New SV Clean Energy
PowerPoint Template
Subtitle
Item 2
PRESENTATION
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Item 2
PRESENTATION
1. Review: Proposed fiscal year
2022-2023 (FY 23) budget
2. Action: Recommend approval to
the Board, with any suggested
changes:
a) The proposed budget
b) Revised reserves policy with new
reserve targets
1. Summary of the Proposed Budget
2. Revenue Modeling
PCIA and PG&E Gen Rate
Uncertainty
3. Reserve Targets
4. Customer Discount Rate and
Funding for Programs
5. Power Supply Costs
6. Other Cost Drivers
Personnel, BPO, Legal,
Cybersecurity
Item 2
PRESENTATION
© FY22-23 Budget will be ready for Discussion in August Budget Framework
at Exec Comm
Present Draft
Budget to Finance
&Admin Comm
August 8
Present Draft
Budget to BOD
Present Recommended
Budget to BOD. Adopt
updated Strategic Plan
Late August
Incorporate
Changes based
on BOD feedback
March 2023
Mid-Year Budget
Review/ Adjustment
3 SILICON VALLEY CLEAN ENERGY
FY 2022-23 OPERATING BUDGET
($ in thousands)
FY 2021-22 FY 2022-23
ADJUSTED
BUDGET
PROPOSED
BUDGET $ %
Energy Revenues 385,502 483,860 98,358 25.5%
Power Supply Expense 274,979 325,296 50,317 18.3%
Operating Margin 110,523 158,564 48,041 43.5%
Operating Expenses 21,693 28,204 6,512 30.0%
Non-Operating Revenues/(Expenses) 310 639 329 106.1%
Transfers and Other Expenses $27,531 $15,465 $12,066 -43.8% BALANCE AVAILABLE FOR RESERVES $61,609 $115,534 $53,924 87.5%
VARIANCE
Item 2
PRESENTATION
© 1. Proposed FY 23 vs FY 22 Mid-Year Adjusted Budget
Revenue increase, due to higher margins, outpaces rising energy costs = 11 - 4
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Item 2
PRESENTATION
Strategic Focus Areas: Impacts all five strategic focus areas
1. Revenues
Issue
PG&E's preliminary 2023 rate forecast,
issued in May, is based on outdated
market prices. Results in lower SVCE
revenues than likely the case.
Attempt to calibrate NewGen Model to
likely prices used by PG&E overstates
SVCE Margins by N10%*.
*Using latest version 3.1 - version 2.5 used for Executive Committee presentation.
Proposed Budget
Uses latest market data
in NewGen model and
discounts results (reduce
SVCE Margins) by 10% for
modeling error.
Implications/Reasons
Likely aligns revenues
closer to rates that PG&E
will update in October.
Better aligns revenues
with power supply costs
Primarily for budget
setting purposes.
Additional expenditures
based on headroom
projections will be made
by the Board likely in
December when actual
PG&E and PCIA rates are
known.
5 Healthy SVCE Margins Remain
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Item 2
PRESENTATION
Current Effective
Rate*
PG&E Gen Rate:
14.30 ¢/kWh
1% SVCE discount t
PG&E ERRA Forecast
2023 Rate**
PG&E Gen Rate:
12.62 ¢/kWh
Proposed Budget
2023 Rate ***
PG&E Gen Rate:
12.79 ¢/kWh
2% SVCE Discount
* Source: PG&E June 2022 Updated Rates
** Source: PG&E 2022 ERRA Forecast (Weighted for SVCE Portfolio Load) *** Using NewGen Model with 7/16/2022 Forward Curves and 10% haircut Above margin analyses ignores minor reductions for franchise fees (0.09 ¢/kWh) 6 •
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Item 2
PRESENTATION
Strategic Focus Areas: Impacts all five strategic focus areas
2. Reserve
Targets
Issue
Ensure SVCE maintains sufficient
reserves to manage risks such as
those modeled under Stress Test
Scenario Two.
Prices collapse reducing revenues
and there's additional draw on
reserves from increase in financial
posting requirements to the
Provider of Last Resort (PG&E).
Use stress test 2 scenario
assumptions and update for Fiscal
Year period (Oct 2022 to Sep 2023) and
latest market data
Proposed Budget
Targets to keep reserves above
120 Days Cash On Hand (DCOH)
for FY 2022-2023 and FY 2023-
2024 (under stress test scenario 2
assumptions)
Resets Upper Reserve Target such
that over the next 5 fiscal years
reserves do not fall below 90
DCOH
Implications/Reasons
FY 23 margins not
guaranteed given true-up
in 2024 for PCIA and
PG&E Gen rate
If adverse conditions
materialize, need 120
days to reshape strategy
and secure additional
liquidity
Increase upper reserve
target to take advantage
of good margin years to
manage risks over 5-year
period
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Item 2
PRESENTATION
Reserve Targets (DCOH}
Minimum
Goa I (Target)
Maximum (Upper Target)
Derived using stress test scenario 2*:
Current
120
230
320
Draw on reserves in FY 2024 would be N$186 million
New Targets
120
285
490
To end up with 120 DCOH in FY 2024, need to end 2023 with N$288 million in reserves $288 million is equivalent to holding 285 DCOH (@ $1.01 million a day burn rate) * Updated with budget assumptions and modeled over fiscal year as opposed to calendar year 8 Item 2
PRESENTATION
© 9. Reserve Projection (Move to Appendix?)
Projections include unspent program dollars
Reserves Forecast
$500
$450 490 days
$400
$350
1/J $300 C:
~
:E $250 285days
<II- ·=
$200
$150
$100 120days
$50
$0
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
- Total Adjusted Ending Reserves - Target Reserves Maximum Reserves - Minimum Reserves Source.· FY2022-23 Proposed Budget 9
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Item 2
PRESENTATION
Strategic Focus Areas: Supplier of Choice; Work Electrification into SVCE's Value Prop. to Customers
3. Additional
Expenditure
1% discount over 12
months N$5 million
1% discount over 9
months (Jan -
Sep) N$3.6 million
Monthly Average Bill
Savings of 1%
Discount:
Residential -
N$0.66
Small Commercial
- N$2.39
Medium
Commercial -
N$26.89
Issue
Continue to provide
competitively-priced and high-valued services to SVCE
customers
Funds not needed to cover cost-of-service flow to customers via lower SVCE rates (discount to
comparable PG&E rates)
Cost-of-service includes funds
needed to cover operations,
meet reserve targets, and fund
decarbonization programs
Proposed Budget
Target discount at 3%
2% for all customers
Additional 1% converted to $ bill credits to CARE
& FERA customers
Board can change the budgeted discount rate,
once actual PG&E rates are known, which is
expected to occur in late Dec 2022. Until then
current 1% discount rate continues.
Revisit additional funding for programs during
mid-year budget update in March given time
needed to ramp up new initiatives to utilize
existing authorized funds
Implications/Reasons
Reaching new target reserve
levels ensures SVCE can
withstand adverse risk
scenarios
Keeping the discount rate to a
reasonable level
Enables additional funding for
valued customer programs
such as decarbonization
efforts
Ensures there's more
organizational resiliency to
respond to risks over the 5-yr
planning horizon
Time SVCE rate change with
PG&E rate change when Board
will have more certainty on
PG&E Gen and PCIA rates
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Item 2
PRESENTATION
4. Power
Supply
>90% of
Expenses
Strategic Focus Areas: Supplier of Choice, 24x7 Clean Energy Delivery Issue
Power prices are near record high levels and
market is very volatile
In addition to PG&E Gen Rate and PCIA
uncertainty, power price volatility makes budget
projections more uncertain
Currently hedged N79% for FY 2023
Remaining 21% exposed to volatile market prices
Load Projection for FY2023 is N3.9 Twh, slightly
higher than Mid-Year Budget
Commercial load is to yet to recover pre-Covid levels (-) Offset by increase in number of meters
served by SVCE (+)
Contract delays/negotiations further add
uncertainty
Cost of carbon-free energy is high due to low
hydro conditions. PG&E allocations help
Resource Adequacy requirements are changing,
and costs are high
Proposed Budget
Continue hedging to current ERM
(Energy Risk Management) targets
Staff conducting additional
analyses of hedging targets
based on stress test findings.
Recommendations to be
developed later.
Continue with SVCE 100% clean
policy
Purchasing remaining carbon free
allocations expected to cost
about $1.2 million to $6 million
depending on PG&E allocations.
Implications/Reasons
High hedge targets increase risk
to price collapse; does not
account for correlation of prices
to PCIA and PG&E Gen rate
Need further analysis before
changing policy given
challenges of uncertainty in
modeling PCIA and PG&E Gen
Rates
Maintain high customer value
proposition with 100% clean
energy and serve SVCE mission
Furthers SVCE focus toward
24x7 clean energy goal
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Item 2
PRESENTATION
Strategic Focus Area: Employer of Choice; Leverage Balance Sheet for Structured Financing
4. Additional
Costs
Issue
Growth in all areas of the
organization requires
additional staffing
Decarb Programs effort
increasing from N$2M/year to
N$20/year for the next 3 years
Going from hundreds of
rebates to thousands
Increased engagement with
local agencies
Increase employee salaries
for cost-of-adjustment and
merit/promotions
Enhance employee benefits
to remain competitive with
peer CCAs
Budget for BPO, legal costs,
consulting for structed
financing, and cybersecurity
enhancements
Proposed Budget
Add 10 full time staff positions to the
current headcount of 39, bringing new
headcount level to 49 (Details in next slide)
5.3% adjustment for COLA
Based on 6-month rolling average of SF
Bay Area CPI (Dec-21 to June-22)
CEO discretion applied depending on
employee pay relative to market range,
performance, and date of hire
N$350k annual cost increase@ 39 FTE
Any additional increases for merit and
promotions based on CEO discretion
N$330k annual cost increase @ 39 FTE
Employee benefit enhancements (see
detailed slide) - N$370k annual cost increase
Other Additional Costs:
BPO - $1.375 million
Legal - $1.5 million
Structured Finance: $150k
Cybersecurity improvements: $250k
Implications/Reasons
Additional staff needed to:
Scale up programs team for double down
effort (more details in appendix)
Reduce high level of existing employee
workload
Advance strategic focus area goals
Create organization depth for business
continuity
Adjustments to employee compensation and
benefits needed to retain and attract talent
BPO, a key FY 21-22 strategic focus area to
mature operations to industry standards and
reduce operational risks
Sustained investments in cybersecurity
preparedness; FY22-23 efforts include virtual
CISO; Incident Response Tabletop exercises;
and a combined IT audit/ security
assessment, along with continued monitoring
and security tools. 12
0 2
4 6
8 10
12 14
16 18
Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 $MM / FTE
Rev ($MM) / FTE Cost ($MM) / FTE
Item 2
PRESENTATION
Revenue and Energy Costs/ FTE have remained fairly flat over time. 13 • 39 full-time employee
• 6 vacancies; 1 on Maternity Leave
• 5 intern positions
• 1 currently filled
• 4 part-time employees
• Don Bray transitioned to part-time as Director
of Strategic Development
• 2 Climate Corps Fellows
• 2 long-term independent
consultants
Decarbonization Programs and Policy:
• Senior Programs Specialist – Community Programs – to design and implement decarbonization programs
• Programs Specialist – Policy – to support state and local policy and government initiatives
• Program Implementation Manager – to oversee program delivery and effectiveness • Additional Staff – Will need additional staff over coming 12 months as programs scale up and more clarity is gained on types of resources needed 4PRO
• Regulatory Analyst – to support engagement at CPUC, CAISO, CEC • Power Data / Markets Analyst (2) – to support increased data analysis from operational PPAs and Load Forecasting
ESCR
• Energy Services Specialists (2) – to support rate implementations and commercial / industrial offerings
• Outreach Specialist – to support outreach directly to member agencies and community groups
Finance & Admin
• Risk Control Analyst– to support middle office functions and administration of internal controls including implementation of BPO
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Item 2
PRESENTATION
© Staffing - Propose 10 Additional Full-time Positions
Current Staffing
Personnel Authority
CEO can approve job titles, salary ranges,
and org chart positions
Positions can be swapped / changed and
added within Board-approved budget
Additions will not exceed 10% of
authorized number shown in budget
Changes/ hires communicated in next
CEO report to Board
Per CEO personnel authority, these and existing positions may change to address evolving business needs.
14 Benefit Current Proposed Supporting Detail
Health Reimbursement
Account (HRA) Cap $6000 / year Cap @ $18k (3x annual) SVCE leading (3CE offers $3600 / year), but balances growing beyond useful limits.
Cash In Lieu of Health Benefits $250 / mo $600 / mo CCA range ($250 - $750) Monthly Premium
Contribution $1200 / mo $1500 / mo CCA range ($1200 - $1891) Phone / Internet Allowance $50 / mo (phone only) $120 / mo CCA range ($50 - $150) – combine into a single “remote technology” allowance
Paid Parental Leave (bonding) none
120 hours during 1st year
after birth Offered by MCE and PCE
Employee Participation in
Program Incentives none $2500 / FTE
Recommend setting up a budget amount for staff to benefit from similar decarbonization incentives as customers, but separated to avoid issues of unfair access. Estimating 50% utilization
Item 2
PRESENTATION
SVCE is proposing benefit increases to remain competitive with peer CCAs 15 •
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Item 2
PRESENTATION
Summary - Despite ongoing
uncertainty, the overall financial
picture looks good for FY22-23
Biggest risks include late-year adjustments to
PCIA / PG&E Gen Rate and significant volatility in . power prices Reserve targets increase to account for risks as
modeled in the stress test analyses
Keep 1% customer discount rate and revisit once
PG&E and PCIA rates are known
Power supply costs will increase, but margins
showing favorable improvement
Budget increases for operating expenses other
than power supply needed to advance strategic
focus areas including retaining and attracting
employees, reducing operational risks, and
enhancing operational efficiency.
Many Risks can Deplete Reserves
Market Prices
Reduced Revenues
via Higher PCIA and
Lower PG&E Rates;
Increased Power
Supply Expense
SUPPLY
Project delays;
PPAs Default or
Renegotiate for
Higher Prices
L&R ISSUES PAYMENTS LOAD LOSS CYBER·RISK
IRP, RPS, RA Customer Defaults Direct Access Hardware, Software, R f IP it· and Potential for and Training to combat e orm ena 1es, Expansion Ransomware and PCIA, POLR Phishing
RATE
Rate Increases due
to socialized wildfire
costs, Energy Price
Increases will
ultimately impact
usage and
electrification
16 Item 2
PRESENTATION
Budget Framework
at Exec Comm
Present Draft
Budget to Finance
&Admin Comm
August 8
Present Draft
Budget to BOD
Present Recommended
Budget to BOD. Adopt
updated Strategic Plan
Late August
Incorporate
Changes based
on BOD feedback
March 2023
Mid-Year Budget
Review/ Adjustment
17 • Approve the Proposed FY 2022-23 Operating Budget
• Approve the Updated Reserves Policy
Item 2
PRESENTATION
18 Item 2
PRESENTATION
($ in Thousands)
2022 2023 2024 2025 2026 2027
Operating Revenue (Budget) (Budget) (Forecast) (Forecast) (Forecast) (Forecast) GWh Sales 3,914 3,907 3,782 3,746 3,766 3,767
Electricity Sales, Net $ 384,498 $ 482,930 $ 410,965 $ 394,285 $ 361,155 $ 338,749 Available for PCIA/Gen Rate/Power Supply Cost Changes - - - (13,000) (27,000) (35,000) GreenPrime Electricity Premium 1,005 931 899 873 872 875 Total Operating Revenues 385,502 483,860 411,864 382,158 335,028 304,624 Operating Expense
Power Supply $ 274,979 $ 325,296 $ 302,663 $ 305,570 $ 300,691 $ 285,026 Operating Margin 110,523 158,564 109,201 76,587 34,337 19,598 Data Management 3,249 3,413 3,413 3,583 3,762 3,950
PG&E Service Fees 1,450 1,470 1,544 1,621 1,702 1,787
Staff Compensation 8,535 12,024 13,263 13,694 14,139 14,599 Consultants and other Professional Fees 5,669 7,922 8,318 8,734 9,170 9,629 Communications and Noticing 1,040 993 1,043 1,095 1,150 1,207 General and Administration 1,750 2,382 2,501 2,626 2,758 2,895 Programs 27,381 15,265 8,237 7,903 7,241 6,792
Total Operating Expenses 324,053 368,766 340,981 344,826 340,613 325,886 Operating Income 61,449 115,095 70,883 37,331 (5,585) (21,262) Nonoperating Revenue (Expense)
Other Income 50 50 51 51 52 52
Investment Income 300 592 713 836 904 895
Capital Outlay & Financing Costs (190) (203) (53) (53) (53) (53) Grant Income - - - - - -
Total Non-Operating Revenue (Expense) 160 439 711 834 903 894 Change in Net Position/Available for Reserves 61,609 115,534 71,593 38,166 (4,682) (20,368) Item 2
PRESENTATION
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20 Item 2
PRESENTATION
All are
important
Shining a
spotlight on
incremental
areas
Workplan will
include the
details on how
we will address
these and
other
areas/goals
(internal
document)
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1. Employer of Choice
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5. 24x7 clean energy
delivery
9. Expand focus on C&I
decarb/industrial load
2. Supplier of Choice
(electrification, rates,
DA customers, 24x7
CFE ... )
6. Operationalize
resources and
portfolio/asset
management in the
wholesale market to
achieve objectives
10. Expand/scale digital
and in-person
electrification
awareness and
education
3. Leverage Balance
Sheet for Structured
Financing
7. Ensure state and
federal policy
landscape preserve
CCA autonomy +
program policies
11. Execute on planned
programs to
demonstrate impacts
and influence policy
4. Efficient and
Effective Internal
Operations
8. Work electrification
into SVCE's value
proposition to
customers
12. Operationalize
equity into programs
21 ₵
₵
₵
Item 2
PRESENTATION
© NewGen Projection vs PGE ERRA Forecast
Comparing 2023 PCIA / Gen Rates using 3/28 curves
Gen Rate ( /KWH)
PCIA ( /KWH)
Headroom ( /KWH)
* Source: NewGen 3.1
Proposed PGE
ERRA Rate
(3/28)
12.62 1.43
11.19 NewGen
Projection
(3/28)*
13.05 0.93
12.12 Variance
0.43 -0.50
0.93 22
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Item 2
PRESENTATION
© Stress Test Scenarios
Extreme but plausible scenarios that can deplete reserves and make SVCE uncompetitive.
Ensure adequacy of
reserves and
organizational resiliency
Guide development of
strategic plan
Shape FY 22-23 budget
and reserve targets
Price uncertainty Drives
the first 4 scenarios
Stress Scenarios for CY 2023 to CY2027 (five-year horizon):
1. Significant drop in energy prices including REC
Higher PCIA and lower PG&E Gen Rate
2. Insufficient financial liquidity
Price collapse triggers credit downgrade
Collateral calls from counterparties and CAISO
Increase in POLR (Provider of Last Resort) funding (called FSR - Financial Security Requirement)
3. PPAs default, renegotiate for higher prices, and/or delay start RPS non-compliance penalty
Replacement at higher prices
4. Load loss due to direct access and distributed load
5. Threat to Public Services or Facilities
23 Item 2
PRESENTATION
QI
u
·;;:
0. .c
3:
:1:
..._
<I\-
$140
$120
$100
$80
$60
$40
$20
$300
$250
$200
8 ·;::
0. .c $150
!
......
-v,. $100
$SO
$0
Jan-18
On-Peak NPlS Historical and Simulated Monthly Prices
Off-Peak NPlS Historical and Simulated Monthly Prices
Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25
- NP-15 Off-Peak ($/MWh) Historical - NP-15 Off-Peak ($/MWh) MEAN Jan-26
Forward Price Levels elevated compared to history,
driven by gas prices recently due to Ukraine Crisis
$9.00
$8.00
$7. 00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
- Hen ry Hub 7/ 14/2022
Henry Hub Forward Prices
- Hen ry Hub 2/11/2022 - Actuals
24 Item 2
PRESENTATION
© Energy Risk Management Min/Max Bands
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We hedge to manage market price risk. 79% of FY 23 load is hedged. However only 72% of CY 23 is hedged.
Period Year
Balance
2022 of Year
Year 2 -
2023 2023
Year 3 -
2024
2024
Year 4 -
2025
2025
Year 5 -
2026
2026
ERM Min ERM Max
Tolerance-LRB Tolerance LRB
" "
80% 110%
70% 90%
55% 80%
50% 80%
50% 80%
SVCETotal
Hedge" Net Open Position Tolerance and Positions
120%
94% 100%
80%
72% 60% 71.7% ---17;;3_4:%r----t~~---1-
66.4%
40%
73% 20%
0%
66% 2022 2023 2024 2025 2026
- SVCE Board-approved Hedging Tolerance Bands, 2021-2026 - SVCE Total Hedge% 58%
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Item 2
PRESENTATION
FY 23 costs are estimated to be higher than FY 22 at the Mid-Year Budget.
Net Energy Supply Costs, Fiscal Year
$350,000,000
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$-
Spot Market Costs
■ Renewable Energy Supply
Resource Adequacy
6M
54M
17M
61M
92M
95M
FY2023
■ Contracted Supply Costs
■ Environmental Products
■ CAISO Costs
FY 23 Power Supply Cost N$325.7M:
Load Cost - CAISO energy(+)
Energy hedges (net of CAISO
revenues) (+)
Renewable Energy Supply (PPAs) (-)
Clean Environmental Products -
short-term index+ RECs and carbon-free resources (+)
Resource Adequacy(+)
CAISO non-energy costs (+)
Source: FY2022-23 Early Draft numbers 26
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Item 2
PRESENTATION
Load Recovery is assumed to be about 50%* offset by increase in new load moving into SVCE portfolio Load is yet to recover to Pre-COVID
levels.
C&I Load is yet to recover
Shelter in place residential load
increase has tapered off due to
return to office and milder
temperatures
This Load loss is offset by some
growth with new meters.
*Prior forecast had assumed 100% recovery by 2022.
4,100,000
3,900,000
3,700,000
Vl 3,500,000 ....
.c
s 3,300,000
~ 3,100,000
2,900,000
2,700,000
2,500,000
Historical Baseline & 2023 Load
2019A 2020A 2021 A 2022 (Budget) 2023 Forecast
- Load - Actuals Average
27 Item 2
PRESENTATION
CEO
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r r ' ' Chief Director of Chief Senior
Operating Strategic Financial Government
Officer (COO) Development Officer and Affairs
and Director ----------------------------------, Director of Manager of Power I Administrative CEO
Resources I Services
4PO I F&A I
J I l
r r r 1 1 1 I I I 1 1
Senior Power Senior Power Power Power Senior Power Senior Risk Deputy Senior Technology Manager of Resources Manager of Resources Supply Supply Manager of Markets / Manager Director of Financial Services Power Planner Power Manager Program Program Energy Policy Data Analyst F&A Administration Analyst Manager Resources 4PRO Operations 4PRO Manager Manager and 4PRO Services F&A F&A Manager 4PRO 4PRO 4PRO Regulatory F&A
4PRO Analysis
I 4PRO
Wholesale Power l Regulatory & Senior Senior
Energy Settlements Compliance Quantitative Management
Markets l & Manager Analyst Analyst
Manager Compliance 4PRO F&A F&A
4PRO Analyst
4PRO
Associate Power l Senior Risk Control Administrative
Power Markets / Regulatory Analyst Assistant
Analyst Data Analyst Analyst F&A F&A
4PRO 4PRO 4PRO
Regulatory Human
I Full-Time I Analyst Resources
4PRO Generalist
I Part-Time I F&A
I VACANT I Interim
Administrative
I NEW I Assistant
F&A 28
Item 2
PRESENTATION
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Board Clerk / Director of Energy
Executive Services and
Assistant Community Relations
CEO ESCR
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I I I
Energy Services Energy Services Communications
Lead Lead Manager
ESCR ESCR ESCR
Energy Services Energy Services Senior Marketing
Specialist Specialist Specialist
ESCR ESCR ESCR
Marketing Specialist
ESCR
Marketing Specialist
ESCR
Full-Time
Part-Time
VACANT
NEW
CEO I
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Internal Operations
Program Manager
CEO
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Interim Com!!1unications
Manager
ESCR
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Senior Communications
- Specialist
ESCR
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ClimateCorps -
Community Outreach
Fellow
ESCR
Outreach Specialist
ESCR
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Manager of
Community Programs
DPP
Program
Implementation
Manager
DPP
Senior Programs
Specialist
DPP
Senior Programs
Specialist
DPP
Senior Programs
Specialist
DPP
Programs
Specialist
DPP
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Director of Decarbonization
Programs and Policy
DPP
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Senior Data Deputy Director of
Analyst Decarbonization Programs &
DPP Policy
DPP
~
Data Senior Public Sector Services
Engineer Manager
DPP r-- DPP
Energy Services Specialist
DPP r--
ClimateCorps - Funding and
Finance Fellow r-- DPP
29 • Director
• Programs-focused team (3
staff)
• Policy and government
support team (3 staff)
• Data team (1 staff, hiring
another now)
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Item 2
PRESENTATION
© Decarb Programs and Policy Staffing - today
Current Staff Recent Re-org
Consolidated staff working to design and manage
programs
Emphasized tie-in for programs to support local
government initiatives and policy
Double Down
Direction from Board to increase efforts 2X over next
few years
Major scale-up in program scope and local policy
support
On top of ongoing and planned current efforts
30 • Need to go from
~$2M/year to ~20M/year
for next three years
• Need to go from hundreds
of rebates to thousands
• Need to meet more with
local agencies to explore
options and provide
support
•
•
•
•
•
Item 2
PRESENTATION
© Decarb Programs and Policy Staffing - future
Significant Increase in
Efforts
More Staff Required
Build capacity for managing additional, larger
programs
Ensure time available for analysis, review and
optimizing efforts
Developing relationships is labor intensive
Tools Required
Simplify and streamline budgeting, tracking and
reporting
Facilitate increased volume of applications
31 •
•
•
•
•
•
Item 2
PRESENTATION
© Decarb Programs and Policy Staffing - needs
Known
Data analysis support - further inform program approaches and respond to policy questions from cities (hiring Data Engineer now)
Program roll-out capacity - move planned but de-prioritized projects forward, add ability to handle new projects that arise, and increase ability to dig deeper into program details to improve the offerings we have (requesting Sr Programs Specialist) Government and policy support - allow for more concurrent analysis of requests from different cities, ramp up conversations sooner, and deeply participate in key state-level proceedings impacting decarbonization (requesting Programs Specialist) Currently Unknown - will evolve over coming 12 months
To reach necessary scale of programs, do we need more staff? Consultants? What is the level of uptake from our cities in policy experimentation and exploration? How much effort is required to implement new tools? Once in place, how much time do they free up? 32
Year COLA
FY17-18 3%
FY18-19 4%
FY19-20 4%
FY20-21 0%
FY21-22 5%
FY22-23 (6 mo
trailing CPI) -
proposed 5.3%
Item 2
PRESENTATION
Proposed 5.3% COLA based on SF Bay Area CPI; smoothed over trailing months Add'I Merit/promotional increases at CEO discretion
Cha.rt 1. Ov,er-the-yea.r percent change in CPl-11.J, San Fra.ncisco-Oa.klla.nd-Haywa.rd, CA, June 20,19-June 2.022
--All ite ms
Percent change - - - - All ite ms less food and energy
8_0 .---------------------------~
7_0 >---------------------------------1
6,_ 0 1-----------------------------#----i
3_0
o_o 1-----+------1--+----+--+-----+---+----+--+----+--+----+------11----+----+--+-----+-----t J un Aug1 Oct Dec Fe b Apr Jun Aug1 Oct Dec Fe b Apr Jun Aug Oct Dec Fe b Apr Jun 2019 2020 2021 2022
Source: U_S_ Bureau of Labor Statistics_
Consumer Price Index, San Francisco Area - U.S. Bureau of Labor Statistics (bis.gov) 33 Headcount Base Salary Cost* COLA (5.3%) Merit (5% avg) Total Annual Salary Cost* 39 $6,582,670 $348,882 $329,134 $7,260,685
*Salary, not including benefits or contingency
Item 2
PRESENTATION
© Budget Impact of COLA & Merit Increase Proposals
Proposed 5.3% COLA to be based on SF Bay Area CPI; smoothed over trailing 6 months Merit increases at CEO discretion
34 Benefit Current Proposed
Total Added Annual
Cost
% of Personnel
Budget Supporting Detail
Health Reimbursement
Account (HRA) Cap $6000 / year Cap @ $18k (3x annual) $0 0% SVCE leading (3CE offers $3600 /
year), but balances growing beyond
useful limits.
Cash In Lieu of Health Benefits $250 / mo $600 / mo $37,800 0.31% CCA range ($250 - $750) Monthly Premium
Contribution $1200 / mo $1500 / mo $144,000 1.20% CCA range ($1200 - $1891) Phone / Internet Allowance
$50 / mo (phone
only) $120 / mo $41,160 0.34%
CCA range ($50 - $150) – combine
into a single “remote technology”
allowance
Paid Parental Leave (bonding) none
120 hours during 1st year after
birth $84,000 0.70% Offered by MCE and PCE
Employee Participation in
Program Incentives none $2500 / FTE $61,250 0.51%
Recommend setting up a budget
amount for staff to benefit from
similar decarbonization incentives as
customers, but separated to avoid
issues of unfair access. Assumes 50%
utilization.
TOTAL $368,210 3.06%
Item 2
PRESENTATION
SVCE is proposing benefit increases to remain competitive with peer CCAs 3!,
HRA Balance # of FTEs
Above $18k 6
$10k - $18k 5
$5k - $10k 10
Under $5k 4
Item 2
PRESENTATION
© Staffing I Benefits - Fiscal Impacts
HRA Levels by# of FTEs
36 Since March 2020, the overall arrearage amounts have grown roughly 2.5x.
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
31+ Days
•
•
•
Item 2
PRESENTATION
SVCEs Arrearage Total for customers 31+ days late
31+ Days Date Amount
High 11/29/2021 $7.99M
Low 4/17/2020 $2.54M
Current 5/30/2022 $6.45M
Green arrow indicates receipt of
$1.3M in Federal CAPP funds
A second round of CAPP funding is
expected for late summer/fall 2022
Growth at red arrow indicates short-term growth in 31-60 day aging 37 bucket only - will likely decrease
Low Medium High
2022 Additional $660,895 $1,982,290 $3,964,579
2019 Ordinary Loss $414,580 $414,580 $414,580
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
SVCE 2022 Customer Debt Write-off Bookends
• 2019 Average 31+ Day Arrearage of $2.5M
yielded $415k in Write-offs (16.7% of total)
• 2022 Arrearage is $3.9M higher than 2019 after
receiving $1.3M in CAPP payments in March 2022
• Remaining $3.9M used as basis for the following
write-off scenarios:
$1,075,475
$2,396,869
$4,379,159
Item 2
PRESENTATION
f: [ [
Scenario Assumptions
Low 16.7% of $2.5M PLUS 16.7% of $3.9M-same as 'normal' year Medium 16.7% of $2.5M PLUS 50% of $3.9M
High 16.7% of $2.5M PLUS 100% of $3.9M
Data Current 5/30/2022 38
CURRENT STATE
1. Small group of people managing multiple
large transactions (~$275MM annually)
2. Leveraging many consultants & outside
experts
3. Adapting to new regulations continuously
4. Manual and labor-intensive processes
create operational and business
continuity risks
5. Non-integrated data impedes ability to
efficiently and effectively make insightful
data-driven decisions
Item 2
PRESENTATION
BPO is a key initiative under the strategic focus area: Internal Operations & Cyber Risk Management Auditable
Integrated
Data, systems, standards and
processes are audltable, documented,
and incorporate proper controls Automated
Integrated, single source of truth;
common assumptions/Inputs,
connections between functions
Engaged
Full staff engagement, "buy-Inn,
efficacy and efficiency; tools responsive
to needs; appropriate training;
embedded 1n culture
Adaptable
The system Is adaptable to
accommodate changes to business
requirements and technology
Processes, analyses and reporting
are automated, streamlined and
efficient
Secure
Data and systems are centralized
and secure; users have appropriate
levels of access
Right-Sized
The system 1s right-sized for our org
but scalable and extensible to
accommodate ant1c1pated needs
39 •
•
•
•
•
•
•
•
•
Item 2
PRESENTATION
Current: Phase 1 of the project focuses on Deal
Capture and Settlements
$500k year 1 license
$600k implementation
$275k contingency
Phase 2 will focus on portfolio and risk
management integrations
Phase 3 will be defined later but could include:
Customer Relationship Management Including
Program Design and Implementation
Meter Data Forecasting and Analysis
Financial Management and Modeling
ETRM & Regulatory Complianice Mgmt.
Integrated, Automated, and Auditable Business Process
Met•r Dlt•
Foru.t$tin1 • nd
A,..1.,.1,
Fin•rw::i•I
M• n•prnt:nt •nd
A«ounti"'I
Input SV!lems, A1rnlyticijl MQl!el.li &
Models & Flies fool.li I&\ r;:::::==========;-i
Users
Dashboards
Alerts, Metrics, & Reports
Including Compliance
40 Item 2
PRESENTATION
© BPO - Next Steps for Deal Capture and Settlements
System
June/July 2022 • Contract negotiation
• Seek BOD approval
Aug. & Sep. 2022 • Work commences
• Project timeline
• Vendor proposals indicate a 6-12-month implementation plan • Implementation complete
41 •
•
•
•
•
•
•
Bilateral Settlements
# of PPAs 13
# of Data Points (Price, Quantity, Amount) 3
# of Intervals per Hour 12
# of Hours per Day 24
# of Days per Month 31
Total Intervals of Data 348,192
CAISO Settlements
# of Relevant CAISO Charge Codes 20
# of Settlement Versions 5
Total Intervals of CAISO Data 34,819,200
Contract Costs Paid to Suppliers $25,000,000
Absolute Value of CAISO Settlements per Month $50,000,000 Total Dollars Settled per Month $75,000,000
Item 2
PRESENTATION
© Value of Deal Capture and Settlements
Scale of SVCE's Wholesale Portfolio
SVCE's wholesale portfolio is scheduled and settled at an hourly and sub-hourly basis
Monthly settlements with suppliers are payables of over $25M per month and based on over 348K rows of data
CAISO settlements have approximately 20 highly
relevant charge codes applicable to SVCE's portfolio and CAISO settles each trading day 5 times resulting in nearly 35M rows of data per month and over $SOM in total
costs and revenues
Sheer magnitude of portfolio requires a Deal Capture and Settlements system
Not manageable with spreadsheets (Excel limit is N1M rows) Significant operational risk if SVCE operates without a scalable system
System is basis for confidence in accuracy of SVCE's portfolio costs and revenues
42 SILICON VALLEY CLEAN ENERGY
FY 2022-23 OPERATING BUDGET
($ in thousands)
FY 2022-23
DESCRIPTION
PROPOSED
BUDGET
ENERGY REVENUES
Energy Sales 482,930
Green Prime 931
TOTAL ENERGY REVENUES 483,860
ENERGY EXPENSES
Power Supply 325,296
OPERATING MARGIN 158,564
OPERATING EXPENSES
Data Management 3,413
PG&E Fees 1,470
Salaries and Retirement 12,024
Professional Services 7,922
Marketing & Promotions 862
Notifications 131
Lease 525
General & Administrative 1,857
TOTAL OPERATING EXPENSES 28,204
OPERATING INCOME (LOSS) 130,360
NON-OPERATING REVENUES
Other Income 50
Interest Income 592
Grant Income 0
TOTAL NON-OPERATING REVENUES 642
NON-OPERATING EXPENSES
Financing 3
Interest 0
TOTAL NON-OPERATING EXPENSES 3
TOTAL NON-OPERATING INCOME
(EXPENSES) 639
CHANGE IN NET POSITION 130,999
CAPITAL EXPENDITURES, INTERFUND
TRANSFERS & OTHER
Capital Outlay 200
Transfer to CRCR Fund 0
Transfer to Program Fund 9,765
Nuclear Allocation 1,900
Add'l Programs Allocation 0
Add'l Customer Bill Relief 3,600
Other 0
TOTAL CAPITAL EXPENDITURES, INTERFUND
TRANSFERS & OTHER $15,465
BALANCE AVAILABLE FOR RESERVES $115,534
Item 2
PRESENTATION
I
I
-
I
I
-
-
I
-
I
-
I
-
I
-
I
-
I -- 43
PFM Asset Management LLC
NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE
| pfmam.com
Silicon Valley Clean
Energy
August 1, 2022
Investment Program Update
Monique Spyke
Managing Director
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
Item 3
PRESENTATION
pfm) asset
management
▸ Meetings held with staff, consultant, and PFMAM to further discuss investment policy recommendations and portfolio strategy and benchmarks.
Update
1 Meeting Topic Outcome
June 1: Cashflow Discussion
Ongoing – SVCE performing internal
analysis to determine allocation between
cash and investments
June 14 and July 13: Investment
Policy Discussions
Recommend expanding SVCE’s list of
permitted investments
July 20: Investment Strategy
Discussion
Discussed maturity structure and
benchmark for SVCE
Item 3
PRESENTATION
Investment Policy and
Permitted Investments
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
Item 3
PRESENTATION
Investment Universe vs. California Government Code
Source: California Government Code Section 53601.
1 Day 180 Days 270 Days 1 Year 5 Years Over 5 Years
U.S. Treasuries Permitted Requires Approval
Federal Agencies Permitted Requires Approval
Municipal Securities Permitted Requires Approval
Negotiable Certificates of Deposit Permitted Requires Approval Commercial Paper Permitted Prohibited
Bankers’ Acceptances Permitted Prohibited
Medium-Term Corporate Notes Permitted Prohibited
Asset-Backed Securities (ABS) Permitted Prohibited
Supranationals Permitted Prohibited
Public Bank Debt Permitted Requires Approval
Repurchase Agreements Permitted Prohibited
Money Market Funds/Bond Mutual Funds Permitted Prohibited Local Government Investment Pools Permitted Prohibited
Foreign Sovereign Prohibited
Fixed-Income ETFs Prohibited
High-Yield Bonds Prohibited
Private Placements Prohibited
Convertibles Prohibited
Non-U.S. Dollar Investment Grade Prohibited
Emerging Markets Debt Prohibited
Bank Loans Prohibited
Domestic Equities (Large-, Mid-, Small Cap) Prohibited
International Equities (Large-, Mid-, Small Cap) Prohibited Emerging Markets Prohibited
Preferred Stock Prohibited
Equity Mutual Funds and ETFs Prohibited
Commodities Prohibited
Real Estate Prohibited
Hedge Funds Prohibited
Private Equity Prohibited
Venture Capital Prohibited
Tangible Assets Prohibited
Complex Derivatives, Futures, and Options Prohibited
Conventional Fixed
Income
Broader
Fixed Income Equities Alternatives
3 Item 3
PRESENTATION
Expand List of Authorized Investments
California Government Code 53601. Other restrictions and requirements may be included in Code. Credit ratings apply to equivalent ratings and represent the rating category.
California Code
Allowed Investments SVCE Approved 2017 Policy 2022 PFMAM Recommendations Overnight
Money Market Funds Not permitted Allow
Local Government Investment Pools Not permitted Allow
Government
U.S. Treasuries Not permitted Allow
Federal Agencies Not permitted Allow
Municipal Obligations Not permitted 5% per issuer
Supranational Obligations Not permitted 5 years, “AA” rated, 30% of portfolio, 5% per issuer
Credit
Commercial Paper Not permitted 270 days, A-1 rated,
40% of portfolio, 5% per issuer
Negotiable Certificates of Deposit Not permitted 30% of portfolio, 5% per issuer Asset-Backed Securities Not permitted 5 years, “AA” rated, 20% of portfolio, 5% per issuer
Medium Term Notes Not permitted 5 years, “A” rated,
30% of portfolio, 5% per issuer
▸ The table below summarizes the investment types we recommend SVCE add to its list of authorized investments. We are recommending most of the investment types allowed by Code. ▹ SVCE’s current Policy’s list of authorized investments includes deposits at banks and LAIF. 4 Item 3
PRESENTATION
Allowing Broad Range of Investments Would
Allow for a Diversified Portfolio
Portfolio recommended to SVCE as of July 13, 2022, and subject to change based on amount of funds that are invested, SVCE’s permitted investments, the benchmark selected, and the interest rate environment at time of purchase. Total returns are based on ICE BofAMerrill Lynch 1-3 year or 0-3 year and 1-5 year or 0-5 year indices, for 10-years ended June 30, 2022. Assumes static sector allocation over time period.
Average credit quality: AA
Maturity range: 1-3 years
Past 10-year average annual
total return: 1.04%
Maturity range: 1-5 years
Past 10-year average annual
total return: 1.20%
U.S. Treasuries, 42%
Federal Agencies, 9%
Agency MBS, 5%
Municipal, 5%
Supranational, 9%
ABS, 5%
Corporates (AAA-A-rated), 25%
0%
20%
40%
60%
80%
100%
▸ A diversified portfolio enhances return potential and reduces volatility.
Sample Portfolio
Recommendation for SVCE
5 Item 3
PRESENTATION
0%
20%
40%
60%
80%
100%
A B C D E SVCE
sample
F G H I J K
U.S. Treasuries Federal Agencies Agency MBS Municipals Supranational Credit ABS Sample Portfolios and Historical Returns
Total return based on ICE BofAMerrill Lynch 1-3 year or 0-3 year indices, for 10-years ended June 30, 2022. Total return calculation assumes static sector allocation over time period. Credit allocation may include corporate notes, commercial paper, and negotiable CDs.
Past 10-year
average annual
total return
1.20% 1.15% 1.08% 1.05% 1.05% 1.04% 1.03% 0.99% 0.97% 0.98% 0.88% 0.83% Estimated Total
Earnings (in
millions) on
$100 million
$12.61 $12.15 $11.38 $11.03 $10.96 $10.91 $10.78 $10.30 $10.11 $10.21 $9.13 $8.61 Sample Portfolios and Historical Return Performance
6 Item 3
PRESENTATION
■ ■ ■ ■ ■ ■ ■
Benchmark Discussion
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
Item 3
PRESENTATION
▸ Purpose of a Benchmark:
• Measures and evaluates relative investment performance; • Defines Provides for comparison of risk and return;
• and evaluates a long-term investment strategy
▸ A Benchmark Should:
• Be an independent representation;
• Reflect asset mix, credit quality, and average maturity or duration of the portfolio; and/or • Be a baseline, such as a U.S. Treasury Index
Benchmark Selection
8 Item 3
PRESENTATION
Historical Risk/Return Analysis
ICE BofA Merrill Lynch (BAML) Indices provided by Bloomberg Financial Markets. Direct investment in these indices is not possible.
Risk/Return of Various Investment Strategies
10 Years Ended June 30, 2022
Strategy Duration
10-Year
Average Annual
Total Return
Cumulative Earnings on
$100 Million
Quarters With
Negative Return
0-3 Year U.S. Treasury Index 1.41 0.77% $107,965,034 10 out of 40 1-3 Year U.S. Treasury Index 1.85 0.78% $108,136,212 11 out of 40 0-5 Year U.S. Treasury Index 2.10 0.86% $108,971,116 12 out of 40 1-5 Year U.S. Treasury Index 2.58 0.89% $109,314,020 13 out of 40 Historically, longer-duration strategies have
outperformed shorter strategies over the long term.
But with increased
volatility.
9 Item 3
PRESENTATION
I • I f
Maturity Structure of Different Strategies
Source: As of June 30, 2022. ICE BofA Merrill Lynch (BAML) Indices. 0%
10%
20%
30%
40%
50%
60%
0-1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Maturity Distributions of Treasury Indicies
0-3 Year 1-3 Year 0-5 Year 1-5 Year
Given the uncertainty of SVCE’s
future cash position, due to factors
outside of SVCE’s control, a 1- to 3- or
a 0- to 3-year portfolio may be most
appropriate
10 Item 3
PRESENTATION
■ ■ ■ ■
▸ Approve Investment Policy
▸ Complete cash flow analysis to determine appropriate allocation between liquidity and core portfolios
▸ Determine benchmark/duration strategy
Next Steps
11 Item 3
PRESENTATION
Appendix
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
Item 3
PRESENTATION
Portfolio Composition of Member Entities and
Peers
Source: Financial reports from entity websites or PFMAM. Data as of June 30, 2021, or more current. * PFMAM fixed-income clients
0%
20%
40%
60%
80%
100%
Campbell
Cupertino
Gilroy
Los Altos*
Los Altos Hills*
Los Gatos
Milpitas
Monte Sereno
Morgan Hill
Mountain View
Peninsula Clean Energy*
Santa Clara County
Saratoga
Sunnyvale
Sector Allocations of Member Entities and Peers
Excludes Funds in Overnight Investments
Corporates
ABS
Commercial Paper
Negotiable CD
Supranational
Municipals
Agency MBS
Federal Agencies
U.S. Treasuries
13 Item 3
PRESENTATION
■
■
■
■
■
■
■
■
■
Glossary of Terms
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
Item 3
PRESENTATION
Glossary
15 ACCRUED INTEREST: Coupon interest accumulated on a bond or note since the last interest payment or, for a new issue, from the dated date to the date of delivery.
ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR): The official annual report of the (entity). It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section.
ASSET-BACKED SECURITIES: Securities that are supported by pools of assets, such as installment loans or leases, or by pools of revolving lines of credits. Asset-backed securities are structured as trusts in order to perfect a security interest in the underlying assets.
ASKED: The price at which securities are offered.
BANKERS’ ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.
BASIS POINTS: Refers to the yield on bonds. Each percentage point of yield in bonds equals 100 basis points (1/100% or 0.01%). If a bond yield changes from 2.25% to 2.39%, that is a rate of 14 basis points.
BENCHMARK: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio’s investments.
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer.
BOOK RETURN: Book return includes interest, amortization/accretion of premiums/discounts, realized gains and losses, over a given period of time.
BOOK VALUE: The value at which an asset is carried on a balance sheet.
BROKER: A broker brings buyers and sellers together for a commission.
CALLABLE SECURITIES: An investment security that contains an option allowing the issuer to retire the security prior to its final maturity date.
Item 3
PRESENTATION
Glossary
16 CERTIFICATE OF DEPOSIT: A short-term, secured deposit in a financial institution that usually returns principal and interest to the lender at the end of the loan period. Certificates of Deposit (CDs) differ in terms of collateralization and marketability. Those appropriate to public agency investing include:
Negotiable Certificates of Deposit
Generally, short-term debt instrument that usually pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. The majority of negotiable CDs mature within six months while the average maturity is two weeks. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor). Negotiable CDs are insured by FDIC up to $250,000, but they are not collateralized beyond that amount.
Non-Negotiable Certificates of Deposit
CDs that carry a penalty if redeemed prior to maturity. A secondary market does exist for non-negotiable CDs, but redemption includes a transaction cost that reduces returns to the investor. Non-negotiable CDs issued by banks and savings and loans are insured by the Federal Deposit Insurance Corporation up to the amount of $250,000, including principal and interest. Amounts deposited above this amount may be secured with other forms of collateral through an agreement between the investor and the issuer. Collateral may include other securities including Treasuries or agency securities such as those issued by the Federal National Mortgage Association.
COLLATERAL: Securities, evidence of deposit or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
COMMERCIAL PAPER: An unsecured short-term promissory note issued by corporations or municipalities, with maturities ranging from 2 to 270 days.
COUPON: (a) The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value. (b) A certificate attached to a bond evidencing interest due on a payment date.
CREDIT RISK: The chance that an issuer will be unable to make scheduled payments of interest and principal on an outstanding obligation. Another concern for investors is that the market’s perception of an issuer/borrower’s credit will cause the market value of a security to fall, even if default is not expected.
Item 3
PRESENTATION
Glossary
17 DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities.
DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities).
DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount.
DISCOUNT SECURITIES: Noninterest-bearing money market instruments that are issued a discount and redeemed at maturity for full face value (e.g., U.S. Treasury Bills.)
DIVERSIFICATION: The allocation of different types of assets in a portfolio to mitigate risks and improve overall portfolio performance.
DURATION: A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.
EFFECTIVE DURATION: Duration measures the weighted average of the present value of the cash flows of a fixed-income investment. Effective duration measures the price sensitivity of fixed-income investments, especially for those with embedded option features such as call options. As yields rise, the effective duration of a callable investment rises to reflect the fact that it has become less likely to be called. The more rates rise, the longer the effective duration will become, approaching the duration to maturity. The converse is true in a declining interest rate environment (that is, the more rates fall, the shorter the effective duration will become, approaching the duration to call). For securities without an embedded option, the duration to call, maturity, and effective duration are all the same. The calculation for effective duration is complicated and involves averaging the duration under a simulation of many possible interest rate scenarios in the future.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per entity.
Item 3
PRESENTATION
Glossary
18 FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations.
GOVERNMENT ACCOUNTING STANDARDS BOARD (GASB): A standard-setting body, associated with the Financial Accounting Foundation, which prescribes standard accounting practices for governmental units.
GOVERNMENT SPONSORED ENTERPRISES (GSE): Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Securities issued by GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries.
INTEREST: The amount a borrower pays to a lender for the use of his or her money.
INTEREST RATE RISK: Interest rate risk is the risk that an investment's value will change due to a change in the absolute level of interest rates, spread between two rates, shape of the yield curve, or any other interest rate relationship.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes.
LOCAL AGENCY INVESTMENT FUND: A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.
MARKET RISK: The chance that the value of a security will decline as interest rates rise. In general, as interest rates fall, prices of fixed income securities rise. Similarly, as interest rates rise, prices fall. Market risk also is referred to as systematic risk or risk that affects all securities within an asset class similarly.
MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.
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Glossary
19 MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase—reverse repurchase agreements that establishes each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.
MEDIUM TERM NOTES: Corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States.
MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded.
MONEY MARKET MUTUAL FUNDS: MMF’s are mutual funds that invest exclusively in short-term money market instruments. MMF’s seek the preservation of capital as a primary goal while maintaining a high degree of liquidity and providing income representative of the market for short-term investments.
MORTGAGE BACKED SECURITIES: Mortgage-backed securities (MBS) are created when a mortgagee or a purchaser of residential real estate mortgages creates a pool of mortgages and markets undivided interests or participations in the pool. MBS owners receive a prorata share of the interest and principal cash flows (net of fees) that are “passed through” from the pool of mortgages. MBS are complex securities whose cash flow is determined by the characteristics of the mortgages that are pooled together. Investors in MBS face prepayment risk associated with the option of the underlying mortgagors to pre-pay or payoff their mortgage. Most MBS are issued and/or guaranteed by federal agencies and instrumentalities (e.g., Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC)).
MORTGAGE PASS-THROUGH OBLIGATIONS: Securities that are created when residential mortgages (or other mortgages) are pooled together and undivided interests or participations in the stream of revenues associated with the mortgages are sold.
MUNICIPAL NOTES, BONDS, AND OTHER OBLIGATIONS: Obligations issued by state and local governments to finance capital and operating expenses.
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20 NET ASSET VALUE: Net asset value (NAV) is a term used in the mutual fund industry to determine the average price per share of a pool or mutual fund. How this measure varies over time provides information on whether the pool is stable or variable. NAV is the market value of all securities in a mutual fund, less the value of the fund’s liabilities, divided by the number of shares in the fund outstanding. Shares of mutual funds are purchased at the fund’s offered NAV.
OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid.
PAR AMOUNT OR PAR VALUE: The principal amount of a note or bond which must be paid at maturity. Par, also referred to as the “face amount” of a security, is the principal value stated on the face of the security. A par bond is one sold at a price of 100 percent of its principal amount.
PORTFOLIO: Combined holding of more than one stock, bond, commodity, real estate investment, cash equivalent, or other asset. The purpose of a portfolio is to reduce risk by diversification.
PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)-registered securities broker-dealers, banks, and a few unregulated firms.
PRUDENT INVESTOR STANDARD: A standard of conduct where a person acts with care, skill, prudence, and diligence when investing, re-investing, purchasing, acquiring, exchanging, selling, and managing funds. The test of whether the standard is being met is if a prudent person acting in such a situation would engage in similar conduct to ensure that investments safeguard principal and maintain liquidity.
PUBLIC BANK: A corporation, organized as either a nonprofit mutual benefit corporation or a nonprofit public benefit corporation for the purpose of engaging in the commercial banking business or industrial banking business, that is wholly owned by a local agency, as specified, local agencies, or a joint powers authority.
QUALIFIED INSTITUTIONAL BUYER: Federal regulations define qualified institutional buyer (QIB) as any of the following entities, acting for its own account or the accounts of other QIBs, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity: insurance company, investment company, small business investment company, a Rural Business Investment Company, a plan (established and maintained by a public agency) for the benefit of its employees, employee benefit plan, trust fund (bank or trust company), business development company, 501(c)(3), investment adviser, and dealer, an institution that qualifies as an accredited investor. 17 CFR § 230.144A and 230.145 Item 3
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Glossary
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return.
REINVESTMENT RISK: The risk that interest rates may be lower than the yield on a fixed income security when the investor seeks to reinvest interest income or repaid principal from the security.
REPURCHASE AGREEMENT (REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security “buyer” in effect lends the “seller” money for the period of the agreement, and the terms of the agreement are structured to compensate them for this.
REVERSE REPURCHASE AGREEMENT (REVERSE REPO): A reverse-repurchase agreement (reverse repo) involves an investor borrowing cash from a financial institution in exchange for securities. The investor agrees to repurchase the securities at a specified date for the same cash value plus an agreed upon interest rate. Although the transaction is similar to a repo, the purpose of entering into a reverse repo is quite different. While a repo is a straightforward investment of public funds, the reverse repo is a borrowing.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See Uniform Net Capital Rule.
STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, FHLMC, etc.) and Corporations, which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve.
SUPRANATIONAL INSTITUTIONS: International institutions formed by two or more governments that transcend boundaries to pursue mutually beneficial economic or social goals. There are three supranational institutions that issue obligations that are eligible investments for California local agencies: the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Inter-American Development Bank (IADB).
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Glossary
TOTAL RETURN: Total return includes interest, realized gains and losses, and unrealized gains and losses over a given period of time.
U.S. TREASURY OBLIGATIONS: Debt obligations of the U.S. Government sold by the Treasury Department in the forms of bills, notes, and bonds. Bills are short-term obligations that mature in one year or less and are sold at a discount. Notes are obligations that mature between one year and ten years.
Bonds are long-term obligations that generally mature in ten years or more.
WEIGHTED AVERAGE MATURITY (WAM): The average maturity of all the securities that comprise a portfolio, typically expressed in days or years.
YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond.
ZERO-COUPON BOND: A bond on which interest is not payable until maturity (or earlier redemption), but compounds periodically to accumulate to a stated maturity amount. Zero-interest bonds are typically issued at a discount and repaid at par upon maturity. 22 Item 3
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Disclaimer
Investment advisory services are provided by PFM Asset Management LLC (“PFMAM”), an investment adviser registered with the U.S. Securities and Exchange Commission and a subsidiary of U.S. Bancorp Asset Management, Inc. (“USBAM”). USBAM is a subsidiary of U.S. Bank National Association (“U.S.
Bank”). U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not guarantee the products, services or performance of PFMAM. The information contained is not an offer to purchase or sell any securities. Additional applicable regulatory information is available upon request.
For more information regarding PFMAM’s services or entities, please visit www.pfmam.com.
Disclaimer
Investment advisory services are provided by PFM Asset Management LLC (“PFMAM”), an investment adviser registered with the U.S. Securities and Exchange Commission and a subsidiary of U.S. Bancorp Asset Management, Inc. (“USBAM”). USBAM is a subsidiary of U.S. Bank National Association (“U.S.
Bank”). U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not guarantee the products, services or performance of PFMAM. The information contained is not an offer to purchase or sell any securities. Additional applicable regulatory information is available upon request.
For more information regarding PFMAM’s services or entities, please visit www.pfmam.com.
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
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