Finance & Risk
Management
Committee
Meeting
February 15, 2024
Welcome
&
Call to
Order
Roll
Call
4 Items to
be Added,
Withdrawn
or
Reordered
on the
Agenda
Public
Comment
for Items
NOT
on the
Agenda
Regular
Meeting
Agenda
Welcome
Roll Call
Items to be Added, Withdrawn or Reordered on
the Agenda
Public Comment for items Not on the Agenda
REGULAR AGENDA
1. Approval of January 11, 2024 Meeting Minutes
2. Treasurer’s Report for Period Ending 12/31/23
3. Approve Mid-Year Budget Amendment
4. Presentation on Clean Energy Prepayment Financing
5. Approve Professional Services Agreement with Chandler Asset Management, Inc. for up to $250,000 for Financial and Investment Portfolio Management Services through February 2025
Committee Member Announcements
Adjournment
8 Item 1
Approval of January 11, 2024 Meeting Minutes
Recommendation:
Approve January 11, 2024 Meeting Minutes
Presenter:
Sandra Vences
Deputy Clerk of the Board
Public
Comment
for Item 1
10 Item 1
Recommendation:
Approve January 11, 2024 Meeting Minutes
11 Item 2
Treasurer’s Report for Period Ending 12/31/23
Recommendation: Receive and File Treasurer’s
Report for Period Ending 12/31/23
Presenter:
Dr. Eric Washington,
Chief Financial Officer
12 Results for the period underperformed overall
compared to the adopted budget:
• Net operating revenues 5.0 percentage
points under budget.
• Operating expenses came in 9.0
percentage points over budget
Financial results for the YTD FY24:
• $806.22M in net operating revenues
• $598.16M in total expenses (includes
energy costs of $583.38M or 72% of net
revenues)
• $208.07M change in YTD net position
Item 2: Treasurer’s Report
YTD FY24 Budget v. Actual
Budget Comparison
YTD FY24 as of
12/31/23 (6 mos) FY24 YTD Budget Budget Variance ($) Budget (%) Net Operating Revenues $ 806,222,352 $ 852,765,001 $ (46,542,649) 95% Total Expenses $ 598,156,221 $ 546,502,842 $ 51,653,379 109% Change in Net Position $ 208,066,131 $ 306,262,159 $ (98,196,028) -32% 13 Item 2: Treasurer’s Report
Year-to-date financial results compared to
projections:
• Net operating revenues were 5% lower
than proforma projections
• Total expenses were 10% over the
proforma projections
• Change in net position was $98.81M
under the projected
YTD FY24 Proforma v. Actual
Proforma Comparison
YTD FY24 as of
12/31/23 (6 mos)
FY24 YTD
ProForma
ProForma
Variance ($) Proforma (%)
Net Operating Revenues $ 806,222,352 $ 852,765,001 $ (46,542,649) -5% Total Expenses $ 598,156,221 $ 545,892,659 $ 52,263,562 10% Change in Net Position $ 208,066,131 $ 306,872,342 $ (98,806,211) -32% 14 $M $100M $200M $300M
Cash
80%
Unmet
Reserves
20%
Item 2: Treasurer’s Report
$504M
Total Liquidity
FY 2023-24 YTD
$0M
Outstanding
Debt
FY 2023-24 YTD
$208M
Reserve
Contribution
FY 2023-24 YTD
80%
Percent Reserve
Goal Met
FY 2023-24
CONTRIBUTION RESERVES
GOAL DEBT
Reserve contribution
for the fiscal year
Outstanding loans
FY24 YTD
Total available liquidity
FY24 YTD
$491M 180-DCOH
Reserve Target FY24
$201M Actual
$303M Budget
$202M – Goal
$M $20M $40M $60M
$0 LOC
$504M
$M $200M $400M $600M
$392M
Cash
$113M
LOC
FYTD
FYTD
Reserve Contribution
15 Item 2: Treasurer’s Report
144
Days
Cash on Hand
185
Days
Cash on Hand with
Total Liquidity
$56.5M $73.9M
$190.8M $196.0M $203.5M
$230.3M
$297.9M $362.0M
$439.0M
$506.0M $520.7M $519.3M $504.8M
16%
25%
34%
37%
47%
61%
97%
50%
64%
77%
85%
83%
80%
$0.0M
$100.0M
$200.0M
$300.0M
$400.0M
$500.0M
$600.0M
12/31/2022
1/31/20232/28/20233/31/20234/30/20235/31/20236/30/20237/31/20238/31/20239/30/2023 10/31/202311/30/202312/31/2023
Rolling 12 Month Reserves FY 2023-24
Unrestricted Net Position Lines of Credit Reserve Goal Total Reserves FY24 RESERVE GOAL: $491.1M
16 Item 2: Treasurer’s Report
Public
Comment
for Item 2
18 Item 2
Recommendation:
Receive and File Treasurer’s Report for Period
Ending 12/31/23
19 Item 3
Approve Mid-Year Budget Amendment
Recommendation:
Recommend Board Approval of Mid-Year Budget
Amendment
Presenter:
Dr. Eric Washington,
Chief Financial Officer
20 Budget Development Timeline
The adopted schedule for budget development is the
following.
Develop Operating
Revenue Estimate
Develop Operating
Expense Estimate
Develop financial
plan for credit rating
February March-April
Strategic planning
sessions with SDCP
Board
Staff develop
operating budgets
Baseline budget is
developed
May
FRMC Preview and
Recommend
SDCP Board Preview
and feedback
June
SDCP Board Approval July 1st Budget
Implemented
Mid-year budget
review (February)
Budget amendments
as necessary
21 Proposed FY 2023-24 Amended Budget
Net Operating Revenue
FY 2024
$1,292.5 m
Total Expenses
$1,002.3 m
Net Position
+$290.4 m
Net Operating Revenue
$1,304.3 m
FY 2024 Amended
Total Expenses
$1,071.6 m
Net Position
+$232.7 m
22 Proposed FY 2023-24 Amended Budget
Net Operating Revenue
FY 2024
$1,292.5 m
Total Expenses
$1,002.3 m
Net Position
+$290.4 m
Net Operating Revenue
$1,304.3 m
FY 2024 Amended
Total Expenses
$1,071.6 m
Net Position
+$232.7 m
+$11.8 million
Approved rate change,
effective February 1, 2024
+$69.3 million
Higher energy costs,
reduced non-energy costs
-$57.8 million
Decrease in net position
over adopted budget
23 Budget Amendment Context
Item FY 24 Adopted Budget FY 24 Amended Budget Difference Gross Revenue $1,346,325,552 $1,365,732,007 $19,406,455 Less Uncollectibles ($53,853,022) ($61,457,940) ($7,604,918) Net Revenue $1,292,472,530 $1,304,274,067 $11,801,537
Cost of Energy $948,529,425 $1,020,844,552 $72,315,127
Non-Energy Costs $47,231,709 $43,708,093 ($3,523,616)
Subtotal Operating Expense $995,761,134 $1,064,552,645 $68,791,511 Debt Service $2,437,574 $2,393,639 ($43,935)
CIP $3,840,002 $4,655,000 $814,998
Total Expense $1,002,038,710 $1,071,601,284 $69,562,574 Net Position $290,433,820 $232,672,783 $57,761,037
24 Proposed FY 2023-24 Budget - Changes
Budget Changes by Category
Revenue
Cost of Energy
Board approved rate change, effective 2/1/24 which increased projected revenue.
Increased market power costs affecting all participants and in cost of market power supply.
Adopted
$1,292 m
Adopted
$948.5m
Professional
Services
Personnel
Marketing and
Outreach
General and
Administrative
Amended
$1,304 m
Amended
$1,020 m
Less than expected usage of
Professional Services
Adopted
$22.9m
Amended
$22.3m
Longer than expected lead
times to hire new positions.
Adopted
$13.2m
Amended
$11.6m
Marketing and Outreach are
slightly below budget.
Adopted
$2.9m
Amended
$2.9m
Decrease mostly due to less
traveling.
Adopted
$7.9m
Amended
$6.8m
Operating Income
-$57.8 m
Programs Decrease due to
recategorization to CIP.
Adopted
$0.3m
Amended
$0.1m
Adopted Amended
Public
Comment
for Item 3
26 Item 3
Recommendation:
Recommend Board Approval of Mid-Year Budget
Amendment
27 Item 4
Presentation on Clean Energy Prepayment
Financing
Recommendation:
Receive and File Presentation on Clean Energy
Prepayment Financing.
Presenter:
© PFM 28
Energy Prepayment Discussion
PFM Financial Advisors LLC 555 W. 5th Street
Suite 3500
Los Angeles, CA 90013
213.489.4075
February 15, 2024
© PFM 29
Prepayment Transaction Overview
Goal – Reduce cost of power purchases by 8% or more
How – Leverage use of tax-exempt bonding capacity to secure long-term supply Background
Codified in the U.S. tax law
Used since the 1990s largely for natural gas transactions Over 100 transactions totaling over $70 billion completed in the U.S. – mostly for gas Ten energy prepayment transactions totaling $9.8 billion completed last few years for six California Community Choice Aggregators:
East Bay Community Energy Pioneer Community Energy
Silicon Valley Clean Energy Clean Power Alliance
Marin Clean Energy Central Coast Community Energy
© PFM 30
Prepayments That Have Been Completed by Public Utilities in California Date Amt. ($000) Issuer Description Beneficiary
06/2006 230,845 Vernon Nat. Gas Fin Auth Nat Gas City of Vernon Elec 01/2007 209,350 Roseville Natural Gas Fin Auth Nat. Gas City of Roseville Elec 05/2007 757,055 Northern Ca Gas Auth No. 1 Nat. Gas SMUD 09/2007 887,360 Long Beach Bond Fin Auth Nat. Gas City of Long Beach 10/2007 504,445 So. Ca. Pub. Power Auth Nat. Gas Multiple MOUs 10/2007 251,695 Long Beach Bond Fin. Auth Nat. Gas City of Long Beach 08/2009 901,620 M-S-R Energy Authority Nat. Gas MID/Redding/SVP 10/2009 514,160 So. Ca Pub Power Auth (Windy Flats) Elec (Wind) LADWP, Mult. MOUs 04/2010 778,665 Cal. Statewide Comm Dev Auth Nat. Gas SMUD 2010/11 394,700 So. Ca Pub Power Auth (Milford 1 & 2) Elec (Wind) LADWP, Mult. MOUs 12/2018 539,615 Northern Ca Energy Auth Gas/Elec SMUD
Total $5,969,510
© PFM 31
Prepayments That Have Been Completed by CCAs in California Date Amt. ($000) Issuer Description Beneficiary
09/2021 1,234,720 California Community Choice Fin Auth Elec (Green) SVCE, EBCE 11/2021 602,655 California Community Choice Fin Auth Elec (Green) MCE 06/2022 931,120 California Community Choice Fin Auth Elec (Green) EBCE 12/2022 459,640 California Community Choice Fin Auth Elec (Green) Pioneer 01/2023 841,550 California Community Choice Fin Auth Elec (Green) SVCE 02/2023 998,780 California Community Choice Fin Auth Elec (Green) CPA 06/2023 958,290 California Community Choice Fin Auth Elec (Green) CPA 08/2023 997,895 California Community Choice Fin Auth Elec (Green) EBCE 10/2023 647,750 California Community Choice Fin Auth Elec (Green) CCCE 12/2023 1,038,285 California Community Choice Fin Auth Elec (Green) MCE 01/2024 1,101,625 California Community Choice Fin Auth Elec (Green) SVCE Total $9,812,310
© PFM 32
Entities Involved in an Energy Prepayment Transaction
SDCP – Has existing Power Purchase Agreement(s) for clean energy Prepay Counterparty – Typically a financial institution with a commodity presence or a financial institution partnered with a commodity market participant Issuer – Bond issuing entity formed for sole purpose of selling the prepayment bonds, typically a Joint Powers Authority (“JPA”). All other CCAs have used California Community Choice Financing Authority (CCCFA)
Existing Power Supply Counterparty – Agrees to limited assignment of the existing PPA Bond Investors – Purchase the non-recourse tax-exempt prepayment bonds © PFM 33
1) SDCP limited assigns PPA to
Counterparty
2) SDCP and CCCFA execute a
Clean Energy Purchase Contract
3) CCCFA issues non-recourse tax-exempt bonds
4) CCCFA makes a prepayment to
the Counterparty for power
supply
5) The Counterparty delivers power
to CCCFA via a Master Power
Supply Agreement
6) CCCFA delivers power to SDCP
7) SDCP makes payments to
CCCFA net of savings
8) CCCFA makes debt payments
with payments from SDCP
Summary of Energy Prepayment Structure Mechanics
PPA to be
“Partially
Assigned”
1 Non-Recourse
Tax-exempt
Debt Debt
Service
Bond
Proceeds
SDCP
Counterparty
MWhs
Prepayment $$$
PPA Price
less Discount
MWhs
CCCFA
Clean
Energy
Purchase
Contract
2 3
5 4
6 7
8 © PFM 34
How are the Savings Generated?
The Counterparty values prepayment as an alternate source of capital funding at its higher cost of capital ~ 5%
PPA fixed price cash flows of ~$45MM annually over the life of the deal are discounted at that 5% rate to establish the upfront prepayment amount CCCFA issues tax-exempt bonds to pay the upfront prepayment at a lower interest cost ~ 4.25% versus the counterparty’s funding rate of ~5%
CCCFA bond payments ~$40MM annually are lower than the existing ~$45MM PPA payments
~$5MM in cashflow savings are generated
Savings are quoted net of all upfront and annual transaction expenses Numbers are for illustration purposes only.
© PFM 35
How Does Limited Assignment of a Power Purchase Agreement Work? SDCP will limited assign certain rights and obligations, including the title and ownership of the energy, under the existing PPA to its Prepay Counterparty Rights not assigned remain with SDCP. No other changes are made to the existing PPA Existing PPA Counterparty would then deliver energy to the Prepay Counterparty who has assumed responsibilities as energy purchaser under the PPA Prepay Counterparty will then sell that energy to CCCFA. CCCFA has a separate agreement with SDCP to sell that energy to SDCP – at an 8% discount or higher SDCP will need to negotiate the limited assignment with its Existing PPA Counterparty • This will take place via a Limited Assignment Agreement © PFM 36
Favorable Risk Allocation – “Take-and-Pay” Structure
Prepay Counterparty default on energy
delivery
SDCP receives too much energy and is
unable to have Qualified Use and/or has to
meet new renewable mandates in the future
Debt obligation could obligate SDCP over
long-term
Rating agency treatment of prepay debt
Debt is non-recourse to SDCP, and SDCP’s
obligation is take and pay. Rating agencies do not
count prepay transactions as debt or fixed costs
of SDCP
Prepay Counterparty will remarket the energy to
qualified entities to ensure SDCP compliance with
Qualified Use
SDCP only pays for energy if/when Prepay
Counterparty delivers the energy
Prepay Counterparty assumes debt obligations in
the event of Supplier default
Risk Mitigation
Guaranteed Investmnet Contract (GIC)
provider counterparty fails to perform
Documents allow for replacement of GIC provider;
Supplier is likely GIC provider (thus no additional
risk)
Key Risk – Transaction terminates and SDCP no longer receives expected savings © PFM 37
Public
Comment
for Item 4
39 Item 4
Recommendation:
Receive and File Presentation on Clean Energy
Prepayment Financing.
Presenter:
40 Item 5
Approve Professional Services Agreement with Chandler
Asset Management, Inc. for up to $250,000 for Financial and Investment Portfolio Management Services through
February 2025
Recommendation:
Recommend Board Approval of Professional Services
Agreement with Chandler Asset Management, Inc. for up to $250,000 for Financial and Investment Portfolio Management Services through February 2025.
Presenter:
41 Finance and Investment Management RFP
The schedule for competitive selection process:
SDCP Board of
Directors approved
Investment Policy.
May 2023 December 2023
Issued RFP for
Financial and
Investment Portfolio
Management
Services.
January 2024
Conducted Evaluation
and Interview process.
Selected Chandler
Asset Management.
February 2024
FRMC
Recommendation.
SDCP Board Approval.
4 Week Transition.
Monthly Reporting.
42 Finance and Investment Management RFP
4 Week Transition Timeline:
• Execute
agreement
• Complete
account opening
documents
• Establish or
review custodial
relationship
• Determine
sources of
funding
Week 1 Week 2
• Review investment
policy
• Establish
objectives
• Assess risk
parameters
• Create customized
investment
strategy
Week 3
• Develop funding
strategy
• Connect to
custodial account
• Set up reporting
and prepare
account
statements
• Establish trading
rules with
Chandler
Compliance Team
Week 4
• Execute funding
strategy for initial
purchases
• Implement active
management
• Inform FRMC on
progress
Public
Comment
for Item 5
44 Item 5
Recommendation:
Recommend Board Approval of Professional Services
Agreement with Chandler Asset Management, Inc. for up to $250,000 for Financial and Investment Portfolio Management Services through February 2025.
Presenter:
Committee Member
Announcements
Adjournment
Next Regular
Finance & Risk
Management
Committee
Meeting
March 21, 2024