Audit and Finance Committee
Special Meeting
August 28, 2024
3:00pm
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:
City of Capitola
City Hall
420 Capitola Ave
Capitola, CA 95010
City of Salinas
City Hall
200 Lincoln Ave.
Salinas, CA 93901
County of San Luis Obispo
County Administration Building
1055 Monterey Street, Suite D430
San Luis Obispo, CA 93408
City of Goleta
City Hall
130 Cremona Drive, Suite B
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:
+1 669 900 6833 or +1 669 219 2599
Enter this Webinar ID Number: 835 0708 7702 when prompted. Please note there is no Participant Code, you will press # again after the recording prompts you.
You will be placed in the meeting as an attendee. To make a public comment:
If joined by computer, please press the button to raise your hand If joined by phone, please push *9 on your keypad
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/
Welcome & Roll Call
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 May 29, 2024, meeting of the Audit and Finance Committee
2. Receive a financial report for the period October 1, 2023, through June 30, 2024
REGULAR AGENDA
3. Investment Performance Report for the period of October 1, 2023 through June 30, 2024
4. Support seeking the Policy Board’s approval to adopt the Fiscal Year 2024-25 Recommended Budget Adjournment
Audit and Finance Committee
May 29, 2024
10:30 AM
Central Coast Community Energy
70 Garden Court, Suite 300
Monterey, CA 93940
City of 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, Suite B
Conference Room 1
Goleta, CA 93117
MINUTES
The meeting was called to order at 10:32 AM with 4 members attending from 4 noticed locations and a quorum established.
Members Present: 3CE HQ: Freeman
City of Goleta: Richards
County of San Luis Obispo: Campbell
City of Capitola: Chair Goldstein
Members Absent: Mendez (arrived at 10:37 AM at HQ)
CONSENT CALENDAR
MOTION: Moved by Member Freeman, seconded by Member Richards to approve.
ACTION: The Motion Carried with a roll call vote: 4/0/1 AYES: Freeman, Richards, Campbell, Chair Goldstein
NOES: None
ABSENT: Mendez
1. Approved 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. Received 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 There were no public comments.
ACTION: Discussion item; no action required
5. Received a Report on Efforts for Setting Rates Beginning Fiscal Year 2024-25 There were no public comments.
ACTION: Discussion item; no action required
Adjourned at 11:32 A.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: Receive a financial report for the period October 1, 2023, through June 30, 2024 DATE: August 28, 2024
RECOMMENDATION:
Receive a financial report for the period October 1, 2023, through June 30, 2024.
SUMMARY:
Over the nine months ending June 30, 2024, operating revenues amounted to $380.5 million, and operating expenses totaled $346.8 million for a net operating income of $33.7 million. Non-operating revenue of $8.8 million, driven by interest and investment returns, netted the month with a net position of $42.5 million.
Year-to-date operating revenue is $27.3 million lower than budget, primarily due to the seasonal fluctuations in revenues and expenditures and the lower-than-budgeted customer load to date.
However, operating revenue is expected to align with the budget throughout the fourth quarter as the summer months conclude. Meanwhile, investment revenue exceeded the budget with a favorable variance of $4.1 million, as staff actively manages in a favorable short-term interest rate environment.
Year-to-date operating expenditures are lower than the budget by $10.3 million. The cost of energy was $1.1 million higher than the budget. The variance is from higher-than-expected resource adequacy (RA) capacity purchases. Non-energy operating costs were $11.2 million lower than budget due to less-than-planned costs for contracted services, energy programs, and staff vacancies. The fourth quarter will see an increase in RA costs which will reduce the growth in net position.
Net position at the end of June 30, 2024, totaled $284.3 million, a $42.5 million increase from the start of the fiscal year. The increase is attributed to growth in prepaid expenses to suppliers, accrued
revenue, collateral posted with the CAISO and suppliers, and the increased long-term asset purchase (San Luis Obispo satellite office). Cash, cash equivalents, and short-term investments totaled $231.6 million, a $23.4 million decrease from the start of the fiscal year. This decrease is primarily due to the prepayment of RA purchases that occurred in April. Liquidity is expected to increase through the end of the fiscal year.
FISCAL IMPACT:
There is no financial impact associated with receiving this report.
ATTACHMENT(S):
1. June 30, 2024 Financial Report
FINANCIAL REPORT
Fiscal Year to Date
As of June 30, 2024
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 June 30, 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
July 29, 2024
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com
Current assets
Cash and cash equivalents - unrestricted $ 184,037,588
Accounts receivable, net of allowance 32,948,921
Accrued revenue 31,434,143
Other receivables 696,117
Loan receivable 190,718
Prepaid expenses 59,988,957
Deposits 17,706,532
Cash - restricted 294,000
Investments 47,525,436
Total current assets 374,822,412
Noncurrent assets
Deposits 23,182
Loan receivable 1,330,079
Lease asset, net of amortization 1,174,737
Land 898,658
Capital assets, net of depreciation and amortization 1,878,480 Total noncurrent assets 5,305,136
Total assets 380,127,548
Current liabilities
Accrued cost of electricity 53,973,828
Accounts payable 1,193,915
Other accrued liabilities 1,424,996
Due to broker 11,186,910
User taxes and energy surcharges due to other governments 1,828,145 Lease liability 318,925
Total current liabilities 69,926,719
Noncurrent liabilities
Security deposits - energy suppliers 24,931,424
Lease liability 925,069
Total noncurrent liabilities 25,856,493
Total liabilities 95,783,212
Net investment in capital assets 2,707,881
Restricted for security collateral 294,000
Unrestricted 281,342,455
Total net position $ 284,344,336
NET POSITION
As of June 30, 2024
STATEMENT OF NET POSITION
CENTRAL COAST COMMUNITY ENERGY
ASSETS
LIABILITIES
See accountants' compilation report. Page 7 of 28
OPERATING REVENUES
Electricity sales, net 380,373,393$
Other income 81,179
Total operating revenues 380,454,572
OPERATING EXPENSES
Cost of electricity 325,704,952
Contract services 8,928,914
Staff compensation 5,663,529
Other operating expenses 1,240,766
Program incentives 4,805,224
Depreciation and amortization 435,707
Total operating expenses 346,779,092
Operating income (loss) 33,675,480
NONOPERATING REVENUES (EXPENSES)
Interest and investment returns 8,849,701
Interest and financing costs (52,170)
Nonoperating revenues (expenses) 8,797,531
CHANGE IN NET POSITION 42,473,011
Net position at beginning of period 241,871,325
Net position at end of period $ 284,344,336
Nine Months Ended June 30, 2024
AND CHANGES IN NET POSITION
STATEMENT OF REVENUES, EXPENSES
CENTRAL COAST COMMUNITY ENERGY
See accountants' compilation report. Page 8 of 28
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 380,438,928$
Other operating receipts 82,460
Receipts of deposits and collateral 18,668,903
Payments to suppliers for electricity (376,563,013)
Payments of deposits and collateral (35,207,197)
Payments for other goods and services (11,023,743)
Payments for program incentives (5,492,032)
Payments of staff compensation (5,377,640)
Payments of taxes and energy surcharges to other governments (6,746,798) Net cash provided by operating activities (41,220,132)
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 (269,604)
Payments to acquire capital assets (2,362,549)
Net cash provided (used) by capital and related financing activities (2,632,153)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment income received 8,494,487
Proceeds from investment sales 113,932,461
Principal payments received of loan receivable 187,201
Purchase of investments (90,458,201)
Net cash provided (used) by investing activities 32,155,948 Net change in cash and cash equivalents (11,702,281)
Cash and cash equivalents at beginning of year 196,033,869 Cash and cash equivalents at end of period $ 184,331,588 Reconciliation to the Statement of Net Position
Cash and cash equivalents - unrestricted $ 184,037,588
Cash - restricted 294,000
Cash and cash equivalents $ 184,331,588
Nine Months Ended June 30, 2024
STATEMENT OF CASH FLOWS
CENTRAL COAST COMMUNITY ENERGY
See accountants' compilation report. Page 9 of 28
Operating income (loss) $ 33,675,480
Adjustments to reconcile operating income (loss) to net cash provided by operating activities
Depreciation and amortization expense 435,707
(Increase) decrease in:
Accounts receivable, net of allowance (189,646)
Accrued revenue (6,569,038)
Other receivables 3,365,441
Prepaid expenses (59,608,746)
Deposits (11,212,438)
Increase (decrease) in:
Accrued cost of electricity 5,051,352
Accounts payable (1,600,001)
Other accrued liabilities 683,195
User taxes and energy surcharges due to other governments 74,418 Security deposits - energy suppliers (5,325,856)
Net cash provided by operating activities (41,220,132)$
CENTRAL COAST COMMUNITY ENERGY
STATEMENT OF CASH FLOWS (continued)
Nine Months Ended June 30, 2024
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
See accountants' compilation report. Page 10 of 28
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 for the periods ended June 30, 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
July 29, 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 $ 49,045,350 $ 46,403,000 $ 2,642,350 6% $ 385,500,728 $ 413,280,000 $ (27,779,272) 93% $ 563,933,447 $ 178,432,719 Uncollectible accounts (652,479) (625,000) (27,479) 4% (5,127,335) (5,625,000) 497,665 91% (7,500,000) (2,372,665) Electricity sales, net 48,392,871 45,778,000 2,614,871 6% 380,373,393 407,655,000 (27,281,607) 93% 556,433,447 176,060,054 Investment and miscellaneous income 850,807 533,000 317,807 60% 8,930,880 4,800,000 4,130,880 186% 6,400,000 (2,530,880) Total revenues and other sources 49,243,678 46,311,000 2,932,678 6% 389,304,273 412,455,000 (23,150,727) 94% 562,833,447 173,529,174 EXPENDITURES AND OTHER USESCurrent Expenditures
Cost of energy 47,876,973 51,000,000 3,123,027 6% 326,388,693 325,416,000 972,693 100% 520,297,514 193,908,821 Salaries and benefits 716,896 795,000 78,104 10% 5,663,529 7,153,000 (1,489,471) 79% 9,537,076 3,873,547 Services and supplies 1,555,954 2,750,000 1,194,046 43% 15,002,421 24,750,000 (9,747,579) 61% 32,998,857 17,996,436 Total current expenditures 50,149,823 54,545,000 4,395,177 8% 347,054,643 357,319,000 (10,264,357) 97% 562,833,447 215,778,804 Surplus (deficit) $ (906,145) $ (8,234,000) $ 7,327,855 -89% 42,249,630 $ $ 55,136,000 $ (12,886,370) -23% $ (42,249,630) - $ Annual
CENTRAL COAST COMMUNITY ENERGY
BUDGETARY COMPARISON SCHEDULE
Current Month and Nine Months Ended June 30, 2024
Current Month
Variance fav. (unfav.)
Year-To-Date
Variance fav. (unfav.)
See accountants' compilation report. Page 12 of 28
Budget Item YTD Variance Comment
Electric Sales Revenue (6.7%) 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 0.3% 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 (20.8%) Staffing expenses are under budget due to the timing of new hires.
Professional Services (60.9%) This category includes accounting, IT, technical and other consultants.
Legal Costs (18.7%) This category includes outside legal costs for regulatory and energy procurement needs.
Marketing and customer enrollment (18.8%) Variance is mostly due to the lower than anticipated costs of recent customer enrollments.
Data Management Services 2.2% These fees non-discretionary and are charged on a per customer basis.
Utility Service Fees (3.6%) These are PG&E and SCE fees charged on a per customer basis.
Other General & Administrative (46.2%) This category includes occupancy costs, industry membership dues, and other general and administrative costs.
Energy and Related Programs (52.4%) Programs expenses have generally been delayed until future periods Budget Commentary for significant items
CENTRAL COAST COMMUNITY ENERGY
October 1, 2023 through June 30, 2024
1.1%
-11.4%
Act
Bud
$54.0
$82.2
$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
$380.4
$407.7
$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) 416 393 409 406 358 368 360 340 351
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
351 GWh
STD MARGIN
$0.5M (1%)
Δ in NET ASSETS
-$0.9M
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: June 2024
CUSTOMERS
457,000
ACTIVE
June revenue of $49.2M accounts for 351
GWh in net retail consumption, 35 GWh
below budget.
YTD Electricity revenue is $380M compared
to budget of $408M. YTD Direct Margin
(defined as Electricity Sales less Cost of
Energy) of $54M is below budget by $28M.
The chart to the right shows volume
comparison to budgeted volume.
The charts below display cumulative
revenue and margin $ vs budget.
30%
48%
23%
38%
47%
14%
Res
Com
Ag
YTD Month
Revenue $49.2
C.O.E. $47.9
OpEx $2.2
Net Income -$0.9
$0.5
-$5.2
Act
Bud
Margin $
10 34%
45%
22%
42%
45%
13%
Res
Com
Ag
YTD Month
REVENUE
$49.2M
Margin %
Return of Investments YTD Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep CASH AND CASH EQUIVALENTSRiver City Bank/ Chase - Money Market and other Interest Earning AccountsFunds Invested - Average Balance 132,319,400$ 114,651,102$ $ 105,356,390 $ 104,396,252 $ 103,895,294 $ 136,670,988 $ 89,128,674 $ 103,094,923 $ 99,733,192 Gains/Losses/Interest $ 3,247,111 $ 406,536 345,045.39 356,733.82 348,153.12 328,669.77 467,310.22 292,100.83 359,957.02 342,604.48 Average APY 3.69% 3.61% 4.06% 4.00% 3.80% 4.10% 3.93% 4.19% 4.12%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 $ 20,000,000 $ 6,700,000 $ - Gains/Losses/Interest $ 1,277,633 178,385.54 213,485.85 236,035.13 205,868.28 193,103.80 116,602.81 103,270.38 30,881.04 - Average APY 5.35% 5.12% 7.08% 6.18% 7.72% 4.66% 6.20% 5.53%RBC GAM / Principal Financal/ Schwab/FidelityFunds Invested - Average Balance $ 84,038,064 $ 89,456,032 $ 104,918,181 $ 110,378,734 $ 109,851,410 $ 85,196,666 $ 102,094,893 $ 116,668,316 $ 123,250,987 Gains/Losses/Interest $ 3,884,143 351,852.83 417,968.37 462,148.76 463,382.88 411,214.03 409,319.23 398,176.83 488,291.25 481,788.55 Average APY 5.02% 5.61% 5.29% 5.04% 4.49% 5.77% 4.68% 5.02% 4.69%
CENTRAL COAST COMMUNITY ENERGY
Investment Summary
October 1, 2023 through June 30, 2024
Current 0 - 30 Days 31 - 60 Days 61 - 90 Days > 91 Days A/R Balance $ 20,528,706 $ 9,754,550 $ 1,721,164 $ 236,656 $ 707,846 $ 32,948,922
CENTRAL COAST COMMUNITY ENERGY
Summary of Accounts Receivable, Net of Bad Debt Allowance As of June 30, 2024
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: Investment Performance Report for the period of October 1, 2023 through June 30, 2024
DATE: August 28, 2024
RECOMMENDATION:
Receive a presentation on 3CE’s investment performance for the period of October 1, 2023 through June 30, 2024.
BACKGROUND:
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. Since then, staff has reported to the Committee on these efforts. The Committee will continue to 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, including the strategic reserve and energy rate stabilization funds. As of June 30, 2024, nine months into FY 2023-24, 3CE held $231.6 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 $72,023,856
Cash (sweep) - $58.2M
Money Market - $8.8M
cash (operating) - $5.0M
Chase 25,101,271 cash (held for collaterals)
Investment
Schwab 66,805,820
Treasuries - $55.7M
cash (sweep) - $10.6M
Money Market - $0.5M
Fidelity 67,632,077 Treasuries - $66.0M
Money Market - $1.6M
Total $231,563,024
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 June 30, 2024, 3CE served as investment manager of the $134.4 million held in the Schwab and Fidelity brokerage accounts. The average annual percentage yield for Treasuries ranged from 4.69% to 5.02% over the third quarter. All Treasuries have a maturity date of less than one calendar year. All investment holdings managed are high-grade rated investments or higher.
3CE’s investment mix aligns with the Investment Policy and California Government Code. As of June 30, 2024, 3CE held $98.9 million in cash and cash equivalents, $121.7 million in U.S. Treasuries, and $11.0 million in money market funds. Aside from money market funds, all other investment types do not have state investment limits. The State code limits money market funds to 20% of the portfolio. 3CE is well within the State limit at 5%.
Cash and Investment Holdings
Type Market Value
% of
Portfolio
Permitted by
CA Government Code
Cash $98,852,645 43% 100%
Money Market Funds 10,991,068 5% 20%
U.S. Treasuries 121,719,311 53% 100%
Total $231,563,024 100%
The FY 2023-24 Adopted Budget, with appropriations of $562.8 million, included estimated investment revenues of $6.4 million. The first three quarters of FY 2023-24 netted investment earnings of $8.8 million, $3.2 million from interest on cash and money market accounts, and $5.2 million from short-term investments, mostly from Treasuries. The FY 2023-24 Mid-Year Budget Forecast estimated investment income of $10.0 million, $3.6 million or 55% higher than budget. 3CE anticipates seeing
similar investment earnings in the remaining quarter and will likely supersede the $10.0 million estimate.
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 4
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Juan Lopez, Director of Finance
SUBJECT: Support seeking the Policy Board’s approval to adopt the Fiscal Year 2024-25 Recommended Budget
DATE: August 28, 2024
RECOMMENDATION:
Consider supporting the Policy Board’s approval to adopt the Fiscal Year 2024-25 Recommended Budget.
BACKGROUND:
Annually, 3CE adopts a budget that runs through October 1st through September 30th. Attached is the Executive Summary providing detailed information on the Fiscal Year (FY) 2023-24 Recommended Budget.
Over the past year, the Policy Board adopted staff recommendations to set the policy direction of the Recommended Budget's construction. The Financial Policies adhere to liquid reserves to support long-term business operations, build collateral power procurement, maintain the “A” credit rating, and minimize energy market volatility on customer rates. Additionally, the 2025 calendar year rate structure methodology was adopted. It utilizes a single rate structure across 3CE’s entire service area and ensures revenues are sufficient to recover costs to server customers (regardless of incumbent investor-owned utility).
Based on these policy directions and 3CE’s continued commitment to its mission, the Recommended Budget ensures the continued success of delivering clean and renewable energy while also stabilizing customer rates amidst an ever-changing regulatory environment and rising wholesale energy market.
DISCUSSION/ANALYSIS:
The Recommended Budget aligns with 3CE’s mission and goal of meeting 100% of customers’ energy demand with reliable, clean, and renewable energy while investing in its communities and ensuring fair and responsible rates. The number of customers served by 3CE will increase in FY 2024-25 with the enrollment of unincorporated San Luis Obispo County and the City of Atascadero in January 2025.
To carry out the agency’s mission and serve this increased load, the Recommended Budget totals $730.3 million, with addition to reserves of $40.0 million funded by estimated revenues of $753.0 million and the use of the Capital Infrastructure Reserve of $17.3 million for capital infrastructure. The Recommended Budget seeks authorization of 56 full-time equivalent (FTE) positions, an increase of four FTEs from the prior year. The investment in these new positions ensures that 3CE has the dedicated and knowledgeable staff necessary to accomplish the transition to a clean and renewable energy grid.
Summary of the Recommended Budget
The Recommended Budget represents a $167.5 million increase from the prior year’s Adopted Budget.
Cost of Energy (COE) is the primary driver of the increase, accounting for $145.0 million of the request.
The increase in COE is due to the additional load for two newly enrolled communities and higher Resource Adequacy (RA), Renewable Portfolio Standard (RFS), and energy costs. The Recommended Budget also includes a $17.3 million capital outlay proposal. This outlay is an investment in the agency’s permanent presence throughout its service area and is funded by the Capital Infrastructure Reserve, which was established to fund investment in capital infrastructure.
The estimated revenues of $753.0 million are $190.2 million higher than the prior year’s Adopted Budget and are necessary to fund increased expenditures, and additions to reserves to align towards Board approved levels over the next three years. Staff conducted a Cost-of-Service (COS) analysis to establish a revenue requirement that forecasts costs incurred in the service of our customers. The revenue requirement includes funding to work towards meeting 3CE’s minimum reserve policy levels.
Due to increased COE, including regulatory compliance, 3CE average rates are projected to increase between $0.014 and $0.039 per kilowatt-hour (kWh). 3CE projects its proposed rates will remain competitive against investor-owned utilities (IOU) generation rates across all classes, on average, in 2025. These competitive rates reflect the success of 3CE’s strategic procurement while strengthening reserves for ongoing power procurement and customer rate stabilization. Maintaining fair rates is a core goal and key component of 3CE’s stated aim to meet customer demand with 100% reliable, clean, and renewable energy, provide local control of our energy decisions, promote local economic stimulation, and lead decarbonization through electrification.
The addition to reserves provides long-term rate stabilization and reinforces 3CE’s financial health to developers and credit rating agencies. Credit rating agencies consider the agency’s ability to withstand adverse conditions, and strong liquidity enhances this ability, ensuring 3CE retains its ‘A’ credit rating.
The addition of $40.0 million to reserves represents a projected increase of $0.007 per kWh.
FISCAL IMPACT:
The Policy Board’s adoption of the 2024-25 Recommended Budget funds $562.8 million in appropriations and allows 3CE to continue operations with a balanced budget. [insert language from the executive summary]
CONCLUSION:
It is recommended that the Audit and Finance Committee support the Policy Board‘s approval and adoption of the FY 2024-25 Recommended Budget. The Recommended Budget provides the necessary financing to deliver clean and renewable energy, stabilize customer rates, and navigate evolving regulatory and energy market conditions.
ATTACHMENT(S):
1. Executive Summary - FY 2024-25 Recommended Budget Book
Executive Summary
Fiscal Year (FY) 2024-25 is 3CE’s sixth year serving customers across the Central Coast and seventh year of operation. The Recommended Budget for FY 2024-25 aligns with 3CE’s mission and goal of meeting 100% of customers’ energy demand with reliable, clean, and renewable energy while investing in its communities and ensuring fair and responsible rates. The number of customers served by 3CE will increase in FY 2024-25 with the enrollment of unincorporated San Luis Obispo County and the City of Atascadero in January 2025. To carry out the agency’s goals and serve this increased load, the Recommended Budget totals $730.3 million, with addition to reserves of $40.0 million funded by estimated revenues of $753.0 million and the use of the Capital Infrastructure Reserve of $17.3 million for capital infrastructure, and the authorization of 56 full-time equivalent (FTE) positions.
Table 1: Summary of the FY 2024-25 Recommended Budget
The Recommended Budget represents a $167.5 million increase from the prior year’s Adopted Budget. Cost of Energy (COE) is the primary driver of the increase, accounting for $145.0 million of the request. The increase in COE is due to the additional load for two newly enrolled communities and to higher Resource Adequacy (RA), Renewable Portfolio Standard (RFS), and energy costs. The COE includes expenses for purchased energy, Resource Adequacy (RA), Renewable Portfolio Standard (RPS), and grid operation services performed by the California Independent System Operator (CAISO). The COE accounts for 91.1% of all expenditures and is the main driver of 3CE’s rates, outpacing all other expenditures, which account for 8.9% of overall costs.
The Recommended Budget includes $12.6 million in salaries and benefit costs. The $3.0 million increase is driven primarily by the agency’s success in fulfilling the historically vacant and hiring of new positions, merit increases, cost of living adjustments (COLA), and employee benefits. The Recommended Budget also includes funding for four new positions largely residing in the Office of the Chief Operating Officer and tied directly to power procurement and energy management. The investment in these new positions will help to ensure that 3CE has the dedicated and knowledgeable staff necessary to accomplish the transition to a clean and renewable energy grid.
Prior Year
Actuals
2022-2023
Adopted
Budget
2023-2024
Mid-Year
Estimate
2023-2024
Requested
Budget
2024-2025
Recommended
Budget
2024-2025
Recommended
Change from
Adopted
Electricity Sales 450,713,404 556,433,448 551,405,974 745,962,356 745,962,356 189,528,907 Interest and Investment Returns 8,184,122 6,400,000 9,950,446 7,000,000 7,000,000 600,000 Other Income 2,356,837 - 88,732 68,400 68,400 68,400
Sub-Total Revenues 461,254,363 562,833,448 561,445,152 753,030,756 753,030,756 190,197,307 Capital Infrastructure Reserve - - - 17,318,000 17,318,000 17,318,000 Total Financing Sources 461,254,363 562,833,448 561,445,152 770,348,756 770,348,756 207,515,307 Cost of Energy 398,746,769 520,297,514 538,515,199 665,267,116 665,267,116 144,969,602 Salaries and Benefits 6,200,592 9,537,076 8,789,063 13,086,907 12,585,841 3,048,765 Services and Supplies 21,646,235 32,998,858 26,839,006 35,249,798 35,177,798 2,178,940 Capital Assets - - 210,000 17,318,000 17,318,000 17,318,000 Total Financing Uses 426,593,596 562,833,448 574,353,268 730,921,822 730,348,756 167,515,308 Total Budgeted Change to Net Position 34,660,767 0 (12,908,116) 39,426,934 40,000,000 40,000,000
Expenditures for services and supplies of $35.2 million are anticipated to increase by $2.2 million to cover additional billing data management services needed to serve the larger number of customer accounts anticipated with the enrollment of two member communities. The Recommended Budget includes additional funding for 3CE’s continued involvement and leadership in California Community Power (CC Power) and California Community Choice Association (CalCCA). Funding for energy programs will remain at current year levels but will be redistributed to allow for the implementation of new programs and continued exploration of demand response offerings.
The Recommended Budget also includes a capital outlay proposal totaling $17.3 million. As 3CE matures as an agency and solidifies its presence on the Central Coast, it is critical for the agency to invest in its permanent presence throughout its service area. This investment is funded by the Capital Infrastructure Reserve (CIR), which was established to fund investment in capital infrastructure, including real estate, enterprise software, and owned electric generation projects. 3CE recommends the use of the CIR to fund the purchase of offices in Monterey and Santa Cruz to continue to establish office and meeting space to conduct daily operations in a wider area.
Preliminary estimates for the purchase and tenant improvements are estimated in the range of $17.0 million. While much work will be required to determine these capital investments, including Policy Board engagement and approvals, it is efficient to budget the appropriations in the event investment opportunities arise in FY 2024-25.
Single Territory Rate Design
The estimated revenues of $753.0 million are $190.2 million higher than the prior year’s Adopted Budget and are necessary to fund increased expenditures, and additions to reserves to align towards Board approved levels over the next three years. Over the past year, 3CE staff conducted a Cost-of-Service (COS) analysis to establish a revenue requirement that forecasts costs incurred in the service of our customers. The revenue requirement includes funding to work towards meeting 3CE’s minimum reserve policy levels. To ensure rate stability, 3CE evaluated its annual revenue requirement through 2027 using 2025 as the test year.
3CE is the only Community Choice Aggregation (CCA) agency that spans two Investor Owned Utility (IOU) territories. Following the Policy Board’s direction, our single territory rate design ensures that 3CE recovers accurate, appropriate revenues from each customer class based on the cost to serve them, regardless of where in 3CE’s territory they reside.
Maintaining fair rates is a core goal and key component of 3CE’s stated aim to meet customer
demand with 100% reliable, clean and renewable energy, provide local control of our energy decisions, promote local economic stimulation, and lead decarbonization through electrification.
Due to increased COE, including regulatory compliance, 3CE average rates are projected to increase between $0.014 and $0.039 per kilowatt-hour (kWh). 3CE projects its proposed rates will remain competitive against IOU generation rates across all classes, on average, in 2025. These competitive rates reflect the success of 3CE’s strategic procurement while planning to ensure liquidity for ongoing power procurement and customer rate stabilization.
Table 2: 3CE generation rates comparison – PG&E
Table 3: 3CE generation rates comparison – SCE
Budgeted revenues also include $7.0 million generated by interest and investment returns – a reduction from current year estimated earnings assuming the Federal Reserve will begin a rate cutting cycle as early as September 2024.
Increasing Liquidity to Meet Reserve Targets to Maintain Credit Rating The Recommended Budget includes adding an estimated $40.0 million to cash reserves to bring 3CE’s reserves to 77% of the target by September 31, 2025. The addition to reserves aligns with Class
Recommended
2025 Generation
Rates1
3CE Vintage
20172 PCIA
Est. 2025
PG&E
Generation
Rates
(class average)
Difference (%)
Residential $ 0.146 $ 0.005 $ 0.177 -14%
Small Commercial $ 0.125 $ 0.005 $ 0.164 -21%
Medium Commercial $ 0.121 $ 0.005 $ 0.168 -25%
Large Commercial $ 0.121 $ 0.005 $ 0.147 -14%
Small & Medium Ag $ 0.143 $ 0.005 $ 0.154 -4%
Large Ag $ 0.130 $ 0.005 $ 0.154 -13%
Business Electric Vehicle $ 0.119 $ 0.005 $ 0.179 -31%
Standby $ 0.102 $ 0.004 $ 0.117 -9%
Streetlights $ 0.117 $ 0.004 $ 0.139 -12%
1 3CE on average rates in PG&E service area
2 PG&E service area estimated surcharges (PCIA and franchise fees), based on 2017 customer vintage class Class
Recommended
2025 Generation
Rates1
3CE Vintage
20212
PCIA
Est. 2025
SCE
Generation
Rates
(class average)
Difference (%)
Residential $ 0.133 $ (0.039) $ 0.119 -22%
Small Commercial $ 0.118 $ (0.036) $ 0.114 -28%
Medium Commercial $ 0.098 $ (0.031) $ 0.099 -32%
Large Commercial $ 0.089 $ (0.026) $ 0.083 -24%
Small & Medium Ag $ 0.112 $ (0.030) $ 0.095 -13%
Large Ag $ 0.088 $ (0.025) $ 0.081 -22%
Business Electric Vehicle $ 0.092 $ (0.031) $ 0.099 -38% Streetlights $ 0.068 $ (0.020) $ 0.063 -24%
1 3CE on average rates in SCE service area
2 SCE service area estimated surcharges (PCIA and franchise fees), based on 2021 customer vintage class
targets established by the Financial Policies adopted by the Policy Board on June 26, 2024. The instability of market prices for energy, Renewable Energy Credits (RECs), and Resource Adequacy (RA) necessitate healthy reserves. In addition, regulatory changes sought in the Energy Resource Recovery Account (ERRA) proceedings underway at the California Public Utilities Commission (CPUC) forecast the need to shore up 3CE’s Energy Rate Stabilization Reserve to mitigate substantial customer rate impacts that may potentially result from increases to the Power Charge Indifference Adjustment (PCIA) which threaten to increase customers electricity costs.
Table 4: Reserve Balances
Credit rating agencies view strong liquidity as a key factor in assessing financial stability. CCAs, like other LSEs, are subject to various risks, including regulatory changes, market fluctuations, and collateral calls. Strong liquidity provides a buffer that allows the 3CE to navigate these challenges without compromising its financial health. Credit rating agencies consider the agency’s ability to withstand adverse conditions, and strong liquidity enhances this ability, ensuring 3CE retains its ‘A’ credit rating.
Renewable Portfolio Standard
In September 2020, 3CE’s Policy Board voted to serve retail sales with clean and renewable energy by 2030. Today, 3CE is on its way toward meeting that goal while maintaining responsible electricity rates, driving innovation in the energy sector, and providing impactful energy programs for the community.
To reach its goals, 3CE continues to enter into long-term Power Purchase Agreements (PPAs), which serve to stabilize rates and grow the agency’s renewable energy portfolio. 3CE is under agreements with seven renewable projects that are currently online and producing renewable energy that meets 33% of the agency’s retail sales. The agency has ten additional agreements with projects that are currently under development. Nine of these are anticipated to achieve commercial operation prior to 2027. The remaining project is anticipated to come online before 2029. Assuming the on-time delivery of these projects, 3CE will meet its interim target of 60% clean and renewable energy in 2025.
While 3CE has demonstrated success in bringing new clean, and renewable resources online, the electricity generation sector, including 3CE, faces challenges that impact the expansion of renewable energy projects serving California. As a result, 3CE is seeing a $36.8 million year-over-year cost increase in RPS products.
Resource Adequacy
Resource Adequacy (RA) is a regulatory construct developed to ensure that there will be sufficient resources available to serve electric demand under all but the most extreme conditions. RA is a compliance product that commits generators to dispatch energy when needed. Regulatory changes have increased the amount of RA that Load Serving Entities (LSEs), such as 3CE, are Estimated Reserve Balances at Year-End FY 2023-24 FY 2024-25 Strategic Reserve 128,722,322 151,386,285
Energy Rate Stabilization Reserve 96,247,101 113,083,138 Renewable Energy Innovation and Initiatives Reserve - 500,000 Capital Infrastructure Reserve 17,318,000 -
Total 242,287,423 264,969,423
required to purchase. At the same time, the retirement of fossil-burning resources and limitations on energy imports have decreased the available supply of RA. This imbalance between the demand for RA and its supply has spiked prices. The impact on 3CE has been dramatic, with RA estimated to be $17.4 million higher than the budget in the current year, likely resulting in an operating deficit. In the FY 2024-25 Recommended Budget, RA accounts for 27% of the total COE.
Despite the market and regulatory uncertainty, amplified by higher COE, and the need to build on reserves, 3CE’s recommended average rates for electricity generation will remain fair when compared to investor-owned utilities. The Recommended Budget strives to balance increased costs with the agency’s mission to provide renewable energy at fair rates. Staff presents this budget as a step in the right direction to serve our communities while meeting the challenges associated with a highly competitive energy procurement market and a heavily regulated industry.
Capital Improvements/Acquisition
FY 2023-24 San Luis Obispo Office
With a wide range of service areas from Santa Cruz County down to Santa Barbara County, 3CE has made it a priority to be where our customers are and, in FY 2023-24, acquired a permanent office in San Luis Obispo. The office is centrally located in downtown San Luis Obispo adjacent to the city and county offices. Currently undergoing a remodel that will include a community room to hold meetings and events, with ample space for 3CE staff. Hoteling offices on the second floor will be available for staff and board members who need a place to work. It is expected that most of the expenditure will be incurred in FY 2023-24, contingent on the construction schedule.
For FY 2024-25, the proposed capital expenditure budget is $17.3 million, includes the acquisition and subsequent remodel of office buildings in Monterey County and Santa Cruz County, the purchase of two electric vehicles, and software costs. In addition, Energy Programs has budgeted $700,000 for owned charger assets.
Monterey Office
The lease for the corporate office in Monterey expires at the end of 2025. Purchasing an office building will provide location and cost stability for 3CE. The corporate office in Monterey consists of approximately 30 office staff occupying two floors and replacement will seek to plan for future growth. Any recommendations will subsequently be brought forward to the Policy Board for consideration. The rough cost estimates are $12.0 million to acquire and remodel an existing facility.
Santa Cruz Office
The Santa Cruz location will be a regional office serving our northern territory, providing direct access to better serve our customers. It will be a smaller location open to staff, board members, and the community. Subsequently, any recommendations will be brought forward to the Policy Board for consideration. The rough cost estimates are $5.0 million to acquire and remodel an existing facility.
Software
3CE Finance plans to implement an Enterprise Resource Planning (ERP) system to incorporate the general ledger, reporting, accounts payable, purchasing/procurement, and payroll. The plan is to start planning to implement a full-service Enterprise Resource System (ERP) to improve financial
reporting and streamline processes. The cost is estimated at $200,000 for consulting and implementation.
Owned Asset Charger
With transportation emissions accounting for over 50% of regional emissions, electric vehicle (EV) adoption is critical to effectively reducing emissions. One of the main barriers to EV adoption is the existing gap in EV charging infrastructure. 3CE will help address the existing gaps in EV charging infrastructure through the deployment of a phased EV charger asset program, starting with an EV Charger Asset Pilot. This pilot will consist of up to two sites with Level 2 and/or DC Fast chargers that 3CE owns and manages. Additionally, the EV Charger Asset Pilot will result in refined scoping and implementation of a 3CE-owned charging station program that is financially feasible, operationally efficient, and enhances equitable access to electrification infrastructure. Currently, Energy Programs has recommended $700,000 for the first phase of this initiative.
Funding
Funding for the capital projects is reserved in the Capital Infrastructure Reserve (CIR) and the Owned Asset Charger pilot is included in the Energy Programs budget. The CIR was established to cover the acquisition and replacement costs of 3CE’s capital infrastructure including enterprise software, real estate, and electric generation/storage facilities.