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· Opt-out risk – the risk that customer opt-outs are so high that the program <br />becomes economically infeasible <br />· Operational risk – the risks associated with commodity fluctuations, credit, <br />vendor default, and poor management and oversight <br />· Legislative/regulatory risk – the risks associated with unfavorable state legislation <br />or regulation that could threaten or harm the program <br /> <br />Rate risk is associated with deviations between actual energy use and contracted <br />energy purchases. Deviations between actual energy use and contracted purchases are <br />inherent in the energy market. This risk is managed by structured (laddered) energy <br />purchases and avoiding over-procurement. Laddering refers to entering into multiple <br />contracts with energy providers with different effective dates and for different lengths of <br />time. Rate risk may also involve PCE pricing becoming higher than PG&E’s as PG&E <br />has locked in several long-term energy contracts. PG&E can also benefit from <br />economies of scale and may be able to command better pricing than smaller CCAs in <br />the energy market. <br /> <br />Procurement risk is associated with the lack of available renewable energy resources to <br />meet the program’s needs. The State’s Renewable Portfolio Standard, which requires <br />utilities to source an increasing amount of their energy from renewable resources over <br />time, may incentivize development of additional renewable energy sources from which <br />PCE may purchase energy. Too, as CCAs in the PG&E territory capture more of the <br />market, that may, over time, cause PG&E to contract for less renewable energy, which <br />could potentially leave more renewable resources available for procurement by the <br />CCAs. <br /> <br />Opt-out risk may be mitigated by outreach performed first by the County and then by the <br />JPA. The County has been providing outreach to the public regarding PCE, and once <br />member agencies of the JPA adopt their CCA ordinances, PCE will continue to provide <br />outreach to the public regarding its services and information about opting out. <br />Customers will, however, be able to opt out during the program if, for example, the rates <br />become higher than PG&E’s. <br /> <br />Operational risks exist with all start-ups. These risks have been managed successfully <br />by the current California CCAs since their formation. In a worst case scenario of a CCA <br />failure, staff understands that customers would be able to opt back in to PG&E service <br />without service interruption or exit charge. In this circumstance, staff expects customers, <br />including municipalities, would be treated like customers who opted out of PCE after the <br />end of the opt-out period, and thus would be charged on a market-based rate schedule, <br />which may be more or less expensive than the prevailing PG&E rates. <br /> <br />In terms of financial risk to the members, the JPA is meant to be and remain separate <br />from the County and member cities and to assume all liabilities and obligations <br />associated with the program. Accordingly, the JPA agreement states that the “debts, <br />liabilities or obligations of the Authority shall not be debts, liabilities or obligations of the <br />individual Parties unless the governing board of a Party agrees in writing to assume any <br />9.B. - Page 4