Audit & Finance Committee
May 21, 2025
Consent Calendar
Approve Minutes from the February 27, 2025 special meeting of the Audit and Finance Committee Investment Performance Report for the period of October 1, 2024 through March 31, 2025 Financial Report for the period of October 1, 2024 through March 31, 2025
Item 4
Appoint Chair and Vice Chair of the 3CE Audit and Finance Committee
ITEM 5
Presentation on the FY 2024-25 Mid-Year Budget Forecast
Start of the Budget Development Process
5 The Mid-Year Budget Forecast
This Forecast provides a mid-year estimate and projections for the next two fiscal years FY 2024-25
FY 2025-26
FY 2026-27
6 Overview of the FY 2024-25 Adopted Budget
Appropriations - $730.3M
Revenue - $770.3M
Additions to reserves - $40M
One cost-based rate adjustment in the year to meet the higher cost of energy - January 1, 2025 Mid-Year Update
One rate adjustment due to changes in load forecast and competitiveness - April 1, 2025 7 The Mid-Year Budget Forecast - Summary
FY 2024-25 estimate: lower operating costs largely due to lower COE (12%), offset by lower than projected operating revenue (10%) The forecasted years project:
drops in the cost of energy largely from lower energy attributes costs personnel, contracted services, and energy programs assume minor increases The forecast projects additions to reserves based on the current three-year plan to reach reserve targets 8 Forecast – Cost of Energy
Mid-Year Forecast:
a $65.2 million (10%) favorable variance vs budget
Higher RA costs partially offset by lower energy costs and greatly offset by lower REC costs to meet RPS requirements Forecasted Years:
Minor increases in the cost of energy are offset by a drop in projected RA costs as new projects come online and market prices drop from a high in past two years Variables that could impact COE projections in the outlying years include delays in PPAs, increased market prices for energy and energy attributes, and RA under the Slice-of-Day paradigm 9 Forecast – Non-Energy Operating Costs
Mid-Year Forecast:
projected at $42.7 million, a 34% positive variance vs budget Personnel vacancies, lower professional services, less energy program expenditures, and lower capital asset acquisition costs Forecasted Years:
assume all positions are filled, 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 10 Forecast – Revenue
Mid-Year Forecast:
a $73.2 million (10%) unfavorable variance vs budget
Lower-than-anticipated load is the primary factor for the variance in electric generation revenue Load estimates changed with the April 1 rate adjustment, staff continues assessing the assumptions in the forecast Forecasted Years:
The annual retail load expected to increase slightly (0.5%) due to a stabilizing customer base post 2025 enrollment Assumes electric rate revenue that meets operating costs and additions to reserves Non-operating revenue expected to remain steady
11 Key Forecast Risks and Strategic Uncertainties
The Forecast is a point-in-time tool to support budget planning, but is subject to evolving condition Several external risks may impact actual results compared to forecasted expectations:
RA and REC (energy attributes) market volatility
Prices may rise sharply as compliance deadlines near
PPA Project Delays
Delays in timelines could impact supply planning and hedging PCIA Regulation Uncertainty
Ongoing CPUC proceedings may significantly affect customer cost burdens Federal Policy Shifts
Potential changes to renewable energy incentives could affect procurement costs 12 13
Conclusion
FY 2024-25 is estimated to end the year with an increase in net position of $39.8 million, aligning with the goal to add $40 million to reserves Management will continue to monitor the financial operating results and variables that can impact net operating results such market volatility, energy attribute costs, retail load, and unforeseen regulatory compliance impacts
Next Steps
The Forecast presented to the Policy Board on June 18
FY 2025-26 budget development continues
Baseline and augmentation budget requests due in June
Continual refinement of next year’s COE and other operating costs 14 Questions
15 Supplemental Slide on Reserves
16 Supplemental Slide on Reserves
17 Supplemental Slide on Reserves + Forecast
18 ITEM 6
Consider supporting the Policy Board's approval of the FY 2025-26 Financial Policies
Purpose of the Annual Financial Policies Adoption
20 Policy Board adopts Financial Policies annually:
Ensures alignment between the budgetary framework and strategic goals Reinforces the foundation on which the Recommended Budget is built
Recent Milestones
Over the past two years:
Consolidated administrative and accounting policies
Established key reserves to address financial resilience, rate stability, innovation investment, and long-term infrastructure needs Measure reserves by readily available liquidity
21 FY 2025-26 Policy Revisions
22 This year’s proposed updates are focused and strategic:
The primary change is refining the language and purpose of the Energy Rate Stabilization Reserve:
better reflect its role in supporting long-term rate stability and minimizing customer opt-outs during volatile market conditions smooth rates and reinforce competitive positioning with long-term rate stability while sustaining customer trust Include minor clarifications for improved readability and consistency
23 Conclusion
The Policies give management the tools to manage through market and regulatory uncertainties It is recommended that the Audit and Finance Committee support the Policy Board’s approval of the FY 2025-26 Financial Policies
Questions
24 Supplemental Slide on Policies
25