Executive Committee Meeting
This meeting will begin shortly
April 8, 2024
Peninsula Clean Energy
Agenda
• Call to Order / Roll Call
• Public Comment (for items not on the Agenda)
• Action to set the AgendaApprove Consent Items
o Public Comment
• Regular Agenda
• Committee Members Reports
• Adjourn
Chair Report
CEO Report
Prepay Transaction
Executive Committee Meeting
April 8, 2024
Peninsula Clean Energy
Background
• Prepay is a long-term financial transaction available to tax-exempt entities, such as CCAs, that enable meaningful power procurement cost savings
o Savings based on spread between taxable and tax-exempt interest rates o Codified in US tax law
• Historically utilized for natural gas procurement, now being applied in renewable energy sector • 11 CCA Prepay transactions generating ~$60 million of annual savings with a transaction value of $10 billion (see next page)
• Initial PCE transaction should generate savings of 8-12% of PPA costs included in the transaction, or ~$3.5 million per year
• 6-9 month process and requires engagement of multiple advisors and membership in CCCFA • Audit & Finance Committee has been briefed on the topic twice (June 2023 and February 2024) 6 Peninsula Clean Energy
CCCFA Pre-Pay Transactions
7 Date Project Participant(s) Par ($M)
Prepaid
Supplier
Annual
Savings ($M) Discount(1)
September 2021 East Bay Clean Energy/Silicon Valley Clean Energy $1,235 Morgan Stanley 4.1 7.3% November 2021 Marin Clean Energy 603 Goldman Sachs 4.2 10.0% July 2022 East Bay Clean Energy 931 Morgan Stanley 2.9 9.0% January 2023 Pioneer Community Energy 460 Goldman Sachs 2.4 n/a January 2023 Silicon Valley Clean Energy Authority 842 Morgan Stanley 4.5 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 6.9 12.2% 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 7.7 13.1% $ 9,813
1. Goldman and Morgan Stanley calculate discount differently, so hard to compare apples-to-apples Clean Power Alliance, San Jose Clean Energy, and San Diego Community Power are rumored to be proceeding with transactions
Peninsula Clean Energy
Benefits and Rationale
• Source of cost savings that can lower rates and/or fund customer programs o 8-12% on power quantities delivered, or ~$3.5 million per year based on indicative terms on an initial transaction
o Savings fluctuate depending on market conditions and size of transaction o Can execute additional transactions to increase amount of savings (limitation based on investor demand, market conditions, and PCE forecasted load)
• Service provider fees 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 membership ($50k), and rating agency fees (~$200k) • PCE not responsible for bond repayment / debt non-recourse to PCE 8 Peninsula Clean Energy
Risk/Considerations and Mitigations
9 Savings realized through termination
date and PCE no worse off Prepay terminates earlier than expected Possibility of multiple Prepays hedges
timing risk Market timing
Leverage prior CCCFA transactions
and support from Financial Advisor Staff time
Potentially hire additional back-office
staff Increased settlement complexity
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 PCE
Other Entities
in Prepay
Deal • Financial advisory
• Advice on structure,
timing and terms
• Fiduciary responsibility to
CCA
• PFM(1)
• Legal advisory
• Represents CCA’s
interests
• Chapman & Cutler (1)
• 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(1)
• Rates bonds
• Moody’s
• Manges prepay estate
• Bond interest payments
• US Bank, Wells Fargo (1)
10 Green Font = potential service providers
(1) Fees paid on contingency from Bond proceeds
Peninsula Clean Energy
Preliminary Timeline
Contract with
Service
Providers
Structure
Prepay Deal
Prepare for
Transaction
Launch
Mar Apr May Jun Jul Aug Sep Oct Nov………
RFP for Financial Advisor
and Engage Counsel
RFP for Investment
Bank
Join CCCFA
Structure prepay transaction
Engage ratings
agency
Confirm PPA
assignments
Finalize deal
documents
Prepare “form of” deal
documents
Feb
Board approval of transaction 11
Peninsula Clean Energy
Recommendation
• Recommend approval to the Board of Directors continued evaluation and pursuit of a possible Prepay transaction, including engagement of advisors
o Savings are material, risks are negligible, and upfront costs are minimal o Can pause process at any time
• Engage selected advisors (paid on contingency)
o PFM Financial Advisors as Financial Advisor
o Chapman & Cutler as Prepay Counsel
o Orrick, Herrington & Sutcliffe as Bond and Tax Counsel • Approval to join CCCFA at the appropriate time
• Staff will return to the Audit & Finance Committee and Executive Committee with periodic updates and will seek Board approval of a transaction prior to launch 12 Appendix
Peninsula Clean Energy
Indicative PCE Prepay Transaction Terms
• Initial bond offering (pre-payment amount) of $550 million o Assumes assignment of three operating PPAs, representing 1 million MWh annually o Notional value of assigned contracts over 30-years ~$1 billion o PCE can assign additional PPAs to increase size of transaction or execute subsequent transactions
• Initial savings of ~$3.5 million per year, or 10% of contracted PPA payments • Savings locked-in for seven years, after which bonds 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 • Transaction fees, including advisors, payable from proceeds of the bond offering and included in savings analysis
14 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
15 Adjournment
Committee Members’ Reports
Adjournment