Executive Committee Meeting
This meeting will begin shortly.
September 9, 2024
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 Agenda Items Consent Items o Public Comment
• Regular Agenda
• Committee Members Reports
• Adjourn
2 Chair Report
CEO Report
Updates to Board Policy 16
and Third Amended JPA
Agreement (Action)
Shawn Marshall, Chief Executive Officer
Recommendation
Recommend Adoption by the Board of Directors Amendments to Policy 16, "Policies and Procedures for Board of Directors, Committees and Advisory Groups” and Associated Amendment to Section 3.9.1 of Peninsula Clean Energy’s Third Amended Joint Powers Authority (JPA) Agreement.
Policy 16 Proposed Amendments
1) Section 4a – Chair and Vice Chair Term Limits
• Changed to (2) one-year terms with option for additional 1 year if necessary and by majority vote of the Board.
2) Section 4f– Employment and Contracting Restrictions for Former Board Members • Prohibits employment of former Board members by PCE until after 12 months following the end of Board service.
• Contracts with former Board members within 12 months following end of service require approval by the Board.
3) Section 4e – Board and Committee Attendance Procedures • More than 3 absences and staff will contact/notify the Board or Committee member to resolve the issue
• If there is further absence, the Board Chair will direct staff to send a letter to the city manager, mayor, and city council with a request to designate a replacement.
Corresponding JPA Agreement Amendment
Section 3.9 Selection of Board Officers
3.9.1 Chair and Vice Chair
The Directors shall select, from among themselves, a Chair, who shall be the presiding officer of all Board meetings, and a Vice Chair, who shall serve in the absence of the Chair. The term of office for and term limits of the Chair and Vice Chair shall be set forth in the policies and procedures established by the Board.
Additional Notes:
The JPA amendment was re-sent (by email and US Post) to member agencies with an explanatory letter on August 27, 2024 for the required 30-day comment period.
It is anticipated that both the Policy 16 amendments and the above JPA amendment will be agendized for Board action on September 26, 2024.
Nick Bijur, Chief Financial Officer
Executing a PCE Prepay
Transaction (Action)
Background on Prepays
• Long-term financial transaction available to tax-exempt entities, such as CCAs, that enable meaningful power procurement cost savings
o Savings based on the spread between taxable and tax-exempt interest rates o Codified in US tax law
• Utilized for natural gas procurement for over 30 years, now being applied in the renewable energy sector
• To date, there have been 12 CCA Prepay transactions generating ~$70 million in annual savings
• Savings of 8-12% of the PPA costs included in the transactions • In April 2024, the Executive Committee and Board of Directors approved continued pursuit and evaluation of a possible PCE Prepay transaction Staff Preparing for Possible Prepay
RFP for a Prepaid
Supplier – engaged
Goldman Sachs
Determined optimal
structure, including
PPAs to be included
in the transaction
Refined savings
opportunity, currently
estimated to be ~$5
million per year
Joined CCCFA as an
Associate member
Preparing for post-transaction
settlement process
Monitoring financial
markets
Negotiating and
finalizing transaction
documents
Summary of Deal Documents
Document Description Parties (incl. PCE)
Clean Energy Purchase
Contract
30-year agreement under which PCE will purchase discounted electricity from CCCFA
• CCCFA
Form of Limited Assignment
Agreement (LAA)
Governs the assignment of electricity and green attributes from selected PPAs; initial set of LAAs to be finalized prior to pricing • PPA Sellers
• Goldman Sachs
Letter Agreement to LAA Agreement on management of PPA portfolio assigned into Prepay • Goldman Sachs PPA Custodial Agreement Creates a custody account at US Bank for receipt of payments from PCE and Goldman to settle monthly invoices
• CCCFA
• Goldman Sachs
• US Bank
LLC Agreement PCE representative to be one of three directors of LLC setup specifically for Prepay
• Goldman Sachs
• Independent director
Operational Services
Agreement
Permits PCE to control various actions of CCCFA relating to Prepay project operations
• CCCFA
MOU with CCCFA PCE responsible for rating agency and Green Bonds verification fees (paid from bond proceeds at closing)
• CCCFA
Preliminary Official Statement Public offering document for tax-exempt bonds issued by CCCFA which describes PCE’s organization and operations
Market Overview
Transaction Economics
• Four PPAs assigned; structure and economics could change depending on the outcome of ongoing Limited Assignment Agreement negotiations • ~850,000 MWh assigned, representing ~20% of PCE’s load in 2026 • Represents ~$45 million of annual prepaid cash flows (i.e., energy procurement costs) • Annual savings of ~$5 million, depending on market conditions, or 10-12% of assigned energy procurement costs
• Bond par value of $1.1 billion
Timeline
Week of
Sep. 16
Week of
Sep. 9
Week of
Sep. 23
Week of
Sep. 30
Week of
Oct. 7
◼ Executive Committee meeting
◼ Finalize financial model
◼ Receive Funding Recipient bids
◼ Engage Trustee
◼ Finalize transaction
documents
◼ Select Funding Recipient
◼ Engage Rating Agency
(Moody’s)
◼ Engage Green Bonds verifier;
diligence call
◼ PCE & CCCFA Board meetings
◼ Receive rating from Moody’s
◼ Receive green/climate bond opinion
◼ Due diligence calls
◼ Post offering document; start marketing
(pending market conditions)
◼ Price bonds and lock-in
savings (or later; pending
market conditions)
◼ Closing (or later)
Recommendation
• Recommend to the Board of Directors approval to complete a Prepay transaction subject to market conditions and minimum savings
o Minimum savings threshold of 9%, which represents annual savings of ~$4 million based on the current deal structure
• Recommend to the Board of Directors authorization to execute a power supply contract with CCCFA and certain other documentation as required
Appendix
Prepay Deal Team
Municipal Advisor Prepay Counsel Conduit Issuer Prepaid Supplier Custodian / Trustee Rating Agency Bond / Tax Counsel
Peninsula Clean Energy
Entities selected
by PCE
Other Entities
in Prepay
Transaction
• Financial advisory
• Advice on structure,
timing and terms
• Fiduciary responsibility to
PCE
• PFM
• Legal advisory
• Represents PCE’s
interests
• Chapman and Cutler
• Issuer of tax-exempt
bonds
• CCCFA
• Structures transaction
• Markets and underwrites
bonds
• Goldman Sachs
• Legal services
• Affirms tax-exempt bond
status and validity of
bond offering
• Orrick
• Rates bonds
• Moody’s
• Manges prepay estate
• Bond interest payments
• US Bank
CCCFA Prepay Transactions
Date Project Participant(s) Par ($M)
Prepaid
Supplier
Annual
Savings ($M) Discount(1)
September 2021 East Bay Clean Energy/Silicon Valley Clean Energy $1,235 Morgan Stanley 4.2 7.3% November 2021 Marin Clean Energy 603 Goldman Sachs 3.2 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 9.5% 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 6.1 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% August 2024 Clean Power Alliance 1,524 Goldman Sachs TBD +12.0% $ 11,337
1. Goldman and Morgan Stanley calculate discount differently, so hard to compare apples-to-apples Sonoma Clean Power, San Jose Clean Energy, Clean Power Alliance, and San Diego Community Power are rumored to be proceeding with transactions
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 a discounted price PPA Assignment Concept
PPA Seller Prepaid Supplier
(Goldman Sachs)
Status Quo
PPA Seller
◼ PCE enters into a PPA with
PPA Seller
◼ PPA Seller delivers as generated
power and attributes
◼ PCE pays monthly for as-generated
power and attributes
Power +
Attributes
Contract Price
Power +
Attributes
◼ Structures remains the same, but instead
of facing PCE, the PPA Seller faces
Goldman Sachs
◼ If the Prepaid Supplier fails to pay, PCE
guarantees payments (which it is able to
recoup from the Prepay Trust Estate)
◼ Under certain scenarios,
assignment can be terminated,
and PPA Seller goes back to
facing PCE
◼ The existing Scheduling Coordinator
will remain the Scheduling
Coordinator; only change is that the
Prepaid Supplier is copied on bills
Contract Price Contract Price
In event the Prepaid Supplier fails to
perform, PCE guarantees payment
Power +
Attributes
Post-Transaction
PG&E Nuclear Allocation
from 2025-2030 Diablo Canyon
Extension (Discussion)
Shawn Marshall, Chief Executive Officer
Jeremy Waen, Sr. Director, Regulatory Affairs
Roy Xu, Director of Power Resources
1. Provide information regarding the proposed nuclear attribute allocation resulting from the 2025-2030 extension of Diablo Canyon (DC) nuclear plant
2. Clarify the Board’s upcoming decision – what it would do and what it would not do.
3. Receive Executive Committee feedback and review next steps Discussion Overview
Should PCE elect to take an annual allocation
of carbon-free attributes from Diablo Canyon
for the calendar years 2025-2030?
If not, why not? If yes, under what scenario?
In November 2020, PCE considered a similar allocation,
and on a split vote, declined it over concerns about
customer/community optics and fear that taking it
might extend CA’s reliance on the plant.
Today, the allocation has a different regulatory context and set of circumstances than in 2020 (explained later
in this presentation)
The Question at Hand
Diablo Canyon Nuclear Power Plant
San Luis Obispo County, California
To best understand today’s discussion, we need to first understand what is meant by “allocation” and “attributes” in the energy business.
An allocation is…a portion of a larger volume (in this case nuclear attributes) that is assigned or offered by another party. In our business, some allocations are voluntary, others are not. An allocation is not direct procurement of or a contract for actual physical energy generated by a power plant.
An attribute is…the accounting/reporting value of a unit of energy; in this case, a carbon free value. An attribute is not a unit of physical energy.
Definitions: Allocation and Attributes
What the Decision Is and Isn’t
What this IS:
• A decision whether to accept or reject
the carbon-free attributes (not the actual
energy) from the DC nuclear allocation
for 2025-2030
• A decision that affects PCE's Power
Content Label and how much we do or
don’t save in avoided procurement costs
What this is NOT:
• This is not PCE buying nuclear power
(this is not procurement)
• This is not PCE adding new nuclear
energy to the grid
• This is not a decision that impacts state
policy or the development of nuclear
power in CA
Today’s discussion will focus on the impacts to PCE and its customers
1. Acceptance or rejection of the allocation will have no impact on the extension of Diablo Canyon (DC) operations, which has already been approved
2. Over the next 6 years, DC will continue to run at full capacity; PCE cannot cause the plant to stop, decrease, or increase operations
3. Every customer in the State will start paying for Diablo Canyon power in 2025
4. PCE's decision has no impact on the physical grid
5. PCE will continue receiving a Resource Adequacy (RA) allocation as part of the Diablo Canyon operations, reducing its RA obligations
Regardless of What PCE Does…
Diablo Canyon Background &
Acknowledged Nuclear Concerns
• Located in San Luis Obispo County
• Owned and operated by PG&E
• Combined generation capacity 2,240 MW
• Began operation on May 7, 1985
(Unit 1) and March 13, 1986 (Unit 2)
• Licensed by the United States Nuclear
Regulatory Commission (NRC) to operate
until November 2, 2024
(Unit 1) and August 26, 2025 (Unit 2)
• DC operations were extended by the CA
legislature in 2022. Why?
History of Diablo Canyon Nuclear Power Plant
Diablo Canyon Nuclear Power Plant
San Luis Obispo County, California
• In 2018, PG&E received CPUC approval to retire Diablo Canyon • In 2022, after several wildfires and PSPS events, the CA Legislature mandated its extension to 2030
Why was an extension granted?
• Grid reliability
• State decarbonization goals
• Economic considerations
• Regulatory, policy and political support
Extended Operations
To continue operations, the CPUC requires that PG&E:
1. Allow all CCAs paying for Diablo Canyon’s extended operations to receive a no cost allocation through an agreement with PG&E
2. CCAs who accept the allocation must report use of nuclear on their Power Content Labels
3. Any unclaimed allocations could not be resold, would not be reported on any California Power Content Label, and would be placed in an oversupply account, effectively “disappearing” from any public-facing reporting.
CPUC Allocation Requirements
Diablo Canyon-Specific Concerns
• Earthquake Risks: Located near several earthquake faults (within 1-8 miles) • Tsunami Risks: A significant population lives within 30 miles of evacuation zone surrounding Diablo Canyon susceptible to a tsunami
General Facts and Concerns about Nuclear Energy
• Safety Concerns: Risk of accidents such as Chernobyl and Fukushima • Nuclear Waste: Long-term storage concerns for radioactive waste • Water Usage: Cooling requires large amounts of water
• Environmental Impacts: Mining and potential contamination • High Costs: Construction, maintenance, and decommissioning Acknowledged Nuclear Issues & Concerns
In 1976, the State of California issued a moratorium on the construction and licensing of new nuclear.
No new nuclear fission reactors are to be built until
the Federal Government implements a solution to
radioactive waste disposal.
California Moratorium on New Nuclear
PCE Power Resources
Impacts Analysis
Role of Carbon-Free (or GHG-Free) Attributes
PCE needs carbon-free attributes through 2030
• To meet ECOplus content requirements
• To cover Line Loss on Total Power Content (this is a new CEC requirement) Nuclear generation is carbon-free, an alternative to Large Hydro generation.
Both resource types generate carbon-free attributes (i.e. no emissions on Power Content Label)
Carbon-free attributes from Large Hydro are transacting at record-high prices with limited availability
Accepting the nuclear allocation would reduce the amount of carbon-free attributes PCE currently plans to procure, thereby lowering procurement costs Additional Facts About the Allocation
Six (6) year Diablo Canyon allocation (2025-2030) based on load share.
PCE can decide annually:
• PCE can choose not to take DC allocation in any particular year, based on staff’s assessment of portfolio needs
• For example, it is likely that PCE would not take an allocation in 2030 since we will be powered by 100% renewable energy by then.
Any unclaimed allocations would be unused, and would not be reported on any individual LSE’s Power Content Label or other communications • PG&E cannot use or report PCE’s share of DC allocation even if we don’t take it • Allocations cannot be resold
PCE’s Power Content Label
Key Concept: Consider using DC nuclear allocation to cover new line loss procurement obligation and power content reporting requirement.
New CEC Reporting Requirement for PCL
• CEC created a new Power Content Label (PCL) requirement called: Total Power Content
• Total Power Content will cover Loss-Adjusted Load (i.e. including “line loss”) • Required Loss Accounting = 4% for in-state and 6% for out-of-state resources • Further, CEC created an Oversupply Account to store excess loss adjusted load • Mandatory reporting year starting in 2025 (for customer mailing in July 2026) • LSEs -including CCAs - have no ability to change the structure or presentation of the PCL
Analyzed Scenarios on PCL and Cost Impacts
Scenario 1: Status Quo Scenario 2: Middle Ground Scenario 3: All In Don’t take DC allocation
Take DC allocation Take DC allocation
Use a portion to cover line
loss with remainder sent to
the oversupply account
Use the entire DC allocation
Nuclear would not show up
on PCE’s Power Content Label
Nuclear would show up only
in new Total Power Content
column
Nuclear would show up in
ECOplus AND Total Power
Content columns of the PCL
No economic value via
avoided cost
Some economic value via
avoided cost
Most economic value via
avoided cost
$0 incremental savings Est. $29M saving over 6 years Est. $39M saving over 6 years Scenario 1: Status Quo
PCE elects not to take DC
allocation
Does not impact PCL
No incremental procurement
savings or customer savings
2025 Mock PCL without
taking nuclear allocation
Scenario 2: Middle Ground
If DC Allocation is higher than
what’s required to cover line
loss, any excess nuclear would
be placed in the oversupply
account.
Under this scenario, PCE would
save approx. $6 million in CY
2025 and potentially $29.1
million from 2025-2030
Average resi bill savings of $8
for CY 2025, cumulative bill
savings of $35 over years 2025-
2030
2025 Mock PCL with nuclear
allocation covering line loss only
Scenario 3: All In
This scenario uses the full
allocation and leaves none of it
in the oversupply account
Under this scenario, PCE would
save approx. $9.1 million in CY
2025 and potentially $38.7
million from 2025-2030.
Average resi bill savings of $12
for CY 2025, cumulative bill
savings of $48 over years 2025-
2030.
2025 Mock PCL with nuclear allocation
covering line loss and showing in ECOplus
Additional Information
Date Action Who
8/20 Procurement Subcommittee Discussion Staff/ Subcmte 8/27 Staff presentation and discussion w/ pulse poll PCE Sept - tbd CPUC releases DC allocation methodology and timing of election; PCE adjusts assumptions as needed
CPUC/PCE
9/9 Executive Committee Presentation (Discussion)
9/12 CBO Partner and CAC presentations w/ pulse polls PCE 9/25 Board Presentation and Vote (Action Item) PCE
November/
December
If the Board approves taking the DC nuclear allocation:
• Notify PGE/CPUC of annual election (Nov)
• Sign Agreement (Dec)
PCE, PG&E, CPUC
Regardless of PCE’s decision, non-bypassable charges for DC extension will appear on customer bills starting in January 2025.
Next Steps Through Year-End
IOU/CCAs Retail Sales
(MWh) Nuclear
Pacific Gas and Electric Company - Base Plan 30,291,314 49.3% San José Clean Energy - GreenValue 202,231 30.9%
Pioneer Community Energy 1,633,901 27.6%
Orange County Power Authority 177,052 25.3%
San José Clean Energy - GreenSource 3,476,520 24.8%
Silicon Valley Clean Energy 3,605,920 24.3%
Energy for Palmdale’s Independent Choice (EPIC, City of Palmdale) 52,416 22.9% Lancaster Choice Energy 611,814 9.7%
San Jacinto Power 172,810 5.8%
Rancho Mirage Energy Authority 282,288 5.7%
Pomona Choice Energy 423,784 5.7%
Apple Valley Choice Energy 254,247 5.6%
Pico Rivera Innovative Municipal Energy 211,547 5.4%
2022 CA Utility Average and Total Retail Sales 243,240,118 9.2% What are Other LSEs/CCAs Doing?
CCAs not on this list,
including MCE, SCP
and Ava, are also
considering taking
the 2025-2030 nuclear
allocation.
Discussion: Balancing Priorities, Economics, and Optics On the one hand...
• A nuclear allocation could help PCE reach its GHG free goals and save significant money due to avoided procurement costs
• Current priorities now and in the foreseeable future include customer affordability and expanded renewable power content; both have budget implications
• Multiple CCAs have taken the nuclear allocation in the past with little/no public pushback or impact on opt-outs
On the other hand...
• Avoided procurement costs are estimated in the tens of millions over 5-6 years, but still only represent 1-2% of the procurement budget and even less of the overall budget • The potential for customer cost savings is relatively minor (e.g. in 2025, $8 - $12 per average customer)
• Our website data shows 623 visits to our Power Mix page since October 2022.
From last year’s PCL email and mailer, 2% (4,964) of PCL email recipients clicked to view the full postcard online, and 15 direct mail recipients scanned the QR code on their postcard.
Questions/Discussion
The Executive Committee is not being asked to make a recommendation at this meeting - unless it chooses to- in order to complete our listening and feedback sessions with the CAC and our CBO partners on Sept 12.
Committee Members’ Reports
Adjournment