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Attachment B

VICTORVILLE MUNICIPAL UTILITY SERVICES (VMUS) RENEWABLE ENERGY RESOURCES PROCUREMENT PLAN COMPLIANCE PERIOD 3 (2017-2020)

Compliance Period 3 (2017-2020)

December 1, 2020

Section 1. Policy Statement.....3 Section 2. Definitions.....3 Section 3. RPS Enforcement Program.....3 Section 4. Specified RPS Procurement Targets.....3 Section 5. RPS Procurement Requirements.....4 Section 6. RPS Procurement.....6 Section 7. Forecast of Retail Sales and RPS Compliance Obligations.....7 Section 8. Excess Procurement Rules.....8 Section 9. Delay of Timely Compliance Rules.....8 Section 10. Cost Limitation.....10

California Public Utilities Code § 399.30(a) requires all publicly owned electric utilities (“POUs”), including the City of Victorville, operating through its publicly owned utility (Victorville Municipal Utility Services (VMUS), to “adopt and implement a renewable energy resources procurement plan” that requires the POU to procure a minimum quantity of electricity and/or renewable energy credits (“RECs”) from eligible renewable energy resources, as a percentage of total retail sales. This document comprises VMUS’ renewable energy resources procurement plan (“RPS Procurement Plan”). This RPS Procurement Plan describes how VMUS will achieve its RPS procurement requirements in each compliance period.

The definitions set forth in Public Resources Code (“PRC”) § 25741 and Public Utilities Code (“PUC”) § 399.12 are incorporated herein. Capitalized terms in this RPS Procurement Plan, as first identified in parentheses, shall have the meaning given to such term in the body of this RPS Procurement Plan.

As required by PUC § 399.30, the Victorville City Council (VMUS' Governing Board) adopted the Renewable Energy Resources Enforcement Program ("RPS Enforcement Program") on December 6, 2011. Through the RPS Enforcement Program, the Victorville City Council established compliance periods, adopted RPS-eligible procurement targets, and described the framework for how VMUS would implement its RPS program. Section 10 of the RPS Enforcement Program directed the City Manager or his duly authorized designee to develop and present an RPS Procurement Plan to the VMUS Governing Board.

In the RPS Enforcement Program, the Victorville City Council adopted general RPS procurement targets for each of the initial three compliance periods. Pursuant to PUC § 399.30(b) and (c), the Victorville City Council adopts and further specifies the RPS procurement targets for Compliance Periods 3, 4, 5, 6, and all subsequent periods as follows:

For the four-year period beginning January 1, 2017 and ending December 31, 2020, VMUS shall procure sufficient RPS-eligible resources to equal the sum of the following: (27 percent of 2017 retail sales) + (29 percent of 2018 retail sales) + (31 percent of 2019 retail sales) + (33 percent of 2020 retail sales). VMUS shall not be required to procure a specific quantity of RPS-eligible resources in any individual year during this compliance period.

For the four-year period beginning January 1, 2021 and ending December 31, 2024, VMUS shall procure sufficient RPS-eligible resources to equal the sum of the following: (35.75 percent of 2021 retail sales) + (38.5 percent of 2022 retail sales) + (41.25 percent of 2023 retail sales) + (44 percent of 2024 retail sales). VMUS shall not be required to procure a specific quantity of RPS-eligible resources in any individual year during this compliance period.

For the three-year period beginning January 1, 2025 and ending December 31, 2027, VMUS shall procure sufficient RPS-eligible resources to equal the sum of the following: (46 percent of 2025 retail sales) + (50 percent of 2026 retail sales) + (52 percent of 2027 retail sales). VMUS shall not be required to procure a specific quantity of RPS-eligible resources in any individual year during this compliance period.

For the three-year period beginning January 1, 2028 and ending December 31, 2030, VMUS shall procure sufficient RPS-eligible resources to equal the sum of the following: (54.67 percent of 2028 retail sales) + (57.33 percent of 2029 retail sales) + (60 percent of 2030 retail sales). VMUS shall not be required to procure a specific quantity of RPS-eligible resources in any individual year during this compliance period.

For each subsequent compliance period, VMUS shall procure sufficient RPS-eligible resources to equal an average of 60 percent of retail sales.

PUC § 399.30(c)(3), consistent with PUC § 399.16, as implemented by the Energy Commission’s RPS Regulations specifies certain procurement requirements that are applicable to “electricity products,” which refers to either: (1) electricity and the associated renewable energy credit (“REC”) generated by an eligible renewable energy resource; or (2) an unbundled REC.

Pursuant to PUC § 399.16(d), electricity products associated with contracts or ownership agreements that were executed prior to June 1, 2010 and which met certain specified eligibility requirements, must count toward the POU’s RPS Procurement Targets without regard to the portfolio content categories (“PCCs”).

Pursuant to PUC § 399.16(b)-(c), as implemented by the Energy Commission’s RPS Regulations, electricity products associated with contracts or ownership agreements that were executed after June 1, 2010 must be classified into the following three PCCs:

PCC1: Electricity products that are procured as bundled and that are associated with an eligible renewable energy resource that either: (1) has its first point on interconnection within a California balancing authority ("BA"); (2) has its first point of interconnection to a distribution system used to serve end users within a California BA; (3) is scheduled into a California BA without substituting electricity from another source; or (4) is dynamically transferred into a California BA.

PCC2: Electricity products that are procured as bundled and that are associated with an eligible renewable energy resource that is located within the WECC but outside of a California BA, and for which the renewable energy is matched with an equal amount of incremental energy that is scheduled into a California BA.

PCC3: All electricity products that are associated with eligible renewable energy resources, but that do not meet the definition of PCC1 or PCC2.

Pursuant to PUC § 399.16(c), as implemented by the Energy Commission’s RPS Regulations, the following portfolio balance requirements are applicable to all electricity products that are credited towards the RPS Procurement Quantity Requirements that are associated with contracts or ownership agreements executed after June 1, 2010:

None.

Victorville has entered into a Power Purchase Agreement (“PPA”) with AM Wind Repower LLC (AM Wind) for the acquisition of renewable energy from the Alta Mesa RP27 Wind Energy Center located in Riverside County. AM Wind is required to obtain the CEC Certification that the plant is an Eligible Renewable Energy Resource (ERER) for purposes of the RPS Program and that all output produced by the plant qualifies as generation from an ERER. The scheduled “Commercial Operation Date” is January 1, 2022, and will interconnect to the California Independent System Operator (“CAISO”) grid as a Full Capacity Deliverability Status resource. The PPA term is 25-years. The PPA also provides for the option of battery storage at the site. The forecasted first year generation of 41,380 megawatt-hours is 99.4% of the forecasted PCC 1 requirements in Compliance Period 4.

Victorville is currently negotiating an 11 MW photovoltaic power purchase agreement. The forecasted first year generation is 33,740 megawatt-hours of renewable energy. As with any solar photovoltaic generating facility, the annual output is expected to decline at a rate of about 0.5% per year due to solar panel degradation effects. The expected “Commercial Operation Date” is December 31, 2022.

A. Delay of Timely Compliance Rule

Pursuant to PUC § 399.30(d)(2)(A), and consistent with Section 7 of the RPS Enforcement Program, the Victorville City Council may adopt measures permitting VMUS to delay timely compliance with the RPS procurement requirements. Victorville City Council adopts the following delay of timely compliance rules.

It any of the conditions listed below occurs and is beyond the control of VMUS and causes VMUS to not be reasonably able to comply with the RPS procurement requirements, VMUS may delay timely compliance with the RPS procurement requirements.

There is inadequate transmission capacity to allow sufficient electricity to be delivered from eligible renewable energy resources, or proposed eligible renewable energy resource projects, to the extent applicable, using the current operational protocols of the BA in which the VMUS operates. If VMUS owns transmission or has transmission rights, then VMUS shall demonstrate that:

Permitting, interconnection, or other circumstance have delayed the procurement of eligible renewable energy resource projects, or there is an insufficient supply of eligible renewable energy resources available to VMUS. To utilize this condition, VMUS must show that the permitting, interconnection, or other circumstance caused the delay or insufficient supply and that:

Unanticipated curtailment of eligible renewable energy resources, if the delay of timely compliance would not result in an increase in greenhouse gas emissions.

Unanticipated increase in retail sales due to transportation electrification. To utilize this condition, VMUS must consider whether transportation electrification significantly exceeded forecasts in VMUS' service territory based on the best and most recently available information available to VMUS. Further, VMUS must take reasonable measures to procure sufficient resources to account for unanticipated increases in retail sales due to transportation electrification.

Pursuant to PUC § 399.30(d)(2)(B), and consistent with Section 9 of the RPS Enforcement Program, the Victorville City Council shall rely on the following information to establish a limitation on the procurement expenditures for all RPS-eligible resources:

existing resources, transmission upgrades, or the costs associated with relicensing any utility-owned hydroelectric facilities.

If the cost limitation is insufficient to support the projected costs of meeting VMUS' RPS targets, as specified above, VMUS may refrain from executing any further contracts for eligible renewable energy resources, beyond what can be procured within the cost limitation.

To determine what cost limitation is necessary to prevent disproportionate rate impacts, the Victorville City Council has considered the following factors and made the following findings:

A significant number of the City’s residents live below the poverty level. In 2018, Victorville’s poverty rate (averaged over the prior 5 years) was 19.5%,1 which is nearly double the statewide average of 10.4%.2 Further, over the same period, Victorville’s unemployment rate was 13.6% compared to a statewide average of 6.7%. The State of California Labor Market Information Data Library lists a preliminary 13.4% unemployment rate in the City of Victorville as of September 30, 2020.

Property tax receipts fund essential City services. VMUS provides electric service to several of the Cities largest property taxpayers. Competitive electric rates are essential to expanding employment opportunities by encouraging existing businesses to remain and expand their facilities and attracting new businesses.

Finding: The Victorville City Council finds that VMUS' cost limitation must be structured and set at a level that avoids harm to the local economy, limits impacts on economically vulnerable residents, and avoids increasing the unemployment rate.

While VMUS serves a diverse group of customer types, the vast majority of VMUS's total load is associated with just a few large customers. Three of VMUS' customers consume 76% of retail sales. To the extent that any one of these customers ceases to operate or relocates, VMUS's remaining customers would bear the costs of any stranded investments. Shifting these costs to other customers could have cascading consequences by threatening the viability of other customers and further exacerbating the high poverty and unemployment rates in the City. In light of these factors, VMUS's customers could be disproportionately harmed by rate increases.

Finding: The Victorville City Council finds that VMUS' cost limitation must be designed so that it does not overly burden any one-customer class.

Through June 30, 2019, VMUS' cumulative electric operating deficit was $26.2 million. These losses have been funded primarily through transfers and loans from the City's General Fund. VMUS incurred significant start-up costs, including payment of exit fees to Southern California Edison and outstanding indebtedness associated with the unanticipated failure of the Foxborough Cogeneration Facility. Significant capital expenditures are also required by VMUS to improve electric service reliability and expand capacity to serve new businesses.

Finding: The Victorville City Council finds that VMUS' cost limitation should be set at a level that does not threaten the long-term financial stability of VMUS by reducing its existing customer base and that VMUS' cost limitation is also set at a level that allows VMUS to reduce its negative Net Fund Position.

To estimate the cost of full compliance for Compliance Period 3, VMUS relies on the cost data from completed transactions by another small POU. Based on the completed transactions by another POU, VMUS assumes that the cost of the electricity product would have been for: PCC1 is $15.50/MWh; PCC3 is $0.95; and PCC2 is $6.00. The following table shows the forecasted cost of full compliance based on these assumptions.

Therefore, the estimated cost of full compliance with the Compliance Period 3 RPS Procurement Requirements is $1,373,341.

To determine if VMUS' expenditures have met or exceeded the cost limitation established in this RPS Procurement Plan, VMUS will include all direct costs associated with procurement from executed contracts and owned resources. Where applicable, this will include the contract price multiplied by electricity products delivered during the Compliance Period. For any contract where the associated electricity is resold, VMUS will still count towards its Cost Limitation the total cost of the combined electricity and REC.

In developing its Cost Limitation methodology, VMUS has reviewed the potential impacts of the factors, findings, and considerations described above. Specifically, VMUS has evaluated what would occur if VMUS expended the amount of the full cost of compliance and estimated the impacts to customers on a rate basis and total bill basis under different scenarios.

Eighteen percent of VMUS' sales to its retail customers have contractual rate limitations. Potential rate increases for the purpose of RPS compliance would be applicable to the remaining eighty-two percent of sales to customers. The estimated cost of full compliance with the Compliance Period 3 RPS Procurement Requirements would have required a thirteen percent (13%) increase in rates and VMUS' rates would have been greater than Southern California Edison's applicable tariff schedules.

VMUS staff have determined that setting the Cost Limitation using the methodology described below is necessary to prevent an unfair burden and disproportionate rate impact for applicable VMUS customers.

To avoid disproportionate rate impacts for Compliance Period 3, the Victorville City Council will require that during the annual budget approval process, VMUS will calculate the revenues less expenses and cumulative operating deficit (before the incremental cost of procuring electricity products to satisfy the RPS requirements) and identify the funds available from such amount to concurrently satisfy the applicable RPS requirement and maintain prudent reserves (Cost Limitation Guideline). VMUS shall not be obligated to expend funds on RPS procurement greater than the Cost Limitation Guideline or RPS procurement targets. Once VMUS recovers its

operating deficit, VMUS will seek contracts for eligible renewable resources on a least cost, best fit basis. Procurement considerations will include availability of resources, financial feasibility, transmission availability and any other relevant factors to ensure procurement contracts fit the VMUS' risk profile as a small publicly owned utility.

Pursuant to the methodology for calculating the cost limitation for Compliance Period 3, established above, VMUS is forecasted to have a cumulative operating deficit through December 31, 2020, and the cost of procuring electricity products to satisfy RPS requirements is greater than zero, the cost limitation for Compliance Period 3 is determined to be $0.