Finance Committee of the
Clean Power Alliance of Southern California
Regular Meeting
Wednesday, September 27, 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 90 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 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
Thousand Oaks City Hall
City Manager’s Office, Council Office #1
2100 Thousand Oaks Blvd.
Thousand Oaks, CA 91362
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, Agenda Page 1
the entire Consent Agenda, or individual items in the Regular Agenda. Please refer to Policy No. 8 – Public Comment for additional information.
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If the PDF is downloaded, the bookmark panel (ribbon icon) appears on the left side of the screen.
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 May 24, 2023, Finance Committee Meeting
2. Receive and File August 2023 Risk Management Team Report
3. Receive and File June, July, and August 2023 CPA Investment Reports
4. Receive and File July 2023 Financial Dashboard
REGULAR AGENDA
5. Report from the Chief Financial Officer
6. Receive Update on Customer Payment Behavior and Bad Debt Reserve
COMMITTEE MEMBER COMMENTS
ADJOURN – NEXT MEETING ON OCTOBER 25, 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
Staff Report – Agenda Item 1
To: Finance Committee
Subject: Approve Minutes from the May 24, 2023 Finance Committee Meeting
Date: September 27, 2023
RECOMMENDATION
Approve.
ATTACHMENT
1. Minutes
Agenda Page 3
Finance Committee Item 1
MINUTES
Finance Committee of the
Clean Power Alliance of Southern California
Regular Meeting
Wednesday, May 24, 2023, 11:00 a.m.
Meeting videos are available on CPA's YouTube Channel.
http://www.youtube.com/@CPApublicmeetings
Committee 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
Thousand Oaks City Hall
City Manager’s Office, Council Office #1
2100 Thousand Oaks Blvd.
Thousand Oaks, CA 91362
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 Remote
Rolling Hills Estates Steve Zuckerman Committee Member Remote Santa Monica Pam O’Connor Committee Member Remote
Thousand Oaks David Newman Committee Member Remote
All votes are unanimous unless otherwise stated.
GENERAL PUBLIC COMMENT
There was no public comment.
Agenda Page 4
Finance Committee Item 1
CONSENT AGENDA
1. Approve Minutes from the April 26, 2023, Finance Committee Meeting
2. Receive and File April 2023 Risk Management Team Report
3. Receive and File April 2023 CPA Investment Report
4. Receive and File Fiscal Year Q3 Financial Report
Motion: Committee Member Calaycay, Calaycay
Second: Committee Member Zuckerman, Rolling Hills Estates 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, reported that CPA recorded a loss of $34 million in FYQ3 primarily due to the September 2022 heat wave and the subsequent electricity market price spike. Staff anticipates recording significant gains in FYQ4, which will contribute substantially to the net position. Staff is currently collaborating with Goldman Sachs on the second prepay transaction, and they have selected CoreMark, a life insurance subsidiary of AIG, as the funding recipient. JP Morgan agreed to the amended credit agreement.
6. Recommend Approval of Draft Fiscal Year 2023/2024 Budget to the Board of Directors David McNeil presented the draft FY 23/24 budget. Revenues reflect the Board-approved rate approach, default rate changes in 2022 and 2023, and new community enrollments in 2024. Mr. McNeil noted that Southern California Edison (SCE) recently increased their rates by approximately 3.5%; staff will issue customer communication about rate differentials to CPA customers. The budget includes a 1.25% increase for bad debt expense, which is budgeted at 1.77% of revenue or $28.4 million. Energy costs reflect increased costs of system energy, Resource Adequacy (RA), and renewable energy.
Proposed operating expenses are budgeted to increase by $10.6 million or 23% and reflect investments in staffing and customer programs. CPA’s FY 23/24 draft budget compares favorably with other Community Choice Aggregations (CCAs). The budgeted increase in the net position would bring CPA’s reserve percentage to 40% by the end of June 2024, which is the midpoint of the target range outlined in the reserve policy. The Days Liquidity on Hand (DLOH) would increase to approximately 150 days.
Regarding Committee Member Zuckerman’s inquiry about including monthly aged Accounts Receivable (AR) updates in committee reports, Mr. McNeil noted that CPA’s access to SCE data via Calpine currently includes large unapplied balances, which can impact the accuracy of bad debt reporting.
Motion: Committee Member Newman, Thousand Oaks
Second: Committee Member Zuckerman, Rolling Hills Estates Vote: Item 6 was approved by a roll call vote.
7. Receive Bank Credit Agreement Update and Provide Feedback Kate Freeman, Financial Strategy & Initiatives Manager, presented the update on the JP Morgan Credit Agreement. The current $80 million credit agreement between CPA and JP Morgan expires on October 31, 2023. Staff have negotiated proposed terms to amend the credit agreement, aiming to increase the facility size to $160 million. The amendment would provide CPA with greater liquidity, increase CPA’s DLOH by approximately 27 days, Agenda Page 5
Finance Committee Item 1
and offer greater assurance of the credit facility’s availability when needed. Ms. Freeman compared the proposed terms of the current JP Morgan agreement with those of the amendment.
Committee Member Kulcsar asked about the 27-day increase in DLOH and the costs associated with reducing the total credit agreement in the future. Ms. Freeman explained that if the Board does not adopt the credit agreement amendment, the DLOH would drop to 124 days. Regarding costs, staff indicated that the amendment extends the terms for only six months, and if a longer agreement is established in the future, it would include CPA’s ability to change the credit amount as needed. Chair Santangelo asked about negative consequences of the amended credit agreement. Mr. McNeil explained that the amendment prevents CPA from negotiating with other banks until the end of March 2024.
Staff intends to achieve a favorable credit rating outcome by that time, which would put CPA in a better position to negotiate lower costs.
The Committee reached a consensus to recommend the JP Morgan credit agreement amendment to the Board of Directors.
COMMITTEE MEMBER COMMENTS
Committee Member O’Connor mentioned the inauguration of the Regional Connector Transit Project on June 16, 2023, which will establish connections between various regions of Los Angeles.
ADJOURN
Committee Chair Santangelo adjourned the meeting at 11:53 p.m.
Agenda Page 6
Staff Report – Agenda Item 2
To: Finance Committee
From: Geoff Ihle, Energy Risk Manager
Approved By: Ted Bardacke, Chief Executive Officer
David McNeil, Chief Financial Officer
Subject: Risk Management Team Report
Date: September 27, 2023
August 2023 RMT REPORT
Key Actions
• Reviewed current counterparty credit exposure
• Reviewed July 2023 market performance
• Reviewed July 2023 generation and storage performance • Reviewed energy positions and approved 2023-2027 hedges • Reviewed May 2023 day-ahead load forecast performance • Reviewed positions for RPS and carbon-free energy products • Reviewed Energy Risk Management Policy (ERMP) compliance • Reviewed July 2023 CRR Allocations and Auction and 2023 YTD Performance Policy Compliance
Policy Deviation Required Action
None None
ATTACHMENT
None.
Agenda Page 7
Staff Report – Agenda Item 3
To: Finance Committee
From: David McNeil, Chief Financial Officer
Approved By: Ted Bardacke, Chief Executive Officer
Subject: Receive and File June, July, and August 2023 Investments Reports Date: September 27, 2023
RECOMMENDATION
Receive and File June, July, and August 2023 Investments Reports.
ATTACHMENTS
1. Investment Reports
Agenda Page 8
Finance Committee Item 3
Agenda Page 9
Staff Report – Agenda Item 4
To: Finance Committee
From: David McNeil, Chief Financial Officer
Approved By: Ted Bardacke, Chief Executive Officer
Subject: Receive and File July 2023 Financial Dashboard Date: September 27, 2023
RECOMMENDATION
Receive and File July 2023 Financial Dashboard.
ATTACHMENTS
1. July 2023 Financial Dashboard
Agenda Page 10
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 represents the difference between revenues and expenditures before interest income and expense, and capital expenditures
Cash and Cash Equivalents: Includes bank accounts and marketable securities with maturities of less than 90 days.
Year to date (YTD): Represents the fiscal period beginning July 1, 2023 YTD
July
2023
Financial Dashboard
Note: Numbers may not sum up due to rounding.
Active Accounts
1,005,675
Participation Rate
93.3%
YTD Sales Volume
1,057 GWh
July Volume
1,057 GWh
Agr/Oth
2% Com-Lg
23%
Com-Sm
29%
Res
46%
In July 2023 CPA recorded an operating gain of $13 million, $10.2 million less than the budgeted operating gain of $23.2 million provided in the FY 2023/24 budget.
July 2023 revenues were $160.3 million or 5% lower than budget as a result of milder than normal temperatures and therefore lower than budgeted electricity consumption.
The cost of energy was $144 million or 3% more than the FY2023/24 budget. July cost of energy was higher than the budget primarily due to higher than budgeted costs to import Resource Adequacy into California and higher than budgeted grid operation charges levied by the California Independent Systems Operator (CAISO). Operating costs were 26% below budget for the month mainly due to lower than budgeted spending on general and administrative expenses, customer programs and other services, and the non-utilization of contingencies.
As of July 31, 2023, CPA had $141.3 million in unrestricted cash and cash equivalents and $159.853 million available in its bank line of credit.
CPA is financially sound and in compliance with its bank and other credit covenants.
Agenda Page 11
Staff Report – Agenda Item 5
To: Finance Committee
From: David McNeil, Chief Financial Officer
Subject: Report from the Chief Financial Officer
Date: September 27, 2023
The CFO will provide an oral update on the fiscal year end (FYE) 2022/23 audit, California Arrearage Payment Plan (CAPP1) audit, treasury operations, July 2023 financial results, and credit rating process.
Agenda Page 12
Staff Report – Agenda Item 6
To: Finance Committee
From: David McNeil, Chief Financial Officer
Approved By: Ted Bardacke, Chief Executive Officer
Subject: Customer Payment Behavior and Bad Debt Reserve Date: September 27, 2023
RECOMMENDATION
Receive presentation from staff.
ATTACHMENTS
1. Customer Payment Behavior and Bad Debt Reserve Update Agenda Page 13
Customer Payment Behavior and Bad Debt
Reserve Update
September 27, 2023
Agenda Page 14
Summary – As of August 31, 2023
Residential customers
• Represent approximately 60% of the accounts receivable and 77% of 90+days past due accounts receivable
• Past due balances continue to trend upward. Customer payment behavior has been impacted by delays in the resumption of i) disconnections and ii) late payment fees by SCE (see slide 4)
Commercial customers
• represent 40% of the accounts receivable and 23% of 90+day past due balances
• past due balances fell when disconnection noticing resumed in May 2022 and have remained stable since that time
CPA’s Bad Debt Reserve is conservatively estimated and, at the time of estimation, represents CPA’s best estimate of customer non-payment
2 Agenda Page 15
Gross AR Aging – Total
3 Gross aged accounts receivable do not include i) bad debt reserves, or ii) customer payments received by CPA but not yet applied to AR balances in Calpine’s shadow billing system ("unapplied funds", see in red).
Unapplied fund balances arise from a variety of data issues and can result in an overstatement of Gross AR aging. Unapplied funds balances rarely impact customer bills.
Agenda Page 16
4 Gross AR Aging - Residential
SCE resumed disconnection noticing and late payment fees for residential customers in April 2023 and began disconnections in May 2023. Disconnections were suspended in June 2023 due to system issues at SCE.
SCE resumed disconnections on August 22, 2023 by starting with 50 disconnections per day across its territory and ramping up gradually to 400 disconnections per day by Q4 2023.
SCE is required by the California Public Utilities Commission to offer to enroll eligible customers, including customers that received CAPP2 funds, in all applicable benefit programs administered by the utility prior any disconnection CPA Staff will closely monitor the impact of disconnections and late payment fees on residential customers. The full impact of these measures is not expected to occur until early 2024 Past due residential
balances have been
increasing despite the
application of CAPP1 and
CAPP2 in February 2022
and January 2023
respectively
Agenda Page 17
Gross AR Aging - Commercial
5 Past due commercial AR balances fell beginning in May 2022 when SCE resumed issuing disconnection notices and have stabilized since then, albeit at higher levels than the pre-pandemic period. 150+ past due represented 14% of commercial AR at the end of August 2023. CPA plans to contract with a collection agent to collect past due accounts for inactive commercial customers later in 2023.
Agenda Page 18
Bad Debt Reserve
6 Bad Debt Reserve as of August 31, 2023 ($42.9m) represented approximately 68% of 90+ days past due residential and commercial AR.
Agenda Page 19
Questions
Agenda Page 20
California Arrearage Payment Program - Summary
8 2021 CAPP Funding
The State Budget Act of 2021 provided financial assistance to active and inactive residential and commercial customer accounts reflecting delinquent balances incurred during the COVID-19 pandemic relief period covering March 4, 2020 through June 15, 2021.
Residential and small business customers received approximately $15.8 million of 2021 CAPP. The payment was applied to customer accounts in early 2022. 2022 CAPP Funding
The State Budget Act of 2022 appropriated additional funds for CAPP (CAPP2). CAPP2 extended the eligibility period to cover electric bills issued between March 4, 2020 and December 31, 2021 for active residential accounts only. Commercial and inactive residential accounts are not eligible to receive CAPP2 funds.
CPA’s active residential customers received approximately $10.4 million of CAPP2 funding in January 2022.
Agenda Page 21