Staff Report Item 9
Staff Report Item 9
To: Ava Community Energy Authority
From: Russell Mills, SVP and CFO
Subject: Prepay Financing Update
Date: April 16, 2025
__________________________________________________________________ Summary/Recommendation
Review Prepay Financing background and Ava’s experience with these financing structures. Discuss the planning for additional prepay financing transactions.
Financial Impact
Ava has saved $21.7 million from 2022 through year end 2024 on the energy purchased through the three prepays it has closed. Ava will continue to receive these savings through the life of the bonds issued,
Analysis and Context
Commodity Prepay Financings are a unique financing structure giving tax-exempt entities that sell commodities to end-use customers a mechanism to provide more affordable energy through savings received by the energy recipient for buying the power through long-term contracts. These are complex structures with several entities participating in the transaction, with at a minimum, an energy recipient, a supplier and a conduit bond issuer required. The conduit issue is necessary to provide legal separation to both the supplier and recipient from the issuing entity.
Staff Report Item 9
The benefits received for Ava and its customers are derived from the lower cost of funding from tax-exempt financing that is provided to the supplier than what they would receive from taxable markets and their own internal cost of capital. The energy recipient commits to buying a commodity over a long term and receives a discount to the contracted or market price throughout the term, lowering current and future energy costs.
Ava has executed three prepay transactions in the past, including the first ever CCA prepay in 2021, and then subsequent transactions in 2022 and 2023. Many of the CCA’s in California have utilized this structure to provide discounted power and further enable a value proposition for CCA customers. The bonds have been sold through the California Community Choice Financing Authority (CCCFA) as a conduit issuer, which was initially set up to enable these transactions.
Prepay Close Date Provider/Supplier Bond Size
1 9/23/21 Morgan Stanley $1.20B
2 7/12/22 Morgan Stanley $0.93B
3 8/16/23 Morgan Stanley $0.99B
Ava has used Morgan Stanley as the supplier and bond underwriter for its three prepays. Since it last issued an RFP for these services in 2019, staff determined refreshing its view of the capabilities and experience of the providers was warranted.
Staff is planning for at least one transaction in the coming months and will evaluate providers as part of the process before seeking approval from the board. We also will determine contracts and volumes to include in any prepay transaction we would seek approval for.
Staff would bring an approval request through the Finance Administrative and Procurement Committee prior to seeking Board approval, at the earliest in May or June.
Subsequently, the transaction(s) would be presented to the CCCFA Board for its approval, before a bond sale would occur.
Committee Recommendation
Not applicable.
Attachments
A. Prepay Informational Presentation April Board 2025
Board Presentation:
Prepay Financing Update
April 16, 2025
Attachment Staff Report Item 9A
Agenda
1. Prepay Financing Background
2. Ava’s Prepay Experience
3. Savings Realized
4. Prepay Planning
5. Q&A and Discussion
2 Attachment Staff Report Item 9A
• 2003 IRS Regulations allow for tax-exempt debt to be issued for the prepayment of electricity to serve load • Energy Prepays are complex transaction structures requiring at least three parties:
▪ Energy Recipient, e.g. Ava
▪ Prepaid Energy Provider/Supplier, e.g. Morgan Stanley, Goldman Sachs, RBC, etc. ▪ Bond Issuer, e.g. CCCFA, a Conduit Issuer
• Cost of funding with tax-exempt debt is lower than supplier would otherwise receive borrowing from taxable market or from using internal funding at their cost of capital • Energy supply agreement where buyer (Ava) commits to purchase the commodity over a term, receiving a discount to the market price – lowers Ava's costs on existing and future energy contracts ▪ Ava maintains energy contracts assigned from its portfolio into prepay structure through 30-year deal term • Bond investor risk is tied to the supplier and corporate guarantor to make debt service payments and redeem bonds if termination events occur or bankruptcy
Prepay Financing Background
3 What is a Prepay?
Attachment Staff Report Item 9A
• 2019 - Ava issued RFP for Prepay Services (Prepay
Provider)
• 2021 – Ava closes first-ever CCA energy prepay
bond transaction
Ava’s Prepay Experience:
4 Timeline of Ava Prepay Activity: Structural Innovations Ava Employed • Short-term bridge PPA & forward energy price curve
to size prepays provides flexibility on timing to
market
• Master Custodian Agreement optimizes use of PPAs
• Monthly Tracking / Annual Settlement reduces
operational burden
• Morgan Stanley partnered with Ava on innovations
• 2024 - Ava amended prepays to maximize savings
and optimize operations
Ava’s Prepays to Date
Prepay Date Closed Provider/Supplier Bond Size
1 9/23/21 Morgan Stanley $1.20B
2 7/12/22 Morgan Stanley $0.93B
3 8/16/23 Morgan Stanley $0.99B
Ava is part of a list of leading CCAs
that have issued energy prepay bonds:
• Ava Community Energy
• Clean Power Alliance (CPA)
• Silicon Valley Clean Energy (SVCE)
• Peninsula Clean Energy (PCE)
• Marin Clean Energy (MCE)
• Sonoma Clean Power (SCE)
• Valley Clean Energy (VCE)
Attachment Staff Report Item 9A
Ava’s Prepay Savings Through ‘24 Total $21.7M
5 -
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Q1 '22 Q2 '22 Q3 '22 Q4 '22 Q1 '23 Q2 '23 Q3 '23 Q4 '23 Q1 '24 Q2 '24 Q3 '24 Q4 '24 Quarterly Savings by Prepay
Prepay #1 Prepay #2 Prepay #3
Attachment Staff Report Item 9A
Transaction Planning & Supplier Selection
6 Staff is planning for at least 1 and possibly 2 transactions in 2025 and may seek approval for both simultaneously
❖ In, 2024, CPA received approvals for 3 simultaneously and entered the market at separate times successfully
Supplier Selection:
❖ All 3 Ava prepays were with Morgan Stanley as the prepay supplier ❖ Last RFP was in 2019, refresh sent out in late March; currently evaluating 4 responses ❖ There are merits to both diversification and to continuing with similar provider ❖ Consideration for splitting into two deals to optimize/de-risk execution Attachment Staff Report Item 9A
Proposed Prepay Timeline :
7 March-April (Currently in process)
o Prepay Supplier RFP – Selection by mid-late April
o Analysis of Contracts/Volumes for Inclusion in Prepay May-June
o Discuss Further at FAP & Seek Board Approval
o Present at CCCFA Board for Approval
Late June-Early July
o Marketing and Pricing Prepay Bonds
o Close Transaction
Attachment Staff Report Item 9A
Q&A- Discussion
8 Attachment Staff Report Item 9A
Thank you!
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9 Attachment Staff Report Item 9A
Attachment Staff Report Item 9A