Finance Committee of the
Clean Power Alliance of Southern California
Regular Meeting
Wednesday, March 22, 2023
11:00 a.m.
Visit CPA’s YouTube Channel to view a Live Stream of the Meeting www.youtube.com/@CPApublicmeetings
*There may be a streaming delay of up to 60 seconds. This is a view-only live stream.
CPA Office
801 S. Grand Ave., Suite 400
Los Angeles, CA 90017
Members of the public may also participate in this meeting remotely at the following locations:
Camarillo City Hall
Mayor’s Office
601 Carmen Drive
Camarillo, CA 93010
Claremont City Hall
Citrus Room
207 Harvard Avenue
Claremont, CA 91711
Carson City Hall
Executive Conference Room
701 East Carson Street
Carson, CA 90745
Rolling Hills Estates City Hall
Conference Room
4045 Palos Verdes Drive North
Rolling Hills Estates, CA 90274
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: The General Public Comment item is reserved for persons wishing to address the Committee 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 Committee at CPA’s Office are requested to complete a comment card and provide it to staff. If you are attending from a remote location, please identify yourself to a CPA representative when your 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.
Agenda Page 1
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ACCESSIBILITY: Meetings are accessible to people 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 (213) 713- 5995. Notification in advance of the meeting, while not required, will enable us to make reasonable arrangements to ensure accessibility to this meeting and the materials related to it.
CALL TO ORDER & ROLL CALL
GENERAL PUBLIC COMMENT
CONSENT AGENDA
1. Approve Minutes from the February 22, 2023, Finance Committee Meeting
2. Receive and File February 2023 Risk Management Team Report
3. Receive and File February 2023 CPA Investment Report
4. Receive and File January 2023 Financial Dashboard
REGULAR AGENDA
5. Report from the Chief Financial Officer
6. (a) Review Proposed Fiscal Year (FY) 2022/23 Amended Budget; and (b) Recommend Approval of Proposed FY 2022/23 Amended Budget to the Board of Directors
7. Preview of Proposed Clean Energy Prepayment Transaction
COMMITTEE MEMBER COMMENTS
ADJOURN – NEXT MEETING ON APRIL 26, 2023
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 at CPA’s Office at 801 S. Grand Ave., Suite 400, Los Angeles, CA 90017, or online at www.cleanpoweralliance.org/agendas.
Agenda Page 2
Finance Committee Item 1
MINUTES
REGULAR MEETING of the Finance Committee of the
Clean Power Alliance of Southern California
Wednesday, February 22, 2023, 11:00 a.m.
Meeting videos are available on CPA’s YouTube Channel.
www.youtube.com/@CPApublicmeetings
Committee Members participated in this meeting from the following locations:
Camarillo City Hall
Mayor’s Office
601 Carmen Drive
Camarillo, CA 93010
CPA Office
801 S. Grand Ave., Suite 400
Los Angeles, CA 90017
Claremont City Hall
Citrus Room
207 Harvard Avenue
Claremont, CA 91711
Carson City Hall
Executive Conference Room
701 East Carson Street
Carson, CA 90745
Rolling Hills Estates City Hall
Conference Room
4045 Palos Verdes Drive North
Rolling Hills Estates, CA 90274
CALL TO ORDER & ROLL CALL
Committee Chair Santangelo called the meeting to order at 11:00 a.m. and Gabriela Monzon, Board Clerk, conducted roll call.
Roll Call
Camarillo Susan Santangelo Committee Chair Remote
Carson Reata Kulcsar Committee Member Remote
Claremont Corey Calaycay Committee Member Absent
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
No public comment was received.
CONSENT AGENDA
1. Approve Minutes from the January 25, 2023 Finance Committee Meeting
2. Receive and File January 2023 Risk Management Team Report
3. Receive and File January 2023 CPA Investment Report
Agenda Page 3
Clean Power Alliance Finance Committee Page 2 of 3
February 22, 2023 Minutes
4. Receive and File Fiscal Year Q2 Financial Report and December 2022 Financial Dashboard
Chair Santangelo pulled Item 2 from the Consent Agenda for separate discussion.
Motion: Committee Member Zuckerman, Rolling Hills Estates Second: Committee Member Kulcsar, Carson
Vote: Items 1, 3, and 4 were approved by a roll call vote.
Chair Santangelo requested an oral summary of Item 2. David McNeil, Chief Financial Officer, indicated that the policy deviations reported on the RMT report are for renewable energy, carbon-free energy, and Resource Adequacy (RA). CPA fell below the policy minimum of 65% for renewable energy but was able to satisfy compliance requirements for 2023 and 2024 via a regulatory process that allows CCAs to acquire renewable energy from IOUs. Staff continues to procure carbon-free energy for 2024 to reach the minimum target of 75% for 2023. Committee Member Zuckerman inquired about RA discussions at the upcoming Lobby Day, and Mr. Bardacke explained that CPA’s main bill priority is directly linked to increasing the RA market supply.
Motion: Committee Member O’Connor, Santa Monica
Second: Committee Member Zuckerman, Rolling Hills Estates Vote: Item 2 was approved by a roll call vote.
REGULAR AGENDA
5. Report from the Chief Financial Officer
David McNeil, Chief Financial Officer, provided an oral report on treasury operations. From a cashflow perspective, CPA weathered the adverse conditions during December and January. CPA recently completed a favorably priced prepay transaction; staff directed Goldman Sachs to finalize the transaction; CPA will receive significant cost savings on the Power Purchase Agreements (PPAs) signed into that prepay structure.
Mr. McNeil provided a presentation on the financial performance and outlook of FY 2022/23. CPA recorded a net loss of $16.7 million through the first six months of FY 2022/23, close to $90 million below budget. Mr. McNeil reviewed the income statement, budget to actual results and summarized the FY 2022/23 financial outlook. The net position is estimated to increase by $40-60 million, absent a rate change, and the planned draft amendment to the FY 2022/23 budget to be presented at the next Finance Committee meeting. Mr. McNeil indicated that JPMorgan has been supportive of the extension of the term of the banking agreement and the increase in the line of credit.
Discussions with JPMorgan about the other terms of the line of credit are ongoing, particularly relating to the adverse material clause. Increased charges for the bank line of credit will be included in the proposed budget amendment. Mr. McNeil reviewed residential and commercial Accounts Receivable (AR), CAPP funding, CPA’s bad debt reserve, and total, residential, and commercial gross AR aging figures.
Responding to Committee Member Kulcsar’s question concerning the late fees and the allocation of payments towards SCE/CPA portions of customer bills, Mr. McNeil indicated that SCE charges late fees based on the balances owed to them. CPA does not charge or receive late payment fees. Mr. McNeil explained that payment allocations vary by customer subsets. Staff will provide a detailed written response on this subject at a later Agenda Page 4
Clean Power Alliance Finance Committee Page 3 of 3
February 22, 2023 Minutes
time. Committee Member Zuckerman asked several questions on accrued penalties, bill forgiveness, and an increase in “other receivables.” Mr. McNeil clarified that late payment fees for residential accounts will resume in April. Customers penalties have been suspended since March 2020. Lastly, “other receivables” includes increases in the settlement for contracts for differences, wherein CPA pays the difference between the PPA cost and the California Independent System Operator (CAISO) revenue. As a result of elevated market prices in December 2022 PPA sellers, such as the Calpine Geysers and White Hills, have owed money to CPA resulting in a year over year increase in other receivables. Responding to Committee Member Kulcsar’s question concerning the month in which CAPP funds were applied, Mr. McNeil indicated that staff became aware of the allocation of CAPP I and II funding prior to closing its June 2021 and June 2022 financial statements respectively, and CAPP I and II funding was applied to AR for the purpose of calculating the bad debt reserve accordingly. Committee Member Kulcsar inquired about the bad debt reserve amount, and Mr. McNeil specified that of the total $54 million of past due AR, CPA has reserved about 60% or $30.6 million as uncollectable. Responding to Committee Member Zuckerman’s questions concerning January gas prices and construction delays, staff shared that January will be significantly below budget partly due to similar gas prices, but not quite as much as December. Delays in renewable energy and storage project construction has been accounted for in financial projections and the budget. Staff added that the most recent financial forecasts include all contract amendments approved by the Board in October 2022, and CPA’s hedging position helped mitigate the impact of delays on project online dates.
Ted Bardacke, CEO, thanked the Finance Committee for its work in vetting the first prepay transaction, which will save several million dollars a year on renewable energy purchases.
In response to Committee Member Zuckerman’s questions about prepay transaction earnings and municipal bond rates, Mr. McNeil indicated that the earnings are a function of the difference between the interest rate costs and the yield on issued bonds, which are tax exempt. Committee Member Kulcsar requested an update on the prepay transaction once it is finalized, and Mr. McNeil indicated there is an issuance document with bond details, yield, and interest rates. Staff noted that due to favorable market conditions, it will propose a second prepay issuance to the Committee in March and will include a review of the first transaction. Committee Member Zuckerman asked several questions on the size of the second transaction. Staff explained that the second transaction would include smaller projects, but other variables affect the size of the bond issuance. Lastly, staff indicated that there are discussions with S&P, the approved credit rating agency, about CPA’s updated financial projections and future rate decisions.
COMMITTEE MEMBER COMMENTS
None.
ADJOURN
Committee Chair Santangelo adjourned the meeting at 12:00 p.m.
Agenda Page 5
Staff Report – Agenda Item 2
To: Finance Committee
From: Geoff Ihle, Director, Energy Market Risk Management Approved by: Ted Bardacke, Chief Executive Officer
David McNeil, Chief Financial Officer
Subject: Risk Management Team Report
Date: March 22, 2023
February 2023 RMT REPORT
Key Actions
• Reviewed current counterparty credit exposure
• Reviewed January 2023 market performance
• Reviewed January 2023 generation and storage performance • Reviewed energy positions and approved 2023-2027 hedges • Reviewed positions for RPS and carbon free products and approved RFO for 2023-2025 RECs
• Reviewed Resource Adequacy (RA) positions, including CPA’s 2023 Month-Ahead and 2024 Year-Ahead open position and procurement strategy. Approved RFO for May 2023-2027 RA
• Review February 2023 CRR Allocations and Auction and CY 2022 performance.
Policy Compliance
Policy Deviation Required Action
Carbon Free Energy: As of December 1,
2022, carbon free energy under contract
for 2023 was above the ERMP maximum
of 100%
None. As previously reported, due to
scarcity of carbon free energy
(hydroelectric power), CPA is procuring
additional supply in advance as it
becomes available.
Resource Adequacy: As of December 1,
2022, July, August and September 2023,
Resource Adequacy under contract was
below the ERMP Month-Ahead minimum
of 90%.
As a result of recent procurement
activity, CPA has almost cured the July
2023 deviation. CPA is running
solicitations to buy August and
September 2023 Resource Adequacy.
ATTACHMENT
None.
Agenda Page 6
Staff Report – Agenda Item 3
To: Finance Committee
From: David McNeil, Chief Financial Officer
Approved by: Ted Bardacke, Chief Executive Officer
Subject: CPA Investment Report
Date: March 23, 2023
RECOMMENDATION
Receive and File.
ATTACHMENT
1. February 2023 Investment Report
Agenda Page 7
Fund Name: Local Agency Investment Fund
Beginning Balance 15,874
Interest Paid (1) -
Deposits -
Withdrawals -
Ending Balance 15,874
Interest Earned (2) 32
Average Monthly Effective Yield 2.624%
1.This Investment Report does not include CPA deposits held at banks.
2. Interest is paid quarterly effective 15 days following the end of the quarter.
3. Interest earned is based on daily compounding, account balances and monthly effective yield published by LAIF.
Clean Power Alliance
Investment Report (1)
Feb 2023
Agenda Page 8
Staff Report – Agenda Item 4
To: Finance Committee
From: David McNeil, Chief Financial Officer
Approved by: Ted Bardacke, Chief Executive Officer
Subject: Financial Dashboard
Date: March 22, 2023
RECOMMENDATION
Receive and file.
ATTACHMENT
1. January 2023 Financial Dashboard
Agenda Page 9
CUSTOMERS
Summary of Financial Results
Definitions:
Accounts: Active Accounts represents customer accounts of active customers served by CPA per Calpine Invoice.
Participation Rate %: Participation Rate represents 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, 2022 YTD
Jan
2023
Financial Dashboard
Note: Numbers may not sum up due to rounding.
Active Accounts
1,005,932
Participation Rate
93.3%
YTD Sales Volume
6,908 GWh
Jan Sales Volume
886 GWh
In January 2023 CPA recorded an operating loss of $14.2 million which was $23 million less than the budgeted operating income of $8.7 million. For the year to date, CPA has recorded an operating loss of $31.1 million, $112.6 million less than the budgeted operating income of $81.5 million.
January results were negatively impacted by a continuing price spike in natural gas markets which caused significant increases in wholesale electricity prices in January, by higher than budgeted renewable energy costs, and by the contingent accrual in January of a possible $3.99 million penalty arising from non-compliance with the California Public Utilities Commission (CPUC) year ahead Resource Adequacy (RA) program. Non-compliance with the year ahead RA compliance obligation reflects a shortage of available RA for sale in California energy markets.
Year-to-date revenue was $692.8 million in line with budgeted revenue. The cost of energy was $704.6 million or 20% higher than budgeted resulting from a heat wave in September 2022, price shocks in the gas and electricity markets in December 2022 and January 2023, higher than budgeted renewable energy costs, recording of prior period costs in the current fiscal year and a RA compliance penalty recorded in January 2023. Operating costs were lower than budgeted primarily as a result of lower spending in general administrative and other service costs than budgeted and the non-utilization of contingencies.
As of January 31, 2023, CPA had $36.2 million in unrestricted cash and cash equivalents and $79.853 million available on its bank line of credit.
CPA is in sound financial health and in compliance with its bank and other credit covenants.
Agr/Oth
2%
Com-Lg
19%
Com-Sm
28%
Res
52%
118
250
378
451
526
609
693
1114
0 200
400
600
800
1000
1200
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
in 000,000's
Operating Revenue Actual Budget
0 20
40 60
80 100
120
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Cash & Cash Equivalents
Unrestricted Restricted
in $000,000's Actual Budget Variance % Actual Budget Variance % Operating Revenues 83.6 85.1 -1.5 -2% 692.8 692.8 0.0 0% Cost of Energy 94.9 72.4 22.5 31% 704.6 585.0 119.6 20% Revenues Less Energy Cost -11.3 12.7 -24.1 -189% -11.8 107.8 -119.6 -111% Operating Expenses 2.9 4.0 -1.1 -28% 19.3 26.4 -7.1 -27% Operating Income -14.2 8.7 -23.0 -263% -31.1 81.5 -112.6 -138% Jan Year-to-Date
21 20
5 9 21
0 -12
$243
-100
-50
0 50
100
150
200
250
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Revenue Less Energy Cost
Actual Budget
Agenda Page 10
Staff Report – Agenda Item 5
To: Finance Committee
From: David McNeil, Chief Financial Officer
Subject: Report from the Chief Financial Officer
Date: March 22, 2023
The Chief Financial Officer will provide verbal updates on treasury operations and liquidity, financial modelling and FY 2023/24 budget preparations, an Amendment to the Credit Agreement with JPMorgan, deposits and banking, and January financial results.
ATTACHMENT
None.
Agenda Page 11
Staff Report – Agenda Item 6
To: Finance Committee
From: David McNeil, Chief Financial Officer
Approved By: Ted Bardacke, Chief Executive Officer
Subject: Proposed Fiscal Year 2022/23 Amended Budget
Date: March 22, 2023
RECOMMENDATION
Recommend approval of the Proposed Fiscal Year (FY) 2022/23 Amended Budget (“Amendment”) to the Board at its April 6, 2023 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 2022, CPA’s Board of Directors approved the FY 2022/23 Budget (“Budget”). Typically, CPA also develops a budget amendment in April or May of the fiscal year to make any adjustments necessary based on changing conditions over the course of the year.
The Amendment will allow increases to the Cost of Energy (+$166,796,000, +19%), Data Management Expense (+$44,000, +0.4%), and Interest Expense (+$170,000, +30%) budget line items. These increases will be partially offset by an increase in the Revenue line item. All other revenue and expense budget line items will remain unchanged. The net effect is a budgeted increase in the contribution to the net position of $102.9 million, a decrease of $94.9 million from the budgeted increase in the net position approved by the Board in June 2022.
Budget Detail
The Amendment includes changes to the following Budget line items:
Agenda Page 12
Finance Committee Item 6
Revenue (+$72,088,000, +6%): The proposed increase to the Revenue arises from an increase in retail electricity rates approved by the Board at its March 2, 2023 board meeting.
Cost of Energy (+$166,796,000, +19%): The proposed increase to the Cost of Energy is due to the major heat event in September 2023, a spike in wholesale electricity prices in December 2022 and January 2023, prior period charges recorded in FY 2022/23, and higher renewable energy prices and costs than anticipated in the FY 2022/23 Budget.
Billing Data Management Services (+$44k, +0.4%): The proposed increase in Billing Data Management Services budget line item arises from a higher estimate of the number of customer accounts served by CPA and resulting higher customer account charges which are incurred on a cost per account basis.
Interest Expense (+$170k, +30%): The proposed increase to the Interest Expense budget line item is intended to accommodate increased expenses arising from greater borrowing on the line of credit than anticipated in the FY 2022/23 budget and increased costs arising from a planned amendment to CPA’s credit agreement with JPMorgan. Staff expects to present i) a summary of a proposed amendment to the Credit Agreement to the Finance Committee at its April 26th, 2023 meeting and ii) a recommendation to the Board to adopt a resolution authorizing staff to enter into an amendment to the Credit Agreement at its May 4, 2023 Board meeting. The amended Credit Agreement would come into effect by the end of May 2023.
ATTACHMENTS
1. Proposed FY 2022/23 Amended Budget
2. FY 2022/23 Budget Amendment Presentation
Agenda Page 13
A B C D E F
FY 2022/23
Budget Amendment
FY 2022/23
Amended Budget
Budget
Difference ($)
Budget
Difference
(%)
Revenue ‐ Electricity net 1,110,781,000 72,088,000 1,182,869,000 72,088,000 6% Transfer from Fiscal Stabilization Fund ‐ Other revenue 2,742,000 ‐ 2,742,000 0% TOTAL REVENUE 1,113,523,000 72,088,000 1,185,611,000 72,088,000 6% Cost of energy 870,533,000 166,796,000 1,037,329,000 166,796,000 19% TOTAL ENERGY COSTS 870,533,000 166,796,000 1,037,329,000 166,796,000 19% NET ENERGY REVENUE 242,990,000 (94,708,000) 148,282,000 (94,708,000) ‐39%
OPERATING EXPENSES
Staffing 13,976,000 ‐ 13,976,000 0% Technical services 1,436,000 ‐ 1,436,000 0% Legal services 1,243,000 ‐ 1,243,000 0% Other services 1,902,000 ‐ 1,902,000 0% Communications and marketing services 2,018,000 ‐ 2,018,000 0% Customer notices and mailing services 1,346,000 ‐ 1,346,000 0% Billing data management services 10,474,000 44,000 10,518,000 44,000 0.4% Service fees ‐ SCE 2,116,000 ‐ 2,116,000 0% Customer programs 4,663,000 ‐ 4,663,000 0% General and administration 5,877,000 ‐ 5,877,000 0% TOTAL OPERATING EXPENSES 45,051,000 44,000 45,095,000 44,000 0% OPERATING INCOME 197,939,000 (94,752,000) 103,187,000 ‐ (94,752,000) 48% Finance and interest expense 562,000 170,000 732,000 170,000 30% TOTAL NON OPERATING EXPENSES 562,000 170,000 732,000 170,000 30% Interest Income ‐ 486,000 ‐ 486,000 0% TOTAL NON OPERATING REVENUE ‐ 486,000 ‐ 486,000 0% NON OPERATING REVENUE (EXPENSE) (76,000) (170,000) (246,000) (170,000) 224% CHANGE IN NET POSITION 197,863,000 (94,922,000) 102,941,000 ‐ (94,922,000) 48% NET POSITION BEGINNING OF PERIOD 104,098,000 141,253,000 37,155,000 36% NET POSITION END OF PERIOD 301,961,000 244,194,000 ‐ (57,767,000) 19% FISCAL STABILIZATION FUND ‐ ‐ ‐ 0% RESERVES END OF PERIOD (Net Position + FSF) 301,961,000 244,194,000 ‐ (57,767,000) 19% Other Uses
Capital Outlay 225,000 ‐ 225,000 0% Depreciation & Amortization (622,000) ‐ (622,000) 0% CHANGE IN FUND BALANCE 198,260,000 (94,922,000) 103,338,000 ‐ (94,922,000) 48% Note: Funds may not sum precisely due to rounding
CLEAN POWER ALLIANCE of SOUTHERN CALIFORNIA
Fiscal Year 2022/2023 Amended Budget
Proposed
Agenda Page 14
Item 6
Proposed FY 2022/23 Budget Amendment
March 22, 2023
Agenda Page 15
Recommendation:
Recommend approval of the Fiscal Year (FY) 2022/23 Amended Budget (“Amendment”) to the Board of Directors at its April 6, 2023 Board meeting.
Agenda Page 16
Amendments Highlights
The increase in Revenue arises from an increase in retail electricity rates approved by the Board at its March 2, 2023 board meeting.
The increase in Energy Costs arises from a major heat event in September 2022, a spike in wholesale electricity prices in December 2022 and January 2023, prior period charges recorded in FY 2022/23, and higher renewable energy prices and costs than anticipated in the FY 2022/23 Budget. 3 A B C D E F
FY 2022/23
Budget Amendment
FY 2022/23
Amended
Budget
Budget
Difference ($)
Budget
Difference
(%)
1 Revenue - Electricity net 1,110,781,000 72,088,000 1,182,869,000 72,088,000 6% 2 Transfer from Fiscal Stabilization Fund -
3 Other revenue 2,742,000 2,742,000 - 0%
4 TOTAL REVENUE 1,113,523,000 72,088,000 1,185,611,000 72,088,000 6% 5 Cost of energy 870,533,000 166,796,000 1,037,329,000 166,796,000 19% 5 TOTAL ENERGY COSTS 870,533,000 166,796,000 1,037,329,000 166,796,000 19% 6 NET ENERGY REVENUE 242,990,000 (94,708,000) 148,282,000 (94,708,000) -39% CLEAN POWER ALLIANCE of SOUTHERN CALIFORNIA
Fiscal Year 2022/2023 Amended Budget
Proposed
Agenda Page 17
Amendments Highlights (continued…)
The proposed increase in the Billing Data Management Services budget line item arises from a higher estimate of the number of customer accounts served by CPA and resulting higher customer account fees which are incurred on a cost per account basis.
4 A B C D E F
FY 2022/23
Budget Amendment
FY 2022/23
Amended
Budget
Budget
Difference ($)
Budget
Difference
(%)
8 OPERATING EXPENSES
9 Staffing 13,976,000 13,976,000 - 0%
10 Technical services 1,436,000 1,436,000 - 0%
11 Legal services 1,243,000 1,243,000 - 0%
12 Other services 1,902,000 1,902,000 - 0%
13 Communications and marketing services 2,018,000 2,018,000 - 0% 14 Customer notices and mailing services 1,346,000 1,346,000 - 0% 15 Billing data management services 10,474,000 44,000 10,518,000 44,000 0.4% 16 Service fees - SCE 2,116,000 2,116,000 - 0%
17 Customer programs 4,663,000 4,663,000 - 0%
18 General and administration 5,877,000 5,877,000 - 0%
19 TOTAL OPERATING EXPENSES 45,051,000 44,000 45,095,000 44,000 0% 20 OPERATING INCOME 197,939,000 (94,752,000) 103,187,000 (94,752,000) -48% Agenda Page 18
Amendments Highlights continued…
Proposed increase in Interest Expense is intended to accommodate increased expenses arising from greater borrowing on the line of credit than anticipated in the FY 2022/23 budget and will allow for increased costs arising from a planned amendment to CPA’s credit agreement with JPMorgan 5 A B C D E F
FY 2022/23
Budget Amendment
FY 2022/23
Amended
Budget
Budget
Difference ($)
Budget
Difference
(%)
22 Finance and interest expense 562,000 170,000 732,000 170,000 30% 23 TOTAL NON OPERATING EXPENSES 562,000 170,000 732,000 170,000 30% 24 25 Interest Income 486,000 - 486,000 - 0%
26 TOTAL NON OPERATING REVENUE 486,000 - 486,000 - 0%
27 NON OPERATING REVENUE (EXPENSE) (76,000) (170,000) (246,000) (170,000) 224% 28 CHANGE IN NET POSITION 197,863,000 (94,922,000) 102,941,000 (94,922,000) -48% 29 NET POSITION BEGINNING OF PERIOD 104,098,000 141,253,000 37,155,000 36% 30 NET POSITION END OF PERIOD 301,961,000 244,194,000 (57,767,000) -19% 31 FISCAL STABILIZATION FUND - - - 0%
32 RESERVES END OF PERIOD (Net Position + FSF) 301,961,000 244,194,000 (57,767,000) -19% 33 34 Other Uses
35 Capital Outlay 225,000 225,000 - 0%
36 Depreciation & Amortization (622,000) (622,000) - 0% 37 CHANGE IN FUND BALANCE 198,260,000 (94,922,000) 103,338,000 (94,922,000) -48% 38 Note: Funds may not sum precisely due to rounding
Agenda Page 19
Recommendation:
Recommend approval of the Fiscal Year (FY) 2022/23 Amended Budget (“Amendment”) to the Board of Directors at its April 6, 2023 Board meeting.
Agenda Page 20
Questions?
Agenda Page 21
Staff Report – Agenda Item 7
To: Finance Committee
From: David McNeil, Chief Financial Officer
Subject: Preview of Proposed Clean Energy Prepayment Transaction Date: March 22, 2023
The Chief Financial Officer will present a preview of the Proposed Clean Energy Prepayment transaction.
ATTACHMENTS
1. Preview of Proposed Clean Energy Prepayment Transaction Presentation
2. Clean Energy Prepayment Transaction Primer
3. Official Statement for CPA/CCCFA’s February 2023 Prepay Bond Issuance Agenda Page 22
To view this item, please click on the link above.
Item 7: Preview of Proposed Clean
Energy Prepayment Transaction
March 22, 2022
Agenda Page 23
2 Background
• In February 2023, staff and prepay service providers successfully issued $1 billion in energy prepayment bonds pursuant to Board direction. The prepay transaction is expected to provide energy cost savings of $66 million over the next eight years. See Attachment 1 for a Primer on Prepay Transactions and Attachment 2 for the Official Statement for more information about CPA’s first prepay transaction • At its April 6, 2023 meeting, Staff plan to present the Board with a) a proposed action to support a second prepay transaction and b) contracts with Municipal Capital Markets (MCM) and Chapman and Cutler (C&C) to assist CPA with the structuring and eventual closing of the prepay transaction.
• Staff also plan to recommend that CPA again utilize Goldman Sachs Group, Inc. (GS) and its wholly-owned subsidiary J. Aron & Company, LLC (J. Aron) as Underwriter and Prepaid Supplier and Community Choice Financing Authority (CCCFA) as the Bond Issuer on the second prepay transaction.
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3 CCCFA issued $998,780,000 of bonds on February 15, 2023. The bonds were issued at an average yield of 4.60%. The bonds received a “Green Bonds” designation from Kestrel Verifiers and were rated Baa1 by Moody’s.
Bonds were oversubscribed by 1.6x, attracting 34 bidders. Roughly 2/3 of bids came from major bonds and mutual funds. CPA’s name was known and well-regarded among investors.
CPA has assigned three PPAs into the prepay:
• Geysers geothermal (50 MW)
• Arlington solar + storage (233 MW / 132 MW)
• Resurgence solar + storage (48 MW / 40 MW)
During the initial eight-year period of the bonds, CPA will recognize energy cost savings of $66.5 million, or roughly $7.8 million annually
February 2023 Prepay Transaction Summary
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4 Staff plans to present to the Board at its April meeting a Resolution that encompasses the following approvals or authorizations:
1. Parameters under which the prepay transaction can be completed • Bonds will be limited obligations of CCCFA, not obligations of CPA • Aggregate bond principal will not exceed $1.3 billion • The minimum "Monthly Discount Percentage" (i.e., cost savings) as determined at Initial Pricing Date and future Repricing Dates shall be at least 5%
• CCCFA total cost of issuance shall not exceed 1% of the amount of bond proceeds (refer to Slide 8 for detailed breakdown of total cost of issuance)
2. Proposed CPA Documents or document forms (described on Slide 6) • Limited Assignment Agreements (LAAs) presented for approval in April will include an execution version of the LAA for CPA's White Hills PPA as well as “form of” LAAs to be used for other PPAs in the prepay.
3. Direction to CCCFA to make payments to service providers for issuance costs out of bond proceeds The Resolution is substantially similar to the Resolution approved by the Board in October 2022 to support the first prepay transaction
Summary of the Proposed Board Action
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(CPA)
4 5
6 5
Prepayment Transaction Diagram
Initial Issuance and Cash Flows
1. Debt Issuance – CCCFA issues the prepay bonds
2. Prepayment – CCCFA remits net bond proceeds to Prepay LLC in return for 30 years of assigned electricity deliveries
3. Unsecured Loan – Prepay LLC loans net bond proceeds to GS or another Funding Recipient. The Funding Recipient
makes fixed monthly payments to Prepay LLC equal to
expected assigned electricity multiplied by the PPA price of an assigned energy project
Monthly Cash / Energy Flows
4. Assigned PPAs – CPA assigns certain rights and obligations as a Buyer on existing PPAs to J. Aron; J. Aron makes monthly payments to PPA Sellers for assigned delivered energy
5. Electricity Supply – Prepay LLC enters into a long-term agreement to purchase electricity from J. Aron to match assigned electricity quantities/terms
6. Project Participant – CCCFA sells CPA all assigned electricity delivered by Prepay LLC at the discounted prepay price
Prepay LLC/GS is able to solicit bids
from third-party funding providers and
may select a non-GS party if they offer
better savings to CPA
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6 The Board Resolution will authorize the execution or approval of the following documents:
1. Clean Energy Purchase Contract – Agreement between CPA & CCCFA to purchase assigned discounted electricity
2. Operational Services Agreement – Agreement between CPA and CCCFA permitting CPA to control various actions of CCCFA relating to project operations
3. Limited Assignment Agreement / Form of Limited Assignment Agreement – Form of agreement between CPA, PPA Sellers, and J. Aron governing the assignment of existing and future PPAs
4. Letter Agreement re: Limited Assignment Agreement – CPA and J. Aron agree to use the Form of Limited Assignment Agreement for future PPA assignments
5. PPA Payment Custodial Agreement – Provides for creation of a custody account for receipt of payments from J. Aron and CPA to settle monthly PPA Seller invoices
6. Preliminary Official Statement – Describes the Bonds and includes an Appendix with descriptive, operating, and financial information re: CPA; used for marketing the Bonds
7. Memorandum of Understanding with CCCFA – CPA agrees to indemnify CCCFA for rating agency and green bond opinion fees in the event the prepay bonds are not issued Document Summary – April 6, 2023
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7 Selection of Prepay Services Providers
• Staff plan to present the Board with a new contract with MCM to provide financial advisory support and GIC broker services related to a second prepay transaction. • Staff plan to present the Board with a new contract with Chapman & Cutler for legal services and advisory support related to a second prepay transaction. • Staff plan to recommend that the Board approve GS / J. Aron as the Underwriter and Prepaid Supplier on the second prepay transaction. GS has agreed to reduce its underwriter’s discount for the second prepay transaction by 10%, decreasing the Total Cost of Issuance. • Staff plan to authorize GS to utilize a co-managing underwriter on the deal. All potential co-managers on the deal are veteran- or minority-owned investment banks included in the State of California’s syndicate (underwriters that are eligible for appointments on all State and Financing Authority bond sales). The use of a co-manager will not impact CPA’s savings / prepay transaction fees.
• Prepay LLC/CPA retain the right to solicit bids for Funding Recipients at Pricing and Repricing Dates.
If a 3rd party offers greater savings than GS can, CPA can direct Prepay LLC to select them instead • Staff plan to recommend CCCFA as the Issuer on the second prepay transaction. CPA joined CCCFA in September 2022 and its CEO currently serves on the CCCFA's Board of Directors.
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8 Prepay Cost of Issuance, Service Provider Fees and Expenses Entity Fee Type Prepay #1 Prepay #2 (1)
Amount % of Bond Proceeds Amount % of Bond Proceeds
Goldman Sachs Underwriting Expenses $5,227,649 0.50% $4,538,511 0.45% Various Prepay Services $1,486,581 0.14% $1,348,456 0.13% Orrick Tax and Bond Counsel $350,000 $350,000
Chapman & Cutler Prepay Counsel $300,000 $200,000
MCM Financial Advisory and QIR $460,000 $421,875
Moody’s Bond Rating (Level III Complexity) $280,000 $280,000 Kestrel Green Bond Certification $22,000 $22,000
Trustee Counsel Trustee Counsel $30,000 $30,000
Trustee Trustee $15,750 $15,750
Accountancy & Misc. $28,831 $28,831
Total Cost of Issuance (TCOI) $6,714,230 0.64% $5,886,967 0.59% • TCOI fees are paid out of bond proceeds
• C&C and MCM have a fiduciary responsibility to CPA and are reviewing all prepay documentation. CPA’s energy contracting counsel, Clean Energy Counsel, are providing legal review of the limited assignment agreements. • Fee arrangements vary by vendor. In general, the larger the bond issuance amount, the larger the TCOI and smaller TCOI in % terms. A smaller issuance would result in lower TCOI fees in dollar terms, and higher fees as a % of issuance. • For prepay #2, C&C has agreed to reduce its fee by $100k, MCM has agreed to reduce its fee by $38k, and GS has agreed to reduce its underwriter's discount by 10%, reducing underwriting expenses by ~$500k (1) Example fees for prepay #2 based on a $1.0 billion transaction size, matching prepay #1 Agenda Page 30
March 2023 • Prepay Update to Executive Committee (March 15) • Prepay Update to Finance Committee (March 22)
• Preparation of prepay transaction documents and Resolution of the Board April 2023 • Board (April 6)
• Present Resolution to authorize prepay transaction parameters and approve prepay documents
• Approve contracts with MCM and C&C
• Approve selection of GS/J. Aron and CCCFA
May – June 2023 • Transaction close
9 Prepayment Transaction Timeline: Board & Committees
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Questions
Agenda Page 32
Appendix
Agenda Page 33
12 • California Community Choice Financing Authority (CCCFA) (Bond Issuer) • Issues bond; uses bond proceeds to pay Prepay LLC in exchange for a 30-year supply of energy • Delivers energy to CPA in exchange for prepay energy payments under the CEPC • Pays Bond Investors
• Goldman Sachs Group, Inc. or selected 3rd Party (Funding Recipient) • Receives term loan from Prepay LLC for amount of bond proceeds • Makes monthly payments to Prepay LLC allowing it to meet obligations to J. Aron under the EPSSA • J. Aron / Prepay LLC (Prepaid Supplier)
• CPA assigns one or more existing PPAs to J. Aron, which assumes the PPA obligations of the “buyer” • J. Aron delivers energy to Prepay LLC under the EPSSA; Prepay LLC delivers energy to CCCFA under the MPSA • J. Aron makes monthly payments to PPA Seller via Custodial Account for assigned energy • CPA (Project Participant / Purchaser)
• Makes fixed monthly payments to CCCFA / Bond Trustee for prepaid energy • Makes monthly payments to PPA Seller via Custodial Account for non-prepaid energy, unassigned obligations • PPA Sellers
• Receive monthly cash flows from Custodial Account for energy assigned to J. Aron + non-prepaid energy and unassigned obligations
• 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 Prepayment Transaction – Entities
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13 • CPA prepay transaction will involve the sale of tax-exempt bonds to bond holders by CCCFA.(1) • CCCFA remits the net bond proceeds to a special purpose entity, Aron Prepay LLC (Prepay LLC), in return for a 30-year supply of electricity pursuant to the Master Power Supply Agreement (MPSA).
• The creation of Prepay LLC provides transparency and market level savings for the initial period of the prepay (5-10 years) as well as at each subsequent interest rate reset which is estimated to occur each 5-10 years over the bond term. Without Prepay LLC, prepay transaction terminates if GS cannot offer minimum savings at reset.
• Prepay LLC lends the net bond proceeds to GS under an unsecured term loan agreement (the Funding Agreement). GS makes monthly payments to Prepay LLC sufficient to allow it to meet its payment obligations under the Electricity Purchase Sale & Service Agreement (EPSSA; see below). GS issues a guaranty to back obligations of Prepay LLC under the MPSA.(2) • J. Aron and Prepay LLC enter into the EPSSA under which Prepay LLC purchases electricity + related products from J. Aron for delivery to CCCFA. J. Aron equitizes Prepay LLC through the Subordinated Term Loan Agreement.
(1) CPA does not issue the bonds. Bond proceeds do not flow to CPA or to renewable energy project developers/owners. CPA has no obligation to repay the bonds. (2) The bonds carry the credit rating of Goldman Sachs Group, Inc. or selected 3rd Party Transaction Summary – Prepay Bond Issuance
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14 • CPA will assign certain rights and obligations under existing PPAs with PPA Sellers to J. Aron via LAAs • Under the LAAs, the PPA Sellers will deliver assigned renewable energy to J. Aron and J. Aron assumes the obligation to pay the PPA Sellers for the assigned energy • Title to the renewable energy passes instantaneously from PPA Seller to J. Aron to Prepay LLC to CCCFA to CPA at the energy delivery point
• CPA retains other rights and unassigned payment obligations under the PPAs • CPA and CCCFA enter into the Clean Energy Purchase Contract (CEPC) under which CPA purchases assigned electricity + related products from CCCFA at a discounted price. This is the source of CPA’s savings. CCCFA uses CPA’s payments to service debt owed to bond holders. • CPA is responsible for assigning sufficient electricity into the prepay transaction via the LAAs • If an LAA terminates or expires, CPA will designate another PPA Seller for the term of the CEPC • PPA Sellers continue to provide a single monthly invoice for energy and related costs. Monthly payment obligations to the PPA Sellers are split between CPA and J. Aron as follows:
• J. Aron sells assigned energy to Prepay LLC under the EPSSA, Prepay LLC sells energy to CCCFA under the MPSA, and CCCFA sells energy to CPA under the CEPC • J. Aron pays the PPA Seller for assigned energy at the PPA price. CPA pays the PPA Seller for any unassigned obligations under the PPA.
• Settlement of payments are set forth in the PPA Payment Custodial Agreement.
Transaction Summary – PPA Assignments and Settlement
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Clean Energy Prepayment
Transaction Primer
March 2023
Agenda Page 37
2 Background
• Prepays are well-established financing mechanisms, grounded in the US tax code, that allow municipal utilities and CCAs to leverage their status as issuers of tax-exempt debt to reduce energy costs
• Sixteen municipal prepayment transactions totaling over $9.6 billion have been completed in California since 2006; six transactions were completed by CCAs since the Fall 2021
• CPA completed it’s first prepay transaction in February 2023 resulting in an expected savings on its energy costs of $66.5 million over 8 years. • CPA plans to present CPA’s board with a recommendation to approve a 2nd prepay transaction at its April 2023 Board meeting
• To complete its first transaction CPA contracted with the Municipal Financial Advisor, Municipal Capital Advisors (MCM) and the prepay legal counsel Chapman. Both MCM and Chapman have decades of prepay experience and have a fiduciary responsibility to CPA. CPA plans to use MCM and Chapman on the 2nd prepay transaction as well Agenda Page 38
3 Prepays Bonds vs Conventional Municipal Bond Financing • Municipal Bond Financing
• Bond proceeds commonly finance capital assets or projects • Municipal issuer incurs debt and is responsible for repayment of the bond • Municipal issuer incurs interest costs
• Credit rating of the bond is typically based on credit quality of municipal issuer and/or project revenues
• Prepay Bonds:
• Bond proceeds flow to a prepaid energy supplier and are loaned to (usually) to a bank • The prepaid supplier and the bank are responsible for bond repayment • The municipal sponsor (CPA) is not responsible for repayment of the bond and does not incur debt or interest costs
• Credit rating of the bond is primarily based on the financial strength of the bank Agenda Page 39
4 Risks and Benefits Overview
• Prepays benefits:
• Provide a source of energy cost savings that can contribute to reserves, lower rates and/or fund customer programs
• Service provider fees are paid from bond proceeds primarily on a contingency basis; If a bond is not issued, the service providers are not paid • CPA is not responsible for bond repayment
• Prepay risks:
• The primary risk to CPA is that the prepay program terminates earlier than expected and CPA does not realize expected energy cost savings • If the prepay transaction terminates before bond maturity date:
• The PPAs supporting the prepay transaction return to status quo; CPA re-assumes buyer obligations and pays the PPA price as it does currently.
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(CPA)
4 5
6 5
Prepayment Transaction Diagram
Initial Issuance and Cash Flows
1. Debt Issuance – CCCFA issues the prepay bonds
2. Prepayment – CCCFA remits net bond proceeds to Prepay LLC in return for 30 years of assigned electricity deliveries
3. Unsecured Loan – Prepay LLC loans net bond proceeds to GSG or another Funding Recipient. The Funding Recipient makes fixed monthly payments to Prepay LLC equal to
expected assigned electricity multiplied by the assigned PPA price
Monthly Cash / Energy Flows
4. Assigned PPAs – CPA assigns certain rights and obligations as a Buyer on existing PPAs to J. Aron; J. Aron makes monthly payments to PPA Sellers for assigned delivered energy
5. Electricity Supply – Prepay LLC enters into a long-term agreement to purchase electricity from J. Aron to match assigned electricity quantities/terms
6. Project Participant – CCCFA sells CPA all assigned electricity delivered by Prepay LLC at the discounted prepay price
As described in the July Staff Report
recommending approval of GS, Prepay
LLC is able to solicit bids from third-party funding providers and may select a non-GS party if they offer better
savings to CPA
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6 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
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7 Green Bonds, or Climate Bonds, are a growing sector of the bond market. Bonds certified as “Green” can be purchased by funds specifically set up to finance climate-friendly projects.
CPA will seek a Green Climate Bond certification for the prepay bond issuance utilizing a ratings firm called Kestrel. Kestrel certifies bonds based on the activities financed by the bonds – in this case purchase of renewable energy – rather than the issuer.
Benefits
• Green bond status may widen the pool of investors interested in subscribing to a bond, allowing for the possibility of better pricing and thus increased savings to CPA • Green bond status is marked as a positive in market media coverage and aligns with CPA’s mission Costs
• GS has estimated a $30k fee for the green bond certification process; this fee has been included within TCOI and will be paid out of bond proceeds
• Certification may require CPA/CCCFA to provide additional annual disclosures to bondholders (e.g., reporting on renewable energy quantities delivered/purchased) Green Climate Bond Certification
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Questions
Agenda Page 44
Appendix
Agenda Page 45
10 • California Community Choice Financing Authority (CCCFA) (Bond Issuer) • Issues bond; uses bond proceeds to pay Prepay LLC in exchange for a 30-year supply of energy • Delivers energy to CPA in exchange for prepay energy payments under the CEPC • Pays Bond Investors
• Goldman Sachs Group, Inc. (Funding Recipient; may be replaced by 3rd party at Initial and/or Reset Dates to achieve better pricing)
• Receives term loan from Prepay LLC for amount of bond proceeds • Makes monthly payments to Prepay LLC allowing it to meet obligations to J. Aron under the EPSSA • J. Aron / Prepay LLC (Prepaid Supplier)
• CPA assigns one or more existing PPAs to J. Aron, which assumes the PPA obligations of the “buyer” • J. Aron delivers energy to Prepay LLC under the EPSSA; Prepay LLC delivers energy to CCCFA under the MPSA • J. Aron makes monthly payments to PPA Seller via Custodial Account for assigned energy • CPA (Project Participant / Purchaser)
• Makes fixed monthly payments to CCCFA / Bond Trustee for prepaid energy • Makes monthly payments to PPA Seller via Custodial Account for non-prepaid energy, unassigned obligations • PPA Sellers
• Receive monthly cash flows from Custodial Account for energy assigned to J. Aron + non-prepaid energy and unassigned obligations
• 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 Prepayment Transaction – Entities
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11 • A CPA prepay transaction will involve the sale of tax-exempt bonds to bond holders by CCCFA.(1)
• CCCFA remits the net bond proceeds to a special purpose entity, Aron Prepay LLC (Prepay LLC), in return for a 30-year supply of electricity pursuant to the Master Power Supply Agreement (MPSA).
• The creation of Prepay LLC provides transparency and market level savings for the initial period of the prepay (5-10 years) as well as at each subsequent interest rate reset which is estimated to occur each 5-10 years over the bond term. Without Prepay LLC, prepay transaction terminates if GS cannot offer minimum savings at reset.
• Prepay LLC lends the net bond proceeds to Funding Recipient under an unsecured term loan agreement (the Funding Agreement). Funding Recipient makes monthly payments to Prepay LLC sufficient to allow it to meet its payment obligations under the Electricity Purchase Sale & Service Agreement (EPSSA; see below). GS issues a guaranty to back obligations of Prepay LLC under the MPSA.(2)
• J. Aron and Prepay LLC enter into the EPSSA under which Prepay LLC purchases electricity + related products from J. Aron for delivery to CCCFA. J. Aron equitizes Prepay LLC through the Subordinated Term Loan Agreement.
(1) CPA does not issue the bonds. Bond proceeds do not flow to CPA or to renewable energy project developers/owners. CPA has no obligation to repay the bonds. (2) The bonds carry the credit rating of Goldman Sachs Group, Inc.
Transaction Summary – Prepay Bond Issuance
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12 • CPA will assign certain rights and obligations under existing PPAs with PPA Sellers to J. Aron via LAAs • Under the LAAs, the PPA Sellers will deliver assigned renewable energy to J. Aron and J. Aron assumes the obligation to pay the PPA Sellers for the assigned energy • Title to the renewable energy passes instantaneously from PPA Seller to J. Aron to Prepay LLC to CCCFA to CPA at the energy delivery point
• CPA retains other rights and unassigned payment obligations under the PPAs • CPA and CCCFA enter into the Clean Energy Purchase Contract (CEPC) under which CPA purchases assigned electricity + related products from CCCFA at a discounted price. This is the source of CPA’s savings. CCCFA uses CPA’s payments to service debt owed to bond holders. • CPA is responsible for assigning sufficient electricity into the prepay transaction via the LAAs • If an LAA terminates or expires, CPA will designate another PPA Seller for the term of the CEPC • PPA Sellers continue to provide a single monthly invoice for energy and related costs. Monthly payment obligations to the PPA Sellers are split between CPA and J. Aron as follows:
• J. Aron sells assigned energy to Prepay LLC under the EPSSA, Prepay LLC sells energy to CCCFA under the MPSA, and CCCFA sells energy to CPA under the CEPC • J. Aron pays the PPA Seller for assigned energy at the PPA price. CPA pays the PPA Seller for any unassigned obligations under the PPA.
• Settlement of payments are set forth in the PPA Payment Custodial Agreement.
Transaction Summary – PPA Assignments and Settlement
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