Audit & Finance Committee Meeting
February 12, 2024
Staff Report
Peninsula Clean Energy
Staff Report
• Funded CAMP ($90M) and Chandler ($100M) in December
• Targeting minimal cash balance (~$5-10M) at First Republic going forward due to elevated interest rates and access to same-day liquidity via CAMP • In process of removing Fitch as rating agency (PCE the only CCA with three ratings); savings of ~$20,000/year
• Finalizing Cost of Service analysis; will present summary of key findings and initial recommendation to Executive Committee in March
• Continuing analysis of Pre-Pay bond transactions (presentation today) • FY 2025 budget process
• Staffing update
Q2 FY24 Financial Review
Peninsula Clean Energy
(in MWh) Actual Budget Variance Var (%)
Residential 690,584 746,742 (56,158) -7.5%
Commercial and Industrial 1,011,124 1,023,618 (12,494) -1.2% Total 1,701,708 1,770,360 (68,652) -3.9%
YTD Base Load
• YTD load 3.9% below budget
• Most of shortfall in Residential and occurred in
September, November and December
• Lower load due in part to mild summer and
warmer winter
5 Customer Load
200,000
225,000
250,000
275,000
300,000
325,000
350,000
Jul Aug Sept Oct Nov Dec
Total Load (MWh)
Actuals Budget 2022 Actual
Peninsula Clean Energy
Actual Budget Fav/(Unf) Fav/(Unf)
Q1-FY 2022/2023 $114.0 $120.0 ($6.0) -5.0%
Q2-FY 2022/2023 101.2 100.6 0.6 0.6%
Q3-FY 2022/2023 107.1 72.1 35.1 48.6%
Q4-FY 2022/2023 106.4 75.1 31.3 41.6%
Total 2022/2023 $428.8 $367.8 $61.0 16.6%
Q1-FY 2023/2024 $133.0 $136.0 ($3.0) -2.2%
Q2-FY 2023/2024 99.5 115.9 (16.3) -14.1%
YTD FY 2023/2024 $232.5 $251.8 ($19.3) -7.7%
Variance
Revenue
6 • Q2 revenue of $99.5 million is
$16.3 million (-14%) below budget
• $12 million CARE/FERA rebate
in December
• Remaining variance due to
lower load than budgeted
Peninsula Clean Energy
Actual Budget Fav/(Unf) Fav/(Unf)
Q1-FY 2022/2023 $84.9 $77.3 ($7.6) -9.8%
Q2-FY 2022/2023 71.6 66.3 (5.3) -8.0%
Q3-FY 2022/2023 51.3 58.2 6.9 11.9%
Q4-FY 2022/2023 57.4 62.4 5.0 8.0%
Total 2022/2023 $265.2 $264.2 ($1.0) -0.4%
Q1-FY 2023/2024 $93.8 $90.5 ($3.3) -3.6%
Q2-FY 2023/2024 70.2 70.5 0.4 0.5%
YTD FY 2023/2024 $163.9 $161.0 ($2.9) -1.8%
Variance
Cost of Energy
7 • Q2 cost of energy of $70.2 million
in-line with budget, despite lower
load
• Higher per KWh costs (+3.5%)
due to congestion costs and lower
generation volume from PCE
resources
• RA costs expected to significantly
exceed budget in 2H FY2024
Peninsula Clean Energy
Actual Budget
Var
Fav/(Unf)
Var
Fav/(Unf)
Revenues $232.5 $251.8 ($19.3) -7.7%
Cost of Energy 163.9 161.0 (2.9) -1.8%
Gross Profit $68.6 $90.8 ($22.2) -24.5%
Other Opex 16.2 20.2 4.0 19.8%
Non-Operating Income 7.9 0.3 7.6 2358.7%
Change in Net Position $60.3 $70.9 ($10.6) -15.0%
YTD 2024 YTD 2023
Var
Fav/(Unf)
Var
Fav/(Unf)
Revenues $232.5 $215.2 $17.3 8.0%
Cost of Energy 163.9 156.5 (7.4) -4.7%
Gross Profit $68.6 $58.7 $9.9 16.9%
Other Opex 16.2 11.1 (5.2) -46.7%
Non-Operating Income 7.9 (0.5) 8.5 -1546.5%
Change in Net Position $60.3 $47.1 $13.2 28.1%
Year-to-Date vs Budget (in millions)
Year-to-Date vs FY23 (in millions)
Change in Net Position (CINP)
8 • YTD CINP of $60.3 million is $10.6
million (-15%) below budget,
primarily due to CARE/FERA
rebate and higher energy costs,
offset in part by interest income
and OpEx savings
• OpEx $4 million below budget
partly due to timing (see
appendix)
• $13.2 million (+28%) higher than
last year due to customer rates
and interest income
Peninsula Clean Energy
(in millions) Dec-22 Mar-23 Jun-23 Sep-23 Dec-23
First Republic Bank $54.0 $30.9 $32.4 $40.2 $45.7
Other Accounts 9.3 46.2 0.1 0.0 0.0
Cash $63.3 $77.1 $32.4 $40.2 $45.7
CAMP 0.0 0.0 0.0 0.0 90.2
PFM 63.6 64.7 64.3 64.5 106.7
Chandler (was FRB) 59.3 60.2 60.0 60.2 102.1
Fidelity 0.0 20.0 50.5 71.4 0.0
Schwab 0.0 0.0 46.7 57.4 0.2
Total Investments $122.9 $145.0 $221.6 $253.4 $299.3
Total Cash & Investments $186.2 $222.1 $254.1 $293.7 $345.0 Days Cash on Hand 203 319 351
Cash and Investment Summary – Quarterly Trend
9 Appendix
Peninsula Clean Energy 11
Detailed Financial Statement
Actual Budget Var Fav/(Unf) Actual Budget Var Fav/(Unf)
OPERATING REVENUES
Electricity sales, net 98,748,037 115,101,419 (16,353,382) 230,947,230 250,279,642 (19,748,812) Green electricity premium 780,956 755,162 25,794 1,549,538 1,531,464 18,073 Total Operating Revenue 99,528,993 115,856,581 (16,327,588) 232,496,767 251,811,106 (19,730,738)
OPERATING EXPENSES
Cost of energy 70,164,729 70,527,883 363,155 163,921,949 161,009,719 (2,912,230) Gross Profit 29,364,264 45,328,698 (15,964,433) 68,574,819 90,801,387 (22,226,568)
OTHER OPERATING EXPENSES
Staff compensation 2,218,271 2,708,200 489,930 4,385,239 5,506,400 1,121,161 Data manager 882,405 967,788 85,383 1,767,195 1,935,576 168,381 Service fees - PG&E 329,291 350,000 20,709 659,457 700,000 40,543 Consultants & professional services 329,200 446,756 117,556 652,500 1,084,667 432,168 Legal 198,072 390,640 192,567 383,528 793,279 409,751
Communications and noticing 287,587 795,010 507,423 800,395 1,696,720 896,325 General and administrative 811,929 980,587 168,658 1,480,463 2,087,982 607,519 Community Energy Programs 3,295,956 3,181,500 (114,456) 6,057,660 6,363,000 305,340 Depreciation 19,493 39,417 19,924 37,963 63,417 25,453
Total Other Operating Expenses 8,372,202 9,859,897 1,850,850 16,224,400 20,231,042 4,006,642 OPERATING INCOME 20,992,062 35,468,800 (14,476,738) 52,350,419 70,570,345 (18,219,926) Non-Operating Income 6,048,788 161,298 5,887,490 7,931,707 322,596 7,609,111 CHANGE IN NET POSITION 27,040,850 35,630,098 (8,589,249) 60,282,126 70,892,941 (10,610,815) Quarter Ending December 2023 YTD December 2023
Peninsula Clean Energy 12
Revenue – Monthly Trend
Actual Budget Var Fav/(Unf) Var Fav/(Unf) %
Dec-22 $35.0 $35.2 ($0.2) -0.5%
Jan-23 34.9 26.6 8.3 31.2%
Feb-23 35.2 23.2 12.0 51.9%
Mar-23 37.1 22.3 14.8 66.2%
Apr-23 32.0 20.0 12.1 60.4%
May-23 34.6 24.0 10.6 44.1%
Jun-23 39.8 31.2 8.7 27.8%
Jul-23 42.8 44.2 (1.3) -3.0%
Aug-23 48.1 46.5 1.6 3.5%
Sep-23 42.0 45.3 (3.3) -7.3%
Oct-23 37.8 38.2 (0.4) -1.1%
Nov-23 35.0 36.8 (1.7) -4.7%
Dec-23 26.7 40.9 (14.2) -34.7%
Revenue Comparison vs. Budget (in millions)
Peninsula Clean Energy 13
Cost of Energy – Monthly Trend
Actual Budget Var Fav/(Unf) Var Fav/(Unf) %
Dec-22 $31.4 $22.8 ($8.6) -37.6%
Jan-23 16.3 19.8 3.5 17.5%
Feb-23 17.6 18.4 0.7 4.0%
Mar-23 17.3 20.0 2.7 13.7%
Apr-23 19.1 19.3 0.1 0.7%
May-23 19.9 21.4 1.5 7.0%
Jun-23 18.4 21.8 3.4 15.4%
Jul-23 29.2 29.0 (0.2) -0.7%
Aug-23 37.3 34.0 (3.2) -9.5%
Sep-23 27.3 27.5 0.2 0.7%
Oct-23 25.5 24.1 (1.4) -5.7%
Nov-23 21.0 21.4 0.4 1.7%
Dec-23 23.7 25.0 1.4 5.5%
Cost of Energy Comparison vs. Budget (in millions)
Pre-Pay Bonds
Peninsula Clean Energy
Pre-Pay Overview
• Long-term financial transaction available to tax-exempt entities, such as CCAs, that enable meaningful power procurement cost savings
• Codified in US tax law; IRS has determined that municipal utilities are permitted to borrow in the tax-exempt bond market to prepay for contracted energy deliveries • Prepayment structure leverages this advantage (that IOUs do not have) to generate savings of 8- 12% per year on PPAs for an initial period of up to 10 years(1) • Savings based on the spread between taxable and tax-exempt rates • Structure well known and historically utilized for natural gas procurement, and is now being applied towards renewable energy
o Starting in 1990s, 129 prepayment transaction totaling over $88 billion have been executed, mostly to prepay for natural gas
o Over past 2½ years, $10 billion of bonds issued by California CCAs to prepay for renewable energy (see appendix)
15 1. After initial financing term of 5-10 years, savings/discount will reset; if the minimum reset discount is not attained the CCA is not obligated to participate and PPA assignment is terminated and reverts to the CCA Peninsula Clean Energy
Transaction Diagram
Initial Issuance and Cash Flows
1. Debt Issuance – CCCFA issues tax-exempt bonds
2. Prepayment – CCCFA remits bond proceeds to Prepay
LLC in return for 30 years of assigned electricity deliveries
3. Unsecured Loan – Prepay LLC loans bond proceeds to
Intermediary Bank. Bank makes fixed monthly payments
to Prepay LLC equal to assigned electricity multiplied by PPA price
Monthly Cash / Energy Flows
4. Assigned PPAs – PCE assigns to Prepaid Supplier certain rights and obligations as Buyer; Prepaid Supplier makes monthly payments to PPA counterparties for assigned
delivered energy
5. Electricity Supply – Prepay LLC enters into long-term agreement to purchase electricity from Prepaid Supplier to match assigned electricity quantities/terms
6. Project Participant – CCCFA sells PCE all assigned
electricity delivered by Prepay LLC at the discounted
prepay price
16 Peninsula Clean Energy
Pre-Pay Bonds vs Municipal Bond Financing
Municipal Bond Financing Pre-Pay Bonds
Bond proceeds commonly finance
capital assets or projects
Bond proceeds flow to a pre-paid
energy supplier and are loaned to a
bank
Municipal issuer incurs debt and is
responsible for repayment of the bond
The pre-paid supplier and the bank
are responsible for bond repayment
Municipal issuer incurs interest costs The municipal sponsor does not incur interest costs
Credit rating of the bond is typically
based on credit quality of municipal
issuer and/or project revenues
Credit rating of the bond is primarily
based on the financial strength of the
bank
17 Peninsula Clean Energy
Benefits
• Provides a source of energy cost savings that can lower customer rates and/or fund customer programs
o Savings currently expected to be 8-12% on power quantities delivered under prepay structure (~$3.5 million per year based on indicative terms on initial transaction, see appendix) o Savings fluctuate depending on market conditions and interest rates • Service provider fees primarily paid from bond proceeds on a contingency basis o If bonds are not issued, service providers are not paid o Only “sunk” costs are Staff time, CCCFA(1) membership fee ($50k), and rating agency transaction fee (~$200k), which costs can be delayed / incurred late in the process • PCE is not responsible for bond repayment / debt is non-recourse to PCE • PCE can enter into similar transactions in future years to increase procurement cost savings o Limitations based on the bond market investor appetite, market conditions with meaningful taxable and tax-exempt spreads, and the available headroom to ensure PCE will have procurement-related costs to assign in a 30-year transaction 18 1. The California Community Choice Financing Authority (CCCFA) is a Joint Powers Authority (JPA) established in 2021 to facilitate pre-payment transactions for member CCAs
Peninsula Clean Energy
Risk/Considerations and Mitigations
19 Savings are realized through the
termination date and PCE no worse off
had it not executed the transaction
Prepay program terminates earlier than expected
and PCE does not realize expected savings over the
full 30-years
Possibility of multiple pre-pay transactions
hedges timing risk
Opportunity cost of higher savings through a pre-pay
transaction or alternative structure initiated at a
different time
Leverage prior CCCFA transactions and
support from Municipal Financial Advisor Significant staff time needed to execute transaction Increased settlement complexity post transaction Hire additional back-office staff Risk mitigated with the help of a Municipal
Financial Advisor and CCCFA
Information gap and knowledge inequity throughout
negotiations process
Peninsula Clean Energy
Assembling the Pre-Pay Deal Team
Municipal Advisor Prepay Counsel Conduit Issuer Prepaid Supplier Custodian / Trustee Rating Agency Bond / Tax Counsel
Peninsula Clean Energy
Entities selected
by CCA
Other Entities
in Prepay
Deal • Financial advisory
• Advice on structure,
timing and terms
• Helps select deal entities
• Fiduciary responsibility to
CCA
• PFM, MCM(1)
• Legal advisory
• Represents CCA’s
interests
• Chapman Cutler, Nixon
Peabody, Orrick (1)
• Conduit issuer of tax-exempt bonds
• CCCFA
• Structures transaction
• Markets and underwrites
bonds
• Morgan Stanley,
Goldman, RBC (1)
• Legal services
• Affirms tax-exempt bond
status and validity of
bond offering
• Orrick, Nixon Peabody,
Ballard Spahr (1)
• Rates bonds
• Moody’s
• Manges prepay estate
• Bond interest payments
• US Bank, Wells Fargo (1)
20 Green Font = potential service providers
(1) Fees paid on contingency from Bond proceeds and factored into savings analysis Peninsula Clean Energy
Preliminary Timeline
Contract with
Service
Providers
Structure
Prepay Deal
Prepare for
Transaction
Launch
Key
Milestones
Mar Apr May Jun Jul Aug Sep Oct Nov………
PCE Board
approval
Transaction
Close
RFP and Select
Municipal Advisor
+ Prepay Counsel
RFP and Select
Investment Bank
Join CCCFA
Structure prepay transaction
Engage ratings
agency
Confirm PPA
assignments
Finalize deal
documents
Prepare “form of” deal
documents
CCCFA
Board
approval
Feb
Board approval to engage service providers and join CCCFA 21 Peninsula Clean Energy
Conclusions and Next Steps
Initial Conclusions
• Potential savings are material given current market environment • Risks are negligible and upfront costs can be minimized and delayed • Staff recommends starting transaction process while continuing to monitor the market; can pause at any time if potential savings dissipate
Recommended Near-Term Next Steps
• Issue RFP for Municipal Financial Advisor and Prepay Counsel (both paid on contingency) • Present structure overview to PCE Board of Directors in March and seek approval to hire Municipal Financial Advisor and Prepay Counsel
• Work with Municipal Financial Advisor to issue RFP for Investment Bank/Prepaid Supplier (Morgan Stanley and Goldman structures are different)
• Staff will return to the Board with periodic transaction updates 22 Appendix
Peninsula Clean Energy
CCCFA Pre-Pay Transactions
24 Date Project Participant(s) Par ($M)
Prepaid
Supplier
Annual
Savings ($M) Discount(1)
September 2021 East Bay Clean Energy/Silicon Valley Clean Energy $1,235 Morgan Stanley 22.4 7.3% November 2021 Marin Clean Energy 603 Goldman Sachs 4.2 10.0% July 2022 East Bay Clean Energy 931 Morgan Stanley 4.8 9.0% January 2023 Pioneer Community Energy 460 Goldman Sachs 2.4 n/a January 2023 Silicon Valley Clean Energy Authority 842 Morgan Stanley 4.7 9.5% February 2023 Clean Power Alliance 999 Goldman Sachs 8.3 13.6% June 2023 Clean Power Alliance 958 Goldman Sachs 6.4 12.0% August 2023 East Bay Community Energy Authority 998 Goldman Sachs n/a n/a October 2023 Central Coast Community Energy 648 Morgan Stanley 5.0 12.2% December 2023 Marin Clean Energy 1,038 Goldman Sachs 6.8 12.0% January 2024 Silicon Valley Clean Energy 1,102 Morgan Stanley 7.6 13.1% $ 9,813
1. Goldman and Morgan Stanley calculate discount differently, so hard to compare apples-to-apples Peninsula Clean Energy
Indicative PCE Pre-Pay Transaction Terms
• Initial bond offering (pre-payment amount) of $550 million(1) o Assumes assignment of PCE’s three operating PPAs, representing 1 million MWh annually o Notional value of assigned contracts over 30-years ~$1 billion o PCE can assign non-operational PPAs to increase size of transaction or execute subsequent transactions at a later date
• Initial savings of ~$3.5 million(1) per year, or 10% of contracted PPA payments • Assumes tax-exempt / taxable spread of ~100 bps, which is subject to change based on market conditions
• Savings locked-in for seven years, after which bonds are re-issued with a minimum discount of 5% (to be negotiated)
o If minimum savings not met at reissuance date, PCE can walk away from transaction and assigned PPAs are put back to PCE; PCE forgoes future savings • Fees paid to various parties involved (except CCCFA and Rating Agency) payable from proceeds of the bond offering, i.e., minimal out-of-pocket costs 25 1. Transaction size and dollar savings could be larger under Morgan Stanley structure Adjournment