REGULAR MEETING of the Finance Committee of the
Clean Power Alliance of Southern California
Wednesday, April 27, 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
Please use updated YouTube link.
Clean Power Alliance Finance Committee
April 27, 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 March 23, 2022 Finance Committee Meeting
2. Receive and File March 2022 Risk Management Team Report
3. Receive and File March 2022 CPA Investment Report
4. Receive and File February 2022 Financial Dashboard
REGULAR AGENDA
5. Report from the Chief Financial Officer
6. Review Fiscal Year 2022/2023 Budget Priorities and Draft Operating Expenses
COMMITTEE MEMBER COMMENTS
ADJOURN – NEXT MEETING MAY 25, 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, March 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 11:02 a.m. and Executive Assistant, 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 Absent
All votes are unanimous unless otherwise stated.
GENERAL PUBLIC COMMENT
There was no 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
Motion: Committee Member Zuckerman, Rolling Hills Estates Second: Committee Member Kulcsar, Carson
Vote: The consent agenda was approved by a roll call vote.
REGULAR AGENDA
5. Report from the Chief Financial Officer
David McNeil, Chief Financial Officer, provided an oral update on CPA’s treasury operations, financial performance, accounts receivable, and preparations for the FY 2022/23 budgeting and rate setting processes. Mr. McNeil noted that CPA received about $15 million in CAPP funding and discussed billing issues where 14% of customers were impacted.
In response to Committee Member Zuckerman’s question concerning Calpine, Ted Bardacke, Chief Executive Officer, commented that Calpine’s work on billing issues is within their scope and they have not requested additional funds. Mr. Bardacke noted that a recent billing issue surfaced involving missing usage that impacts about 20,000 Agenda Page 3
Clean Power Alliance Finance Committee Page 2 of 3
March 23, 2022 Minutes
customers; more details will be shared with the Board concerning this issue, and proactive communication will go out to impacted customers. Committee Chair Gold asked if bad debt and CAPP funding will impact the FY 2021/22 year end close. Mr. McNeil responded that CPA will be able to accurately report its performance but added that another round of CAPP funding may be a factor in the year-end close. Mr. McNeil proposed that another factor will be the resumption of disconnections and late payment fees that are expected to begin in May/June. After discussion, Chair Gold noted to staff that the different funding programs could be confusing to a ratepayer and recommended clear customer messaging delineating the reasons for charges and credits.
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 Antony Sugiarto, Financial Planning & Analysis Manager, provided a presentation on the proposed FY 2021/22 budget amendment. Mr. Sugiarto noted that for this fiscal year, staff is not proposing any budget changes to revenue and cost of energy. Staff is, however, proposing budget changes to operating expenses, and Mr. Sugiarto detailed the proposed changes to technical services, interest expense budget, legal services, and other services budget line items. The impact of the budgeted change in net position is $0.00. Lastly, staff also proposed an increase in capital outlay to allow for tenant improvements, improvements to CPA's website and to accommodate unforeseen equipment purchases and office improvements as more staff begin to use the office on a regular basis.
In response to Committee Member questions regarding the item, staff explained the following: J.P. Morgan Chase was paid $200,000 of the budgeted amount for interest expense with the remainder used to pay the Los Angeles County loan. The proposed increase in capital expense will allow CPA to address significantly long load times on the website and proceed with an extensive architectural refresh. Additionally, the make-up of “other revenue” includes everything that does not fit into retail electricity sales, such as settlement funds received from Southern California Edison (SCE), and California Public Utilities Commission (CPUC) funding Chair Gold opined it would be helpful to have a quantitative understanding of the impact remote work has had on the budget and what impacts returning to work will have moving forward.
Motion:
Second:
Vote:
Committee Member Zuckerman, Rolling Hills Estates
Committee Member Kulcsar, Carson
Item 6 was approved by a roll call vote.
7. Receive Presentation on Clean Energy Prepayment Financing and Provide Input Kate Freeman, Financial Strategy & Initiatives Manager, introduced Municipal Capital Advisors (MCM) representative John Norman; and provided an overview of the item. Ms.
Freeman explained that 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 were completed in California since 2006, with three completed by CCAs in Fall 2021. An initial prepay transaction is expected to save CPA approximately $2-3 million per year on its Power Purchase Agreements (PPAs) costs. Ms. Freeman provided an overview of the various entities involved in setting up an energy prepayment transaction including the prepaid supplier; bond issuer; bond investors; existing PPA counterparty or energy seller; and service providers. Ms. Freeman outlined an illustrative flowchart of a prepay transaction example. In response to Committee Member Kulcsar’s question regarding the 30-year term, Ms. Freeman Agenda Page 4
Clean Power Alliance Finance Committee Page 3 of 3
March 23, 2022 Minutes
explained that CPA would have the ability to add contracts as needed to replace expiring PPAs. Mr. Norman added that the 30-year contracts yield the highest savings prospects.
Ms. Freeman covered various potential risks and risk mitigants of prepay transactions, the proposed timeline for the Board and Committees to discuss prepays, and then invited questions and feedback from the Committee.
Committee Member Kulcsar asked how CPA would avoid having to pay for energy twice if there was an early termination of a prepay bond. CPA and MCM staff explained that in such a case, the prepay suppliers would be responsible for repaying the balance of that bond and that at no time will CPA make payments twice for the same energy. Chair Gold requested feedback from the Committee on their comfort level with the proposed prepayment financing option. Committee Member Kulcsar expressed some concern that risks of prepay transactions do not outweigh the benefits but noted that Committee feedback can provide further context for her. Committee Member Zuckerman added that the option is attractive and nearly risk-free as the potential is there to revert to the original PPA, if needed, without any loss realized. Chair Gold agreed with this opinion, adding that CPA would not be responsible for repaying any bonds. Both Chair Gold and Committee Member Zuckerman added that the greatest risk for CPA is the potential that the bond is not issued, and the potential savings are not realized. In response to Committee Member Zuckerman’s question regarding confidentiality, Mr. McNeil indicated that the terms of CPA’s PPA will remain confidential. After the discussion, the Committee recommended a presentation to the Board that defines concepts, risks, and highlights benefits of prepay transactions.
COMMITTEE MEMBER COMMENTS
None.
ADJOURN
Committee Chair Gold adjourned the meeting at 12:17 p.m.
Agenda Page 5
Staff Report – Agenda Item 2
To: Clean Power Alliance (CPA) Finance Committee
From: Geoff Ihle, Director of Market Risk
Approved by: Ted Bardacke, Chief Executive Officer
Subject: March 2022 Risk Management Team Report
Date: April 27, 2022
March 2022 RMT REPORT
Key Actions
• Discussed February 2022 market performance.
• Reviewed energy positions and approved 2022-2025 hedges. • Reviewed positions for RPS, carbon free, and Resource Adequacy. • Reviewed Community Default-Change impacts on Load Forecast.
Policy Compliance
There were no policy deviations reported for February.
ATTACHMENT
None.
Agenda Page 6
Staff Report – Agenda Item 3
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Approved by: Ted Bardacke, Chief Executive Officer
Subject: CPA Investment Report
Date: April 27, 2022
RECOMMENDATION
Receive and file.
ATTACHMENT
1) March 2022 Investment Report
Agenda Page 7
Fund Name: Local Agency Investment Fund
Beginning Balance 15,697
Interest Paid (1) -
Deposits
Withdrawals -
Ending Balance 15,697
Interest Earned (2) 5
Average Monthly Effective Yield 0.365%
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
March 2022
Agenda Page 8
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: April 27, 2022
RECOMMENDATION
Receive and file.
ATTACHMENT
1) February Financial Dashboard
Agenda Page 9
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
Feb
2022
Financial Dashboard
Note: Numbers may not sum up due to rounding.
Active Accounts
998,236
Participation Rate
95.79%
YTD Sales Volume
7,814 GWh
Feb Sales Volume
815 GWh
Com-Lg
10%
Com-Sm
41%
Res
49%
103
204
298
356
415
484
548598
$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 40
$63
-40
-20
0 20
40 60
80 Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Net Energy Revenue
Actual Budget
0 20
40 60
80 100
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Cash & Cash Equivalents
Unrestricted Resctricted
CPA recorded an operating loss of $8.2 million in February 2022. The operating loss was $6.3 million more than the budgeted operating loss of $1.8 million. For the year to date, CPA recorded an operating income of $21.9 million, $50 million more than the budgeted, year-to-date operating loss of $28.1 million.
Revenue was lower than budgeted in February due to a $7.2 million over accrual of revenue in January that was reversed in February. Absent the January revenue reversal, CPA would have recorded a $700k loss in Feb, $1.1 million lower than a budgeted loss of $1.8m. 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 February 28, 2022, CPA had $74.1 million in unrestricted cash and cash equivalents, and $79.853 million available on its bank line of credit. CPA repaid $10 million of its $30 million loan from the County of Los Angeles in February 2022. The remaining $20 million loan outstanding is repayable in June 2022. In February 2022 CPA 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 in compliance with its bank and other credit covenants.
Agenda Page 10
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: April 27, 2022
The Chief Financial Officer will provide a verbal update on treasury operations and financial performance.
Agenda Page 11
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: FY 2022/23 Budget Priorities and Draft Operating Expenses Date: April 27, 2022
RECOMMENDATION
Review FY 2022/23 budget priorities and draft operating expenses.
ATTACHMENT
1) FY 2022/2023 Budget Priorities & Operating Expenses Presentation Agenda Page 12
Item 6 – FY 2022/23 Budget Priorities &
Draft Operating Expenses Budget
April 27, 2022
Agenda Page 13
FY 2022/23 Budget Process
January – April 2022 (Staff) – FY 2022/23 Goal Setting, Departmental Budgeting, Rate Design Planning, Energy Cost Projections & Consolidated Budget Planning (ongoing) April 20, 2022 (Executive Committee) – Budget Priorities April 21, 2022 (Community Advisory Committee) – Budget Priorities April 27, 2022 (Finance Committee) – Budget Priorities & Draft FY 2022/23 Operating Expenses Budget May 11, 2022 (Board) – Budget Priorities
May 18, 2022 (Executive Committee) – Draft FY 2022/23 Budget May 25, 2022 (Finance Committee) – Proposed FY 2022/23 Budget June 2, 2022 (Board) – Proposed FY 2022/23 Budget
2 Agenda Page 14
Operating Expense Context
3 Energy market risks continue to be elevated as California continues to experience significant heat events and available supply of energy remains constrained.
CPA manages ~$850 million of annual energy costs representing 95% of total costs. In addition, CPA contracts for and operationalizes long-term renewable and storage projects involving billions of dollars of financial commitments.
Renewable energy and storage developers are experiencing supply chain challenges which are increasing demands on the procurement team.
CPA will become the 3rd largest LSE in CAISO by end of 2022 and is the largest supplier of renewable energy in the nation. Regulatory, political and PR opportunities and scrutiny are multiplying.
Expanding suite of customer programs requires CPA to develop the ability to acquire customers in addition to retaining them.
Data challenges do not seem to be abating and are impacting the customer experience.
Agenda Page 15
2022/2023 Operational Priorities
1. Achieve financial targets, including IG Credit
Rating
2. Meet renewable procurement and GHG
emissions targets
3. Attract, retain and develop high-performing and
diverse staff
4. Comply with or surpass regulatory and legal
obligations
5. Develop and deliver impactful customer
programs, including mid-term strategic review
6. Finish development of and implement DEI plan
4 7. Establish and improve processes
8. Update and Implement Data and Systems
Strategic Plan
9. Lead and shape regulatory and policy
discussions
10. Maintain customer participation rates, with
particular emphasis on agencies changing their
default rates
11. Plan for future success, including long-term rate
product strategy
Agenda Page 16
FY 2022/23 Operating Expense Overview
Operating expenses increase of 32% reflects operational priorities including investments in staffing (+41%), communications (+34%), and customer programs (+149%) and G&A (+132%) (rows 10, 14, 18 and 19). $14 million, or 33% of operating expenses (rows 15-17), are fixed by regulation, contract, or policy.
Increase to customer notices and mailing services (+69%) costs arises from noticing ~300,000 customers of default rate changes in the fall of 2022.
Increases in legal (+15%) and other services (+31%) (rows 12, 13) arise mostly from work carried over from FY 2021/22 budget that was delayed due to other priorities or logistical issues.
Occupancy costs (row 20) will be budgeted under G&A and Interest expense (see slides 10 and 14) 5 Agenda Page 17
Staffing Detail
6 Initial budget projects staffing costs to increase by 41%, from 1.1% of total revenue in FY2021/22 to a still industry-leading 1.4% of revenue in the upcoming year.
Increases are driven by the full year impact of positions added mid-year (includes promotions, and higher than expected 1/1/22 COLA pegged to the official inflation rate), COLA (6% est), Merit (5% budget), and new positions.
The staffing budget does not include a contingency. However, budget assumes all positions are filled for the full year; vacancies and delayed hiring are likely to reduce actual spend. $500k of staffing expenses are reimbursable via CPUC customer program funding (Powershare) A
B
C=A+B
D=B/A
Agenda Page 18
Staffing – Key Priorities
7 2021/22: Budgeted headcount of 55 – plus 4 added mid-year w/n budget. Currently have 47 staff.
Staffing Priorities
Build out mid-levels of the organization to ensure coverage during staff absences and inevitable vacancies, reduce burnout, build for the future, and plan for succession.
In-source regulatory, rate setting, and communications activities while deepening resources in energy procurement to manage newly commissioned renewable energy and storage resources Invest in human resources staff, professional development (G&A), and recruiting (Other Services) to attract and retain staff Agenda Page 19
Customer Programs Detail
8 • Expenses related to customer programs fall into Customer Programs (customer incentives and implementer costs), Communications, Technical Services and Staffing budget line items.
• Costs associated with Workforce development and the PowerShare/Community Solar programs are funded by third parties • Customer programs related expenses (ex Staffing) fall in the following categories:
A B C D E F G
Agenda Page 20
Communications Detail
9 Program Marketing Support
Customer Program marketing represents approximately 40% of expected communications expenses Power Share (100% reimbursable) and Power Response require customer acquisition investments Brand Awareness and Reputation Enhancement
Assists with program marketing (customers), recognition among stakeholders, expansion efforts Event, organizational sponsorships, and CBO Grants for hard-to-reach populations (CAC priority) Communications Consultants will be reduced if new positions are approved and new staff can be hired in a timely manner Agenda Page 21
G&A Detail
*G&A includes depreciation and amortization expenses ($684k) formerly budgeted as a separate “Depreciation” budget line item, and CPA’s share of building operating costs ($105k) that was formerly budgeted under occupancy costs.
Increase in G&A and Communications also reflects the loosening of Covid restrictions Travel
Office related expenses
CBO and event sponsorship
Some of these costs are mitigated by CPA continuing to allow remote work 10 Agenda Page 22
Investments in communications and customer programs are expected to improve the customer experience, provide customer/community benefits in the short-term, offer ROI opportunities for CPA over the long term, and enable assistance for low-income customers
New positions and investments in staffing are intended to attract and retain staff, reduce burn-out, build internal resources and processes to prepare for expected levels of staff turnover, contain expenditures on third party consultants, and improve performance.
Continued investments in energy/data/risk management staff, software, and systems in FY 2022/23 will help improve management of energy costs, operationalize new energy and storage projects, and improve timeliness, efficiency and accuracy while reducing energy costs over the long term
11 Summary
Agenda Page 23
Questions?
Agenda Page 24
Framework Financial Stewardship and Cost Control
13 Budget authorization to collect revenues and incur expenses Managerial prioritization and decision making within budget and policy limits Competitive hiring and solicitation processes. Board-approved salary ranges provide a strong framework for managing staffing costs in a sustainable manner Contract approval by the board or in accordance with delegated authorities and Non-Energy Contracting Policy Reporting and transparency – enhanced quarterly financial reporting implemented in Q4 2020 at Finance Committee’s recommendation
Agenda Page 25
GASB No 87 (Leases) Budget Impact
New accounting guidelines replace the current operating and capital lease categories with a single model for lease accounting. New lease accounting requires that CPA:
Recognize an intangible asset and a lease liability on the balance sheet equal to the present value of remaining building lease payments.
Record monthly lease payment as “principal and interest”; interest is budgeted and expensed under interest expense and the principal reduces the lease liability. The intangible asset (“Intangible – Building Lease”) is amortized (reduced each month).
Resulting FY 22-23 Budget changes
Occupancy and depreciation budget line items are being phased out.
Depreciation and amortization expenses and CPA share of building operating costs to be included G&A.
Interest expense now includes a portion of the monthly lease payment Increase in interest and amortization expenses are offset by elimination of “rent” expense. Net impact on total expenses: $0.00
14 Agenda Page 26
15 Current Org Chart
– w/Vacancies
Agenda Page 27
16 Org Chart – w/
Proposed New
Positions
Agenda Page 28