markets could be devastating.
Market Dynamics As in the near-term, the demand for renewable energy may cause
market disruption. Compliance requirements to increase renewable content could drive
major suppliers to buy up large segments of the market either by contracting for power or
outright purchase of sources. MCE may find it challenging to get into this market and meet
the 100% Deep Green option. It should also be recognized that the supply and
procurement of renewable sourced energy requires special attention. The energy
production profiles of solar and wind sourced generation are quite different from those of
the conventional sourced gerer ation. The production curve of solar, for example, isnot a
flat production curve even during full sunny days. The production could vary as much as
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Marin Clean Energy: Pull the Plug
20 to 30% in a day due to atmospheric conditions. Similarly, wind sourced generation can
vary during the day due to variations in wind speed, wind direction and ambient
temperature. Consequently the MCE 100% Deep Green plan could be flawed because
Iarge hydroelectric, nuclear, and gas-fired generating capacity may be part of the power
mix during certain times_ Since solar and wind cannot be provided 24 hours a day, MCE
would have to purchase Renewable Energy Credits (RECS) to off -set these non-renewable
power sources.
Construction Feasibility. Current interest rates and construction costs are low due to a
slow market. That could change before the MEA is in a position to take advantage of
favorable market conditions. Environmental, neighborhood forces and litigation may delay
or prevent the approval process and require that production facilities be located far from
Marin County, thereby eliminating many of the benefits of local employment and local
control.
Execution Risk and Accountability. The short and long-term plan for MEA is dependent
on the ability to keep abreast of a series of moving targets. The elected officials who will
comprise the Board of Directors will need to find highly qualified staff to run MCE on a
day-to-day basis. Identification, compensation, and retention will be major elements in
staffing MCE. A hiring mistake or a poor business decision will cost both ratepayers and
politicians. MCE will not be a primary concern for the Board as the members are elected
to govern other local entities. This is not to say that they will not be diligent, but it does say
that their already busy schedules will become busier. The design and concept of a CCA
does not provide much transparency for either the ratepayers or the voters (taxpayers) to,
determine accountability for the successes or failures of MCE.
It's All About the Ratepayers
The business plan and presentations have emphasized that the cities and county will have
no liability for debts incurred by the MEA. However, the ratepayers will. All of the
following expenditures will be added to the ratepayer's bilh
• Salaries and benefits
• Consultants and legal costs
• Marketing and servicing
• Contract revision costs
• Interest and amortization expense for debt
• Bonding obligation
• Customer exit fees
• All other overhead
In addition, in a slow -growth county such as Marin, the number of ratepayers will not grow
significantly, and no one really knows how many will choose to opt -out. Coupled with a
continued emphasis on energy efficiency, conservation, and the expansion of solar
facilities, a scenario similar to what was recently experienced by the MMWD can be
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Marin Clean Energy: Pull the Plug
envisioned. Successful conservation efforts reduced the demand for water, yet rates were
increased to cover the built-in overhead costs. Demand for electricity may fall if more and
more customers install solar and conserve through smart meters. However, the fixed costs
of MCE, which include costs for salaries, benefits and debt service, are likely to remain
static or increase. For example, the interest cost alone on the $475 million is $19 million
per year at a 4% interest rate. Again, the ratepayers will be the only source of revenue for
MCE.
Claims by MCE and PG&E as to the reductions of GHG are difficult to reconcile. A
primary cause for the difficulty is that the definitions of qualifying renewable energy do not
include nuclear or large hydroelectric plants, neither of which, once constructed,
contributes to GHG. When these sources are included, along with solar and wind, the
emission -free content of PG&E generation is already in excess of 50%. In contrast, the
emission -free content of MCE for the first year will be close to 25% for an estimated 20%
of their ratepayers. At the outset MCE renewable energy will not be new, but purchased
from existing sources. No net reductions of GHG will occur until new production comes
online either from their supplier or through the purchase or construction of new facilities.
Other Approaches
Proponents of MCE have attempted to convince planners and elected officials that the
purchase of renewable energy will lessen the need for the difficult task of addressing
energy efficiency and the impacts of transportation. The Grand Jury finds that the degree
of commitment to MCE has distracted from efforts to reduce the carbon diet of Marin
residents. Communities throughout California are aggressively and creatively exploring
programs to meet the goal of greenhouse gas reduction. The Grand Jury found innovative
and targeted efforts directed at a wide range of improved methods of energy consumption.
These include:
• Expand cleaner transportation options: 62% of Marin's GHG emissions come
from gasoline -powered vehicles. Addressing this issue calls for trip reduction;
increased use and availability of public transportation; bicycling; electric and plug-
in hybrid vehicles; a shift to alternative fuel vehicles; alternative fuel infrastructure.
• Improve building efficiency: Support and promote existing green building standards
and programs for residential, commercial, industrial, and governmental structures, and
conduct energy audits and require energy efficiency efforts for buildings.
• Increase community resource efficiency and reuse. Encourage efficient water use
and reuse efforts; promote waste recycling and energy generation; support efficient
public and private land use strategies_
• Grow renewable energy use: Provide financial incentives, regulatory streamlining,
and related efforts to promote rooftop solar systems; support utility shifts to
renewable energy sources; support legislative efforts to reach renewable goals.
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Marin Clean Energy: Pull the Plug
• Transform business products and practices: Encourage private sector efforts to
move to new green product lines in established industries; shift to new materials
and more efficient technology.
Energy infrastructure: Encourage efforts to build a smart grid, which is a
combination of transmission lines and information networks that allows for
seamless integration of distributed, renewable sources of electricity, provide better
information about usage and pricing (via "smart metering") that can improve energy
efficiency.
The efforts described above approach goals in a realistic order. Transportation is the major
contributor to GHG emissions in Marin_ Energy efficiency is also ranked high.
Eliminating the need, or reducing the demand for energy, equates to a savings of never
having to produce the energy in the first place. Sonoma and Berkeley, two equally
environmentally conscious communities, have already implemented other less costly and
risky alternatives to achieve reductions in GHG emissions.
The Grand Jury notes the efforts of the City of Berkeley as a forerunner in the development
of local energy efficiency management. The County of Sonoma and the Silicon Valley
Joint Venture have engaged in equally aggressive planning, and have seriously targeted
cleaner transportation. Most of these communities include all of the above options and
have some form of partnership with PG&E. They have moved ahead without forming new
bureaucracies. We found little evidence that either MEA or NICE has fully or seriously
explored alternatives, including the partnerships offered by PG&E
In addition, the Grand Jury did find evidence of PG&E's willingness to work with county
departments through a variety of cooperative relationships to support green energy and to
create the basic components of the MCE program without the above-described risk to
ratepayers and taxpayers. That offer was followed by a detailed proposal presented to
county staff and. the Board of Supervisors in November 2008. At that meeting, the board
voted to discontinue pursuing efforts with PG&E and approved the formation of MEA
FINDINGS
Fl. The formation of the Marin Clean Energy Community Choice Aggregation creates
a new level of government while the county and local communities are
experiencing reductions in basic municipal services.
F2. The Marin Energy Authority is not required to submit the Marin Clean Energy
program to a vote of the public;.although legal, this process runs contrary to
transparent governance and consumer protection standards.
F3. Unless a participating city, town or the County of Marin votes to withdraw from the
Marin Energy Authority, residential and business customers will be transferred to
the Marin Clean Energy program.
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Marin Clean Energy: Pull the Plug
F4. The opt -out option means that all consumers in the participating jurisdictions will
automatically become subscribers to the new Marin Clean Energy program, unless
they decide to take affirmative action not to participate.
F5. Neither the Board of Supervisors nor the Marin Energy Authority has fully explored
or tried to negotiate partnerships offered by PG&E.
F6. The 2008 Community Choice Aggregation Business Plan is outdated and lacks
sufficient detail, including current pro -forma data, updated market analysis, load
projections, customer exit fees and the specified quantitative risk analysis.
F7. The construction of owned facilities is a requirement for the success of the Marin
Clean Energy program. Due to community resistance and planning constraints, it
highly unlikely that the Marin Energy Authority will succeed with local
construction of sufficient large-scale renewable energy sources within Marin
County_
F8. Neighboring communities have successfully implemented a wide variety of efforts
to target energy efficiency and greenhouse gas reduction within their communities
through partnerships with local agencies, foundations and PG&E.
F9. The degree of commitment to Marin Clean Energy has distracted local agencies
from the pursuit of the wide range of other options available to reduce greenhouse
gas emissions.
F10. The risks of this venture are far too great to ignore in spite of repeated assurances
from the Marin Energy Authority. Multiple reviews have identified significant
ratepayer risks.
Fl 1. The service contract recently approved by the Marin Energy Authority Board is
incomplete and only covers Phase I and excludes pricing.
F12. The actual rates Marin Clean Energy will charge the majority of its customers, most
of whom are residential, may not be known until late 2011 or early 2012.
F13. The Grand Jury finds that most monies spent to date have been for professional
services of attorneys, consultants and outside peer reviews. The Grand Jury
believes that these expenses are indicative of the highly complex nature of this
undertaking.
1714. Placing this complex, expensive and volatile business venture in the hands of
rotating city/county elected officials charged with other obligations, presents the
Marin taxpayers with an unacceptable risk.
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Marin Clean Energy: Pull the Plug
RECOMMENDATIONS
The Grand Jury recommends:
Rl. That the Marin Clean Energy program be abandoned.
R2. That the county and all participating municipalities of Marin Energy Authority
should step away from their adversarial public posturing and seriously work with
foundations, federal, state and local agencies and PG&E to foster cooperation.
Moreover, rather than create a costly and very risky new county bureaucracy,
efforts and resources should go forward to form public/private partnerships that will
enable the county and all of the cities to achieve their present and future
environmental goals
R3. That in the event the Marin Clean Energy program is not abandoned, the Board of
Supervisors and all participating municipalities review all available documentations
and demonstrate their confidence, understanding and commitment to this project by
voting at a publicly noticed meeting prior to committing their respective jurisdictions
to final membership.
R4. That the full contract, including all terms, conditions, and pricing be provided to all
parties prior to the final opportunity to withdraw.
REQUESTS FOR RESPONSES
Pursuant to Penal Code Section 933.05, the Grand Jury requests responses from the
following governing bodies:
• Marin County Board of Supervisors: All Findings and
Recommendations 1, 2, & 3
• The city and town councils of Belvedere, Fairfax, Mill Valley, Ross, San Anselmo,
San Rafael, Sausalito and Tiburon: All Findings and Recommendations 1, 2 & 3
• The Marin Energy Authority Board of Directors: All Findings and
Recommendations 1, 2 & 4
The governing bodies indicated above should be aware that the comment or response of the
governing body must be conducted in accordance with Penal Code Section 933 (c) and
subject to the notice, agenda and open meeting requirements of the Ralph M. Brown Act.
California Penal Code Section 933 (c) states that "_..the governing body of the public
agency shall comment to the presiding Judge on the findings and recommendations
pertaining to matters under the control of the governing body." Further, the Ralph M.
December 2, 2009 Marin County Civil Grand Jury Page 17 of 23
Marin Clean Energy. Pull the Plug
Brown Act requires that any action of a public entity governing board occur only at a
noticed public meeting.
Disclaimer
This report was voted on and approved by the Grand Jury with the exception of one
member who abstained from final deliberations and voting because of ownership of
publicly traded stock in one of the companies mentioned in this report.
Reports issued by the Civil Grand Jury do not identify individuals interviewed. Penal Code Section 929 requires that
reports of the Grand Jury not contain the name of any person, or facts leading to the identity of any person who
provides information to the Civil Grand Jury. The California State Legislature has stated that it intends the provisions
of the Penal Code 929 prohibiting disclosure of witness identities to encourage full candor in testimony in Civil Grand
Jury investigations by protecting the privacy and confidentiality of those who participate in any Civil Grand Jury
investigation.
BIBLIOGRAPHY
California Solar Resources: California Energy Commission, April 2005. California
Energy Commission 500-2005-072-D
Community Choice Aggregation: The Viability ofAB 117 and its Role in California's
Energy Markets — An Analysis for the California Public Utilities Commission. The
Goldman School of Public Policy, University of California, Berkeley, June 13, 2005.
Community Choice Aggregation Pilot Project PIER Final Project Report. California
Energy Commission, February 2009, 500-2008-091
Customer Credit Renewable Resource Account: Report to the Governor and Legislature.
California Energy Commission, Commission Report, April 2003, 500703-008F
The Economics of Community Choice Aggregation: The Municipalization of Local Power
Acquisition and Production. Bay Area Economic Forum: A Partnership of the Bay Area
Council and the Association of Bay Area Governments, June 2007. Print.
Final Opinion and Recommendations on Greenhouse Gas Regulatory Strategies. California
Energy Commission and California Public Utilities Commission, October 2008. Print.
Galbraith, Kate. Shorted, Paying for Green Power, and Getting Ads Instead. New York
Times, 17 November, 2009.
increasing Renewable Energy Resources in the County of Marin, Jody London Consulting,
November 2007.
December 2, 2009 Marin County Civil Grand Jury Page 18 of 23
Marin Clean Energy: Pull the Plug
Marin -California Community Choice Aggregation Plan. Navigant Consulting, April,
2008. Print.
Marin Community Choice Aggregation Project —Local Government Task Force Update.
Navigant Consulting, March 6, 2008. Print.
Marin County Greenhouse Gas Reduction Plan. October 2006. Web.
http://www.co.marin ca us/depts/CD/main/comdev/advance/Sustainabilits/susinitiatives/cli
mate/Climate.cfm
Marin County PG&E Renewable Energy Program. August 2008. Web.
bttp://marincleanenergy.info/newMCE/gpdates.cfin
Marin -PG&E Partnership Proposal November 2008. Web,
htip://marincleanenergy.info/newMCE/updates cf n
Marcus, William B., Review of the (Draft) Business Plan for the Marin County Choice
Aggregation Program. JBS Energy, Inc., February 29, 2008. Print
McGinn, Daniel. "The Greenest Big Companies in America." Newsweek, 28 September,
2009:34. http://www.newsweek.com/id/215577 Print.
Monsen, William and Fulmer, Mark, MRW & Associates; Marcus, William, JBS Energy,
Inc. Review ofNavigant Consulting's Community Choice Aggregation Feasibility Studies.
August 17, 2005. Print.
Monsen, William and Fulmer, Mark. Community Choice Aggregation Review. MRW and
Associates, October 15, 2008. Print,
Monsen, William and Fulmer, Mark. Analysis of Service Agreements and Financial Risk to
MEA, MRW and Associates, November 20, 2009. Print.
PG&E and Mann: A Green Community Partnership. November 2007- Web-
http://marincleanenergy.info/newMCE/updates.efin
PG&E Proposal. May 2008. Web. http://marincleaneneLrU.info/newMCE/updates.cfm
ewMCE/updates.cfm
PG&E Proposed Greenhouse Gas Reduction and Renewable Energy Partnership Plan.
December 2008. Web. http://marincleanenergy.info/newMCE/updates.cfin
Renewable Resources and the California Electric Power Industry: Systems Operations,
Wholesale Markets and Grid Planning: California ISO, July 20, 2009.
December 2, 2009 Marin County Civil Grand Jury
Marin Clean Energy: Pull the Plug
Rodgers, Connie. "MEA: Ever Changing and Extraordinarily Expensive" NortliBaybiz,
August, 2009.
Solar & Energy Effi'ciency District (SEED), Draft Program Implementation Plan — MEA,
June 2009.
Sustainable Marin Nature, Built Environment, and People, Marin Countywide Plan —
Marin County Community Development Agency, October 2008
WEBSITES:
Air Resources Board of California: www.arb.ca.gov
Bill Documents. Sacramento, CA: State of California. htlp://www.leginfo.ca.gov
Center for Resource Solutions: www.resoiarce-solutions.org
California Energy Commission: www.energy.ca.gov
California Independent System Operator: www.caiso.comm
California Natural Resources Agency: http://ceres.ca.gov
California Public Utilities Commission: www.epue,ca.gov
California Solar Initiative: www.califomiasolarstatistics.ca.gov
City of Berkeley, Energy and Sustainability Development: htip://www.ci.berkele,
County of Marin, BOS Meetings: bttp://co.mariD.ca.us/dgpts/BS/Arebive/Meetings.cfm
Environment California: www.environmentcalifornia.org
Green Marin: www.pyeenmarin.org
Marin Clean Energy: http://www.marincleanenergyinfo
Marin Community Development: http://www.eo.marin.ca.us/depts/CD/Main/index.cfm
Marin Energy Authority: http://www.marinenermyauthority.org/
Pacific Gas and Electric: www.pge.com
Sierra Club of the Bay Area: http://sfbay.sierraclub.org
Sonoma County Energy (SCEIP): bLtp://www.sonomacountyenergy.ory/
Wikipedia: http://en.wiki edp ia.org
Glossary
AB 32 Assembly Bill 32 (2006), the California Global Warming Solutions Act
AB 117 Assembly Bill 117 (2002), the Community Choice Aggregation Law
AB 560 Assembly Bill 560 (proposed), would increase the cap on "net metering'
from 2.5% of peak demand in the utility's system to 10% (net metering
gives solar customers credit on electric bill for surplus they transfer to the
utility)
AB 811 Assembly Bill 811, allows land -secured loans for homeowners and
businesses that install energy -efficiency projects and clean -energy
generation systems to be paid back through assessments on individual
property tax bilis.
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AB 920 Assembly Bill 920, requires utilities to pay for credits on any electricity Ie$
over at the end of the year (at present leftover credits are zeroed out at the
end of the year)
Berkeley FIRST: Financing Initiative for Renewable and Solar Technology: Berkeley
FIRST is a solar financing program operating in the City of Berkeley which
provides property owners an opportunity to borrow from the City's
Sustainable Energy Financing District to install solar photovoltaic electric
systems and allow the cost to be repaid over 20 years through an annual
special tax on their property tax bill.
http://www.ei.berkeley.ca.us/ContentDisplgy,aspx?id=26580
Berkeley Solar America: Through its Solar America Cities partnership with the
Department.of Energy, Berkeley's goal is to develop a "turn -key" solar
installation program in its municipality. The city also plans to increase local
capacity for solar energy installations by working with local suppliers,
installers, trade associations, and financiers.
Biomass Energy: Energy generated from plants and plant -derived materials such as trees,
agricultural products, and other living plant materials.
CAISO California Independent System Operator: Agency charged with operating
the majority of California's high voltage wholesale power grid.
CCA Community Choice Aggregation enables local governments to assume an
active role in managing electricity supplies, investing in new power
facilities and setting rates.
CEC California Energy Commission, State energy policy and planning agency.
CPUC California Public Utility Commission
CSI California Solar Initiative
CTC Competition Transition Charge
ESP Energy Service Provider
Geothermal energy: Energy generated from the heat of the earth usually from geothermal
water, steam, or other hot fluids brought up to the surface from wells.
GUG Greenhouse Gas emissions, any of the atmospheric gases that contribute to
the greenhouse effect by absorbing infrared radiation produced by solar
warming of the Earth's surface. They include carbon dioxide (CO2),
methane (CH4), nitrous oxide NOA and water vapor.
IOU Independent Owned Utility
IPP Independent Power Producer
JPA Joint Powers Agreement
KW Kilowatt, unit of electric power output or consumption-
KWh
onsumptionKWh Kilowatt hour, unit of electric generation or consumption measure during
one hour. The average annual energy consumption of a household in the
United States is about 8,900 KWh
LARS Local Area Reliability Service
December 2, 2009 Marin County Civil Grand Jury Page 21 of 23
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Marin Climate and Energy Partnership: A group of representatives from all Marin
municipalities, Marin County, the Marin Municipal Water District and the
Transportation Authority of Marin to assist municipalities assess, prioritize
and implement greenhouse gas (GHG) reduction activities in their
greenhouse gas reduction programs.
Marin Clean Energy Initiative - MCE: A program initiated by MEA calls for MEA to
compete with PG&E as retailer of electricity to Marin customers in order to
boost usage of renewable energy
Marin Energy Authority — MEA: A JPA established in 2008 and made up of Marin
County and 8 cities and towns
MW Megawatt, equivalent to 1000 KW
MWh Megawatt hour, equivalent to 1000 KWh
NCPA Northern California Power Agency
PG&E Pacific Gas and Electric
PPP Public Purpose Program, energy efficiency program that provides rebates
for energy efficiency
RAR Resource Adequacy Requirements, requirements by CAISO to (a) establish
appropriate levels of reserve margins, and (b) ensure adequate resources are
committed to the region
Renewable Resources: Power generated from resources that can be replenished.
Eligible Renewable Resources: Renewable resources meeting specific requirements as
determined by the California Energy Commission. To qualify a generation
must use one or more of the following renewable resources: biodiesel,
biomass, fuel cells, geothermal, landfill gas, ocean wave, ocean thermal,
tidal currents, photovoltaic solar, thermal solar, small hydroelectric (30
megawatts or less), wind.
RFP Request for Proposal
San Rafael BERST: Green Building, Energy Retrofit and Solar Transformation
Collaboration. The Marin Green BERST collaborative was recently
initiated by San Rafael as an effort to study and pursue policy and model
program options for green building regulations and energy efficiency
retrofitting for existing buildings.
SB 32 California Senate Bill 32, increases the size of generation facilities eligible
for California's feed -in tariff program from 1.5 megawatts (MW) to 3 MW,
increases the statewide cap from 500 MW to 750 MW, and expands the
program to include municipal utilities.
SCEIP The Sonoma County Energy Independence Program, Sonoma County's
Energy Independence Program is a new opportunity for property owners to
finance energy efficiency, water efficiency and renewable energy
improvements through a voluntary assessment.
www.sonomacountyenergy_org.
SJVPA San Joaquin Valley Power Authority
Smart Grid: Using wireless technology to improve the ability to analyze the grid and
manage power transmission and delivery of electricity in the most efficient
manner.
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Marin Clean Energy: Pull the Plug
Smart Meter: A wireless electric meter that identifies consumption in more detail than a
conventional meter and transmits that information to the local utility for
monitoring and billing purposes.
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