Audit and Finance Committee
May 21, 2025
9:00 AM
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 Watsonville
City Hall
275 Main Street
Watsonville, CA 95076
City of Hollister
City Hall
375 Fifth Street
City Manager Conference Room
Hollister, CA 95023
City of Salinas
City Hall
200 Lincoln Avenue
Salinas, CA 93901
City of Buellton
City Hall
541 Covelo Lane
Buellton, CA 93427
Public may participate through ZOOM. For ZOOM participation please join by computer audio at:
https://us02web.zoom.us/j/83507087702
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/ REASONABLE ACCOMMODATIONS: In compliance with the Americans with Disabilities Act, any individuals who desire to request a reasonable accommodation or modification to observe or participate in the meeting may make such a request by sending an email to: [email protected] Copies of documents may be made in alternative formats, upon request. Requests for accommodations should be made no later than two (2) business days prior to the meeting to allow time for 3CE to address the request.
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.
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 27, 2025 special meeting of the Audit and Finance Committee
2. Investment Performance Report for the period of October 1, 2024 through March 31, 2025
3. Financial Report for the period of October 1, 2024 through March 31, 2025
REGULAR AGENDA
4. Appoint Chair and Vice Chair of the 3CE Audit and Finance Committee
5. Presentation on the FY 2024-25 Mid-Year Budget Forecast
6. Consider supporting the Policy Board's approval of the FY 2025-26 Financial Policies Committee member comments or reports
Adjournment
Audit and Finance Committee
Special Meeting
February 27, 2025
3:30pm
Central Coast Community Energy
70 Garden Court, Suite 300
Monterey, CA 93940
City of Watsonville
City Hall
275 Main Street, 4th Floor
Watsonville, CA 95076
City of Hollister
City Hall
375 Fifth Street
City Manager Conference Room
Hollister, CA 95023
City of Buellton
City Hall
541 Covelo Lane
Buellton, CA 93427
MINUTES
The meeting was called to order at 3:30 PM with members attending from 4 noticed locations and a quorum established.
Members Present: City of Hollister: Mirrione
City of Buellton: Silva
City of Watsonville: Acting Chair Dutra
Members Absent: Mendez
CONSENT CALENDAR
Chair opened public comment period on the Consent Calendar.
No public comments received.
Chair closed public comment period.
MOTION: Moved by Member Mirrione, seconded by Member Silva to approve the Consent Calendar ACTION: The Motion Carried with a roll call vote: 3/0/1 AYES: Mirrione, Silva, Chair Dutra
NOES: None
ABSENT: Mendez
1. Approved minutes from the August 28, 2024 special meeting of the Audit and Finance Committee as submitted
2. Quarterly investment performance report for the period of October 1, 2023 through September 30, 2024
3. Quarterly investment performance report for the period of October 1, 2024 through December 31, 2024
4. Financial report for the period October 1, 2024 through December 31, 2024
REGULAR AGENDA
5. Received a presentation on 3CE's FY 2023-24 audited financial statements The Chair opened the public comment period.
No public comment received.
The Chair Closed the public comment period.
MOTION: Moved by Member Mirrione, seconded by Member Silva to approve receipt of the presentation ACTION: The Motion Carried with a roll call vote: 3/0/1 AYES: Mirrione, Silva, Chair Dutra
NOES: None
ABSENT: Mendez
4. Supported recommendation for the Policy Board Adopt Adjustments to the Calendar Year 2025 cost-based generation rates
The Chair opened the public comment period.
No public comment received.
The Chair Closed the public comment period.
MOTION: Moved by Member Silva, seconded by Member Mirrione to approve recommendation ACTION: The Motion Carried with a roll call vote: 3/0/1 AYES: Mirrione, Silva, Chair Dutra
NOES: None
ABSENT: Mendez
Adjourned at 4:12 PM
Staff Report Item 2
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Thomas White, Accountant
SUBJECT: Investment Performance Report for the period of October 1, 2024 through March 31, 2025
DATE: May 21, 2025
RECOMMENDATION:
Receive the 3CE investment performance report for the period of October 1, 2024 through March 31, 2025.
BACKGROUND:
As of March 31, 2025, Central Coast Community Energy held $236.5 million across its operating and investment accounts. The agency’s investment strategy remains conservative and compliant with the Investment Policy and the California Government Code, prioritizing liquidity, preservation of capital, and a passive investment approach. The portfolio's structure is designed to support day-to-day operating needs, meet collateral calls, and maintain reserves for strategic and rate stabilization purposes.
DISCUSSION/ANALYSIS:
3CE ended the quarter on March 31, 2025, with investment holdings that followed the Investment Policy and the strategy of holding enough cash to meet operating costs, including counterparty collateral calls.
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 March 31, 2025, 3CE held $236.5 million in operating and investment accounts. The table below lists the cash and investment balances by account type.
Cash and Investment Mix Holdings by Institution
Account Type Institution Balance Investment Mix
Operating
River City Bank $99,368,035
Cash (sweep) - $82.0M
money market - $12.0M
cash (operating) - $5.0M
Chase 9,194,678 cash (held for collaterals)
Investment
Schwab 63,343,062 Treasuries - $63.3M
cash (sweep) - $0.1M
Fidelity 64,610,295 Treasuries - $63.7M
money market - $0.9M
Total $236,516,070
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, 2025, 3CE served as investment manager of the $128.0 million held in the Schwab and Fidelity brokerage accounts. The average annual percentage yield for Treasuries ranged from 3.75% to 4.50% over the first quarter.
Treasuries with a maturity date of less than one calendar year accounted for 87% of holdings. Three Treasuries with a combined market value of $17.1 million have a maturity date in Q3 of 2026. 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 March 31, 2025, 3CE held $96.6 million in cash and cash equivalents, $127.0 million in U.S. Treasuries, and $12.9 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 within the State limit at 5.5%.
Cash and Investment Mix Holdings
Type Market Value
% of
Portfolio
Permitted by
CA Government Code
Cash and cash equivalents $96,527,184 40.8% 100%
Money Market Funds 12,988,196 5.5% 20%
U.S. Treasuries 127,000,690 53.7% 100%
Total $236,516,070 100.0%
The FY 2024-25 Adopted Budget, with appropriations of $730.3 million, included estimated investment revenues of $7.0 million. In the second quarter, investment earnings from operating and investment accounts netted $4.9 million, $2.7 million from interest on cash and money market accounts, and $2.1 million from short-term investments, mostly from Treasuries. Interest earned on 3CE collateral held by counterparties is estimated at $586,620. To date, the total investment and interest earnings are $5.5 million.
As of March 31, 2025, 3CE has 121 days of cash on hand. This is based on the total cash and equivalents of $236.5 million divided by an average daily expense of $1.9 million. Total operating expenses for FY 2024-25, less depreciation, are $712.4 million.
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.
ATTACHMENT(S):
None.
Staff Report Item 3
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Gina Urmatan, Senior Accountant
SUBJECT: Financial Report for the period of October 1, 2024 through March 31, 2025 DATE: May 21, 2025
RECOMMENDATION:
Receive a financial report for the period October 1, 2024, through March 31, 2025.
SUMMARY:
Over the six months ending March 31, 2025, operating revenues amounted to $300.0 million, and operating expenses totaled $238.6 million for a net operating income of $61.1 million. Non-operating revenue of $5.4 million, driven by interest and investment returns, netted the month with a net position increase of $66.6 million.
Year-to-date operating revenue is $32.5 million below budget, primarily due to a lower-than-expected retail load that is partially offset by settlement fund receipts. 3CE is actively monitoring retail load projections and has adjusted the forecast downward in March 2025 as part of the electric generation rate adjustments approved by the Policy Board effective April 1, 2025. Non-operating revenue from investment returns from assets held in operating, investment accounts, and interest on collateral exceeded the budget with a variance of $2.0 million, resulting from a favorable short-term interest rate.
Year-to-date total revenue is $30.5 million lower than budget, an unfavorable variance of 9%.
Year-to-date operating expenditures, excluding capital outlay, are $47.4 million below budget, a variance of 17%. The primary driver of this favorable variance is lower-than-expected energy costs.
Energy expenses came in $40.0 million under budget, largely due to a combination of lower market prices for energy and renewable energy attributes required for Renewable Portfolio Standard (RPS) compliance, stronger-than-anticipated congestion revenue rights income, and delays in invoicing for Renewable Energy Certificate (REC) products. Non-energy operating costs were $7.5 million lower than
budget due to less-than-planned costs for contracted services, energy programs, and staff vacancies.
The capital outlay was below budget by $5.8 million since capital projects are not recorded as direct expenditures. Instead, these projects are recorded as capital assets on the balance sheet and are expensed over time through depreciation following accounting principles. Year-to-date total expenditures, including capital outlay, are $53.2 million lower than the budget, a variance of 18%. These variances will decrease over the fiscal year as 3CE fulfills its energy obligations, including resource adequacy (RA) and renewable energy credits (RECs).
The net position at the end of March 31, 2025, totaled $284.7 million, a $66.6 million increase from the start of the fiscal year. The increase is primarily due to growth in accounts receivable, deposits held by counterparties to meet collateral obligations, and capital assets, offset by lower accrued cost of electricity and other accrued liabilities. Cash, cash equivalents, and investments totaled $236.5 million, a $9.8 million increase from the start of the fiscal year. The increase in liquidity was driven by operating revenue and a decrease in collateral postings required by energy counterparties from exposure in certain energy transactions.
FISCAL IMPACT:
There is no financial impact associated with receiving this report.
ATTACHMENT(S):
1. March 31, 2025 Financial Report
FINANCIAL REPORT
Fiscal Year to Date
As of March 31, 2025
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, 2025, and the related statement of revenues, expenses, and changes in net position, and the statement of cash flows for the six months 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 29, 2025
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com
Current assets
Cash and cash equivalents $ 149,724,109
Accounts receivable, net of allowance 49,595,286
Accrued revenue 31,203,747
Other receivables 2,036,262
Investments 79,275,272
Prepaid expenses 1,545,325
Deposits 41,505,326
Loan receivable 192,501
Total current assets 355,077,828
Noncurrent assets
Investments 7,517,188
Deposits 21,055
Loan receivable 1,233,381
Capital assets, net of depreciation and amortization 6,418,331 Total noncurrent assets 15,189,955
Total assets 370,267,783
Current liabilities
Accrued cost of electricity 54,925,395
Accounts payable 1,123,106
Other accrued liabilities 2,044,502
User taxes and energy surcharges due to other governments 2,005,262 Security deposits - energy suppliers 15,384,299
Lease liability 338,225
Total current liabilities 75,820,789
Noncurrent liabilities
Security deposits - energy suppliers 9,050,025
Lease liability 669,288
Total noncurrent liabilities 9,719,313
Total liabilities 85,540,102
Net investment in capital assets 5,410,818
Unrestricted 279,316,863
Total net position $ 284,727,681
NET POSITION
As of March 31, 2025
STATEMENT OF NET POSITION
CENTRAL COAST COMMUNITY ENERGY
ASSETS
LIABILITIES
See accountants' compilation report. Page 10 of 43
OPERATING REVENUES
Electricity sales, net $ 291,614,974
Liquidated damages 8,101,745
Other income 44,540
Total operating revenues 299,761,259
OPERATING EXPENSES
Cost of electricity 221,080,099
Contract services 7,122,290
Staff compensation 4,660,195
Other operating expenses 965,645
Program incentives 4,519,370
Depreciation and amortization 298,492
Total operating expenses 238,646,091
Operating income (loss) 61,115,168
NONOPERATING REVENUES (EXPENSES)
Investment income 5,471,853
Interest and financing costs (24,783)
Nonoperating revenues (expenses) 5,447,070
CHANGE IN NET POSITION 66,562,238
Net position at beginning of period 218,165,443
Net position at end of period $ 284,727,681
Six Months Ended March 31, 2025
AND CHANGES IN NET POSITION
STATEMENT OF REVENUES, EXPENSES
CENTRAL COAST COMMUNITY ENERGY
See accountants' compilation report. Page 11 of 43
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers $ 291,458,522
Receipts of liquidated damages 8,101,745
Other operating receipts 12,822,434
Receipts of deposits and collateral 35,510,023
Payments to suppliers for electricity (252,055,166)
Payments for other goods and services (8,264,014)
Payments for deposits and collateral (51,170,150)
Payments for program incentives (7,073,601)
Payments for staff compensation (4,525,173)
Payments of taxes and energy surcharges to other governments (5,228,042) Net cash provided by operating activities 19,576,578
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments of lease liability (184,221)
Purchases of capital assets (2,851,243)
Net cash provided (used) by capital and related financing activities (3,035,464)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment income received 3,379,480
Proceeds from sales and maturities of investments 77,512,000 Principal payments received of loan receivable 94,915
Purchase of investments (98,343,081)
Net cash provided (used) by investing activities (17,356,686) Net change in cash and cash equivalents (815,572)
Cash and cash equivalents at beginning of year 150,539,681 Cash and cash equivalents at end of period $ 149,724,109 Unrealized appreciation (depreciation) and
timing differences in investment income $ 2,092,373
Six Months Ended March 31, 2025
STATEMENT OF CASH FLOWS
CENTRAL COAST COMMUNITY ENERGY
NONCASH INVESTING ACTIVITES
See accountants' compilation report. Page 12 of 43
Operating income (loss) $ 61,115,168
Adjustments to reconcile operating income (loss) to net cash provided by operating activities
Depreciation and amortization expense 298,492
(Increase) decrease in:
Accounts receivable, net of allowance (5,157,391)
Accrued revenue (255,217)
Other receivables 4,548,012
Prepaid expenses 283,899
Deposits (29,872,533)
Increase (decrease) in:
Accrued cost of electricity (21,847,851)
Accounts payable (3,766,361)
Other accrued liabilities 1,220,345
User taxes and energy surcharges due to other governments 28,114 Security deposits - energy suppliers 12,981,900
Net cash provided by operating activities $ 19,576,578
CENTRAL COAST COMMUNITY ENERGY
STATEMENT OF CASH FLOWS (continued)
Six Months Ended March 31, 2025
RECONCILIATION OF OPERATING INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
See accountants' compilation report. Page 13 of 43
ACCOUNTANTS’ COMPILATION REPORT
Board of Directors
Central Coast Community Energy
Management is responsible for the accompanying special purpose budgetary comparison schedule of Central Coast Community Energy (a California Joint Powers Authority) for the one and six months ended March 31, 2025, 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 29, 2025
1101 Fifth Avenue, Suite 200 San Rafael, CA 94901 415 459 1249 mahercpa.com
Actual Budget Amount % Actual Budget Amount % Budget
Annual Budget
Less Actual
YTD
REVENUES AND OTHER SOURCES
Electricity sales, net $ 51,928,965 $ 59,416,257 $ (7,487,292) -13% $ 291,614,974 $ 332,229,431 $ (40,614,457) -12% $ 745,962,356 $ 454,347,382 Revenue for damages - - - na 8,101,745 - 8,101,745 n/a - (8,101,745) Interest and investment returns 865,883 583,333 282,550 48% 5,471,853 3,499,998 1,971,855 56% 7,000,000 1,528,147 Other income 6,166 5,700 466 8% 44,540 34,200 10,340 30% 68,400 23,860 Total revenues and other sources 52,801,014 60,005,290 (7,204,276) -12% 305,233,112 335,763,629 (30,530,517) -9% 753,030,756 447,797,644 EXPENDITURES AND OTHER USESCurrent Expenditures
Cost of energy 46,988,189 37,494,162 (9,494,027) -25% 222,141,111 262,091,856 39,950,745 15% 665,267,116 443,126,005 Salaries and benefits 878,095 1,048,820 170,725 16% 4,660,195 6,292,921 1,632,726 26% 12,585,842 7,925,647 Services and supplies 2,975,304 2,931,483 (43,821) -1% 11,730,514 17,588,896 5,858,382 33% 35,177,798 23,447,284 Capital outlay 176,579 1,443,167 1,266,588 88% 2,899,099 8,659,000 5,759,901 67% 17,318,000 14,418,901 Total current expenditures 51,018,167 42,917,632 (8,100,535) -19% 241,430,919 294,632,673 53,201,754 18% 730,348,756 488,917,837 Surplus (deficit) $ 1,782,847 $ 17,087,658 $ (15,304,811) $ 63,802,193 $ 41,130,956 $ 22,671,237 $ 22,682,000 $ (41,120,193) Annual
CENTRAL COAST COMMUNITY ENERGY
BUDGETARY COMPARISON SCHEDULE
One Month and Six Months Ended March 31, 2025
Month
Variance
Favorable
(unfavorable)
Year-To-Date
Variance
Favorable
(unfavorable)
See accountants' compilation report. Page 15 of 43 2
CCA Program surplus/(deficit)
per budgetary comparison schedule: $ 63,802,193
Adjustments needed to reconcile to the changes in net position in the Statement of Revenues, Expenses and Changes in Net Position:
Add back GASB 87 lease amortization not in operating budget 159,438 Subtract depreciation expense (298,492)
Add back capital asset acquisitions 2,899,099
Change in Net Position $ 66,562,238
REVENUES, EXPENSES AND CHANGES IN NET POSITION
CENTRAL COAST COMMUNITY ENERGY
BUDGET RECONCILIATION TO STATEMENT OF
Six Months Ended March 31, 2025
See accountants' compilation report. Page 16 of 43
Budget Item YTD Variance Comment
Electric Sales Revenue (12.3%) 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 (15.2%) 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 (25.9%) Staffing expenses are under budget due to the timing of new hires.
Professional Services (26.7%) This category includes accounting, IT, technical and other consultants.
Legal Costs (45.8%) This category includes outside legal costs for regulatory and energy procurement needs.
Marketing and customer enrollment (29.2%) Variance is mostly due to the lower than anticipated costs of recent customer enrollments.
Data Management Services (1.8%) These fees non-discretionary and are charged on a per customer basis.
Utility Service Fees (14.2%) These are PG&E and SCE fees charged on a per customer basis.
Other General & Administrative (64.6%) This category includes occupancy costs, industry membership dues, and other general and administrative costs.
Energy and Related Programs (34.5%) Programs expenses have generally been delayed until future periods Budget Commentary for significant items
CENTRAL COAST COMMUNITY ENERGY
October 1, 2024 through March 31, 2025
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 99,664,821$ 114,669,913$ 87,375,820$ 86,192,993$ 97,066,887$ 102,454,815$ Gains/Losses/Interest 2,135,239$ 380,768$ 421,162$ 324,104.99 317,642.68 320,213.20 371,348.25 Average APY 4.58% 4.41% 4.45% 4.42% 3.96% 4.35%INVESTMENTSSchwab/FidelityFunds Invested - Average Balance 125,703,797$ 126,158,519$ 126,652,212$ 127,096,361$ 127,561,770$ 127,989,614$ Gains/Losses/Interest 2,749,996$ 451,482.54 308,267.24 504,316.11 576,572.23 414,554.41 494,803.49 Average APY 4.31% 2.93% 4.78% 5.44% 3.90% 4.64%
CENTRAL COAST COMMUNITY ENERGY
Investment Summary
October 1, 2024 through March 31, 2025
Current 0 - 30 Days 31 - 60 Days 61 - 90 Days > 91 Days A/R Balance $ 25,272,898 $ 14,637,818 $ 3,224,261 $ 983,597 $ 5,476,712 $ 49,595,286
CENTRAL COAST COMMUNITY ENERGY
Summary of Accounts Receivable, Net of Bad Debt Allowance As of March 31, 2025
Staff Report Item
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Heather Vowell, Board Clerk
SUBJECT: Appoint Chair and Vice Chair of the 3CE Audit and Finance Committee DATE: May 21, 2025
RECOMMENDATION:
Consider and appoint the 3CE Audit and Finance Committee 2025 Chair and Vice Chair.
Staff Report Item 5
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Juan Lopez, Director of Finance
SUBJECT: Presentation on the FY 2024-25 Mid-Year Budget Forecast DATE: May 21, 2025
RECOMMENDATION:
Receive a presentation on the FY 2024-25 Mid-Year Budget Forecast.
BACKGROUND:
The Mid-Year Budget Forecast (Forecast) is a critical management tool that evaluates financial performance and projections based on historical trends, current conditions, and future assumptions. It supports data-informed decision-making by identifying trends that may impact 3CE’s financial health, strategic goals, and procurement needs. The Forecast also serves as the starting point for developing the upcoming fiscal year’s budget and includes projections for the next two fiscal years.
On September 19, 2024, the Policy Board adopted the FY 2024-25 budget and 2025 electric generation rates with $730.3 million in appropriations, $770.3 million in estimated revenue, and a $40.0 million addition to reserves, reflecting a 23% increase in appropriations due to new community enrollments and higher energy costs. On March 19, 2025, the Board adopted adjustments to 2025 rates effective April 1, in response to impacts of significant changes to the Power Charge Indifference Adjustment (PCIA) implemented through the finalization of IOU rates in the Energy Resource Recovery Account (ERRA) proceeding and revised retail load based on an updated forecast based on historical performance. The rate adjustments were necessary to maintain financial stability, recover projected shortfalls, and ensure continued competitive rates across all customer classes. These developments underscore the value of a continuous forecast as a proactive tool to assess fiscal conditions and guide timely adjustments that strengthen 3CE’s financial resilience heading into the next budget cycle.
DISCUSSION/ANALYSIS:
The Forecast estimates current year expenditures of $642.8 million, a $87.5 million (12%) variance to the adopted budget. Operating expenditures can be classified into two categories: energy and non-energy costs. Non-energy operating expenditures are projected at $42.7 million, compared to a budget of $65.1 million, a 34% variation. The lower non-energy operating costs are attributed primarily to lower capital assets expenditures for acquiring office locations in Monterey and Santa Cruz, with lower personnel costs from staffing vacancies, lower-than-expected professional services, and energy program incentive payments. The forecasted years of FY 2025-26 and FY 2026-27 assume higher costs for personnel based on full funding for all positions, higher benefit and salary expenses based on competitive market trends, increased customer participation in energy programs, and cost adjustments to ongoing service and supply costs.
The Forecast estimates the cost of energy (COE) for the year to be $600.1 million, a $65.2 million (10%) favorable variance to the adopted budget. The variance compared to budget results from lower-than-anticipated Renewable Energy Certificates (REC) costs resulting from a drop in market prices, higher-than-anticipated revenues from participation in the congestion revenue right auctions, and higher sales of wholesale energy, partially offset by higher resource adequacy (RA) costs. FY 2025-26 and FY 2026-27 forecasted years assume lower COE compared to the current year due to lower energy attribute costs (RA and RECs) offset by higher energy costs based on increases to market prices. Lower energy attributes are forecasted as new projects come online, such as Panoche, Midway, and SunZia, which will reduce purchases of attributes compared to the current year. Variables that could impact COE projections in the outlying years include delays in PPAs, market prices for energy, energy attributes, and RA under the Slice-of-Day paradigm.
The Forecast estimates total revenue at $679.9 million, a $73.2 million (10%) variance compared to the adopted budget. Net revenue from the sale of electricity is projected at $660.9 million, $85.1 million under budget, or 11%. Lower-than-anticipated load is the primary factor for the variance in electric generation revenue. In late 2024, staff assessed the long-term forecast assumptions and adjusted them Projected Financials with Prior Year Actuals
FY 2023-24
Actual
FY 2024-25
Adopted Budget
FY 2024-25
Mid-Year Forecast
FY 2025-26
Forecast
FY 2026-27
Forecast
Net Electricity Sales 544,358,419 745,962,356 660,909,347 649,122,905 640,133,788 Interest and Investment Returns 12,893,661 7,000,000 10,770,808 8,000,000 8,200,000 Other Income 98,215 68,400 8,182,430 72,000 72,000
Sub-Total Revenues 557,350,295 753,030,756 679,862,585 657,194,905 648,405,788 Capital Infrastructure Reserve - 17,318,000 2,780,254 - - Total Financing Sources $ 557,350,295 $ 770,348,756 $ 682,642,839 $ 657,194,905 $ 648,405,788 Cost of Energy 548,776,152 665,267,116 600,074,023 569,605,897 556,528,447 Salaries and Benefits 7,830,528 12,585,841 11,203,086 13,574,919 15,056,766 Services and Supplies 24,749,921 35,177,798 28,751,007 34,014,088 36,820,576 Capital Assets - 17,318,000 2,780,254 - -
Total Financing Uses $ 581,356,601 $ 730,348,756 $ 642,808,370 $ 617,194,905 $ 608,405,788 Total Budgeted Change to Net Position $ (24,006,306) $ 40,000,000 $ 39,834,469 $ 40,000,000 $ 40,000,000
based on historical forecast accuracy and updated weather projections. The projected retail load for FY 2024-25 was revised to 5.5 million MWh. The retail load in the forecasted years assumes minor (0.5%) annual growth due to stabilizing customer base post 2025 enrollment of the City of Atascadero and County of San Luis Obispo. Staff will continue to oversee the performance of the long-term load forecast and implement tools to develop scenario planning for long-term forecasting.
Other income, primarily comprised of investment revenue, is estimated at $19.0 million, a $11.9 million (168%) variance from the adopted budget. The favorable variance is partially due to higher-than-anticipated interest and investment earnings and settlement fund receipts. The forecasted years of FY 2025-26 and FY 2026-27 assume continued interest and investment earnings from the agency’s active treasury management and minor rental income from tenants in the San Luis Obispo office.
Reserve Targets
3CE is working towards meeting its reserve targets set in the Financial Policies adopted by the Policy Board. Reserves are projected at $254.5 million in the current year, meeting 73% of Financial Policy targets. Projected lower expenditures in the next two years will help close the remaining reserve gap. 3CE will continue to monitor the forecast against actual to ensure that reserve targets are met.
Maintaining robust reserves provides financial stability amid potential PCIA and market fluctuations, helps sustain a competitive rate structure that minimizes customer attrition, and supports a strong credit rating, reinforcing 3CE’s long-term financial resilience.
FISCAL IMPACT:
The Mid-Year Budget Forecast estimates total revenue of $679.9 million, a 10% lower revenue variance from budget, and $642.8 million in total expenditures, equating to a 12% lower-than-budget variance, while maintaining growth in net position of $39.8 million, while withdrawing $2.8 million from the Capital Infrastructure Reserve for capital expenditures related to capital acquisition and improvements.
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, higher-than-estimated RA expenditures, lower retail load, and unforeseen regulatory compliance impacts.
CONCLUSION:
The FY 2024-25 Mid-Year Budget Forecast reflects 3CE’s continued focus on prudent financial stewardship and long-term planning. The Operations Board received the Forecast at its May 14, 2025, meeting, and the Policy Board will receive it at its June 18, 2025 meeting.
ATTACHMENT(S):
None.
Staff Report Item 6
TO: 3CE Audit and Finance Committee
FROM: Robert M. Shaw, Chief Executive Officer
PREPARED BY: Juan Lopez, Director of Finance
SUBJECT: Consider supporting the Policy Board’s approval of the FY 2025-26 Financial Policies
DATE: May 21, 2025
RECOMMENDATION:
Consider supporting the Policy Board’s approval of the FY 2025-26 Financial Policies.
BACKGROUND:
The Policy Board adopts 3CE’s Financial Policies (Policies) annually as part of the budget development process to ensure alignment between the agency’s fiscal framework and strategic objectives. This recurring adoption process keeps the Policy Board apprised of 3CE’s financial management practices and affirms the foundation for the Recommended Budget.
The Policies have undergone significant revisions in recent years, including consolidating administrative and accounting policies into a single, comprehensive framework. Notable updates included establishing reserve types such as the Strategic Reserve, Energy Rate Stabilization Reserve, Renewable Energy Innovation and Initiatives Reserve, and Capital Infrastructure Reserve. The FY 2024-25 Policies also introduced a key shift in how reserves are measured, moving from net position to readily available liquidity to more accurately reflect 3CE’s fiscal resiliency.
Staff is seeking input from the Audit & Finance Committee on the proposed FY 2025-26 Financial Policies before recommending them to the Policy Board at its regular meeting on June 18, 2025.
DISCUSSION/ANALYSIS:
The FY 2025-26 Financial Policies build on the work of the current year’s Financial Policies. This year's proposed changes to the Financial Policies center around the Energy Rate Stabilization Reserve. Minor
revisions to reduce the redundancy of terms and grammatical improvements are also outlined in the redlined version of Financial Policies, which is attached.
Staff recommends clarifying the purpose and use of the Energy Rate Stabilization Reserve to better reflect its role in supporting long-term rate stability, which sustains customer trust and mitigates opt-out risks. The revised language emphasizes the reserve's strategic value in smoothing rates during periods of market and regulatory volatility and outlines expectations for transparency and reserve replenishment when funds are used. This change strengthens the policy framework by aligning financial planning with 3CE’s goals of delivering reliable, clean electricity at fair rates.
FISCAL IMPACT:
Adopting the FY 2025-26 Financial Policies promotes financial sustainability, provides clear fiscal guidance, and positions 3CE to adapt to volatile market and regulatory events.
CONCLUSION:
An annual update to the Financial Policies ensures that 3CE develops its recommended budget backed by a practical framework for overall fiscal planning and management.
ATTACHMENT(S):
1. Draft FY 2025-26 Financial Policies
2. Draft FY 2025-26 Financial Policies Redlined
FY 2025-26 Financial Policies
1.0 Purpose and Background
The prudent and responsible stewardship of public assets is a principal obligation of 3CE officials and managers. The development and maintenance of financial policies enable 3CE officials to protect those public assets, ensure transparency, and build public trust. Financial policies define a shared understanding of how 3CE administers its financial affairs and communicates how the agency manages its resources to provide the highest value to the communities served.
This document centralizes 3CE’s financial policies and establishes a framework for overall fiscal planning, management, and decision-making related to public assets controlled by 3CE. These policies are reviewed, updated, and brought before the Policy Board as needed but at least annually for adoption. This continued review and adoption promotes sound financial management and helps maintain 3CE’s stability, efficiency, and effectiveness by ensuring the Policy Board’s financial policy guidance is provided before 3CE takes any financial actions. The policies also offer guidelines for evaluating both current activities and proposals for future programs and direct 3CE’s financial resources toward meeting its objectives and strategic initiatives.
These policies provide general guidance in the management of the 3CE’s fiscal affairs and are to be used by all 3CE employees to meet their obligation to operate in a financially prudent manner.
The Recommended Budget is developed in accordance with this framework.
2.0 General Financial Policy
The cornerstone and highest priority of 3CE’s financial policies is fiscal integrity. It shall be the goal of 3CE to achieve a strong financial condition with the ability to:
• Sustain adequate financial liquidity to meet normal operating and contingent obligations;
• Ensure a sufficient financial base is maintained to withstand local, regional, national, and global economic impacts;
• Foster the ability to adjust efficiently to the community’s changing service requirements;
• Maintain and improve infrastructure and capital assets; • Regularly review programs and operational methods to improve processes that result in higher productivity and eliminate repetitive and duplicative functions; • Encourage collaboration with other government entities, the private sector, and public-private partnerships where cost and risk are minimized in the delivery of services within 3CE’s service area;
• Promote sharing of costs and benefits by service users; • Ensure the legal use of financial resources through an effective system of internal controls;
• Support sound financial management by providing accurate and timely information on 3CE’s financial condition; and
• Provide a framework for the wise and prudent use of debt financing and maintain a strong credit rating in the financial community.
2.1 The Annual Budget
The Chief Executive Officer (CEO) will recommend a balanced budget that:
• Aligns annual expenditures with the revenue requirement established through a cost-of-service methodology; • Minimizes reliance on reserves and one-time funding sources for ongoing operations; and
• Maintains competitive, market-based rates while supporting 3CE’s renewable energy goals.
Through the CEO, the Chief Financial Officer (CFO) will consult with 3CE Officers and seek their input in developing the Recommended Budget through cooperative discussions and financial education. The CEO will keep the Policy Board apprised of the condition of the 3CE’s finances and emerging fiscal issues. Through the CEO and Officers, 3CE will work with the California Community Choice Association (CalCCA), state representatives, legislative advocates in the State Capitol, and other local government organizations to ensure our community voice is heard regarding any state legislation or regulation affecting our stakeholders.
3.0 Roles and Functions
3.1 Role of Chief Executive Officer
The CEO serves as the chief policy advisor to the Policy Board, Operations Board, and the various Board committees. The CEO promotes responsible resource allocation, strives to protect 3CE’s financial position and integrity, and provides independent analysis on policy and financial issues.
The CEO is the fund manager for the 3CE Enterprise Fund and any other funds that may be created.
3.2 Principal Functions of the Chief Executive Officer
Principal functions of the CEO include:
• Promoting continuous improvement of the structures, systems, processes, and effectiveness of programs;
• Preparing the annual financial plan (Recommended Budget); • Working with departments to evaluate potential federal, state, and local budget impacts; • Developing financial forecasts;
• Monitoring revenues and expenditures for conformance with the annual budget; • Recommending effective fiscal policies to carry out the 3CE mission; • Verifying Policy Board policies are consistently applied; and • Ensuring items brought before the Policy Board are transparent, accurate, complete, fully justified, and reviewed by appropriate stakeholders.
3.3 Principal Functions of the Chief Financial Officer
The CFO is 3CE’s Policy Board appointed Treasurer and considered the subject matter expert for the financial management of the agency. The CFO is responsible for:
• Carrying out financial operations efficiently and cost-effectively while adhering to all 3CE, state, and federal laws, regulations, and policies; • Preparing budgets and financial estimates with attention to accuracy based on financial
expertise, 3CE, state, and federal funding changes, and economic indicators affecting revenues, expenditures, and service levels;
• Reviewing, evaluating, and assessing potential federal and state budget issues that may impact the agency;
• Developing and performing financial forecasts;
• Overseeing Middle Office responsibilities as identified in 3CE’s Energy Risk Management Policy;
• Monitoring monthly revenue, expenditure, and cash flow performance and conformance with the Adopted Budget;
• Meeting the Policy Board’s strategic financial initiatives and policies; and • Ensuring items brought before the Policy Board are transparent, accurate, complete, fully justified, and reviewed by all appropriate stakeholders.
3.4 Principal Functions of the Audit and Finance Committee The Audit and Finance Committee’s principal functions include receiving staff updates on financial issues affecting 3CE and providing oversight and direction to staff in developing and modifying the budget and audits.
3.5 Principal Functions of the Energy Risk Management Committee The Energy Risk Management Committee is formed by the CEO to implement and maintain the Energy Risk Management Policy, which requires 3CE to maintain sufficient financial reserves to:
• Establish long-term business sustainability;
• Build collateral for power procurement activities;
• Maintain an investment-grade credit rating;
• Develop funding sources for investment in generation and other local initiatives; and • Reduce the business and customer impact of year-to-year volatility in energy markets and procurement costs.
4.0 Services and Fund Structure
4.1 Enterprise Fund
3CE operates as an enterprise fund. The enterprise fund accounts for revenues and expenditures for all 3CE activities. The fund’s operations are financed and operated like private business enterprises, where services provided are primarily funded through user charges (electric generation rates).
4.2 Proprietary Fund
An enterprise fund is classified as a proprietary fund and is financed and operated like private business enterprises whose services are primarily funded through user charges.
4.3 Expenses
Enterprise fund expenses and revenues will be established at sufficient levels to properly maintain the fund’s infrastructure and provide significant capital development.
4.4 Rate Structure and Net Position
The enterprise fund will maintain an adequate rate structure to cover the cost of all operations, including cash flow, capital replacement and maintenance, debt service if applicable, contingency funding, reserve contributions, and depreciation. Rates may be offset from the available unreserved net position only after these requirements are met.
5.0 Operating Budget
5.1 The Budget
The Recommended Budget is the central financial planning document that the agency’s goals, objectives, priorities, levels of service, and the associated operating revenue and expenditures.
Appropriations are recommended based on the relationship between expected expenditures and revenue. If revenues are estimated to fall below expected amounts, the agency will take all actions available to reestablish a revenue and expenditure relationship that conforms to the operating requirements.
The Recommended Budget shall be presented to the Policy Board for adoption in September of each year and clearly presented to a general audience of the public. The Recommended Budget may be modified as necessary by the Policy Board during the fiscal year.
5.2 Balance Budget
A budget is balanced when the total estimated financing sources (beginning fund balance plus revenues) equal the total appropriations (expenditures). At no time shall spending in a given year exceed total current estimated revenues plus any net positive position (reserved and non-reserved).
5.3 Ongoing Operations Needs
3CE will adequately fund ongoing maintenance and operational needs with ongoing annual revenue. Without prior direction and approval by the Policy Board, the use of one-time revenues or short-term borrowing is not allowed as a resource to finance ongoing operational needs.
5.4 Capital Facilities and Equipment
3CE shall establish as a primary fiscal responsibility the acquisition, preservation, maintenance, improvement, and, when applicable, orderly replacement of the 3CE’s capital facilities and equipment. 3CE shall endeavor to purchase a permanent headquarters and appropriate regional offices to provide continuity of location and operations while stabilizing and controlling facility costs into the future. 3CE will acquire and maintain high-quality equipment to maximize useful life and ensure efficient operations.
5.5 Appropriations and Transfers
The agency enterprise fund is not constrained by appropriation controls. The CEO is charged with maintaining the relationship between financing uses and financing sources and shall report to the Policy Board any deviation in excess of the adopted budget. The CEO is authorized to make
appropriation transfers between departments and divisions within the enterprise fund as necessary to adequately reflect the expenditure needs of the agency.
5.6 Responsibility for Budget Management and Budgetary Control The 3CE shall maintain a budgetary control system to help it adhere to the adopted budget. The CEO has budgetary control and authority over appropriations. The CFO shall administer and maintain the system utilized for budgetary control. As the administrator of the budgetary control system, the CFO shall notify the CEO when a department is reaching the departmental appropriation limit. The CFO shall seek guidance from the CEO on all issues relating to appropriations and controls.
3CE Officers in coordination with the CFO have primary responsibility for managing departmental budgets by:
• Providing accurate and timely budget estimates;
• Monitoring revenues to ensure timely receipt in the amounts anticipated; • Ensuring that expenditures comply with the law, adopted resolutions, policies, and align appropriations relative to revenues;
• Providing prompt notification to the CEO when either revenues or expenditures are not as anticipated; and
• Preparing and justifying budget revisions when necessary
5.7 Preparation of Financial Reports
The CEO annually prepares or causes to be prepared:
• An Annual Comprehensive Financial Report (ACFR) that reports on the 3CE’s financial position and activities adhering to Generally Accepted Accounting Principles (GAAP) or state law requirements, to provide readers with a broader understanding of the agency’s financial operations;
• A mid-year estimate to provide current-year performance and forward-looking perspective to advise the Policy Board on future challenges and provide a base for building the following year’s Recommended Budget; and
• Additional reports, as appropriate, to keep the Policy Board informed on current financial performance and developments.
The CEO has oversight and contract management over the external auditors reviewing the ACFR.
External auditors shall report to the CEO or designated officer on audit findings. The CEO will take the audit findings thereafter to the Policy Board.
5.8 Publication of Budget
The CEO shall publish annually a Recommended Budget document that satisfies nationally recognized standards for effective budget presentation. The Recommended Budget will be provided to the Policy Board a minimum of two weeks in advance of the annual budget hearings.
5.9 Budget Development
Budget development is an annual process incorporating the Policy Board’s priorities and weighing
competing requests for 3CE resources within expected fiscal constraints. The process begins with departments preparing “baseline” budgets proposing levels of service and staffing that can be carried out within expected resources (e.g., revenues). Departments may submit “augmentation requests” for additional resources to mitigate potential impacts, increase staffing/services, or invest in infrastructure. The CEO evaluates baseline budgets and augmentation requests within the constraints of a balanced budget and builds the annual Recommended Budget. Staff considers the following criteria in formulating recommendations for the annual budget and subsequent mid-year budget modifications:
• Mandated by current law, regulation, or Policy Board policy; • Alignment with the 3CE’s strategic initiatives and priorities; • Necessary to maintain the current level of mission-critical services/operations; • Substantiation of compelling public need (e.g., health, safety, economic vitality, quality of life) that cannot be met within existing resources;
• Likelihood of success based on prior performance, degree of planning/specificity, requested resources, and assumed timeline;
• Leverages sustainable financial support from non-3CE sources; • Appropriate placement of responsibility (federal, state, or local); • Degree of urgency; and
• Critical infrastructure investment to ensure productivity and continuity of operations.
Criteria in the listing are not exhaustive or in any particular order, nor are they mutually exclusive; funding recommendations may align with more than one criterion.
5.10 Establish 3CE Priorities
The Policy Board has a continuous process of establishing 3CE priorities for ensuing years. The Policy Board implements these priorities in the Recommended Budget. Understanding that elected officials, appointed officials, and agency officers are charged with the actual provision of services to the community, the Policy Board shall set broad priorities to ensure flexibility for the agency to concentrate on these priorities.
5.11 Amendments to the Adopted Budget
Modifications to the Adopted Budget require the approval of a majority of Policy Board members.
Amendments to the Adopted Budget will be made in compliance with Policy Board policies. As an enterprise fund, the relationship between financing uses and financing sources is the overriding principle; thus, appropriation controls are not required.
5.12 Budgetary Basis
The 3CE uses the full accrual basis of accounting following GAAP. The budgetary basis is appropriation-based, beginning October 1 and ending the last day of September of each year. 3CE is an enterprise fund that is appropriation-based budgeted; however, accounting is on a full accrual basis.
5.13 Capital Asset Definition
The 3CE defines capital assets as assets with initial, individual costs of $5,000 or more and an estimated useful life greater than one year, except infrastructure, for which the threshold is set at $100,000. Capital assets include both tangible and intangible assets categorized by asset type for reporting purposes.
5.14 Appropriations for Contingencies
3CE annually adopts an appropriation for contingencies to provide sufficient working capital and a margin of safety for unplanned operational needs. The contingency appropriation is utilized only after all other budget resources have been examined. The appropriation for operational contingencies shall be equal to five percent (5%) of recommended appropriations, excluding cost of energy (COE), unless expressly modified by the Policy Board as part of the annual budget adoption.
6.0 Net Position and Reserve Policies
6.1 Net Position
Net position is a measurement of available financial resources. It is the difference between total assets and total liabilities. The Policy Board recognizes that maintaining a positive net position is essential to preserving 3CE’s financial integrity. Sufficient net position and reserve levels are a critical component of the 3CE’s overall financial management strategy. They are key factors in the ability to sustain service delivery and obtain external financing. Rating agencies analyze net position when considering 3CE’s overall financial strength and creditworthiness. Adequate reserves enable flexible financial planning in developing rate structures, future capital projects, dealing with unforeseen emergencies, and changes in general economic conditions.
6.2 Use of Unreserved Net Position
3CE’s goal is to only use unreserved net position as a source to finance one-time investments, reserves, and/or commitments. As a one-time financing source, any end-of-year positive net position will be used for non-recurring expenditures and only after confirmation of the yearly audit.
6.3 Strategic Reserve
A strategic reserve is essential to provide an adequate financial backstop throughout the year. 3CE shall adopt a strategic reserve equal to twenty-five percent (25%) of budgeted appropriations. The strategic reserve will provide sufficient working capital (cash flow), fund settlements of legal judgments against the 3CE in excess of reserves specifically designated for litigation, for natural disasters as determined by the CEO or Policy Board, and for one-time-only budget overruns that could not be addressed through the annual appropriations for contingencies.
If the strategic reserve is utilized to provide temporary funding for unforeseen needs, 3CE shall take the measures necessary to prevent its use in the following fiscal year by increasing revenues and/or decreasing expenditures to regain balance. 3CE shall also restore the strategic reserve to the minimum level of twenty-five percent (25%) of budgeted appropriations within five fiscal years
following the fiscal year in which the event occurred. The plan to restore the strategic reserve shall be included and highlighted in the Recommended Budget.
6.4 Energy Rate Stabilization Reserve
The agency shall maintain an energy rate stabilization reserve equal to twenty (20%) of the budgeted COE. This reserve serves as a financial buffer to absorb fluctuations in energy costs and respond to unforeseen changes in market conditions or regulatory requirements that may increase power procurement expenses that cannot be absorbed by changes to cover recovery efforts, such as electric generation rate adjustments.
A central purpose of this reserve is to support rate smoothing and long-term rate stability. By strategically using this reserve, 3CE may maintain consistent, competitive customer rates even during periods of cost volatility, strengthening its position as a load-serving entity and sustaining customer trust.
Any material or sustained use of the reserve shall be reflected in the Recommended Budget, including a long-term plan to replenish the reserve. This reserve may be utilized throughout the fiscal year at the direction of the CEO with subsequent reporting to the Energy Risk Management Committee and the Boards.
6.5 Renewable Energy Innovation and Initiatives Reserve The agency shall maintain a renewable energy innovation and initiatives reserve equal to five percent (5%) of the budgeted COE. This reserve shall be utilized for investments in furtherance of the Boards’ goals to accelerate the utilization of 100% clean and renewable energy through the commitment to new or emerging, but scalable, technologies that can address the challenges of an intermittent renewable grid and reduce dependency on fossil fuels for electricity generation.
6.6 Capital Infrastructure Reserve
The agency shall establish a capital infrastructure reserve sufficient to provide for the operation, routine scheduled maintenance, reasonably anticipated unplanned repair, and ultimate replacement costs of 3CE’s capital infrastructure, including enterprise software, real estate, and electric generation and storage facilities.
6.7 Measurement of Reserve Targets
Due to the nature of the agency's business, the mechanism to fund the four reserves shall be the use of cash, cash equivalents, and short-term investments. The reserves must be liquid and available to ensure the ability to use the reserves for their intended purpose. Market fluctuations, operational continuity, competitive advantage, and regulatory compliance are risks that are mitigated with robust reserves as the agency transitions to a clean and renewable electric grid.
7.0 Capital Facilities and Improvement Policies
7.1 Capital Investments
3CE is responsible for investing in the preservation, maintenance, and improvement of owned assets, including buildings, equipment, and other capital infrastructure.
Projects in excess of $100,000 that have an estimated useful life of at least five years and are non-recurring are considered capital projects and should be evaluated against other uses and priorities.
All capital expenditures should be included in the Adopted Budget or taken to the Policy Board for approval and amendment to the Adopted Budget.
8.0 Debt Management
Due to its length and complexity, the Debt Management Policy is reviewed by the Policy Board separately from these policies.
FY 20254-265 Financial Policies - Redlined
1.0 Purpose and Background
The pPrudent and conservative responsible stewardship of public assets is a principal responsibility given to the officials and managers of 3CEobligation of 3CE officials and managers.
The development and maintenance of financial policies enable 3CE officials to protect those public assets, ensure transparency, and build public trust. Financial policies define a shared understanding of how 3CE administers its financial affairs and communicates how the agency manages its resources to provide the highest value to the communities we served.
This document centralizes 3CE’s financial policies and establishes a framework for overall fiscal planning, management, and decision-making related to public assets controlled by 3CE. These policies are reviewed, updated, and brought before the Policy Board as needed but at least annually for adoption. This continued review and adoption promotes sound financial management and helps maintain 3CE’s stability, efficiency, and effectiveness by ensuring the Policy Board’s financial policy guidance is provided before 3CE takes any financial actions. The policies also offer guidelines for evaluating both current activities and proposals for future programs and direct 3CE’s financial resources toward meeting its objectives and strategic initiatives.
These policies provide general guidance in the management of the 3CE’s fiscal affairs and are to be used by all 3CE employees to meet their obligation to operate in a financially prudent manner.
The Recommended Budget adheres is developed in accordance with this frameworkto these policies.
2.0 General Financial Policy
The cornerstone and highest priority of 3CE’s financial policies is fiscal integrity. It shall be the goal of 3CE to achieve a strong financial condition with the ability to:
• Sustain adequate financial liquidity to meet normal operating and contingent obligations;
• Ensure a sufficient financial base is maintained to withstand local, regional, national, and global economic impacts;
• Foster the ability to adjust efficiently to the community’s changing service requirements;
• Maintain and improve infrastructure and capital assets; • Regularly review programs and operational methods to improve processes that result in higher productivity and eliminate repetitive and duplicative functions; • Encourage collaboration with other government entities, the private sector, and public-private partnerships where cost and risk are minimized in the delivery of services within 3CE’s service area;
• Promote sharing of costs and benefits by service users; • Ensure the legal use of financial resources through an effective system of internal controls;
• Support sound financial management by providing accurate and timely information on 3CE’s financial condition; and
• Provide a framework for the wise and prudent use of debt financing and maintain a
good strong credit rating in the financial community.
2.1 The Annual Budget
The Chief Executive Officer (CEO) will recommend a balanced budget that:
• Aligns annual expenditures with the revenue requirement established through a cost-of-service methodology; • Minimizes reliance on reserves and one-time funding sources for ongoing operations; and
• Maintains competitive, market-based rates while supporting 3CE’s renewable energy goals. aligns annual expenditures with market reasonable rates based on the revenue 3CE will strive to maintain competitive rates while adhering to our renewable energy goals;
• Through the CEO, the Chief Financial Officer (CFO) will consult with 3CE Officers and input in developing the Recommended Budget through cooperative discussions and financial education.; The
and emerging fiscal issues.; and
Community Choice Association (CalCCA), state representatives, legislative advocates in the State Capitol, and other local government organizations to ensure our community voice is heard regarding any state legislation or regulation affecting our stakeholders.
3.0 Roles and Functions
3.1 Role of Chief Executive Officer
The CEO serves as the chief policy advisor to the Policy Board, Operations Board, and the various Board committees. The CEO promotes responsible resource allocation, strives to protect 3CE’s financial position and integrity, and provides independent analysis on policy and financial issues.
The CEO is the fund manager for the 3CE Enterprise Fund and any other funds that may be created.
3.2 Principal Functions of the Chief Executive Officer
Principal functions of the CEO include:
• Promoting continuous improvement of the structures, systems, processes, and effectiveness of programs;
• Preparing the annual financial plan (Recommended Budget); • Working with departments to evaluate potential federal, state, and local budget impacts; • Developing financial forecasts;
• Monitoring revenues and expenditures for conformance with the annual budget; • Recommending effective fiscal policies to carry out the 3CE mission; • Verifying Policy Board policies are consistently applied; and • Ensuring items brought before the Policy Board are transparent, accurate, complete, fully justified, and reviewed by appropriate stakeholders.
3.3 Principal Functions of the Chief Financial Officer
The CFO is 3CE’s Policy Board appointed Treasurer and considered the subject matter expert for the financial management of the agency. The CFO is responsible for:
• Carrying out financial operations efficiently and cost-effectively while adhering to all
3CE, state, and federal laws, regulations, and policies; • Preparing budgets and financial estimates with attention to accuracy based on financial expertise, 3CE, state, and federal funding changes, and economic indicators affecting revenues, expenditures, and service levels;
• Reviewing, evaluating, and assessing potential federal and state budget issues that may impact the agency;
• Developing and performing financial forecasts;
• Overseeing Middle Office responsibilities as identified in 3CE’s Energy Risk Management Policy;
• Monitoring monthly revenue, expenditure, and cash flow performance and conformance with the Adopted Budget;
• Meeting the Policy Board’s strategic financial initiatives and policies; and • Ensuring items brought before the Policy Board are transparent, accurate, complete, fully justified, and reviewed by all appropriate stakeholders.
3.4 Principal Functions of the Audit and Finance Committee The Audit and Finance Committee’s principal functions include receiving staff updates on financial issues affecting 3CE and providing oversight and direction to staff in developing and modifying the budget and audits.
3.5 Principal Functions of the Energy Risk Management Committee The Energy Risk Management Committee is formed by the CEO to implement and maintain the Energy Risk Management Policy, which requires 3CE to maintain sufficient financial reserves to:
• Establish long-term business sustainability;
• Build collateral for power procurement activities;
• Maintain an investment-grade credit rating;
• Develop funding sources for investment in generation and other local initiatives; and • Reduce the business and customer impact of year-to-year volatility in energy markets and procurement costs.
4.0 Services and Fund Structure
4.1 Enterprise Fund
3CE operates as an enterprise fund. The enterprise fund accounts for revenues and expenditures for all 3CE activities. The fund’s operations are financed and operated like private business enterprises, where services provided are primarily funded through user charges (electric generation rates).
4.2 Proprietary Fund
An enterprise fund is classified as a proprietary fund and is financed and operated like private business enterprises whose services are primarily funded through user charges.
4.3 Expenses
Enterprise fund expenses and revenues will be established at sufficient levels to properly maintain the fund’s infrastructure and provide significant capital development.
4.4 Rate Structure and Net Position
The enterprise fund will maintain an adequate rate structure to cover the cost of all operations, including cash flow, capital replacement and maintenance, debt service if applicable, contingency funding, reserve contributions, and depreciation. Rates may be offset from the available unreserved net position only after these requirements are met.
5.0 Operating Budget
5.1 The 3CE Budget
The Recommended Budget is the central financial planning document that the agency’s goals, objectives, priorities, levels of service, and the associated operating revenue and expenditures.
Appropriations are recommended based on the relationship between expected expenditures and revenue. If revenues are estimated to fall below expected amounts, the agency will take all actions available to reestablish a revenue and expenditure relationship that conforms to the operating requirements.
The Recommended Budget shall be presented to the Policy Board for adoption in September of each year and clearly presented to a general audience of the public. The Recommended Budget may be modified as necessary by the Policy Board during the fiscal year.
5.2 Balance Budget
A budget is balanced when the total estimated financing sources (beginning fund balance plus revenues) equal the total appropriations (expenditures). At no time shall spending in a given year exceed total current estimated revenues plus any net positive position (reserved and non-reserved).
5.3 Ongoing Operations Needs
3CE will adequately fund ongoing maintenance and operational needs with ongoing annual revenue. Without prior direction and approval by the Policy Board, the use of one-time revenues or short-term borrowing is not allowed as a resource to finance ongoing operational needs.
5.4 Capital Facilities and Equipment
3CE shall establish as a primary fiscal responsibility the acquisition, preservation, maintenance, improvement, and, when applicable, orderly replacement of the 3CE’s capital facilities and equipment. 3CE shall endeavor to purchase a permanent headquarters and appropriate regional offices to provide continuity of location and operations while stabilizing and controlling facility costs into the future. 3CE will acquire and maintain high-quality equipment to maximize useful life and ensure efficient operations.
5.5 Appropriations and Transfers
The agency enterprise fund is not constrained by appropriation controls. The CEO is charged with maintaining the relationship between financing uses and financing sources and shall report to the Policy Board any deviation in excess of the adopted budget. The CEO is authorized to make appropriation transfers between departments and divisions within the enterprise fund as necessary to adequately reflect the expenditure needs of the agency.
5.6 Responsibility for Budget Management and Budgetary Control The 3CE shall maintain a budgetary control system to help it adhere to the adopted budget. The CEO has budgetary control and authority over appropriations. The CFO shall administer and maintain the system utilized for budgetary control. As the administrator of the budgetary control system, the CFO shall notify the CEO when a department is reaching the departmental appropriation limit. The CFO shall seek guidance from the CEO on all issues relating to appropriations and controls.
3CE Officers in coordination with the CFO have primary responsibility for managing departmental budgets by:
• Providing accurate and timely budget estimates;
• Monitoring revenues to ensure timely receipt in the amounts anticipated; • Ensuring that expenditures comply with the law, adopted resolutions, policies, and align appropriations relative to revenues;
• Providing prompt notification to the CEO when either revenues or expenditures are not as anticipated; and
• Preparing and justifying budget revisions when necessary
5.7 Preparation of Financial Reports
The CEO annually prepares or causes to be prepared:
• An Annual Comprehensive Financial Report (ACFR) that reports on the 3CE’s financial position and activities adhering to Generally Accepted Accounting Principles (GAAP) or state law requirements, to provide readers with a broader understanding of the agency’s financial operations;
• A mid-year estimate to provide current-year performance and forward-looking perspective to advise the Policy Board on future challenges and provide a base for building the following year’s Recommended Budget; and
• Additional reports, as appropriate, to keep the Policy Board informed on current financial performance and developments.
The CEO has oversight and contract management over the external auditors reviewing the ACFR.
External auditors shall report to the CEO or designated officer on audit findings. The CEO will take the audit findings thereafter to the Policy Board.
5.8 Publication of Budget
The CEO shall publish annually a Recommended Budget document that satisfies nationally recognized standards for effective budget presentation. The Recommended Budget will be provided to the Policy Board a minimum of two weeks in advance of the annual budget hearings.
5.9 3CE Budget Development
Budget development is an annual process incorporating the Policy Board’s priorities and weighing competing requests for 3CE resources within expected fiscal constraints. The process begins with departments preparing “baseline” budgets proposing levels of service and staffing that can be carried out within expected resources (e.g., revenues). Departments may submit “augmentation requests” for additional resources to mitigate potential impacts, increase staffing/services, or invest in infrastructure. The CEO evaluates baseline budgets and augmentation requests within the constraints of a balanced budget and builds the annual Recommended Budget. Staff considers the following criteria in formulating recommendations for the annual budget and subsequent mid-year budget modifications:
• Mandated by current law, regulation, or Policy Board policy; • Alignment with the 3CE’s strategic initiatives and priorities; • Necessary to maintain the current level of mission-critical services/operations; • Substantiation of compelling public need (e.g., health, safety, economic vitality, quality of life) that cannot be met within existing resources;
• Likelihood of success based on prior performance, degree of planning/specificity, requested resources, and assumed timeline;
• Leverages sustainable financial support from non-3CE sources; • Appropriate placement of responsibility (federal, state, or local); • Degree of urgency; and
• Critical infrastructure investment to ensure productivity and continuity of operations.
Criteria in the listing are not exhaustive or in any particular order, nor are they mutually exclusive; funding recommendations may align with more than one criterion.
5.10 Establish 3CE Priorities
The Policy Board has a continuous process of establishing 3CE priorities for ensuing years. The Policy Board implements these priorities in the Recommended Budget. Understanding that elected officials, appointed officials, and agency officers are charged with the actual provision of services to the community, the Policy Board shall set broad priorities to ensure flexibility for the agency to concentrate on these priorities.
5.11 Amendments to the Adopted Budget
Modifications to the Adopted Budget require the approval of a majority of Policy Board members.
Amendments to the Adopted Budget will be made in compliance with Policy Board policies. As an enterprise fund, the relationship between financing uses and financing sources is the overriding principle; thus, appropriation controls are not required.
5.12 Budgetary Basis
The 3CE uses the full accrual basis of accounting following GAAP. The budgetary basis is appropriation-based, beginning October 1 and ending the last day of September of each year. 3CE is an enterprise fund that is appropriation-based budgeted; however, accounting is on a full accrual basis.
5.13 Capital Asset Definition
The 3CE defines capital assets as assets with initial, individual costs of $5,000 or more and an estimated useful life greater than one year, except infrastructure, for which the threshold is set at $100,000. Capital assets include both tangible and intangible assets categorized by asset type for reporting purposes.
5.14 Appropriations for Contingencies
3CE annually adopts an appropriation for contingencies to provide sufficient working capital and a margin of safety for unplanned operational needs. The contingency appropriation is utilized only after all other budget resources have been examined. The appropriation for operational contingencies shall be equal to five percent (5%) of recommended appropriations, excluding cost of energy (COE), unless expressly modified by the Policy Board as part of the annual budget adoption.
6.0 Net Position and Reserve Policies
6.1 Net Position
Net position is a measurement of available financial resources. It is the difference between total assets and total liabilities. The Policy Board recognizes that maintaining a positive net position is essential to preserving 3CE’s financial integrity. Sufficient net position and reserve levels are a critical component of the 3CE’s overall financial management strategy. They are key factors in the ability to sustain service delivery and obtain external financing. Rating agencies analyze net position when considering 3CE’s overall financial strength and creditworthiness. Adequate reserves enable flexible financial planning in developing rate structures, future capital projects, dealing with unforeseen emergencies, and changes in general economic conditions.
6.2 Use of Unreserved Net Position
3CE’s goal is to only use unreserved net position as a source to finance one-time investments, reserves, and/or commitments. As a one-time financing source, any end-of-year positive net position will be used for non-recurring expenditures and only after confirmation of the yearly audit.
6.3 Strategic Reserve
A strategic reserve is essential to provide an adequate financial backstop throughout the year. 3CE shall adopt a strategic reserve equal to twenty-five percent (25%) of budgeted appropriations. The strategic reserve will provide sufficient working capital (cash flow), fund settlements of legal judgments against the 3CE in excess of reserves specifically designated for litigation, for natural disasters as determined by the CEO or Policy Board, and for one-time-only budget overruns that could not be addressed through the annual appropriations for contingencies.
If the strategic reserve is utilized to provide temporary funding for unforeseen needs, 3CE shall take the measures necessary to prevent its use in the following fiscal year by increasing revenues and/or decreasing expenditures to regain balance. 3CE shall also restore the strategic reserve to the minimum level of twenty-five percent (25%) of budgeted appropriations within five fiscal years following the fiscal year in which the event occurred. The plan to restore the strategic reserve shall be included and highlighted in the Recommended Budget.
6.4 Energy Rate Stabilization Reserve
The agency shall maintain an energy rate stabilization reserve equal to twenty (20%) of the budgeted COE. This reserve serves as a financial buffer to absorb fluctuations in energy costs and respond to unforeseen changes in market conditions or regulatory requirements that may increase power procurement expenses that cannot be absorbed by changes to cover recovery efforts, such as electric generation rate adjustments.
A central purpose of this reserve is to support rate smoothing and long-term rate stability. By strategically using this reserve, 3CE may maintain consistent, competitive customer rates even during periods of cost volatility, strengthening its position as a load-serving entity and sustaining customer trust.
Any material or sustained use of the reserve shall be reflected in the Recommended Budget, including a long-term plan to replenish the reserveThe energy rate stabilization reserve shall be utilized for large fluctuations in the COE and/or required increased power purchasing needs including regulatory compliance. This reserve may be utilized throughout the fiscal year at the direction of the CEO with subsequent reporting to the Energy Risk Management Committee and the Boards.
6.5 Renewable Energy Innovation and Initiatives Reserve The agency shall maintain a renewable energy innovation and initiatives reserve equal to five percent (5%) of the budgeted COE. This reserve shall be utilized for investments in furtherance of the Boards’ goals to accelerate the utilization of 100% clean and renewable energy through the commitment to new or emerging, but scalable, technologies that can address the challenges of an intermittent renewable grid and reduce dependency on fossil fuels for electricity generation.
6.6 Capital Infrastructure Reserve
The agency shall establish a capital infrastructure reserve sufficient to provide for the operation, routine scheduled maintenance, reasonably anticipated unplanned repair, and ultimate replacement costs of 3CE’s capital infrastructure, including enterprise software, real estate, and electric generation and storage facilities.
6.7 Measurement of Reserve Targets
Due to the nature of the agency's business, the mechanism to fund the four reserves shall be the use of cash, cash equivalents, and short-term investments. The reserves must be liquid and available to ensure the ability to use the reserves for their intended purpose. Market fluctuations,
operational continuity, competitive advantage, and regulatory compliance are risks that are mitigated with robust reserves as the agency transitions to a clean and renewable electric grid.
7.0 Capital Facilities and Improvement Policies
7.1 Capital Investments
3CE is responsible for investing in the preservation, maintenance, and improvement of owned assets, including buildings, equipment, and other capital infrastructure.
Projects in excess of $100,000 that have an estimated useful life of at least five years and are non-recurring are considered capital projects and should be evaluated against other uses and priorities.
All capital expenditures should be included in the Adopted Budget or taken to the Policy Board for approval and amendment to the Adopted Budget.
8.0 Debt Management
Due to its length and complexity, the Debt Management Policy is reviewed by the Policy Board separately from these policies.