REGULAR MEETING of the Finance Committee of the
Clean Power Alliance of Southern California
Wednesday, May 25, 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
May 25, 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 April 27, 2022 Finance Committee Meeting
2. Receive and File April 2022 Risk Management Team Report
3. Receive and File April 2022 CPA Investment Report
4. Receive and File Fiscal Year Q3 Financial Report
5. Approve Continuation of Baker Tilly as the Independent Financial Auditor for CPA’s Fiscal Year 2021/20022 Financial Statements and Required Single Audit of California Arrearage Payment Program (CAPP) Funds
REGULAR AGENDA
6. Report from the Chief Financial Officer
7. Recommend Approval of Proposed Fiscal Year 2022/2023 Budget to the Board of Directors
COMMITTEE MEMBER COMMENTS
ADJOURN – NEXT MEETING JUNE 22, 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, April 27, 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 11:00 a.m. and, Raynette Tom, Board Clerk, 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 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
Motion: Committee Member Zuckerman, Rolling Hills Estates Second: Committee Member O’Connor, Santa Monica
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 and financial performance. Mr. McNeil noted that CPA holds about $85 million of unrestricted cash as of the end of the third quarter and will receive about $1 million of additional CAPP funding that will be applied to inactive residential accounts. Mr. McNeil added that CPA has an $80 million line of credit with only a $147,000 letter of credit drawn.
CPA repaid $10 million towards the $30 million L.A. County loan in February. A $20 million final payment is due in June 2022. Mr. McNeil specified that a more complete review of the quarterly performance will be provided in the following month, but noted CPA recorded a loss in February due to an over-accrual of revenue in January.
Agenda Page 3
Clean Power Alliance Finance Committee Page 2 of 2
April 27, 2022 Minutes
In response to Committee Member Zuckerman, Mr. McNeil clarified that the total over-accrual was $7.2 million, with $1.2 million attributed to restatement of energy usage by customers in January and the other $6 million due to a miscalculation of the January revenue. Chair Gold asked about the status of accounts receivables (AR) aging and anticipated customer behavior. Mr. McNeil indicated that another $1.2 million of CAPP funds will be applied to some of the older AR, but the resumption of disconnections that will begin in May/June 2022 will provide better indication of how much of the AR is paid back and how much will need to be written off. Chair Gold requested a future discussion on AR to better understand how CPA will move forward. At the request of Committee Member Kulcsar, Ted Bardacke, CEO, provided an update on the underbilled accounts, stating that all catch-up bills have been distributed and six opt-outs were received. Mr.
Bardacke added that staff will start tracking any customer financial problems with these bills once their due date passes.
6. Review Fiscal Year 2022/2023 Budget Priorities and Draft Operating Expenses Mr. McNeil provided a presentation on the FY 2022/23 budget priorities and draft operating expenses budget. Mr. McNeil outlined 2022/2023 operational priorities, including achieving financial targets, talent acquisition and staff retention, and establishment of processes. Consistent with operational priorities, Mr. McNeil discussed increases in staffing costs, key staffing priorities, customer programs, communications, and G&A.
Regarding operational priorities, Chair Gold opined that CPA, as the largest provider of green energy in the country, should endeavor to have an impact beyond the state level.
In response to Committee Member Kulcsar’s question regarding staffing costs, Mr. McNeil clarified that the budget reflects an annualized cost, but staffing all vacant and new positions by July 1 is unlikely. The budget reflects both costs for new hires and current staff. Mr. Bardacke addressed Committee Member Zuckerman’s question regarding expansion, noting that CPA’s plans for customer acquisition involves member agency expansion as well as enrolling current customers in new programs such as Power Share and Power Response. Mr. Bardacke clarified that CPA plans to hire a director of customer care and a senior director of data and systems to improve customer experience and to reexamine the role of the data manager when the opportunity arises. Chair Gold commented that it would be important for the Board to have a clear understanding of the correlation between the increase in staff salaries and the consultants’ budgets; Mr. McNeil noted that the data can be shared with the Finance Committee at its next meeting. Chair Gold inquired about future staff growth; Mr. Bardacke explained that staffing needs for FY 2022/2023 are finalized but acknowledged that growth in customer programs will be the biggest new driver of staffing needs; evolving regulatory and market developments could also be a driver of future staff needs. Chair Gold opined that a staffing budget should reflect a not-to-exceed amount so that the CEO may determine staffing levels as needed throughout the fiscal year. At the request of Committee Member Zuckerman, Mr. Bardacke clarified that the Building Electrification Codes Incentives program is in development and involves covering member agency costs of adjusting ‘reach codes’ that require electrification in building or transportation. Model codes may also be explored in collaboration with Southern California Edison (SCE). Committee Member Kulcsar requested additional information about FY 2022/23 rates.
COMMITTEE MEMBER COMMENTS
None.
ADJOURN
Committee Chair Gold adjourned the meeting at 11:52 a.m.
Agenda Page 4
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: April 2022 Risk Management Team Report
Date: May 25, 2022
April 2022 RMT REPORT
Key Actions
• Discussed March 2022 market performance.
• Reviewed energy positions and approved 2022-2025 hedges. • Reviewed positions for RPS, carbon free, and Resource Adequacy.
Policy Compliance
There were no policy deviations reported for March 2022.
ATTACHMENT
None.
Agenda Page 5
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: May 25, 2022
RECOMMENDATION
Receive and File.
ATTACHMENT
1. April 2022 Investment Report
Agenda Page 6
Fund Name: Local Agency Investment Fund
Beginning Balance 15,697
Interest Paid (1) 12
Deposits
Withdrawals -
Ending Balance 15,709
Interest Earned (2) 7
Average Monthly Effective Yield 0.523%
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
April 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: Third Quarter Financial Report
Date: May 25, 2022
RECOMMENDATION
Receive and file.
ATTACHMENTS
1. March 2022 Financial Dashboard
2. March 2022 Financial Report
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
Mar
2022
Financial Dashboard
Note: Numbers may not sum up due to rounding.
Active Accounts
998,795
Participation Rate
95.60%
YTD Sales Volume
8,684 GWh
Mar Sales Volume
870 GWh
Com-Lg
9%
Com-Sm
42%
Res
49%
103
204
298
356
415
484
548
598
657
$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
52 $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 operating income of $9.4 million in Mar 2022 which was $2.4 more than budgeted operating income of $7 million. For the year to date, CPA recorded operating income of $31.4 million, $52.4 million more than the budgeted year-to-date operating loss of $21 million.
Year to date results were impacted by the following factors:
• Revenue was $656.9 million, $29.6 million or 4% lower than budget due to cooler than normal temperatures in CPA’s service area in the summer of 2021 which resulted in lower electricity use by CPA customers. • Cost of energy was $604.9 million, $78.3 million or 11% lower than budget primarily as a result of lower energy use and wholesale energy prices and costs than budgeted, higher CRR sales in the November 2021 annual auction than budgeted, and higher bilateral sales of energy than budgeted. • Operating costs were lower than the 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 March 31, 2022, CPA had $85 million in unrestricted cash and cash equivalents, and $79.853 million available on its bank line of credit. CPA has a $20 million loan outstanding due for repayment in June 2022.
CPA is in sound financial health and compliance with its bank and other credit covenants. in $000,000's Actual Budget Var % Actual Budget Var %
Energy Revenues 59.3 63.1 -3.8 -6% 656.9 686.5 -29.6 -4% Cost of Energy 47.5 53.3 -5.8 -11% 604.9 683.1 -78.3 -11% Net Energy Revenue 11.8 9.8 2.0 21% 52.0 3.4 48.6
Operating Expenses 2.4 2.8 -0.4 -15% 20.6 24.4 -3.8 -16% Net Operating Income 9.4 7.0 2.4 35% 31.4 -21.0 52.4
March Year- to- Date
Agenda Page 9
2022 2021
Current assets
Cash and cash equivalents $ 85,085,627 $ 56,883,382
Accounts receivable, net of allowance 94,222,512 65,342,208 Accrued revenue 35,819,365 30,654,440
Other receivables 2,835,722 3,090,307
Prepaid expenses 2,111,968 1,350,724
Deposits 11,064,754 7,386,767
Restricted cash 3,600,000 4,826,700
Total current assets 234,739,948 169,534,528
Noncurrent assets
Capital assets, net of depreciation 645,437 497,610
Intangibles - Office Lease, net of amortization 2,680,378 - Deposits 88,875 188,875
Total noncurrent assets 3,414,691 686,486
Total assets 238,154,639 170,221,013
Current liabilities
Accounts payable 4,975,049 1,984,596
Accrued cost of electricity 82,199,576 77,964,100
Other accrued liabilities 2,983,879 1,415,130
User taxes and energy surcharges due to other governments 5,996,396 5,983,145 Loans payable to County of Los Angeles 20,000,000 -
Supplier security deposits 1,087,150 8,024,000
Unearned program funds 3,028,735 1,146,733
Lease liability, current 295,759 -
Counterparty Collateral Deposit 2,750,000
Total current liabilities 123,316,544 96,517,704
Noncurrent liabilities
Loans payable to River City Bank - -
Supplier security deposits 6,904,000 6,724,000
Deferred rent - 1,667
Lease liability, noncurrent 2,757,643 -
Total noncurrent liabilities 9,661,643 6,725,667
Total liabilities 132,978,188 103,243,371
Fiscal Stabilization Fund - 17,392,965
Investment in capital assets 645,437 497,610
Restricted for collateral 3,600,000 4,826,700
Unrestricted 100,931,014 44,260,367
Total net position $ 105,176,451 $ 49,584,677
NET POSITION
CLEAN POWER ALLIANCE OF SOUTHERN CALIFORNIA
STATEMENT OF NET POSITION
July 1 through March 31
ASSETS
LIABILITIES
DEFERRED INFLOWS OF RESOURCES
Agenda Page 10
2022 2021
OPERATING REVENUES
Electricity sales, net $ 656,153,817 $ 607,619,632
Revenue transferred from/(to) Fiscal Stabilization Fund - 9,607,035 Other revenue 718,014 119,479
Total operating revenues 656,871,831 617,346,146
OPERATING EXPENSES
Cost of electricity 604,861,713 596,103,440
Contract services 13,068,850 12,468,958
Staff compensation 6,245,107 4,755,947
General and administration 1,278,669 1,114,991
Total operating expenses 625,454,339 614,443,336
Operating income (loss) 31,417,492 2,902,810
NONOPERATING REVENUES (EXPENSES)
Interest income 35,091 207,605
Interest and related expenses (483,917) (111,373)
Total nonoperating revenues (expenses) (448,825) 96,232 CHANGE IN NET POSITION 30,968,667 2,999,042
Net position at beginning of period 74,229,299 46,585,635 Net position at end of period $ 105,197,966 $ 49,584,677
CLEAN POWER ALLIANCE OF SOUTHERN CALIFORNIA
STATEMENT OF REVENUES, EXPENSES
AND CHANGES IN NET POSITION
July 1 through March 31
Agenda Page 11
2021/22 YTD
Budget
2021/22 YTD
Actual
2021/22 YTD
Budget Variance
(Under) Over
2021/22 YTD
Actual /
Budget %
2021/22
Budget
2021/22
Remaining
Budget
2021/22
Remaining
Budget %
Operating revenues
Revenue - electricity, net $ 685,064,098 $ 656,153,817 $ (28,910,280) 96% $ 895,246,680 $ 239,092,863 27% Revenue transferred from/(to) Fiscal Stabilization Fund - - - - - Other revenues 1,398,000 718,014 (679,986) 51% 1,868,000 1,149,986 62% Total operating revenues 686,462,098 656,871,832 (29,590,266) 96% 897,114,680 240,242,848 27% Energy costs
Energy procurement 683,145,002 604,861,713 (78,283,289) 89% 834,281,512 229,419,798 27% Total energy costs 683,145,002 604,861,713 (78,283,289) 89% 834,281,512 229,419,798 27% Operating revenues less energy costs 3,317,096 52,010,118 48,693,023 1568% 62,833,168 10,823,050 17% Operating Expenditures
Staffing 7,419,600 6,245,107 (1,174,493) 84% 9,893,000 3,647,893 37% Technical services 955,500 870,858 (84,642) 91% 1,184,000 313,142 26% Legal services 922,600 372,131 (550,469) 40% 1,237,000 864,869 70% Other professional services 1,395,700 683,306 (712,394) 49% 1,612,000 928,694 58% Communications and outreach 1,143,699 822,941 (320,758) 72% 1,505,000 682,059 45% Mailers 622,000 460,789 (161,211) 74% 797,000 336,211 42% Billing data manager 7,812,700 7,672,396 (140,304) 98% 10,417,000 2,744,604 26% SCE services 1,512,000 1,485,798 (26,202) 98% 2,016,000 530,202 26% Customer programs 1,055,000 700,630 (354,370) 66% 1,872,000 1,171,370 63% General and administrations 1,170,970 880,683 (290,287) 75% 1,584,000 703,317 44% Occupancy 410,975 5,816 (405,159) 1% 548,000 542,184 99% Total operating expenditures 24,420,744 20,200,455 (4,220,289) 83% 32,665,000 12,464,545 38% Operating income (21,103,648) 31,809,663 52,913,311 -151% 30,168,168 (1,641,495) -5% Non-operating revenues (expenditures)
Interest income 108,000 35,091 (72,909) 32% 144,000 108,909 76% Finance and interest expense (255,989) (483,917) (227,928) 189% (287,000) 196,917 -69% Depreciation (117,000) (104,990) 12,010 90% (156,000) (51,010) 33% Amortization - (287,181) (287,181) - 287,181
Total non-operating revenues (expenditures) (264,989) (840,996) (576,007) 317% (299,000) 541,996 Change in net position (21,368,637) 30,968,667 52,337,304 29,869,168 (1,099,499) -4% Other uses
Capital outlay 264,000 260,514 (3,486) 99% 297,000 36,486 12% Depreciation (117,000) (104,990) 12,010 90% (156,000) (51,010) 33% Total other uses 147,000 155,525 8,525 106% 141,000 (14,525) -10% Change in fund balance $ (21,515,637) $ 30,813,142 $ 52,328,780 -143% 29,728,168 $ $ (1,084,974)
CLEAN POWER ALLIANCE OF SOUTHERN CALIFORNIA
BUDGETARY COMPARISON SCHEDULE
July 1 through March 31
Agenda Page 12
Note Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
1 Working Capital 73,552,500 80,451,054 89,731,305 107,892,204 111,423,404 2 Current Ratio 1.76 1.55 1.50 1.80 1.90
3 Days Sales Outstanding 29 40 40 39 39
4 Equity 67,513,318 74,229,299 83,341,183 101,176,027 105,176,451 5 Equity to Assets % 40% 32.78% 31% 42% 44%
6 Available Cash 56,883,382 58,192,268 53,357,388 67,450,194 85,085,627 7 Available Line of Credit 36,853,000 36,853,000 80,000,000 79,853,000 79,853,000 8 Total Liquidity 93,736,382 95,045,268 133,357,388 147,303,194 164,938,627 9 Days Liquidity on Hand (TTM) 45 44 60 67 75
10 Gross Margin 4% 6.4% 5.4% 8.4% 7.9%
11 Net Margin -4% 3.4% 3.1% 5.6% 4.7%
Percentage Change from Prior Quarter
Working Capital -7% 9% 12% 20% 3%
Current Ratio 0% -12% -4% 20% 6%
Days Sales Outstanding 9% 37% 0% -4% 1%
Equity -8% 10% 12% 21% 4%
Equity to Assets % 0% -17% -6% 35% 6%
Available Cash -10% 2% -8% 26% 26%
Available Line of Credit 0% 0% 117% 0% 0%
Total Liquidity -6% 1% 40% 10% 12%
Days Liquidity on Hand (TTM) -9% -3% 37% 12% 11%
Note Description Note Description
1 Current Assets less Current Liabilities 7 Total Line of Credit less Borrowing and Letters of Credit 2 Current Assets divided by Current Liabilities 8 Sum of Available Cash and Line of Credit 3 Accounts receivable divided by Sales divided by 365 9 Total Liquidity divided by trailing 12 month expenses divided by 365 4 Net Position plus Fiscal Stabilization Fund 10 Operating revenue less energy cost divided by operating revenue 5 Equity (Net Position + FSF) divided by Total Assets 11 Change in net position divided by operating revenue 6 Unrestricted cash and cash equivalents
Select Financial Indicators
-
25 50
75 100
125
150
175
Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 ($) Millions
Fiscal Quarter
Financial Indicators
Working Capital Equity Total Liquidity
Agenda Page 13
Staff Report – Agenda Item 5
To: Clean Power Alliance (CPA) Finance Committee
From: Hui Lisano, Controller
Approved by: Ted Bardacke, Chief Executive Officer
Subject: Approve Continuation of Baker Tilly as the Independent Financial Auditor for CPA’s FY 2021/22 Financial Statements and CPA’s Required Single Audit of CAPP Funds
Date: May 25, 2022
RECOMMENDATION
Select Baker Tilly as the Independent Financial Auditor for:
a) CPA’s FY 2021/22 financial statements.
b) CPA’s required Single Audit of California Arrearage Payment Program (CAPP) funds.
BACKGROUND/DISCUSSION
Pursuant to its Joint Powers Agreement, CPA is required to complete an audit of its annual financial statements by an independent auditor. CPA’s Bylaws authorize the Finance Committee to:
select an Independent Auditor who shall perform a financial audit of accounts of the Alliance on an annual basis. The Independent Auditor shall be accredited in the State of California and provide independent, accurate, and timely assessments of the Alliance’s financial activities in compliance with generally accepted government auditing standards.
In the spring of 2019 CPA staff undertook a competitive process that included a request for proposals to provide audit services. Baker Tilly was selected by the Finance Agenda Page 14
FINANCE COMMITTEE ITEM 5
Committee to audit CPA’s FY 2018/19 financial statements and was subsequently selected by the Finance Committee again to audit the 2019/20 and 2020/21 financial statements.
Staff recommends the selection of Baker Tilly’s engagement as an auditor for the following reasons:
• While there is no requirement for government entities to change audit firms, Assembly Bill 1345 requires local governments to rotate the lead audit partner after six consecutive fiscal years. CPA is not a local government but recognizes this as a pertinent guideline. Baker Tilly has three more years, inclusive of the proposed FY 2021/22 engagement before it reaches the six-year threshold https://www.sco.ca.gov/aud_auditor_rotation_requirements.html • The Government Finance Officers Association (GFOA) recommends governmental entries enter into multiyear agreements with independent auditors of at least five years in duration. Such agreements allow continuity, help to minimize the potential for disruptions in connection with the independent audit, and help to reduce audit startup costs as compared with single-year contracts. https://www.gfoa.org/materials/audit-procurement
• Baker Tilly has a nationwide practice auditing electric utilities and has deep electric utility industry expertise.
• Baker Tilly has performed CPA’s independent financial audit for the last three years, is familiar with CPA’s books, and has deep institutional knowledge about CPA.
• Baker Tilly has CCA experience beyond CPA, having also served as the auditor of Moody’s rated Marin Clean Energy.
• Baker Tilly has extensive knowledge of California energy markets. It currently performs audit services for Sacramento Municipal Utilities District, Northern California Power Agency, and Modesto Irrigation District.
Staff plans to conduct a competitive solicitation for its Independent Financial Auditor in Spring 2025 following the FY 2023/24 audit. By that time Baker Tilly will have performed the previous six financial audits for CPA consistent with industry best practices.
Agenda Page 15
FINANCE COMMITTEE ITEM 5
In 2020 Baker Tilly disclosed to the Finance Committee that they have a small-scope attestation engagement with Southern California Edison (SCE). Baker Tilly describes the SCE engagement as an examination, similar to an audit, to review decommissioning costs at one energy-generating facility to ensure the co-owners are billed appropriately for their correct share of the costs. This engagement with SCE is for 3 years. To maintain its independence, Baker Tilly has segregated and will continue segregating staff working on SCE and CPA engagements. These engagements have undergone internal company review to ensure that independence is maintained.
Due to the receipt of California Arrearage Payment Program (CAPP) funds, CPA is subject to a “Single Audit” in 2022. A single audit is required for any entity that expends $750,000 or more in federal funds. CAPP is funded by the federal government and the State of California considers the utilities that received the funds as sub-recipients.
FISCAL IMPACT
The estimated cost of the Baker Tilly audit engagement is $30,000 and the single audit will range between $10,000 and $15,000. These costs are included in the FY 2022/23 Budget that will be presented to the Board for approval on June 2, 2022.
ATTACHMENT
None.
Agenda Page 16
Staff Report – Agenda Item 6
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Subject: Report from the Chief Financial Officer
Date: May 25, 2022
The Chief Financial Officer will provide a verbal update on FY 2022/23 Q3 financial performance, bad debt expense and accounts receivable aging, California Arrearage Payment Program (CAPP), and the California Public Utilities Commission’s (CPUC) Financial Security Requirement.
Agenda Page 17
Staff Report – Agenda Item 7
To: Clean Power Alliance (CPA) Finance Committee
From: David McNeil, Chief Financial Officer
Antony Sugiarto, Financial Planning and Analysis Manager Approved By: Ted Bardacke, Chief Executive Officer
Subject: Proposed FY 2022/2023 Budget
Date: May 25, 2022
RECOMMENDATION
Recommend approval of proposed FY 2022/23 budget to the Board of Directors at its June 2, 2022 meeting.
BACKGROUND
Each year CPA develops an annual budget to govern the receipt of revenues, the incurrence of expenses, and capital expenditures during the upcoming fiscal year. The Proposed Fiscal Year 2022/23 Budget is provided in Attachment 1.
The Proposed FY 2022/23 Budget revenues incorporate the option 3A rate setting approach approved by the Board at its May 11, 2022 Board meeting.
As part of the budget approval, staff plan to seek authorization from the Board to move funds budgeted under General and Administrative expenses to Interest Expense, if necessary, in order to incur expenses associated with the posting of CPA’s Financial Security Requirement (FSR). Whether these expenses remain under GA or Interest depends on the financial instrument CPA uses to post the FSR and will enhance flexibility to make the FSR posting without having to request an amendment to the budget.
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FINANCE COMMITTEE ITEM 7
DISCUSSION
The Draft Budget reflects the following operational and budget priorities presented to the Board on May 11, 2022 including:
1. Achieve financial targets, including IG Credit Rating
2. Investing in customer programs and communications
3. Augmenting staff resources
4. Building energy/data/risk management staff, software, and systems to improve efficiency and accuracy while reducing energy costs over the long term Proposed FY 2022/23 Operating Expenses were reviewed and discussed by the Finance Committee at its April meeting. Budget priorities have also been presented to the Executive Committee, Finance Committee, Community Advisory Committee and Board of Directors in April and May. A Draft FY 2022/23 was presented to the Executive Committee on May 18, 2022.
The Proposed Budget sets forth changes to the following budget line items:
Revenue – electricity net (+$215,534,000; 24% increase): Budgeted electricity revenues are based on estimates of customer electricity usage and retail electricity rates.
Budgeted revenues include the rate approach approved by the Board on May 11, 2022.
Budgeted revenues include an allowance for doubtful accounts equal to 1.2% of revenues or $13.5 million. Revenues are higher than FY 21/22 budgeted revenues due to an increase in rates and six communities changing their default levels to 100% Green. The additional revenue due to 100% default changes offset additional renewable energy purchasing costs.
Other revenue (+$874,000; 47% increase): Other revenue includes operating revenue from sources other than retail electricity sales. Other revenue includes funding from the California Public Utilities Commission (CPUC) to support the Power Share program and workforce development funding provided through a renewable energy power purchase agreement. Other revenues offset expenses budgeted in the Customer Programs, Staffing, Technical Services, Legal, and Communications budget line items.
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FINANCE COMMITTEE ITEM 7
Cost of energy (+$36,251,000; 4% increase): Cost of energy includes expenses associated with the purchase of system energy, renewable energy, resource adequacy, and charges by the California Independent System Operator (CAISO) for load, and services performed by the CAISO. CAISO charges for load are based on customer energy use and prices at the Default Load Aggregation Point (DLAP). Credits for energy generation scheduled into the CAISO market and revenues arising from Congestion Revenue Rights (CRRs) are netted from the cost of energy. CAISO credits for energy generation are based on wholesale energy deliveries and Locational Margin Prices (LMPs). CRRs are financial instruments created by the CAISO which enable load serving entities, such as CPA, to manage price differences between wholesale energy delivery locations and retail use points.
Staffing (+$4,083,000; 41% increase): Staffing costs include salaries and benefits payable in accordance with CPA’s Board-approved Employee Handbook and salary grades and ranges approved by the Board on March 4, 2021. Almost half of the increase is driven by the full-year impact of positions added mid-year, promotions, and higher than expected mid-year COLA (pegged to the official inflation rate) in the current fiscal year.
The staffing budget assumes most new positions are not filled until late Q1 or Q2 of the Fiscal Year. $500k of staffing expenses are reimbursable via CPUC customer program funding (Power Share).
FY 2022/23 budgeted staffing costs is composed of the following:
Technical services (+$223,000; 18% increase): Technical services comprise professional services for scheduling coordination, short and long-term energy contracting, Agenda Page 20
FINANCE COMMITTEE ITEM 7
risk and portfolio management related, and planning/support for customer programs where engineering or other technical expertise is required. Scheduling coordinators provide a variety of services including scheduling generating and storage assets and customer energy use into the CAISO markets, managing CRR purchases and sales, validating CAISO invoices, and providing risk management and energy contract management software. The increase in technical services arises primarily from a contracted increase in scheduling coordinator fees for the FY 2022/23 and investment in consulting fees to develop a Low Carbon Fuel Standard (LCFS) program.
FY 2022/23 budgeted technical services are composed of the following:
Legal services (+$162,000; 15% increase): Legal services support CPA’s contracting, including energy contracting for short-term and long-term energy, resource adequacy, and non-energy contracting, including banking, finance, and local programs. Legal services also include support for specific regulatory proceedings (e.g., SCE’s ERRA Applications, SCE General Rate Case, and other compliance obligations), employment matters, governance, and general liability management. The majority of the budget in this section is shown in the following table:
Legal Service Major Providers
Energy Contracting Hall Energy Law
Clean Energy Counsel
Keyes & Fox
Davis, Wright, & Tremaine
Regulatory Compliance and CPUC Advocacy Braun Blaising Smith Wynne Keyes & Fox
Banking/Finance Chapman
Employment Law and Compliance Polsinelli
General Liability and Governance Burke Williams & Sorensen Jarvis Fay & Gibson
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FINANCE COMMITTEE ITEM 7
The proposed budget increase is due primarily to carrying over work and projects included in the FY 2021/22 budget that were delayed or replaced due to other priorities or logistical issues.
Other services (+$446,000; 31% increase): Other services represent professional services not budgeted under Technical or Legal services and include costs associated with energy compliance auditing, financial audits and audit support, rate setting, lobbying services, non-technical assistance for local programs, and staff support services including recruitment, payroll, and benefits administration, IT support, and labor compliance.
The proposed budget increase is due primarily to budgeting for third party collection agent services that would begin performed in accordance with CPA’s Board approved Collections Policy, increased services in the regulatory and lobbying areas and increased IT services.
FY 2022/23 budgeted other services expenses are composed of the following:
Communications and marketing services (+$513,000; 34% increase):
Communications and related services include costs associated with customer outreach, marketing, branding, website management, translation, advertising, special events, and sponsorships. The increase in marketing expenses reflects investments in CPA’s website, enhanced digital communications, customer outreach associated with the CPUC funded Power Share program, and outreach to increase brand awareness and reputation enhancement.
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FINANCE COMMITTEE ITEM 7
FY 2022/23 budgeted communications expenses and offsetting revenue (the latter recorded in the other revenue budget line item) are composed of the following:
Staff expect lower than budgeted spending in Communication Consultants depending on the timing of new hires on the communications and marketing team.
Customer notices and mailing services (+$549,000; 69% increase): Notices and mailing services support required communication with CPA customers and include printing and postage costs. Costs are increasing primarily due additional mailing and communications expenses required to notify approximately 300,000 customers of a default rate change to the 100% Green Power product in October 2022. Each customer experiencing a default change is notified twice by mail.
FY 2022/22 budgeted customer notices and mailing services are composed of the following:
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FINANCE COMMITTEE ITEM 7
Billing data management services (+$57,000; 1% increase): Billing data manager costs are based on the number of customer meters served by CPA and per-meter rates charged by CPA’s billing data manager, Calpine. Increased costs reflect a 2.5% inflation escalator on per-meter charges included in an amendment with Calpine approved by the Board on April 1, 2021.
Service fees – SCE (+$100,000; 5% increase): Service fees are charged by SCE for a variety of customer billing and administrative services. The increase in service fees results from adding in contingencies to cover unforeseen costs from SCE.
Customer Programs (+$2,791,000; 149% increase): Customer programs represent direct costs associated with providing energy programs to CPA customers and other related services. Direct costs include both incentives for participation and payments to third parties for program implementation. The FY 2022/23 customer programs budget supports the CPA Power Share program (100% reimbursable from CPUC), Power Response demand response program, CPA’s EV charger rebate program which provides matching funds for electric vehicle charger incentives administered by the Center for Sustainable Energy/CALeVIP program, $350,000 for workforce development funded through a long term, renewable energy power purchase agreement, and incentives for member agencies to adopt enhanced building codes.
FY 2022/23 budgeted customer programs expenses are composed of the following:
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FINANCE COMMITTEE ITEM 7
General and administration (+$4,293,000; 271% increase): General and administration costs include office supplies, phone, internet, travel, dues and subscriptions, professional development, and other related expenses. The majority of the proposed budget increase in G&A is in the insurance line item to support the issuance of a financial instrument to meet CPA’s Financial Security Requirement (FSR) obligations under California Public Utility Code 394.25(e), increased software costs, and depreciation and amortization expenses formerly budgeted as a separate “Depreciation” budget line item.
Occupancy (-$548,000; 100% decrease): Costs formerly budgeted under Occupancy have been moved to the General and administrative and interest expense budget line items.
Finance and interest expense (-$8,000; 1% decrease): Finance and interest expenses represent fees, borrowing and letter of credit costs associated with CPA’s loan facility.
Costs include fees associated with a new credit agreement approved by the Board on September 2, 2021 and a contingency for interest and borrowing costs.
Interest income (+$342,000; 238% increase): Interest income represents income earned on funds in savings accounts held by River City Bank and other investment accounts. The increase in interest income arises from an increase in interest rates used for budget forecasting purposes as compared to interest rates used in the FY 2020/21 Budget and an expected increase in saving and investment account balances.
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FINANCE COMMITTEE ITEM 7
Capital outlay (-$111,000; 33% decrease): Expenditures associated with capital outlay will support and accommodate unforeseen equipment purchases and office improvements as more staff begin to use the office on a regular basis.
ATTACHMENTS
1. Proposed FY 2022/23 Budget
2. Proposed FY 2022/23 Budget Presentation
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AB C D E
FY 2021/22
Amended
Budget
FY 2022/23
Budget
Budget
Difference ($)
Budget
Difference (%)
1 Revenue ‐ Electricity net 895,247,000 1,110,781,000 215,534,000 24% 2 Other revenue 1,868,000 2,742,000 874,000 47% 3 TOTAL REVENUE 897,115,000 1,113,523,000 216,408,000 24% 4 TOTAL ENERGY COSTS 834,282,000 870,533,000 36,251,000 4% 5 NET ENERGY REVENUE 62,833,000 242,990,000 180,157,000 287% 6 7 OPERATING EXPENSES
8 Staffing 9,893,000 13,976,000 4,083,000 41% 9 Technical services 1,213,000 1,436,000 223,000 18% 10 Legal services 1,081,000 1,243,000 162,000 15% 11 Other services 1,456,000 1,902,000 446,000 31% 12 Communications and marketing services 1,505,000 2,018,000 513,000 34% 13 Customer notices and mailing services 797,000 1,346,000 549,000 69% 14 Billing data management services 10,417,000 10,474,000 57,000 1% 15 Service fees ‐ SCE 2,016,000 2,116,000 100,000 5% 16 Customer programs 1,872,000 4,663,000 2,791,000 149% 17 General and administration 1,584,000 5,877,000 4,293,000 271% 18 Occupancy ‐ 548,000 ‐ (548,000) 100% 19 TOTAL OPERATING EXPENSES 32,382,000 45,051,000 12,669,000 39% 20 OPERATING INCOME 30,451,000 197,939,000 167,488,000 550% 21 22 Finance and interest expense 570,000 562,000 ‐ (8,000) 1% 23 Depreciation & Amortization ‐ 156,000 ‐ (156,000) 100% 24 TOTAL NON OPERATING EXPENSES 726,000 562,000 ‐ (164,000) 23% 25 26 Interest Income 144,000 486,000 342,000 238% 27 TOTAL NON OPERATING REVENUE 144,000 486,000 342,000 238% 28 NON OPERATING REVENUE (EXPENSE) (582,000) (76,000) ‐ 506,000 87% 29 CHANGE IN NET POSITION 29,869,000 197,863,000 167,994,000 562% 30 NET POSITION BEGINNING OF PERIOD 74,229,000 104,098,000 29,869,000 40% 31 NET POSITION END OF PERIOD 104,098,000 301,961,000 197,863,000 190% 32 FISCAL STABILIZATION FUND ‐ ‐ 0% 33 RESERVES END OF PERIOD (Net Position + FSF) 104,098,000 301,961,000 197,863,000 190% 34 35 Other Uses
36 Capital Outlay 336,000 225,000 ‐ (111,000) 33% 37 Depreciation (156,000) (622,000) (466,000) 299% 38 CHANGE IN FUND BALANCE 29,689,000 198,260,000 168,571,000 568% 39 Note: Funds may not sum precisely due to rounding
Proposed
CLEAN POWER ALLIANCE of SOUTHERN CALIFORNIA
Fiscal Year 2022/2023 Budget
Agenda Page 27
Proposed FY 2022/23 Budget
May 25, 2022
Agenda Page 28
Recommendation:
Recommend approval of the Proposed Fiscal Year (FY) 2022/23 Budget to the Board of Directors
Agenda Page 29
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 27, 2022 (Finance Committee) – Budget Priorities & Draft FY 2022/23 Operating Expenses Budget May 5, 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
3 Agenda Page 30
FY 2022/23 Budget – Key Takeaways
4 Revenues reflect rate approach approved by the Board at the May 11, 2022 Board Meeting. Cost of energy reflects increasing market prices for energy and electric capacity.
Investments in operating expense line items reflect FY 2022/23 operating and budget priorities presented to the Executive, Community Advisory and Finance Committees in April 2022 and to the Board at its May 11, 2022 meeting.
Expected increase in the net position allows CPA to achieve its board approved Reserve Policy goals and better positions CPA to achieve an investment grade credit rating which will yield energy cost saving over the long term.
Agenda Page 31
Net Energy Revenue
5 Budgeted revenues include the rate approach approved by the Board on May 11, 2022 (Lean -1%, Clean parity, 100% Green +3% compared to SCE base rates, CARE rate freeze until October) and include a bad debt expense equal to 1.2% of revenues or $13.5 million Revenues are higher than FY 21/22 budgeted revenues due to an increase in rates and six communities changing their default levels to 100% Green. Additional revenue from default rate changes offset additional renewable energy purchasing costs Energy costs (+4%) reflect higher energy and capacity costs arising from increasing market prices and constrained energy supply in the west
Agenda Page 32
FY 2022/23 Operating Expense Highlights
Proposed operating expenses are budgeted to increase by $12.7 million or 39% (see next slide for CCA comparisons) Increase in Staffing expense reflects budget priorities presented to the Board at its May Board meeting. COLA assumption is 7% based on April 2022 annual inflation rate. New staff positions are assumed to start between July and December 2023. Annualized cost of new positions/COLA/merit increases is ~$625,000 and will be reflected in the 23/24 Budget.
Increase in G&A includes $2.1 million to support the potential issuance of a Surety Bond to meet the CPUC’s Financial Security Requirement. The proposed budget would authorize staff to transfer up to $2.1 million from G&A to interest expense to fund the issuance of the letter of credit in lieu of a Surety Bond as needed.
Increase to customer notices and mailing services (+69%) costs arise from noticing ~300,000 customers of default rate changes in the fall of 2022. Occupancy costs (row 18) are budgeted under G&A and Interest expense. Communications consultant costs may be reduced by up to $190k if CPA is able to hire new staff expeditiously 6 Agenda Page 33
Select CCA Metrics and Comparisons
CPA’s metrics for operating expenses and staffing costs compare favorably with industry averages 7 Agenda Page 34
FY 2022/23 Operating Income and Reserves
CPA projects a $197.9 million increase to the net position in FY 2022/23, increasing the budgeted net position from $104 million as of June 30, 2022, to $301.9 million as of June 30, 2023
8 Agenda Page 35
Reserve Policy Targets
“CPA shall grow reserves to maintain a minimum reserve target equal to 30% of total operating budget expenditures, with a goal of increasing the reserve to a maximum reserve target of 50% of total operating budget expenditures. Reserves shall not exceed 60% of total operating budget expenditures. Reserves shall support the goal of securing 120 days liquidity on hand.” CPA Reserve Policy 9 Agenda Page 36
Recommendation:
Recommend approval of the Proposed Fiscal Year (FY) 2022/23 Budget to the Board of Directors
Agenda Page 37
Questions?
Agenda Page 38
Appendices
12 Agenda Page 39
Staffing – Key Priorities
13 2021/22: Budgeted headcount of 55 – plus 4 added mid-year w/n budget. Currently have 50 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 40
14 Org Chart – w/
Proposed New
Positions
Agenda Page 41
Customer Programs Detail
15 • 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
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Communications Detail
16 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 Staff expect up to $190,000 lower than budgeted spending in Communication Consultants depending on the timing of new hires on the communications and marketing team.
Agenda Page 43
G&A Detail
General and administration costs include office supplies, phone, internet, travel, dues and subscriptions, professional development, and other related expenses.
The majority of the proposed budget increase in G&A is to support the issuance of a financial instrument to meet CPA’s Financial Security Requirement (FSR) obligations under California Public Utility Code 394.25(e), increased software costs, and depreciation and amortization expenses formerly budgeted as a separate “Depreciation” budget line item.
17 Agenda Page 44