MEETING of the Finance Committee of the
Clean Power Alliance of Southern California
Wednesday, March 23, 2022
11:00 a.m.
SPECIAL NOTICE: Pursuant to the Proclamation of the State of Emergency by Governor Newsom on March 4, 2020, AB 361, and enacting Resolutions, and as a response to mitigating the spread of COVID19, the Finance Committee will conduct this meeting remotely.
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PUBLIC COMMENT: Members of the public may submit their comments by one of the following options:
• Email Public Comment: Members of the public are encouraged to submit written comments on any agenda item to [email protected] up to four hours before the meeting. Written public comments will be announced at the meeting and become part of the meeting record. Public comments received in writing will not be read aloud at the meeting. • Provide Public Comment During the Meeting: Please notify staff via email at [email protected] at the beginning of the meeting but no later than immediately before the agenda item is called.
o You will be asked for your name and phone number (or other identifying information) and agenda item similar to filling out a speaker card so that you can be called on when it is your turn to speak.
o You will be called upon during the comment section for the agenda item on which you wish to speak on. When it is your turn to speak, a staff member will unmute your phone or computer audio.
o You will be able to speak to the Committee for the allotted amount of time. Please be advised that all public comments must otherwise comply with our Public Comment Policy. o Once you have spoken, or the allotted time has run out, you will be muted during the meeting.
If preferred, you may also submit written comments during the meeting via email to:
[email protected]. The written comments will be shared with the Committee. *While downloading the Zoom application may provide a better meeting experience, Zoom does not need to be installed on your computer to participate. After clicking the webinar link above, click “start from your browser.” Agenda Page 1
Clean Power Alliance Finance Committee
March 23, 2022
Meetings are accessible to persons with disabilities. Individuals who need special assistance or a disability-related modification or accommodation to participate in this meeting, or who have a disability and wish to request an alternative format for the meeting materials, should contact the Clerk of the Board at least two (2) working days before the meeting at [email protected] or (323) 640-7664. Notification in advance of the meeting will enable us to make reasonable arrangements to ensure accessibility to this meeting and the materials related to it.
PUBLIC COMMENT POLICY: The General Public Comment item is reserved for persons wishing to address the Board on any Clean Power Alliance-related matters not on today’s agenda. Public comments on matters on today’s Consent Agenda and Regular Agenda shall be heard at the time the matter is called.
Comments on items on the Consent Agenda are consolidated into one public comment period. Members of the public who wish to address the Board are requested to contact the Board Clerk, as specified above, at the beginning of the meeting but no later than immediately prior to the time an agenda item is called.
Each speaker is limited to two (2) minutes (in whole minute increments) per agenda item with a cumulative total of five 5 minutes to be allocated between the General Public Comment, the entire Consent Agenda, or individual items in the Regular Agenda. Please refer to Policy No. 8 – Public Comment for additional information.
CALL TO ORDER & ROLL CALL
GENERAL PUBLIC COMMENT
CONSENT AGENDA
1. Approve Minutes from the February 23, 2022 Finance Committee Meeting
2. Receive and File February 2022 Risk Management Team Report
3. Receive and File February 2022 CPA Investment Report
4. Receive and File January 2022 Financial Dashboard
REGULAR AGENDA
5. Report from the Chief Financial Officer
6. (a) Review Proposed FY 2021/22 Amended Budget; and (b) Recommend Approval of Proposed FY 2021/22 Amended Budget to the Board of Directors as Presented
7. Receive Presentation on Clean Energy Prepayment Financing and Provide Input
COMMITTEE MEMBER COMMENTS
ADJOURN – NEXT MEETING APRIL 27, 2022
Public Records: Public records that relate to any item on the open session agenda for a Committee Meeting are available for public inspection. Those records that are distributed less than 72 hours prior to the meeting are available for public inspection at the same time they are distributed to all, or a majority of, the members of the Committee. Public records are available for inspection online at www.cleanpoweralliance.org/agendas.
Agenda Page 2
MINUTES
REGULAR MEETING of the Finance Committee of the
Clean Power Alliance of Southern California
Wednesday, February 23, 2022, 11:00 a.m.
Pursuant to the Proclamation of the State of Emergency by Governor Newsom on March 4, 2020, AB 361, and enacting Resolutions, and as a response to mitigating the spread of COVID19, the Finance Committee conducted this meeting remotely.
CALL TO ORDER & ROLL CALL
Committee Chair Julian Gold called the meeting to order at 11:04 a.m. and Interim Clerk of the Board, Raynette Tom, conducted roll call.
Roll Call
Beverly Hills Julian Gold Committee Chair Remote
Carson Reata Kulcsar Committee Member Remote
Rolling Hills Estates Steve Zuckerman Committee Member Remote Santa Monica Pam O’Connor Committee Member Remote
All votes are unanimous unless otherwise stated.
GENERAL PUBLIC COMMENT
There was no public comment.
CONSENT AGENDA
1. Approve Minutes from the January 26, 2022 Finance Committee Meeting
2. Receive and File January 2022 Risk Management Team Report
3. Receive and File January 2022 CPA Investment Reports
4. Receive and File December 2021 Financial Report
Vote: The consent agenda was approved by a roll call vote.
REGULAR AGENDA
5. Report from the CFO
David McNeil, Chief Financial Officer, provided a presentation of the item. Mr. McNeil reviewed a summary year-to-ate financial results, income statement from July to December 2021, a budget to actual analysis, and a financial outlook. The item was discussed by staff and the Committee Members.
6. Update on Potential Clean Energy Prepayment Transaction Mr. McNeil provided a presentation on the following topics: summary of clean energy financings; prepay transaction participants; role, evaluation, and selection of a municipal financial advisor; proposed timelines for Board and Committee presentations; and concluded with a review on prepay contracting risks. The item was discussed by staff and the Committee Members.
Agenda Page 3
Clean Power Alliance Finance Committee Page 2 of 2
February 23, 2022 Minutes
COMMITTEE MEMBER COMMENTS
None.
ADJOURN
Committee Chair Gold adjourned the meeting at 11:58 a.m.
Agenda Page 4
Staff Report – Agenda Item 2
To:
From:
Approved by:
Subject:
Date:
Clean Power Alliance (CPA) Finance Committee
Geoff Ihle, Director of Market Risk
Ted Bardacke, Chief Executive Officer
Risk Management Team Report
March 23, 2022
February 2022 RMT REPORT
Key Actions
• Discussed January 2022 market performance.
• Reviewed energy positions and approved 2022-2025 hedges. • Reviewed positions for RPS, carbon free, and Resource Adequacy. • Reviewed the PCIA Voluntary Allocation & Market Offer (VAMO) process and SCE’s initial allocation volumes.
• Reviewed Community Default-Change impacts on Load Forecast.
Policy Compliance
There were no policy deviations reported for January.
ATTACHMENT
None.
Agenda Page 5
Staff Report – Agenda Item 3
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Subject: CPA Investment Report
Date: March 23, 2022
RECOMMENDATION
Receive and File.
ATTACHMENT
1) February 2022 Investment Report
Agenda Page 6
Fund Name: Local Agency Investment Fund
Beginning Balance 15,697
Interest Paid (1) -
Deposits
Withdrawals -
Ending Balance 15,697
Interest Earned (2) 3
Average Monthly Effective Yield 0.278%
1. Interest is paid quarterly effective 15 days following the end of the quarter
2. Interest earned is based on daily compounding, account balances and monthly effective yield published by LAIF Clean Power Alliance
Investment Report
February 2022
Agenda Page 7
Staff Report – Agenda Item 4
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Approved by: Ted Bardacke, Chief Executive Officer
Subject: Financial Dashboard
Date: March 23, 2022
RECOMMENDATION
Receive and File.
ATTACHMENT
1) January Financial Dashboard
Agenda Page 8
CUSTOMERS
Summary of Financial Results
Definitions:
Accounts: Active Accounts represent customer accounts of active customers served by CPA per Calpine Invoice.
Participation Rate %: Participation Rate represent active accounts divided by eligible CPA accounts YTD Sales Volume: Year to date sales volume represents the amount of energy (in gigawatt hours) sold to retail customers Revenues: Retail energy sales less allowance for doubtful accounts Cost of energy: Cost of energy includes direct costs incurred to serve CPA’s load Operating expenses: Operating expenditures include general, administrative, consulting, payroll and other costs required to fund operations Net operating income, also known as earnings before interest, depreciation and amortization (EBIDA), represents the difference between revenues and expenditures before depreciation expense, interest income and expense, and capital expenditures Cash and Cash Equivalents: Includes cash held as bank deposits.
Year to date (YTD): Represents the fiscal period beginning July 1, 2021 YTD
Jan
2022
Financial Dashboard
Note: Numbers may not sum up due to rounding.
Active Accounts
998,945
Participation Rate
95.62%
YTD Sales Volume
6,999 GWh
Jan Sales Volume
935 GWh
Com-Lg
8%
Com-Sm
37%
Res
55%
103
204
298
356
415
484
548
$897.1
0 100
200
300
400
500
600
700
800
900
1000
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
in 000,000's
Cumulative Revenue
Actual Budget
6 9
16 16
33 41 46
$63
-30
-20
-10
0 10
20 30
40 50
60 70
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Net Energy Revenue
Actual Budget
0 10
20 30
40 50
60 70
80 Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Cash & Cash Equivalents
Unrestricted Resctricted
in $000,000's Actual Budget Var % Actual Budget Var %
Energy Revenues 63.9 65.4 -1.5 -2% 548.0 565.3 -17.3 -3% Cost of Energy 58.7 61.4 -2.7 -4% 502.0 572.6 -70.6 -12% Net Energy Revenue 5.2 4.0 1.2 30% 46.0 -7.3 53.3 731%
Operating Expenses 2.4 2.6 -0.2 -8% 15.9 19.0 -3.1 -17% Net Operating Income 2.8 1.4 1.4 98% 30.1 -26.3 56.4 214% January Year- to- Date
CPA recorded net operating income of $2.8 million in January 2022. Net operating income was $1.4 million more than the budgeted operating income of $1.4 million. For the year to date, CPA recorded net operating income of $30.1 million, $56.4 million more than the budgeted, year-to-date operating loss of $26.3 million.
Revenue was 2% lower than budgeted in January due to mild temperatures in CPA’s service area resulting in lower electricity use by CPA customers. The cost of energy was $58.7 million or 4% lower than budgeted primarily as a result of mild temperatures, lower energy consumption by CPA customers, and lower wholesale energy prices than budgeted. For the year to date, operating costs were lower than budgeted operating costs primarily because of lower staffing costs resulting from delayed hiring and staff turnover, the performance of services later in the year than budgeted, and the non-utilization of contingencies.
As of January 31, 2022, CPA had $60.9 million in unrestricted cash and cash equivalents, and $79.853 million available on its bank line of credit. CPA has a $30 million loan outstanding from LA County. In February 2022 CPA repaid $10 million of the LA County loan and received and applied to customer bills approximately $15 million of funding from the California Arrearage Payment Program (CAPP).
CPA is in sound financial health and compliance with its bank and other credit covenants.
Agenda Page 9
Staff Report – Agenda Item 5
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Subject: Report from the Chief Financial Officer
Date: March 23, 2022
The Chief Financial Officer will provide a verbal update on treasury operations, financial performance, accounts receivable, and preparations for the FY 2022/23 budgeting and rate setting processes.
Agenda Page 10
Staff Report – Agenda Item 6
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Approved By: Ted Bardacke, Chief Executive Officer
Subject: Proposed Fiscal Year 2021/22 Amended Budget
Date: March 23, 2022
RECOMMENDATION
Recommend approval of the Fiscal Year (FY) 2021/22 Amended Budget (“Amendment”) to the Board at its April 7, 2022 Board meeting (Attachment 1).
BACKGROUND
Each year CPA develops an annual budget to govern the agency’s revenues and expenses during the upcoming fiscal year. In June 2021, CPA’s Board of Directors approved the FY 2021/22 Budget (“Budget”).
The Proposed Amendment will allow increases to Technical Services (+$29,000, +2%), Interest Expense (+$283,000, +99%) and Capital Outlay (+$39,000, +13%) budget line items. These increases will be largely offset by decreases in Legal and Other Services line items. The impact of these changes on the budgeted change in Net Position is $0.00.
All other revenue and expense budget line items will remain unchanged.
Budget Detail
The Amendment includes changes to the following Budget line items:
Technical Services (+$29k, +2%): The proposed increase to the Technical Services budget line item would allow for an increase in contingencies.
Agenda Page 11
FINANCE COMMITTEE ITEM 6
Interest Expense (+$283k, +99%): The proposed increase to Interest Expense budget line item is intended to accommodate increased expenses arising from:
• A $30 million term loan from the County of Los Angeles approved by the Board in August 2021.
• An $80 million line of credit with JPMorgan Chase approved by the Board in September 2021. The JPMorgan Chase line of credit replaced CPA’s $37 million borrowing facility with River City Bank.
Capital Outlay (+$39k, +13%): The proposed increase in Capital Outlay will allow increased investment in the architecture and performance of CPA’s website and to accommodate unforeseen equipment purchases and office improvements as more staff begin to use the office on a regular basis.
Legal Services (-$156k, -13%) and Other Services (-$156k, -10%): Anticipated works/projects included in the Legal Services and Other Services budget line items were delayed or replaced due to other priorities or logistic issues.
ATTACHMENTS
1) Proposed FY 2021/21 Amended Budget
2) Budget Amendment Presentation
Agenda Page 12
FY 2021/22
Budget Amendment
FY 2021/22
Amended
Budget
Budget
Difference ($)
Budget
Difference
(%)
Revenue ‐ Electricity net 895,246,680 ‐ 895,246,680 0% Transfer from Fiscal Stabilization Fund ‐
Other revenue 1,868,000 ‐ 1,868,000 0% TOTAL REVENUE 897,114,680 897,114,680 ‐ 0% TOTAL ENERGY COSTS 834,281,512 834,281,512 ‐ 0% NET ENERGY REVENUE 62,833,168 62,833,168 ‐ 0%
OPERATING EXPENSES
Staffing 9,893,000 ‐ 9,893,000 0% Technical services 1,184,000 29,000 1,213,000 29,000 2% Legal services 1,237,000 (156,000) 1,081,000 ‐ (156,000) 13% Other services 1,612,000 (156,000) 1,456,000 ‐ (156,000) 10% Communications and marketing services 1,505,000 ‐ 1,505,000 0% Customer notices and mailing services 797,000 ‐ 797,000 0% Billing data management services 10,417,000 ‐ 10,417,000 0% Service fees ‐ SCE 2,016,000 ‐ 2,016,000 0% Customer programs 1,872,000 ‐ 1,872,000 0% General and administration 1,584,000 ‐ 1,584,000 0% Occupancy 548,000 ‐ 548,000 0% TOTAL OPERATING EXPENSES 32,665,000 (283,000) 32,382,000 ‐ (283,000) 1% OPERATING INCOME 30,168,168 283,000 30,451,168 283,000 1% Finance and interest expense 287,000 283,000 570,000 283,000 99% Depreciation ‐ 156,000 ‐ 156,000 0% TOTAL NON OPERATING EXPENSES 443,000 283,000 726,000 283,000 64% Interest Income ‐ 144,000 ‐ 144,000 0% TOTAL NON OPERATING REVENUE ‐ 144,000 ‐ 144,000 0% NON OPERATING REVENUE (EXPENSE) (299,000) (283,000) (582,000) (283,000) 95% CHANGE IN NET POSITION ‐ 29,869,168 29,869,168 ‐ 0% NET POSITION BEGINNING OF PERIOD 67,370,711 74,229,299 6,858,588 10% NET POSITION END OF PERIOD 97,239,879 104,098,467 6,858,588 7% FISCAL STABILIZATION FUND ‐ 17,392,965 (17,392,965) ‐100% RESERVES END OF PERIOD (Net Position + FSF) 114,632,844 104,098,467 ‐ (10,534,377) 9% Other Uses
Capital Outlay 297,000 39,000 336,000 39,000 13% Depreciation ‐ (156,000) (156,000) ‐ 0% CHANGE IN FUND BALANCE 29,728,168 (39,000) 29,689,168 (39,000) 0% Note: Funds may not sum precisely due to rounding
CLEAN POWER ALLIANCE of SOUTHERN CALIFORNIA
Fiscal Year 2021/2022 Amended Budget
Proposed
Agenda Page 13
Item 6 - Draft FY 2021/22 Budget Amendment
March 23, 2022
Agenda Page 14
Recommendation:
Recommend approval of the Fiscal Year (FY) 2021/22 Amended Budget (“Amendment”) to the Board of Directors at its April 7, 2022 Board meeting.
Agenda Page 15
Amendments Highlights
• There are no proposed changes to Revenues and Cost of Energy 3 Agenda Page 16
Amendments Highlights (continued…)
Proposed increase in the Technical Services budget line item would allow an increase in contingencies.
Proposed increase in Interest Expense is intended to accommodate increased expenses arising from the $30 million term loan with the County of Los Angeles and the $80 million line of credit with JPMorgan Chase.
The proposed decreases to the Legal Services and Other Services budget line items are due to anticipated works/projects included in the FY 2021/22 Budget were delayed or replaced due to other priorities or logistic issues.
The impact of the above changes on the budgeted change in Net Position is $0.00. 4 Agenda Page 17
Amendments Highlights continued…
The proposed increase in Capital Outlay will allow increased investment in the architecture and performance of CPA’s website and to accommodate unforeseen equipment purchases and office improvements as more staff begin to use the office on a regular basis.
5 Agenda Page 18
Questions?
Agenda Page 19
Staff Report – Agenda Item 7
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Subject: Clean Energy Prepayment Financing
Date: March 23, 2022
The Chief Financial Officer will provide a presentation on Clean Energy Prepayment Financing.
ATTACHMENT
1) Clean Energy Prepayment Financing Presentation
Agenda Page 20
Item 7: Clean Energy
Prepayment Financing
March 23, 2022
Agenda Page 21
2 Summary
• In October 2021 Staff presented the Executive and Finance Committees an introduction to clean energy prepayment financings
• Prepays are financing mechanisms that allow municipal utilities and CCAs to leverage their status as issuers of tax-exempt debt to reduce energy costs. Thirteen municipal prepayment transactions totaling over $7.6 billion have been completed in California since 2006; three transactions were completed by CCAs in Fall 2021. • An initial prepay transaction is expected to save CPA approximately $2-3 million per year on its PPA costs, in-line with savings achieved by other CCAs. Follow-on transactions have the potential to add further savings. Prepays are a tool available to CPA to help stay competitive with SCE.
• CPA has contracted with Municipal Capital Advisors (MCM) on a short-term basis under the CEO contract signing authority to assist CPA with an initial evaluation of prepay transactions, an evaluation of potential prepaid energy suppliers and bond issuers, and to assist with presentations to CPA’s Board and Committees Agenda Page 22
3 • Prepaid Supplier
• A financial institution or other investment grade credit-rated entity • CPA assigns one or more existing PPAs to the Prepaid Supplier, which assumes the PPA obligations of the “buyer”. • Receives lump sum “prepayment” from Bond Issuer for long-term energy supply and delivers energy to Bond Issuer • Bond Issuer
• Typically a JPA authorized to issue prepay bonds
• Issues the bond; uses the bond proceeds to pay the Prepaid Supplier in exchange for a long-term supply of energy • Delivers energy to CPA in exchange for prepay energy payments • Pays Bond Investors
• Bond Investors
• Purchases prepay bonds in exchange for principal and interest payments over the term of the Bond • Existing PPA Counterparty / Energy Seller (“Renewable Energy Project”) • Receives monthly cash flows from Prepaid Supplier (rather than CPA) for energy supplied to the Prepaid Supplier • Service Providers
• Municipal Financial Advisor, Bond and Tax Counsel, CPA Prepay Legal Counsel, Prepay Bond Underwriters • Support the structuring and issuance of a prepay Bond Energy Prepayment Transaction – Entities
Agenda Page 23
Typical PPA Flowchart
CPA
Energy Payments
MWhs + RECs
4 Renewable Energy
Project
Agenda Page 24
5 Example Prepay Transaction Flowchart
(Monthly Cash and Electricity Flow)
Agenda Page 25
Example Prepay Transaction Flowchart
(At Bond Issuance / Closing)
Prepaid
Supplier
Bond Issuer CPA
Bond
Investors
6 Prepaid Price
$588,000,000 Bond
Proceeds
$593,000,000
PPA assigned from CPA to Prepaid Supplier
Service
Providers
Service Fees
$5,000,000
Agenda Page 26
7 Example Prepay Economics (Illustrative only)
1. Representing the annual cost of the energy under a PPA assigned to the Prepaid Supplier; e.g., a wind PPA with a monthly cost of $2.5 million per month / $30 million per year
Cost of Funds 3.00% Bond interest rate 2.28%
PV of PPA PMTs $588,000,000 PV of Bond Payments $ 593,000,000 Year PPA Payments(1) Year Bond Payments Year
Prepay Energy
Payments Year Savings
1 $ 30,000,000 1 $ 27,500,000 1 $ 27,500,000 1 $ 2,500,000 2 30,000,000 2 27,500,000 2 27,500,000 2 2,500,000
3 30,000,000 3 27,500,000 3 27,500,000 3 2,500,000
… … … … … … … …
28 30,000,000 28 27,500,000 28 27,500,000 28 2,500,000
29 30,000,000 29 27,500,000 29 27,500,000 29 2,500,000
30 30,000,000 30 27,500,000 30 27,500,000 30 2,500,000
Total $ 900,000,000 Total $ 825,000,000 Total $ 825,000,000 Total $ 75,000,000 Energy Prepayment $ 588,000,000
Issuance Expenses $ 5,000,000
Required Bond Proceeds $ 593,000,000
Taxable / Tax Exempt Interest Rate Differential (Spread) 0.72%
A B C D
Prepay Supplier Bond Issuer CPA Savings to CPA
Agenda Page 27
8 Risks and Risk Mitigants of Prepay Transactions
• Prepay transaction terminates before bond maturity date due to:
• Non-performance or default by Prepaid Supplier
• Mitigated by selecting an investment grade credit-rated Prepaid Supplier • Insufficient energy supply to meet delivery obligations to Prepay Supplier • Mitigated by volume of CPA PPAs and Prepaid Supplier’s ability to source energy from the market for delivery to Bond Issuer / CPA if needed
• Non-performance by CPA
• Mitigated by CPA financial strength and by reserve accounts funded from bond proceeds • Interest rate differentials are too narrow at the end of the initial period (5 to 10 years of the 30-year bond) to achieve CPA minimum savings threshold (e.g., $2.5 million annually) • This risk cannot be mitigated
• If the prepay transaction terminates before bond maturity date:
• The assigned PPA returns to status quo; CPA re-assumes buyer obligations under the PPA and pays the PPA price as it does currently.
• Prepaid Supplier is required to retire prepay bonds.
• CPA is not responsible for bond repayment.
Agenda Page 28
9 Risks and Risk Mitigants of Prepay Transactions
• Market timing risks
• The risk of being “too late” and not being able initiate a prepay bond if market conditions become unfavorable or “too early” if spreads widen further after a prepay bond is issued • If CPA elects to proceed, it will be best served by moving forward with preparations for a prepay transaction expeditiously, so as to by ready to transact when market conditions are favorable
Agenda Page 29
10 • The Prepaid Supplier’s fees and benefits must be measured and controlled:
• Structuring fees
• Underwriting fees for selling the prepay bonds if the bond underwriter is a related party • Fees added to the prepay price for the delivery of physical electricity • Electricity remarketing fees
• Future structuring and underwriting fees for future bond re-pricings • Lower funding costs
• Municipal Financial Advisor (MFA)
• Works for CPA to ensure that the Prepaid Supplier fees and implicit funding costs are fair, reasonable and consistent with market pricing
• Owes a fiduciary responsibility to CPA with contractual risk mitigations, MSRB oversight, and SEC enforcement
• CPA manages additional risks by engaging in competitive solicitation processes for services, engaging competent outside legal counsel experienced in prepayments, and through the exercise of managerial and professional judgement Risks and Risk Mitigants – Pricing
Agenda Page 30
11 Proposed Timeline: Board and Committees
March 2022 • Prepay Presentation to Executive Committee (March 16) • Prepay Presentation to Finance Committee (March 23)
April 2022 • Board (April 7)
• Introduction to prepay financing
• Public noticing of a proposed JPA amendment to join Bond Issuer JPA, if necessary • Prepay Update to Executive Committee (April 20)
• Prepay Update to Finance Committee (April 27)
May 2022 • Board (May 5)
• Introduction to prepay financing part II (as needed) or • Present Resolution to amend CPA JPA to join Bond Issuer JPA, as required • Present Resolution to join a Bond Issuer JPA
• Approval of Bond Issuer JPA, CPA Prepay Legal Counsel and Municipal Financial Advisor
Agenda Page 31
June 2022 • Board (June 2)
• Present Resolution to amend CPA JPA to join Bond Issuer JPA; Present Resolution to join a Bond Issuer JPA; Approval of Bond Issuer JPA, CPA Prepay Legal Counsel and Municipal Financial Advisor (if not addressed in May)
• Selection of Prepaid Supplier (and Bond and Tax Counsel, if necessary) July 2022 • Board (July 7)
• Selection of Prepaid Supplier and Bond and Tax Counsel (if not addressed in June) September 2022 • Prepay Update to Executive Committee (September 21) • Prepay Update to Finance Committee (September 28)
• Activities: Preparation of documents and resolutions
October 2022 • Board (October 6)
• Presentation of prepay transaction documents
• Present Resolution to authorize closing of a prepay transaction Oct – Dec 2022 • Transaction close
12 Proposed Timeline Continued
Agenda Page 32
13 Next Steps:
Present an Introduction to Renewable Energy Prepay Financing to the Board of Directors at its April 7, 2022 Board Meeting
Agenda Page 33
Questions
Agenda Page 34
15 Prepay Bond Issuance and Proceeds
• Prepay transactions involve the sale of tax-exempt bonds to Bond Investors by a Bond Issuer. The prepay bond is exempt from federal taxation and from State income taxation for Bond Investors domiciled in California.
• The Bond Issuer uses the bond proceeds to prepay the Prepaid Supplier, usually a financial institution or other investment grade credit-rated entity, for a long-term supply of electricity pursuant to a contract between the Bond Issuer and the Prepaid Supplier • The Prepaid Supplier:
• Is obligated to make a payment that is sufficient, together with other available proceeds, to retire the prepay bonds upon a termination of the prepaid contract and to make payments for any electricity that is not delivered, and
• The Bond Issuer’s bonds receive the same credit rating as that of the Prepaid Supplier • CPA does not issue a bond and bond proceeds do not flow to CPA or to the renewable energy project developers or project owners. CPA has no obligation to repay the bonds.
Prepay Transaction – Key Concepts
Agenda Page 35
16 Assignment of an Existing PPA and new Energy Supply Agreements • In a prepayment transaction, CPA assigns certain rights and obligations, including title and ownership of the renewable energy, under an existing PPA to the Prepaid Supplier • The renewable energy project owner now delivers energy to the Prepaid Supplier and the Prepaid Supplier assumes responsibilities of the “energy buyer” under the terms of the PPA • As noted in the previous slide the Prepaid Supplier sells energy to the Bond Issuer under a long-term supply agreement. CPA enters into a separate energy supply agreement with the Bond Issuer under which CPA continues to receive energy and renewable attributes from the renewable energy project (no change from current situation) and make energy payments (less a discount) to the Bond Issuer.
• Title to the renewable energy passes instantaneously from PPA Seller to Prepaid Supplier to Bond Issuer to CPA at the energy delivery point
Renewable Energy Prepayment – Key Concepts
Agenda Page 36
17 Source of CPA Savings
• In a prepay transaction, a Prepaid Supplier accepts an obligation to make regular PPA payments to the energy project owner and supply energy to the Bond Issuer in exchange for a single lump sum prepayment amount (“prepay price”)
• The “prepay price” is equal to the present value of PPA payments over the prepay bond term discounted at a taxable interest rate approximating what the Prepay Supplier pays to borrow funds • The Bond Issuer sells prepay bonds to Bond Investors and receives bond proceeds that are required to fund the sum of the “prepaid price” and issuing expenses. Bond Issuer remits the “prepaid price” to the Prepaid Supplier and remits issuing expenses to service providers • The prepay bonds are amortized over the 30-year term of the transaction and the resulting principal and interest payments (“P&I payments”) are paid by the Bond Issuer to the Bond Investors. • The Bond Issuer sells CPA the energy each month and CPA pays the Bond Issuer an energy payment sufficient to make P&I payments. The Bond Issuer uses CPA’s payments, and any amounts due form the Prepaid Supplier in lieu of failed deliveries, to make P&I payments to the Bond Investors. • CPA’s energy payment to the Bond Issuer is lower than the PPA payment due to the energy project owner, resulting in an energy cost savings to CPA
Renewable Energy Prepayment – Key Concepts
Agenda Page 37