Fiscal Year 2025-2026
Budget Surplus
Allocation
Finance, Administrative, and
Procurement Subcommittee
October 28, 2026
Contents
2 • Introduction
• Overview of Rate & PCIA Setting Process
• Recent ERRA and MPB Filings and the history of rate forecasting • Financial Projections—Budget Impact, Net Revenues, Working Capital • GASB62, Reserve, & RSF Balances
• Allocation options
• Next Steps & Conclusion
Budget Surplus Discussion Introduction
• With the imminent close of the 2025-2026 fiscal year financial statements, ending June 30th, Ava’s accounting team is estimating an approximately $81MM surplus in net revenues. • Last year, the surplus was held in the GASB 62 account as deferred revenues while the Board decided how to best allocate those funds. This year, we are repeating this same process. • On October 16th, the Energy Resource Recovery Account (ERRA) filing was released that confirms actual prices for 2026, forecasts prices for 2027, and sets the generation and PCIA rates that go into effect on January 1, 2027, directly affecting Ava’s revenues • This presentation will cover broadly how this mechanism works, the impact to current fiscal year outlook, implications to future revenues and working capital, and then discuss the options available to the Board for allocation of the surplus revenues from the closing fiscal year. 3 Rates & PCIA Overview
Changes in actual energy market prices vs forecasted
prices are trued up through PCIA and rate setting
processes, which typically span multiple full calendar
years.
These changes create an imbalance in how rates
recover costs ▪ A price spike results in an undercollection ▪ A price dip results in an overcollection These imbalances are tracked in the ERRA for rate
setting purposes and the Portfolio Allocation Balancing Account (PABA) for PCIA purposes
Thus, the annual rebalancing in years where prices are
increasing requires rates go up and PCIA come down.
Conversely, when prices are decreasing, rates come
down and PCIA goes up.
Note: Graphs to the right are for illustrative purposes 4 New 2027 Rates from ERRA Filing
5 Note: This slide reflects 2018 PCIA Vintage (Ava's most common residential vintage) • 2027 Generation rates (including
PCIA) are expected to decrease by
~14% from 2026 levels
• This translates to about an
average $50 bill reduction over
the calendar year
• Ava-specific customer rates are
expected to decrease by ~22%
• These estimates assume no change
to the Bright Choice discount
• Average customer generations-related rates are expected to be about $0.103/kWh
• Final 2027 rates may differ based on
the final Annual Energy True-up (AET)
How We Got Here
Volatility in the market, and changes to regulatory processes, translates to MPBs and then materializes through rates • 2025—High forecasted market prices across energy products led to significant generation rate and revenue growth.
• 2026—Decreasing market prices for brown power and RA, driven by PCIA Track 1 changes on RA MPBs. Includes
significant true up for 2025 overcollection.
• 2027—Decreasing market prices for renewable energy
(RECs), which includes PCIA Track 2 changes shifting $1BN in value from pre-2019 banked RECs to PG&E bundled
customers. Includes significant true up for 2026
overcollection.
• 2028 – Assume market prices remain stable at low levels in line with 2027 forecasts. No true-up assumed.
▪ Future potential changes from PCIA Track 3A, 3B, and 4 are not incorporated in forecast
6 2026-2027 Budget – Updated Financial Projections
7 • The ERRA filing projects a decrease in customer
rates for calendar year 2027, as prices generally
declined through 2026.
▪ This reduces expected revenues by $113MM
• Along with ERRA filing, the Market Price Benchmark
(MPB) prices for renewable energy credits and
resource adequacy reduced expected energy costs
by $36.3MM for the current fiscal year
▪ This is a true up to calendar year 2026 market prices and estimated prices for calendar year 2027
• The net result is current fiscal year has an
additional $76.2MM drawdown from budgeted
amounts, totaling a net loss of $100.4MM
▪ Previous budget estimated a $24.2MM release
• A more comprehensive update will be presented by
staff at the Mid-Year budget presentation in
February based on actual 2027 rates
Net Revenues Multi-Year View
8 I— 2025 Price Growth —II—— 2026 Track 1 ——II— 2027 Price Drop —II—2028 Stabile MPBs—I Working Capital Multi-Year View
I— 2025 Price Growth —II— 2026 Track 1 —II— 2027 Price Drop —II—2028 Stable MPBs—I 9 The gray areas
represent the calendar
year working capital
cycle.
Working capital cycle
is typically ~3 months
adjusted from budget
and annual cycles.
The vertical lines are
balances at end of
fiscal years.
The increase in GASB
amount in 11/2026 is
the FY 2025-2026 net
revenue deferral
Updated RSF and Reserve Account Balances
Ava maintains and tracks the three main set-aside accounts each year:
Reserve Fund Account are balances held in investments in accordance with the Board approved investment policy (P 21) approved by resolution R-2024-31 in April 2024.
GASB 62 Fund Account are balances of other deferred revenues, independent of RSF. Currently includes the $81MM from 2025-2026 budget surplus, pending board action of formal allocation. Additional $15MM reflects SmartHome Battery & Community Resilience Hub incentive funding and $10.5MM of Incremental Clean Energy Investments funding.
Rate Stabilization Fund Account are balances held in accordance with RSF policy established by by resolution R-2025-41 in September 2025. Based on the current 2026-2027 updated budget forecast, RSF balance is expected to decrease to $62.2MM, based on a $100MM drawdown
The table below presents the historical and current balances of these accounts. Percent coverages are measured against the fiscal year ahead of the contribution year. 10 Contribution Year Balance Operating Expenses* PctCoverage Net Adjustment Balance Net Adjustment Balance PctCoverage 2018-2019 40,513,687 410,686,000 9.9% - - - - 0.0%
2019-2020 90,218,327 383,045,000 23.6% 12,680,000 12,680,000 - - 0.0% 2020-2021 90,218,327 471,897,000 19.1% 3,161,000 15,841,000 - - 0.0% 2021-2022 155,873,400 562,667,000 27.7% - 15,841,000 - - 0.0% 2022-2023 230,873,400 732,885,000 31.5% 37,200,000 53,041,000 - - 0.0% 2023-2024 330,873,400 814,123,000 40.6% 26,902,987 79,943,987 - - 0.0% 2024-2025 330,873,400 845,567,991 39.1% (54,476,020) 25,467,967 162,546,828 162,546,828 19.2% 2025-2026 330,873,400 805,700,000 41.1% 80,967,806 106,435,773 - 162,546,828 20.2% *Operating Expenses are fiscal year ahead for coverage purposes: 2025-26 contribution year aligns with 2026-2027 OpEx 2026-2027 OpEx is as of October 20, 2026, and reflects MPB filings RESERVE FUND ACCOUNT GASB 62 FUND ACCOUNT RATE STABILIZATION FUND ACCOUNT Allocation Options for FY 2025-2026 Surplus Revenues
Historically, Ava has an internal discussion to determine how to manage surplus revenues.
While there are a variety of allocation options available to the Board, historically the Board has focused on the following:
1. Change in the Value Proposition: Adjusting Bright Choice rates by percent discount to PG&E and Renewable 100 rates by 0.25¢ increments
2. Adjustments to renewable and carbon free energy procurement targets ahead of 2030 mandates
3. Distribution of on-bill credits to Ava customers
4. Allocation of additional funding to Local Development Fund
5. Allocation to Rate Stabilization Fund
6. Allocation to Reserve Fund
7. Retention for working capital needs
The table to the right provides estimates of financial impacts of some of the options
11 Change Product Impact in FY
0.5% Bright Choice $1,286,000
$0.0025 Renewable 100 $3,200,000
Value Proposition
Change Attribute Cost
1% RECs $850,000
1% Carbon Free $375,000
Renewable & Carbon Free Bright Choice Targets
Credit* Customers** Class Total Credit Amount
$25 172,400 CARE/FERA $4,310,000
$10 727,000 Residential $7,270,000
One-Time On-Bill Credits
**Approx count as of October 1, 2026
*$47 is average Ava generation charge for CARE/FERA customers from 7/1/2025 through 6/30/2026, inclusive of PCIA
Next Steps & Conclusion
Ava staff have deferred the net revenues as reconciled with net position to the GASB 62 account to allow the Board to freely consider how to allocate the surplus. • As such, the order of operations at the November 18th Board meeting should occur as follows ▪ Receive the Fiscal Year 2025-2026 Audited Financial Statements ▪ Review the Budget Actuals to Financial Statement reconciliation ▪ Board discussion and potential action on deferred surplus revenue allocation • This item will also be reviewed at the Nov 3 Executive Committee meeting Staff is seeking feedback from the committee on this information item to inform future recommendations to the full board
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