Audit & Finance Committee Meeting
June 12, 2023
Peninsula Clean Energy
Agenda
• Call to Order / Roll Call
• Public Comment (for items not on the Agenda)
• Action to set the Agenda and Approve Consent Items
• Chair Report
• Staff Report
• Regular Agenda
Chair Report
Staff Report
Peninsula Clean Energy
Staff Report
• Retroactive Approval of FY2021-2022 Spending
o Total Operating Expenses Budget Approval = $241,811,865 o Total Operating Expenses Audited Actual = $246,539,330 o Retroactive Board approval skipped
o Since so late now, will re-start practice for FY2022-2023 year o Transparency of forecasts and transparency of ongoing spending FY 2023-2024
(July 1, 2023 – June 30, 2024)
Budget Review
Revised Draft
Peninsula Clean Energy
Recommendation/Resolution
RESOLUTION RECOMMENDING THAT THE BOARD OF DIRECTORS
APPROVE THE FISCAL YEAR 2023-2024 BUDGET WITH TOTAL
OPERATING EXPENSES NOT TO EXCEED $350,657,317
7 Peninsula Clean Energy
Schedule – Budget Review and Approval
8 • May 16, 2023 – Review Initial Draft Budget with Audit & Finance Committee • May 25, 2023 – Review Initial Draft Budget with Board of Directors • June 12, 2023 – Review Revised Draft Budget with Audit & Finance Committee • June 12, 2023 – Review Revised Draft Budget with Executive Committee • June 22, 2023 – Approve Final Budget by Board of Directors Peninsula Clean Energy
Revisions Since Initial Draft Budget
• Update to year-end FY23 forecast reflecting April 2023 financial results
• Minor adjustments to Programs Budget
• Modification to assumptions of Gov PV prepayment for
conservatism
• Minor modifications to Days Cash on Hand calculation
9 Peninsula Clean Energy
Draft Budget FY2023-2024 – Key Assumptions (Page 1 of 2) 10 Revenues
o PG&E Generation Rates – Slight decline in rates for next 4 years o January 1, 2024 – Increase 1%
o PCIA Rates – Continuing decrease in rates as of January 1, 2024 o January 1, 2024
o San Mateo – Drop to $0.00 from already low rate
o Los Banos – Drop to $0.00 from already low rate
o After 2024
o Significant increases for next 4 years, near to rates of 2022, but still not approaching rates of 2021
o Customer Rates to PCE – Relatively flat for next 3 years, then lower in 2027 and 2028 (but still well above low year of 2021)
Peninsula Clean Energy
Draft Budget FY2023-2024 – Key Assumptions (Page 2 of 2) 11 Cost of Energy –
o Budgeted at $311 million - Increase of $39 million (14%) over FY23 forecast o Overall budget includes 2 conservatism contingencies
o Energy Cost Volatility = $15 million/year
o 99% of 24x7 Hourly Renewable Project Delays = $56 million over 5 years; $770K in FY24 o Total cost is 9% higher than FY23 forecast without conservatism adders Non-expense Capital Outflows/Inflows
• Solar and Storage on Public Buildings
o Capital Outlay and Investment Tax Credit
o PV1 - $7.4 million outflow in FY24; $2.2 million ITC inflow in FY26 o PV2 - $43.0 million in FY25; $15.0 million ITC inflow in FY27 o Repayment based on usage over 20-year period
• Ongoing On-Bill Finance Programs
Peninsula Clean Energy
Revised Draft Budget (FY23 Forecast and FY24 Summary)
12 2023 2023 2023 2024
Budget Forecast Variance - Fav/(Unf) Revised Draft Budget
OPERATING REVENUES
Electricity Sales, net 364,961,141 429,685,416 64,724,275 471,670,872 Green electricity premium 2,822,550 2,999,401 176,851 2,953,162 367,783,691 432,684,817 64,901,127 474,624,034
OPERATING EXPENSES
Cost of energy 264,208,440 270,221,267 (6,012,827) 311,261,389 Staff compensation 8,583,221 7,939,828 643,393 10,922,801 Data Manager 3,600,000 3,583,331 16,669 3,871,152
Service Fees - PG&E 1,350,000 1,309,818 40,182 1,400,000 Consultants & Professional Services 1,431,813 1,001,289 430,524 1,788,491 Legal 1,474,000 1,299,487 174,513 1,574,558
Communications and Noticing 2,686,208 1,409,113 1,277,095 2,850,940 General and Administrative 2,359,806 2,286,167 73,639 4,027,236 Community Energy Programs 8,640,000 7,946,237 693,763 12,726,000 Depreciation 96,000 78,870 17,130 234,750
Total Operating Expenses 294,429,488 297,075,405 (2,645,917) 350,657,317 Operating Income (Loss) 73,354,203 135,609,412 62,255,209 123,966,717 NON-OPERATING REVENUES (EXP.)
Total Nonoperating Income/(Expense) 600,000 3,033,812 2,433,812 645,192 CHANGE IN NET POSITION 73,954,203 138,643,224 64,689,022 124,611,909 Net Position at the beginning of period 174,211,272 167,670,734 (6,540,538) 300,430,872 Net Position at the end of period 248,165,475 306,313,958 58,148,484 425,042,781 Total Cash & Cash Equivalents (after GOV PV programs) 262,859,728 377,161,637 Unrestricted Cash Days on Hand 323 393
Fiscal Year Fiscal Year
FY24 Budget
Approval: Total
Operating Expenses
Peninsula Clean Energy
Revised Draft Budget FY2024-2028 – 5-year Outlook
2024 2025 2026 2027 2028
Revised Draft Budget Forecast (FY) Forecast (FY) Forecast (FY) Forecast (FY)
OPERATING REVENUES
Electricity Sales, net 471,670,872 484,233,036 482,737,236 452,054,000 402,863,671 Green electricity premium 2,953,162 2,961,637 2,978,004 2,994,557 3,019,185 474,624,034 487,194,674 485,715,240 455,048,558 405,882,856
OPERATING EXPENSES
Cost of energy 311,261,389 383,611,464 382,474,223 344,299,885 329,946,422 Staff compensation 10,922,801 11,578,169 12,272,859 13,009,231 13,789,784 Data Manager 3,871,152 4,103,421 4,349,626 4,610,604 4,887,240 Service Fees - PG&E 1,400,000 1,484,000 1,573,040 1,667,422 1,767,468 Consultants & Professional Services 1,788,491 1,091,949 1,119,665 1,168,642 1,199,674 Legal 1,574,558 1,633,099 1,707,767 1,786,843 1,870,626 Communications and Noticing 2,850,940 2,964,912 3,048,580 3,134,757 3,223,520 General and Administrative 4,027,236 3,748,298 3,929,634 4,121,293 4,336,551 Community Energy Programs 12,726,000 22,130,000 25,781,000 30,355,000 32,935,000 Depreciation 234,750 1,062,250 2,466,694 2,616,000 2,616,000 Total Operating Expenses 350,657,317 433,407,562 438,723,088 406,769,676 396,572,285 Operating Income (Loss) 123,966,717 53,787,112 46,992,152 48,278,882 9,310,571 NON-OPERATING REVENUES (EXP.)
Total Nonoperating Income/(Expense) 645,192 673,580 703,218 734,160 766,463 CHANGE IN NET POSITION 124,611,909 54,460,692 47,695,370 49,013,041 10,077,033 Net Position at the beginning of period 300,430,872 425,132,781 479,688,873 527,485,368 576,605,600 Net Position at the end of period 425,042,781 479,593,473 527,384,244 576,498,409 586,682,634 Total Cash & Cash Equivalents (after GOV PV programs) 377,161,637 385,717,729 432,714,223 493,834,456 501,025,113 Unrestricted Cash Days on Hand 393 326 362 446 464
Fiscal Year
Peninsula Clean Energy
Revised Draft Budget FY2024-2028 – 5-year Outlook
Impact of Gov PV Programs on Cash Position
2024 2025 2026 2027 2028
Revised Draft Budget Forecast (FY) Forecast (FY) Forecast (FY) Forecast (FY)
OPERATING REVENUES
Electricity Sales, net 471,670,872 484,233,036 482,737,236 452,054,000 402,863,671 Green electricity premium 2,953,162 2,961,637 2,978,004 2,994,557 3,019,185 474,624,034 487,194,674 485,715,240 455,048,558 405,882,856
OPERATING EXPENSES
Total Operating Expenses 350,657,317 433,407,562 438,723,088 406,769,676 396,572,285 Operating Income (Loss) 123,966,717 53,787,112 46,992,152 48,278,882 9,310,571 NON-OPERATING REVENUES (EXP.)
Total Nonoperating Income/(Expense) 645,192 673,580 703,218 734,160 766,463 CHANGE IN NET POSITION 124,611,909 54,460,692 47,695,370 49,013,041 10,077,033 Total Cash & Cash Equivalents (before GOV PV programs) 387,561,637 431,717,729 433,514,223 481,834,456 503,275,113 Net Gov PV Programs (Outflow)/Inflow (10,400,000) (46,000,000) (800,000) 12,000,000 (2,250,000) Total Cash & Cash Equivalents (after GOV PV programs) 377,161,637 385,717,729 432,714,223 493,834,456 501,025,113 Unrestricted Cash Days on Hand 393 326 362 446 464
Fiscal Year
Peninsula Clean Energy
Recommendation/Resolution
RESOLUTION RECOMMENDING THAT THE BOARD OF DIRECTORS
APPROVE THE FISCAL YEAR 2023-2024 BUDGET WITH TOTAL
OPERATING EXPENSES NOT TO EXCEED $350,657,317
15 Investment Strategy
(Discussion)
Peninsula Clean Energy
Investment Management – Current Estimated Summary
17 As of June 2, 2023
Institution Amount Investment Mix
Fidelity $50.3 million Fidelity Institutional Money Market Government Portfolio
First Republic (Operating) $22.6 million Cash
Schwab $45.6 million Schwab Treasury Obligations Money Fund US Bank (as Custodian) $125.0 million Cash and Fixed Income Portfolio • PFM - $64.7 million
• FRB - $60.3 million
Total $243.5 million
Recent changes to diversify financial institutions
Peninsula Clean Energy
Investment Management – Policy #19
• Most recent version approved on May 28, 2020
• Priorities (in priority order)
o Safety, Liquidity, Return
• Enabled
• Broader access to high-quality fixed income investment options • Further diversification of the portfolio’s holdings
• Enhanced investment returns with safety as the overarching principle • Expanded investment options as permitted by California Government Code to allow:
• Banker’s Acceptances – short-term debt issued by a commercial bank • Medium-term Corporate Notes
• Extended maturity of allowable investments as permitted by California Government Code
• Increase 2-year maximum to 5-year maximum
• Eliminated 1-year maximum on portfolio’s weighted average maturity (Code has no limit) 18 Peninsula Clean Energy
Investment Management – Policy #19
• Added some guardrails of maximum holdings in some specific categories
• Some examples:
o Corporate Medium-Term Notes (up to 5 years) – Up to 30% of portfolio o Money Market/Mutual Funds Combined – Up to 20% of portfolio o Single Money Market Fund – no more than 10% of portfolio • Issues with Recent Diversification of Financial Institutions o Each manager can comply with policy, but more difficult to monitor overall compliance across institutions
o Simplification and safety directives have led to “violation” of money market fund guardrails
19 Peninsula Clean Energy
Investment Management – Alternatives/Direction
• Remove/relax money market/mutual fund guardrails
• Establish fixed income managed portfolios with Schwab/Fidelity • Direction about specific balances in various institutions • Additional funding to PFM/FRB
• Others?
20 Prepayment of PPAs
(Discussion)
PREPAYMENT TRANSACTIONS SAVING
$ MILLIONS FOR CCA RATEPAYERS
22 History/Benefit of Prepayment Transactions
Prepay for a Supply of Gas or Electricity by Issuing Tax-Exempt Debt 137 Prepayment Transactions totaling over $77 billion completed Mostly to prepay for a supply of natural gas
Estimated over $13 billion in total savings to customers Over $5 billion issued by CCCFA to prepay for CCA renewable energy Reduces cost of existing PPA obligations by 8-12%
23 Prepayment Authorization
IRS Private Letter Ruling for AMEA to Prepay Alabama Power Covered Prepays from 1991 to 1999
2003 US Treasury Regulations
Covers both gas and electricity
2005 Energy Policy Act – Statutory Authority
Applies to natural gas only
3 Founding Members: Associate Members:
25 Must join CCCFA JPA as an Associate Member to do a transaction:
$20,000 fee to do a prepayment
Share in annual JPA operating expenses – minimal costs/yr.
Why Use CCCFA For Prepayment Transactions?
CCA is not obligated for payment on the bonds
Bond is not a debt on the CCA’s balance sheet
Does not affect CCA’s credit rating nor debt
capacity
5 Reduces Risk:
27 Prepayment
CCA Electricity
Supplier
Issuer
(CCCFA) 2
Electricity
Electric Payments
Debt Bond
The Bonds
Electricity
3 1
4 PPA Assignments
28 Long-Term PCC1 Product Prepayment Transaction Overview:
Structure and Documents
Before Prepayment
With Prepayment
After Prepayment
1 2 3 4 5
PPA
Master
Power
Supply
Agreement
Clean
Energy
Purchase
Contract
Limited
Assignment
Agreement
Project
(PPA Seller)
CCA
PPA
Project
(PPA Seller)
CCA
PPA
Project
(PPA Seller)
CCA
Long-Term PCC-1 Product
Cash Flow
Electricity
Purchase
and Sale
Agreement
Upstream
Supplier
Prepaid
Seller
CCA CCCFA CCA
Parties
PPA ASSIGNMENT PROVISION
29 “Limited Assignment Right: Buyer may from time to time assign the right to receive all or a portion of the Product that would otherwise be delivered to Buyer hereunder. In connection with any such assignment, Buyer and Seller agree to execute the limited assignment agreement attached hereto as Exhibit [_]. For the avoidance of doubt, Buyer will remain responsible for all its obligations under this Agreement related to such assigned Product, including (i) the obligation to pay for such Product to the extent the assignee thereof does not do so and (ii) any damages associated with such assignee’s failure to take any such Product.”
2022 2053
Today
2022 2026 2030 2034 2038 2042 2046 2050
Oct 1 PPA 1 Sep 30
Oct 1 PPA 1 Sep 30
Oct 1 PPA 2 Sep 30
Oct 1 PPA 2 Sep 30
Oct 1
PPA 3
Sep 30
Oct 1 PPA 2 Sep 30
Oct 1 PPA 3 Sep 30
Oct 1 PPA 4 Sep 30
Oct 1 PPA 3 Sep 30
Oct 1 PPA 4 Sep 30
30 Year Prepayment Transaction
Multiple PPAs assigned into the transaction over the 30-year term.
Municipal Financial
Advisor Prepay Counsel Conduit Issuer Prepaid Supplier
Custodian / Trustee Rating Agency Bond / Tax Counsel
CCA
Prepay project participant
Entities selected
by CCA
Other Entities
in Prepay Deal
• Financial advisory
• Helps select deal
entities
• Fiduciary responsibility
to CCA
• Legal advisory
• Represents CCA’s
interests
•Issues prepay bonds
• Clearing house
•Engages many project
participants
•Structures prepay deal
•Engages other deal entities
• Takes in funding
• Markets + underwrites
prepay bonds
• Legal services,
Document drafting
•Affirms tax-exempt
bond status
• Manges prepay estate • Rates bonds
•Bond interest
payments
Assembling the Prepayment Deal Team
Contract
with Service
Providers
Structure
Prepay Deal
Prepare for
Transaction
Launch
Key
Milestones
Example Prepay Deal Timeline
32 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
CCA Board
approval
Transaction
Price &
Close
Select + contract with
Municipal Financial Advisor
+ Prepay Counsel
Select Prepaid
Supplier
Select + join with
Conduit Issuer
Structure prepay transaction
Engage
ratings
agency
Confirm PPA
assignments
Finalize deal
documents
Prepare “form of” deal
documents
CCCFA
Board
approval
GARTH SALISBURY
BOARD MEMBER & TREASURER/CONTROLLER, CCCFA
CFO & TREASURER, MCE
33 Committee Members’ Reports
Adjournment