Audit and Finance Committee
May 29, 2024
10:30AM
Central Coast Community Energy
70 Garden Court, Suite 300
Monterey, CA 93940
REMOTE LOCATION VIA TELECONFERENCE
Any interested parties or community Committee Members may attend, and participate in, the meeting at the following addresses where Committee Members may also join the meeting from:
Capitola
City Hall
420 Capitola Ave
Capitola, CA 95010
County of San Luis Obispo
County Administration Building
1055 Monterey Street, Ste D430
San Luis Obispo, CA 93408
City of Goleta
City Hall
130 Cremona Drive, Ste B, Conference Room 1
Goleta, CA 93117
Public may participate through ZOOM. For ZOOM participation please join by computer audio at:
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Or join by phone:
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If you have anything that you wish to be distributed to the Committee Members, please provide 15 copies to a member of 3CE staff or the Board Clerk, who will distribute the information to the Committee Members and staff.
The public may comment on the consent agenda and matters not listed on the agenda but within the Committee Members 's jurisdiction at the opening of the meeting. The Committee Members may not take action at this meeting on any item not listed on the agenda other than to refer the matter to staff or set it for a future meeting. The public may comment on a specific item listed on this agenda when the Committee Members consider that item. Speakers are limited to 3 minutes each.
In addition, Committee Members of the public may request and receive copies without undue delay of any documents that are distributed to the Committee Members, unless there is a specific exemption under the Public Records Act that prevents the disclosure of the record. (Cal. Gov’t Code Section 54957.5)
In compliance with Government Code Section 54957.5, non-exempt writings that are distributed to a majority or all of the Committee Members in advance of a meeting and that relate to an agenda item will be made available at 3CE’s offices located at 70 Garden Court, Suite 300, Monterey, CA 93940 during normal business hours and are also available on the 3CE website located at: https://pub-3ce.escribemeetings.com/ DISCLOSURE OF CAMPAIGN CONTRIBUTIONS: Pursuant to Government Code section 84308, members of the Board are disqualified and not able to participate in any agenda item involving contracts (other than competitively bid, labor, or personal employment contracts), franchises, discretionary land use permits and other entitlements if the Board member received more than $250 in campaign contributions from the applicant or contractor, an agent of the applicant or contractor, or any financially interested participant who actively supports or opposes the decision on the agenda item since January 1, 2023.
Members of the Board who have received, and applicants, contractors or their agents who have made, campaign contributions totaling more than $250 to a Board member during the proceeding or for 12 months after a final decision is rendered in that proceeding, are required to disclose that fact for the official record of the subject proceeding. Disclosures must include the amount of the campaign contribution and identify the recipient Board member and may be made either in writing to the Clerk of the Board prior to the subject hearing or by verbal disclosure at the time of the hearing.
AGENDA
Welcome & Roll Call
Pledge of Allegiance
Corrections or Additions
The Clerk will announce agenda corrections or proposed additions of emergency, urgency, or continued items, which will be acted on by the Board as provided in Section 54954.2 of the California Government Code.
Public Comment on Items on the Consent Calendar and Items Not listed on the Agenda The public may address the Committee on the Consent Calendar and any matter within the jurisdiction of the Committee but not on the agenda.
CONSENT CALENDAR
1. Approve Minutes from the February 21, 2024 meeting of the Audit and Finance Committee
2. Financial report for the period October 1, 2023, through March 31, 2024
3. Receive and consider the FY 2023-24 Mid-Year Budget Forecast
REGULAR AGENDA
4. Investment Performance Report for the period of October 1, 2023 through March 31, 2024
5. Receive a Report on Efforts for Setting Rates Beginning Fiscal Year 2024-25 Adjournment
Audit and Finance Committee
February 21, 2024
9:00am
Central Coast Community Energy
70 Garden Court, Suite 300
Monterey, CA 93940
County of San Luis Obispo
County Administration Building
1055 Monterey Street,
Ste D4300
San Luis Obispo, CA 93408
City of San Luis Obispo
City Hall
990 Palm Street, Hearing Room
San Luis Obispo, CA 93401
City of Goleta
City Hall
130 Cremona Drive, Suite B
Conference Room 1
Goleta, CA 93117
MINUTES
The meeting was called to order at 9:00 A.M. with 3 members attending from 3 noticed locations and a quorum established.
Members Present: 3CE HQ: Freeman
City of Goleta: Richards
City of San Luis Obispo: Chair Johnson
Members Absent: Campbell (arrived at 9:10am County of SLO), Mendez
CONSENT CALENDAR
MOTION: Moved by Member Freeman, seconded by Member Richards to approve.
ACTION: The Motion Carried with a roll call vote: 3/0/2 AYES: Freeman, Richards, Chair Johnson
NOES: None
ABSENT: Campbell, Mendez
1. Approved Minutes from the August 29, 2023 Meeting of the Audit and Finance Committee
2. Adopted a Regular Meeting Schedule for the 3CE Audit and Finance Committee
REGULAR AGENDA
3. Supports seeking the Policy Board's approval to receive and accept the FY 2022-23 Audited Financial Statements
There were no public comments.
MOTION: Moved by Member Richards, seconded by Member Freeman to approve.
ACTION: The Motion Carried with a roll call vote: 4/0/1 AYES: Campbell, Freeman, Richards Chair Johnson
NOES: None
ABSENT: Mendez
4. Received a presentation on Investment Performance and Diversification There were no public comments.
ACTION: Discussion item; no action required
5. Receive a Report on status for Setting Rates Beginning FY 2024-25 Adjournment There were no public comments.
ACTION: Discussion item; no action required
Adjourned at 9:52A.M.
Staff Report Item 2
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Juan Lopez, Director of Finance
SUBJECT: Financial report for the period October 1, 2023, through March 31, 2024 DATE: May 29, 2024
RECOMMENDATION:
This memorandum provides a financial report for the period October 1, 2023, through March 31, 2024.
SUMMARY:
Over the course of six months ending March 31, 2024, operating revenues amounted to $249.0 million, and operating expenses totaled $207.3 million for a net operating income of $41.6 million. Non-operating revenue added $6.1 million to the total revenue, tallying a positive change in net position of $47.7 million.
Year-to-date operating revenue is $23.8 million lower than budget, primarily due to the seasonal fluctuations in revenues and expenditures and the lower-than-expected residential customer load.
However, operating revenue is expected to align with the budget as the fiscal year progresses into the summer months. Meanwhile, investment revenue exceeds the budget by $3.0 million, as staff actively manages in a favorable short-term interest rate environment. The Mid-Year Budget Forecast Report includes more information on the fiscal year outlook. The total revenue-to-budget variance is $20.8 million.
Year-to-date operating expenditures are higher than budget by $1.8 million. Energy costs were $9.7 million higher than budget. The variance is from resource adequacy (RA) capacity purchases and higher cost of energy. Non-energy operating costs were $7.9 million lower than budget due to less-than-planned costs for energy incentive programs, contracted services, and staff vacancies.
Net position at the end of March 31, 2024, totaled $289.6 million, a $47.7 million increase from the start of the fiscal year. The increase is attributed to growth in cash, prepaid expenses to suppliers, and the increased long-term asset purchase (San Luis Obispo satellite office).
Cash, cash equivalents, and short-term investments totaled $268.5 million, a $13.5 million increase from the start of the fiscal year. Liquidity is expected to increase for the rest of the fiscal year, with a short-term decrease in April due to prepayment of RA capacity purchases.
FISCAL IMPACT:
There is no financial impact associated with receiving this report.
ATTACHMENT(S):
1. March 31, 2024 Financial Report
Compiled Financial Statements 1
Compiled Budgetary Comparison Schedule 6
Budget Variance Commentary 8
Financial Dashboard 9
Investment Summary 10
Accounts Receivable Aging Summary 11
Table of Contents
Financial Report
Fiscal Year to Date
as of March 31, 2024
1 ACCOUNTANTS’ COMPILATION REPORT
Board of Directors
Central Coast Community Energy
Management is responsible for the accompanying financial statements of Central Coast Community Energy (a California Joint Powers Authority) which comprise the statement of net position as of March 31, 2024, and the related statement of revenues, expenses, and changes in net position, and the statement of cash flows for the period then ended in accordance with accounting principles generally accepted in the United States of America. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, conclusion, nor provide any assurance on these financial statements.
Management has elected to omit substantially all of the note disclosures required by accounting principles generally accepted in the United States of America in these interim financial statements.
Central Coast Community Energy’s annual audited financial statements include the note disclosures omitted from these interim statements. If the omitted disclosures were included in these financial statements, they might influence the user’s conclusions about the Authority’s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters.
We are not independent with respect to the Authority because we performed certain accounting services that impaired our independence.
Maher Accountancy
San Rafael, CA
April 22, 2024
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com
Current assets
Cash and cash equivalents - unrestricted $ 208,991,220
Accounts receivable, net of allowance 31,649,506
Accrued revenue 27,334,306
Other receivables 1,202,718
Loan receivable 188,951
Prepaid expenses 10,572,107
Deposits 18,172,227
Cash - restricted 294,000
Investments 59,486,056
Total current assets 357,891,091
Noncurrent assets
Deposits 23,182
Loan receivable 1,425,882
Lease asset, net of amortization 1,258,647
Land 898,658
Capital assets, net of depreciation and amortization 1,894,733 Total noncurrent assets 5,501,102
Total assets 363,392,193
Current liabilities
Accrued cost of electricity 37,407,546
Accounts payable 931,732
Other accrued liabilities 1,378,107
User taxes and energy surcharges due to other governments 1,863,408 Lease liability 312,662
Total current liabilities 41,893,455
Noncurrent liabilities
Security deposits - energy suppliers 30,931,720
Lease liability 1,007,514
Total noncurrent liabilities 31,939,234
Total liabilities 73,832,689
Net investment in capital assets 2,731,862
Restricted for security collateral 294,000
Unrestricted 286,533,642
Total net position $ 289,559,504
NET POSITION
As of March 31, 2024
STATEMENT OF NET POSITION
CENTRAL COAST COMMUNITY ENERGY
ASSETS
LIABILITIES
See accountants' compilation report. Page 7 of 24 2
OPERATING REVENUES
Electricity sales, net 248,888,138$
Other income 58,340
Total operating revenues 248,946,478
OPERATING EXPENSES
Cost of electricity 193,881,912
Contract services 5,411,914
Staff compensation 3,656,745
Other operating expenses 799,291
Program incentives 3,310,357
Depreciation and amortization 284,675
Total operating expenses 207,344,894
Operating income (loss) 41,601,584
NONOPERATING REVENUES (EXPENSES)
Interest and investment returns 6,124,197
Interest and financing costs (37,602)
Nonoperating revenues (expenses) 6,086,595
CHANGE IN NET POSITION 47,688,179
Net position at beginning of period 241,871,325
Net position at end of period $ 289,559,504
Six Months Ended March 31, 2024
AND CHANGES IN NET POSITION
STATEMENT OF REVENUES, EXPENSES
CENTRAL COAST COMMUNITY ENERGY
See accountants' compilation report. Page 8 of 24 3
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 252,075,475$
Other operating receipts 58,340
Receipts of deposits and collateral 9,040,228
Payments to suppliers for electricity (212,185,543)
Payments of deposits and collateral (20,043,921)
Payments for other goods and services (7,162,626)
Payments for program incentives (3,997,165)
Payments of staff compensation (3,592,678)
Payments of taxes and energy surcharges to other governments (4,434,085) Net cash provided by operating activities 9,758,025
CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES
Interest and related expense payments (5,944)
Net cash provided by non-capital financing activities (5,944)
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments of lease liability (178,855)
Payments to acquire capital assets (2,348,660)
Net cash provided (used) by capital and related financing activities (2,527,515)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment income received 5,389,793
Proceeds from investment sales 70,495,114
Principal payments received of loan receivable 93,165
Purchase of investments (69,951,287)
Net cash provided (used) by investing activities 6,026,785 Net change in cash and cash equivalents 13,251,351
Cash and cash equivalents at beginning of year 196,033,869 Cash and cash equivalents at end of period $ 209,285,220 Reconciliation to the Statement of Net Position
Cash and cash equivalents - unrestricted $ 208,991,220
Cash - restricted 294,000
Cash and cash equivalents $ 209,285,220
Six Months Ended March 31, 2024
STATEMENT OF CASH FLOWS
CENTRAL COAST COMMUNITY ENERGY
See accountants' compilation report. Page 9 of 24 4
Operating income (loss) $ 41,601,584
Adjustments to reconcile operating income (loss) to net cash provided by operating activities
Depreciation and amortization expense 284,675
(Increase) decrease in:
Accounts receivable, net of allowance 1,109,769
Accrued revenue (2,469,200)
Other receivables 3,020,933
Prepaid expenses (10,191,896)
Deposits (11,678,133)
Increase (decrease) in:
Accrued cost of electricity (11,514,930)
Accounts payable (1,825,204)
Other accrued liabilities 636,306
User taxes and energy surcharges due to other governments 109,681 Security deposits - energy suppliers 674,440
Net cash provided by operating activities 9,758,025$
CENTRAL COAST COMMUNITY ENERGY
STATEMENT OF CASH FLOWS (continued)
Six Months Ended March 31, 2024
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
See accountants' compilation report. Page 10 of 24 5
6 ACCOUNTANTS’ COMPILATION REPORT
Board of Directors
Central Coast Community Energy
Management is responsible for the accompanying special purpose statements of Central Coast Community Energy (a California Joint Powers Authority) which comprise the budgetary comparison schedule and a supplemental budgetary comparison schedule for the periods ended March 31, 2024, and for determining that the budgetary basis of accounting is an acceptable financial reporting framework. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. We did not audit or review the accompanying statement nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, a conclusion, nor provide any assurance on this special purpose budgetary comparison statement.
The special purpose statement is prepared in accordance with the budgetary basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. This report is intended for the information of the Board of Directors of the Authority.
Management has elected to omit substantially all of the note disclosures required by accounting principles generally accepted in the United States of America in these interim financial statements.
Central Coast Community Energy’s annual audited financial statements include the note disclosures omitted from these interim statements. If the omitted disclosures were included in these financial statements, they might influence the user’s conclusions about the Authority’s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters.
We are not independent with respect to the Authority because we performed certain accounting services that impaired our independence.
Maher Accountancy
San Rafael, CA
April 22, 2024
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com
Actual Budget $ Variance
%
Variance Actual Budget $ Variance
%
Variance
Annual
Budget
Annual Budget
Less Actual
YTD
REVENUES AND OTHER SOURCES
Electricity sales $ 41,145,300 $ 47,289,000 $ (6,143,700) -13% $ 252,244,141 $ 276,394,000 $ (24,149,859) 91% $ 563,933,447 $ 311,689,306 Uncollectible accounts (547,232) (625,000) 77,768 -12% (3,356,003) (3,750,000) 393,997 89% (7,500,000) (4,143,997) Electricity sales, net 40,598,068 46,664,000 (6,065,932) -13% 248,888,138 272,644,000 (23,755,862) 91% 556,433,447 307,545,309 Investment and miscellaneous income 1,033,908 533,000 500,908 94% 6,182,537 3,200,000 2,982,537 193% 6,400,000 217,463 Total revenues and other sources 41,631,976 47,197,000 (5,565,024) -12% 255,070,675 275,844,000 (20,773,325) 92% 562,833,447 307,762,772 EXPENDITURES AND OTHER USESCurrent Expenditures
Cost of energy 33,641,355 37,997,000 4,355,645 11% 194,125,425 184,485,000 9,640,425 105% 520,297,514 326,172,089 Salaries and benefits 609,168 795,000 185,832 23% 3,656,745 4,769,000 (1,112,255) 77% 9,537,076 5,880,331 Services and supplies 1,458,510 2,750,000 1,291,490 47% 9,747,525 16,499,000 (6,751,475) 59% 32,998,857 23,251,332 Total current expenditures 35,709,033 41,542,000 5,832,967 14% 207,529,695 205,753,000 1,776,695 101% 562,833,447 355,303,752 Surplus (deficit) $ 5,922,943 $ 5,655,000 $ 267,943 5% 47,540,980 $ $ 70,091,000 $ (22,550,020) -32% $ (47,540,980) - $ Annual
CENTRAL COAST COMMUNITY ENERGY
BUDGETARY COMPARISON SCHEDULE
Current Month and Six Months Ended March 31, 2024
Current Month
Variance fav. (unfav.)
Year-To-Date
Variance fav. (unfav.)
See accountants' compilation report. Page 12 of 24 7
Budget Item YTD Variance Comment
Electric Sales Revenue (8.7%) Sales revenue includes revenues actually billed to customers as well as estimated customer usage during the reporting period that is not yet billed.
Cost of Energy 5.2% Variances in this category are typically due to (1) timing difference between projected and actual REC deliveries, (2) variance from actual to anticipated market prices, and (3) variance from actual to expected volume used by customers. Cost of energy includes scheduling coordinator fees for budget purposes only.
Staffing (23.3%) Staffing expenses are under budget due to the timing of new hires.
Professional Services (62.0%) This category includes accounting, IT, technical and other consultants.
Legal Costs (26.9%) This category includes outside legal costs for regulatory and energy procurement needs.
Marketing and customer enrollment (47.8%) Variance is mostly due to the lower than anticipated costs of recent customer enrollments.
Data Management Services (0.3%) These fees non-discretionary and are charged on a per customer basis.
Utility Service Fees 2.0% These are PG&E and SCE fees charged on a per customer basis.
Other General & Administrative (47.5%) This category includes occupancy costs, industry membership dues, and other general and administrative costs.
Energy and Related Programs (52.2%) Programs expenses have generally been delayed until future periods Budget Commentary for significant items
CENTRAL COAST COMMUNITY ENERGY
October 1, 2023 through March 31, 2024
8
$7.0
$8.7
Act
Bud
$54.8
$88.2
$36.1
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Actual
Budget
$248.9
$272.6
$556.4
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Actual
Budget
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Actual (T48/T8) 416 393 409 406 361 366
Budget 452 459 444 420 402 416 419 383 386 405 423 427
0 50
100
150
200
250
300
350
400
450
500
CUSTOMERS
SALES VOLUME
366 GWh
STD MARGIN
$8.7M (19%)
Δ in NET ASSETS
$6.0M
REVENUE
$41.6M
Cumulative YTD Electricity Sales
Cumulative YTD Direct Margin
(Electricity Sales less Cost of Energy)
Data Definitions:
CUSTOMERS: Count of active customers from Calpine.
REPORTED / SALES VOLUME: Best available estimate of actual meter volume. Currently based on T+8 SQMD Report and T+48 when available.
REVENUE: Total Operating Revenue, net of uncollectible, (excludes Interest income).
ELECTRICITY SALES: Sales from electricity (net of uncollectible).
STD MARGIN: Electricity Sales less cost of energy (Forecasting & scheduling included in Cost of Energy to match budget) ACTUAL: Same as sales volume above
BUDGET: Volumes from FY23/24 budget
Monthly Sales Volume (GWh)
Financial Dashboard: March 2024
Margin %
CUSTOMERS
456,000
ACTIVE
March revenue of $41.6M accounts for 466
GWh in net retail consumption, 50 GWh
below budget.
YTD Electricity revenue is $249M compared
to budget of $273M. YTD Direct Margin
(defined as Electricity Sales less Cost of
Energy) of $54.8M is below budget by
$33.4M.
The chart to the right shows volume
comparison to budgeted volume.
The charts below display cumulative
revenue and margin $ vs budget.
42%
49%
9%
40%
47%
13%
Res
Com
Ag
YTD Month
46%
46%
8%
44%
45%
11%
Res
Com
Ag
YTD Month
Revenue $41.6
C.O.E. $33.6
OpEx $2.0
Net Income $6.0
17.2%
18.6%
Act
Bud
Margin $
10 Page 14 of 24
Return of Investments YTD Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep CASH AND CASH EQUIVALENTSRiver City Bank - Money Market and other Interest Earning AccountsFunds Invested - Average Balance 127,068,814$ 109,380,169$ $ 100,067,132 $ 99,091,003 $ 93,511,093 $ 94,499,949 Gains/Losses/Interest $ 2,011,727 $ 382,898 328,802.57 339,891.42 331,259.57 297,736.65 331,138.61 Average APY 3.62% 3.61% 4.08% 4.01% 3.82% 4.20%INVESTMENTSRiver City Bank - Treasury-indexed productsFunds Invested - Average Balance $ 40,000,000 $ 50,000,000 $ 40,000,000 $ 40,000,000 $ 30,000,000 $ 30,000,000 Gains/Losses/Interest $ 1,143,481 178,385.54 213,485.85 236,035.13 205,868.28 193,103.80 116,602.81 Average APY 5.35% 5.12% 7.08% 6.18% 7.72% 4.66%RBC GAM / Principal Financal/ Schwab/ Chase/FidelityFunds Invested - Average Balance $ 89,306,054 $ 94,745,123 $ 110,223,316 $ 115,699,944 $ 136,141,272 $ 136,685,421 Gains/Losses/Interest $ 2,756,607 375,490.63 434,211.19 478,991.16 480,276.43 442,147.15 545,490.84 Average APY 5.05% 5.50% 5.21% 4.98% 3.90% 4.79%
CENTRAL COAST COMMUNITY ENERGY
Investment Summary
October 1, 2023 through March 31, 2024
10
Current 0 - 30 Days 31 - 60 Days 61 - 90 Days > 91 Days A/R Balance $ 18,211,266 $ 10,873,783 $ 2,631,399 $ 680,034 $ (746,976) $ 31,649,506
CENTRAL COAST COMMUNITY ENERGY
Summary of Accounts Receivable, Net of Bad Debt Allowance As of March 31, 2024
11 Page 16 of 24
Staff Report Item 3
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Juan Lopez, Director of Finance
SUBJECT: Receive and consider the FY 2023-24 Mid-Year Budget Forecast DATE: May 29, 2024
RECOMMENDATION:
This recommends that the Audit and Finance Committee receive and consider the FY 2023-24 Mid-Year Budget Forecast.
BACKGROUND:
At its September 14, 2023, regular meeting, the Policy Board approved the 3CE FY 2023-24 Budget. The budget of $562.8 million, matched by $562.8 million in revenue, was a 27.0% increase from the prior year, predominantly due to the higher cost of energy (“COE”). Project delays, whole market volatility, and resource adequacy (“RA”) were the main drivers for the increased COE. The budget did not contain additions to reserves to maintain rates as low as possible for customers. The Budget did include two Pacific Gas & Electric (“PG&E”) service area cost-based rate adjustments that took effect on October 1, 2023, and January 1, 2024, to sustain the growing operating costs.
DISCUSSION/ANALYSIS:
The Mid-Year Budget Forecast estimates expenditures of $574.1 million, an increase of $11.3 million, or
2.0% over budget. Operating expenditures can be classified into two categories: energy and non-energy costs. Non-energy operating expenditures are projected at $35.6 million, compared to a budget of $42.5 million, a 16.2% variation. The lower costs are attributed to staffing vacancies, lower-than-expected professional services, and energy program incentive payments.
The COE expenditure is projected to be $548.4 million, compared to a budget of $530.8 million, an increase of 3.3%. The variance is largely attributed to an estimated $17.4 million increase in RA costs. As was reported at the September 14, 2023, Policy Board meeting, RA is a significant cost driver to COE
costs, making up 30.6% of the projected COE. Regulatory changes exacerbated RA supply by limiting the RA value assigned to renewables, adding a delivery component on imported RA, and increasing supply obligations. 3CE continues to deploy strategies toward RA compliance, including leveraging our Power Purchase agreements to maximize RA value and layering short and long-term contracts to hedge against price volatility.
The revenue forecast of $561.4 million is a $1.4 million, or 0.3%, negative variance compared to the budget of $562.8 million. Revenue from the sale of electricity is projected at $551.4 million, coming $5.0 million under budget, or 0.9%. Lower-than-anticipated customer load and lower Southern California Edison (“SCE”) rates in January 2024 are the reasons for the lower revenues. The total load for the year is forecasted to be 70,600 MWh lower than budget, a 1.4% variance. Other income, primarily comprised of investment revenue, is estimated at $10.0 million, or $3.6 million higher than budget. 3CE is working towards meeting its reserve targets set in the Financial Policies adopted by the Policy Board. These include the strategic reserve, the energy rate stabilization reserve, and the renewable energy innovation and initiatives reserve. Per the current budget, the reserve level targets are $270.8 million. By looking at these targets through unreserved cash and short-term investment balances and excluding funds for monthly operating costs and collateral holds from suppliers, 3CE only has about $187.7 million in available reserves or about 69.3% of reserve targets. Based on the forecast, the reserve targets will remain close to the 69.3% level at year-end. The Finance Department will continuously monitor reserve targets for the coming years. As operating costs increase, 3CE will recommend reserve additions into its cost-of-service analysis and rate recommendations.
FISCAL IMPACT:
The Mid-Year Forecast estimates total revenue of $561.5 million, a 0.3% negative variance from budget, and $574.1 million in total expenditures, a 2% higher-than-budget variance, resulting in a net position decrease of $12.7 million. Because the Forecast is a mid-year estimation, unforeseen variables could decrease or increase the net operating results in the coming months. These variables could include energy market volatility, especially in the summer months, lower or higher-than-estimated RA expenditures, and unforeseen regulatory compliance impacts.
CONCLUSION:
The Mid-Year Budget Forecast indicates minor variances in expenditures and revenues, but overall, FY 2023-24 is projected to be a strong year for 3CE while facing policy and market volatility. 3CE is concluding a cost-of-service analysis and completing the rate design for upcoming years, ensuring that 3CE will continue to have fiscal stability beyond the current fiscal year, including the growth of robust reserves. The Operations Board received a presentation on the Mid-Year Budget Forecast at its regular meeting on May 8, 2024. The Policy Board will receive the Mid-Year Budget Forecast at the June 26, 2024, regular meeting.
Staff Report Item 4
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Juan Lopez, Director of Finance
SUBJECT: Investment Performance Report for the period of October 1, 2023 through March 31, 2024
DATE: March 29, 2023
RECOMMENDATION:
Receive a presentation on 3CE’s investment performance for the period of October 1, 2023 through March 31, 2024.
BACKGROUND:
In response to the bank failures and bankruptcies that affected mid-size financial institutions in early 2023, staff took guidance from the Audit and Finance Committee (“Committee”) to add operating and investment diversification to mitigate the risk of holding assets in a few concentrated financial institutions. On February 21, 2024, the Committee received a presentation on 3CE’s investment performance and diversification efforts, including opening new operating and brokerage accounts.
Moving forward, the Committee will receive quarterly updates on 3CE’s investment performance and liquidity balances.
DISCUSSION/ANALYSIS:
The Finance Department continues its efforts to right-size 3CE’s portfolio. The strategy consists of holding three different “classes” of funds: cash to meet ongoing operating costs, liquidity reserves to meet collateral calls and unforeseen costs, and short-term investments to meet reserves. As of March 31, 2024, six months into FY 2023-24, 3CE held $268.5 million in operating and investment accounts. The table below lists the cash and investment balances by account type.
Account
Type Institution Balance Investment Mix
Operating
River City Bank $ 131,840,561
Cash (sweep) - $92.6M
CDs - $30.0M
Money Market - $4.3M
cash (operating) - $5.0M
Chase 51,488,755 cash (operating)
Investment
Royal Bank of Canada 34,571,489 Treasuries - $34.6M
Schwab 50,573,490 Treasuries - $50.5M
cash (sweep) - $0.1M
Fidelity 50 Money Market
Total $ 268,474,345
The investment strategy is passive, where fixed-income holdings such as Treasury notes and bills are held to maturity, and 3CE receives the coupon income and discount. As of March 31, 2024, the Royal Bank of Canada (RBC) managed $34.6 million of 3CE’s investments, while 3CE served as investment manager of the $50.6 million held in the Schwab and Fidelity brokerage accounts. As of the writing of this report, 3CE ended external treasury management services with RBC and is self-managing all investments.
3CE’s investment mix aligns with the Investment Policy and California Government Code. As of March 31, 2024, 3CE held $149.1 million in cash and cash equivalents, $85.0 million in U.S. Treasuries, $30.0 million in certificates of deposit, and $4.3 million in money market funds. Aside from money market funds, all other investment types do not have state investment limits. State code limits money market funds to 20% of the portfolio and 3CE’s money market funds were at about 2%. All holdings managed by RBC and 3CE were high-grade rated investments or higher.
Cash and Investment Holdings
Type Market Value % of Portfolio Permitted by CA Government Code Cash $ 149,143,401 56% 100%
Money Market Funds 4,293,484 2% 20%
CDs 30,000,000 11% 100%
U.S. Treasuries 85,037,460 32% 100%
Total $ 268,474,345 100%
The FY 2023-24 Adopted Budget, with appropriations of $562.8 million, included estimated investment revenues of $6.4 million. The first two quarters of FY 2023-24 netted investment earnings of $5.9 million, $2.0 million from interest on cash and money market accounts, and $3.9 million from short-Page 20 of 24 term investments such as Treasury notes and bills. 3CE anticipates seeing similar investment earnings in the remaining quarters as long as the federal funds target rate remains consistent over the coming months. The FY 2023-24 Mid-Year Budget Forecast estimates investment income of $10.0 million, $3.6 million or 55% higher than budget.
FISCAL IMPACT:
There is no fiscal impact to receiving this report.
CONCLUSION:
3CE proactively diversified its financial institutional partners while putting cash and short-term investments to work to take advantage of a continued high-interest environment while retaining cash for ongoing operating costs and collateral calls.
Staff Report Item 5
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Mary Federico, Billing Operations and Rates Analyst SUBJECT: Receive a Report on Efforts for Setting Rates Beginning Fiscal Year 2024-25 DATE: May 29, 2024
RECOMMENDATION:
Receive a report on efforts to set 3CE rates beginning Fiscal Year 2024-25.
BACKGROUND:
In August 2023, 3CE issued a Request for Proposal (RFP) to contract a rate design consultant to complete a territory-wide Cost of Service (COS) study for the 3CE rate design process for calendar years (CYs) 2025 through 2027. In November 2023, the contract was executed with NewGen Strategies and Solutions, LLC. Since then, the Finance Department has provided ongoing updates on these rate-setting efforts.
The Operations Board received updates on November 8, 2023, April 24, 2024, and May 8, 2024. The Policy Board and Audit and Finance Committee received updates on February 21, 2024.
DISCUSSION/ANALYSIS:
There are five milestones in the rate-setting process. These steps include developing a revenue requirement, functionalizing costs into the function types defined by what the expense is used for, classifying costs as either fixed or variable, allocating costs, and rate design. 3CE completed a draft COS study incorporating the first four of the five steps and has begun the last step, rate design. The study results provide vital information to the analyses that flow through to the rate design and inform the recommendations to be brought to the Policy Board at the June 2024 meeting.
Revenue Requirement
The revenue requirement is established by first forecasting all expenses and costs incurred in the service of 3CE customers. A forecasted test year is established from the 2024 Fiscal Year (FY) Approved Budget and the 3CE forecasted load. The test year incorporates known and measurable adjustments to the base
year to approximate the financial and operational conditions expected in CYs 2025 through 2027. This includes the consideration of the Board approved 3CE reserve policies. Any contribution to the reserve needed to meet the target reserve levels is added to the projected expenses to complete the revenue requirements. 3CE evaluated the revenue requirements for CYs 2025 through 2027 and determined that utilizing CY 2025 as the single test year will lead to greater rate stability than a test year that averages all three CYs. The initial single test year totals approximately $748.5 million.
Functionalized and Classified Costs
The test year is then functionalized and classified. As a CCA, 3CE does not have transmission or distribution costs, so costs are functionalized into production, associated with the cost of energy (COE), or customer costs, associated with all other non-COE costs. The estimated draft revenue requirement is broken down into power supply costs, non-power supply costs, and contribution to reserve in the table below.
Single Year Test Year – CY 2025
Production Costs $676,668,593
Customer Support Costs $31,845,719
Contribution to Reserve $40,000,000
Total Revenue Requirement $748,514,312
Next, the functionalized costs are classified as fixed or variable. Fixed costs do not vary from customer to customer and are made up of customer support costs and the portion of COE related to demand. For CCAs, the demand portion of COE comprises of Resource Adequacy (RA) costs. Variable costs are associated with COE costs related to hourly energy purchases and will vary from customer to customer, depending on their usage patterns. After functionalizing and classifying the draft test year, it was found that 37% of 3CE’s costs are related to fixed costs, and 63% are related to variable costs.
Allocating Costs
The functionalized and classified costs are then allocated to various customer classes based on their share of the fixed costs and their annual load profiles. Nine distinct customer classes have been identified, grouped by their load profiles. These include residential, small commercial, medium commercial, large commercial, small and medium agricultural, large agricultural, business electric vehicles, standby, and lighting.
3CE has evaluated the COS model as a single territory and with SCE and PG&E customers allocated separately. Staff will be recommending that the rates be designed as a single territory. This approach ensures that customer classes across the entirety of the 3CE territory are charged at the same rate regardless of which territory they reside. The table below shows the nine classes’ initial allocated revenue requirements under a single territory design. 3CE will continue to evaluate the competitiveness, equity, and stability of the nine classes and single territory rate design.
Next Steps
The last remaining step in the 3CE rate-setting process is rate design. The allocated costs will be reflected in a set of proposed rates for each rate code that 3CE serves and presented to the Policy Board for approval. In addition, 3CE expects to bring the recommendations related to the single test year, nine customer classes, and single territory rate design discussed above to the June 2024 Policy Board meeting.
FISCAL IMPACT:
Receiving this report has no fiscal impact, as no action is requested. The final cost-of service analysis and rate design will inform the FY 2024-25 budget.
CONCLUSION:
The 3CE rate design process uses the COS methodology to inform the building of rate values that will recover the necessary revenue requirements from each customer class. Designing rates with this methodology will maintain 3CE’s stable financial position while providing competitive and fairly allocated rates to its customers.
$-
$50
$100
$150
$200
$250
$300
$350
Residential Small
Commercial
Medium
Commercial
Large
Commercial
Agricultural
Sml/Med
Agricultural
Large
Business
Electric
Vehicles
Standby Lighting
Millions ($)
Initial Revenue Requirement by Class