Silicon Valley Clean Energy Authority
Report to the Board of Directors
March 8, 2023
Item 2
PRESENTATION
p Is ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Introduction
• Kellin Gilbert, CPA
• Audit Partner
• 14 years in public accounting and performing audits
of government entities
• Currently working with several CCA’s throughout
California
• Aliandra Schaffer
• Engagement Supervisor
• 3 years in public accounting and performing audits of governments (CCA’s)
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Results of current year audit:
• The audit is complete. We have reported the following:
• Unmodified opinion – Based on our audit, the financial statements are materially accurate.
• No significant deficiencies in internal control have been noted.
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Audit of the years ended September 30, 2022
and 2021 Financial Statements
Relative Roles & Responsibilities
• Management is responsible for preparing the Financial Statements and establishing a system of internal control
• Auditor is responsible for auditing the Financial Statements • Considering risks of material misstatement in the Financial Statements • Considering internal controls relevant to the Financial Statements • Performing tests of year-end balances based on risk assessment • Evaluating adequacy of disclosures
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Risk Assessment for the years ended
September 30, 2022 and 2021
Our audit is a risk-based audit. Risk assessment procedures include:
• Gain understanding of the entity’s operating characteristics, practices, and procedures.
• Compare to our knowledge of similar entities, industry and professional guidance.
• Review procedures and controls surrounding significant transaction cycles and business processes.
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Audit Procedures
Significant areas of focus
• Review policies and procedures for various types of financial transactions • Revenue recognition
• Accounts receivable and revenue
• Test a sample of customer billings
• Relate total cash received during the year to revenue • Look at cash received subsequent to year-end and relate to A/R • Review revenue recognition through year-end and the method for determining (accrued revenue)
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Audit Procedures
Significant areas of focus
• Cash
• Confirmations sent to financial institutions
• Accrued Cost of Electricity
• Review subsequent bills from electricity providers and cash payments • Other Liabilities
• Reviewed contracts and other support to determine completeness of amounts recorded
• Financial Statement Note Disclosures – Complete and without bias Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Audit Procedures – Single Audit
• Single Audit – New for FY 22
• Subject to Single Audit due to expending over $750k of federal funds • CAPP Program
• 21.027 Coronavirus State and Local Fiscal Recovery Funds • This grant is for the public health emergency, COVID-19 or its negative economic impacts, including providing assistance to households, small businesses, nonprofits, and impacted industries…
• Schedule of Expenditures of Federal Awards (SEFA) included in the financial statements • Additional testing of controls and review of compliance requirements as determined by the Uniform Grant Guidance (Uniform Guidance)
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Required Board Communications
• During 2022 SVCE implemented Government Accounting Standards Board (GASB) statement # 87, Leases.
• This standard required items previously treated as “operating leases” to be recorded on the statement of net position.
• Adoption of this standard created a noncurrent asset for the “right to use” the leased asset and a corresponding lease liability of approximately $1.3 million at September 30, 2022.
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Required Board Communications (continued)
• We did not propose any adjustments to
the financial statements.
• We did not identify any significant or
unusual transactions, alternative
treatments or applications of accounting
principles where a lack of authoritative
guidance exists.
Other required communications with those charged with governance:
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Required Board Communications (continued)
• There were no disagreements with
management concerning the scope of
our audit, the application of
accounting principles, or the basis for
management’s judgements on any
significant matters.
• We did not encounter any difficulties in
dealing with management during the
performance of our audit.
Other required communications with those charged with governance:
Item 2
PRESENTATION
An independently owned member
RSM US Alliance
■ 1111
RS~A • •
p I s ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
Kellin Gilbert: 707-577-1511
Aliandra Schaffer: 707-577-1535
Questions?
Item 2
PRESENTATION
p Is ENT I & BR I N I( ER LLP
Certified Public Accountants & Advisors
New SV Clean Energy
PowerPoint Template
Subtitle
Item 4
PRESENTATION
•
•
•
•
•
•
•
•
Item 4
PRESENTATION
Action: Adopt Resolution
Approving Mid-Year 2022-2023
(MY 23) Adjusted Operating Budget
Review the Budget Timeline
Highlight Changes Since the
Adoption of the Annual Budget
Compare Mid-year and Annual
Adopted Budget Key Line Items
Review Updated SVCE Margin From
December Rate Change
Review of Updates to Energy
Expenses
Review Reserve Projections
Provide Staffing Update
Adopt Resolution
Item 4
PRESENTATION
© Mid Year FY22-23 Budget Approval Timeline
Aug. 10, 2022
Staff Presented Draft
Budget to BOD
Sept. 14, 2022
BOD Approved
FY22-23 Budget
Feb.27,2023
Dec 14, 2022
BOD Approved January
2023 Rate Change &
Program Funding
March 2023
Finance and Administration Committee
Unanimously Recommended BOD
Approve MY 2023 Budget
Staff Presents MY
Budget for BOD
Approval
3 Good Financial Year
• Healthy contribution to reserves of $73.4 million
• Reduction of ~ $42 Million from $115.5 Million at
budget
• Key Drivers of Reduction:
• December 2022 Board Approvals:
• Additional 2% Customer Discounts
• Increased Program Spending
• Increased Energy Expenses
• Reductions Partially Offset by:
• Increase in Revenues from Improved Margins
• Increase in Investment Income
• Slight Reduction in Other Operating Expenses
Reduction of ~$42 Million:
December Board Approvals
Additional 2% Customer Discount $10
Increased Program Spending $19
Increased Energy Expenses $67
Increase Revenues -$50
Increase Investment Income -$3
Reduction in Other Operating Expenses -$1
$42
Item 4
PRESENTATION
•
•
•
SILICON VALLEY CLEAN ENERGY
MY 2022-23 OPERATING BUDGET
($ in thousands)
FY 2022-23 MY 2022-23
APPROVED ADJUSTED
DESCRIPTION BUDGET BUDGET $ %
Energy Revenues 483,910 523,958 40,048 8.3%
Energy Expenses 325,296 392,436 67,140 20.6%
Operating Margin 158,564 131,522 (27,042) -17.1%
Operating Expenses 28,299 27,559 (740) -2.6%
Non-Operating Revenue (Expense) 589 3,867 3,278 553.8%
Balance Available for Reserves 130,904 107,830 (23,074) -17.6% (before Transfers)
Annual Transfers and Other Expenses 9,965 9,965 0 0.0%
Nuclear Allocation 1,900 1,900 0 0.0%
Multi Family Direct Install Program 0 9,500 9,500 -
Electrification Discount Program 0 9,500 9,500 -
Customer Bill Relief 3,600 3,600 0 0.0%
Final Reserve Contribution Balance 115,439 73,365 (42,074) -36.4% ($ in thousands)
Adjustment /
Change
Item 4
PRESENTATION
© Annual Budget vs. Mid-Year Adjusted Budget
Supports Overall
Customer Discount of
4%
Additional Monthly
Bill Credits to Low-Income Customers of
N$12.50 per month
for ru3 months.
Total Transfer of
$30.7 Million to
Decarbonization
Programs
,,
5 Actual PG&E Gen and PCIA Rates Result in
Higher Margin than FY 23 Budget Assumptions
•
•
•
•
•
Item 4
PRESENTATION
Budget 2023 Rate **
PG&E Gen Rate:
12.95 ¢/kWh
Current Rate*
PG&E Gen Rate:
14.96 ¢/kWh
Higher SVCE {
Margin
4% SVCE discount
----------------
* Source: PG&E 2023 Average Rate, effective January 1, 2023 (Weighted for SVCE Portfolio Load) ***Using NewGen Model with 7/16/2022 Forward Curves and 10% haircut (Weighted for SVCE Portfolio Load) Above margin analyses ignores minor reductions for franchise fees (0.09 ¢/kWh) 6 •
•
•
•
Power Supply Variance
•
•
•
•
Item 4
PRESENTATION
ATC NP15 Historical and Simulated Monthly Prices
$80_0
$70_0
Od-22 Oec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 .km-24 Aug-24 $60_0 - NP-ts ATC (S/MWh) Historical - NP-15 ATC (S/MWh) MEAN - Budget (07/15/2022 curves) $50_0
$40_0
$31.7
$30_0
$20_0
$10_0
$Q_O
Net Open Position
$1.8
Renewable Energy Supply
Cumulative Delta to Budget
Over/(Under)
Through September 30, 2023
($MM)
■ Increase ■ Decrease ■ Rltal
$6.1
$13.0 -
Resource Adequacy
Environmental Products
$16.6
CAISOCosts
Increase of $67.3 M since budget
Net Open Position (+)
CAISO non-energy costs (+)
Environmental Products (+)
Resource Adequacy(+)
-$2.0
others
Net Supply Costs
7 •
•
•
•
•
Item 4
PRESENTATION
Projected End of FY Reserves:
$305 Million
265 Days of Cash on Hand
Includes Unspent Program
Fund allocations
If all Approved Programs Dollars
were Spent :
$252 Million in Reserves
219 days cash on hand
$600
$500
$400
"' C:
,Q
:E $300
.!:
~
$200
$100
$0
Reserves Forecast
490 days
120 days
MY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
- Total Adjusted Ending Reserves - Target Reserves Maximum Reserves - Minimum Reserves (incl unspent program funds)
8 • 49 FTEs
• 7 PTEs
• 35 FTEs
• 5 PTEs
• Staff engaged multiple outside recruitment firms
• 2 staff hired in late 2022
• 5 new staff hired – starting in March / April
• 9 FTE vacancies remain
DPP anticipates additional hiring later in 2023, once new hires are fully integrated, and gaps identified
Item 4
PRESENTATION
Budgeted Staff No New FTE Headcount Additions in MY Budget Recruiting Progress:
Current Staff
9 •
•
•
Item 4
PRESENTATION
Summary - Despite ongoing
uncertainty, the overall financial
picture looks good for FY22-23
Despite uncertainties, good operating margin
and contribution to reserves
Taking favorable conditions to:
1. Build reserves to withstand future adverse events
2. Further serve our mission with an additional $19
million in funding for decarbonization programs
3. Encourage all-electric rate adoption by residential
customers with additional discounts
4. Provide additional bill relief for lower-income
customers
5. Increase overall customer discount to 4%
Staff will conduct additional stress tests as part
of next year's budget to prepare for adverse
events and assess the adequacy of reserves.
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
IRP, RPS, RA
Reform/Penalties.
PCIA, POLR
PAYMENTS LOAD LOSS CYBER·RISK
Customer Defaults Direct Access Hardware, Software,
and Potential for and Training to combat
Expansion Ransomware and
Phishing
RATE
Rate Increases due
to socialized wildfire
costs, Energy Price
Increases will
ultimately impact
usage and
electrification
10 Adopt Resolution 2023-04, Approving the Mid-year (MY) 2022-23 Adjusted Operating Budget that projects contributing $73.4 million to the
reserves.
Item 4
PRESENTATION
11 Item 4
PRESENTATION
SILICON VALLEY CLEAN ENERGY
MY 2022-23 OPERATING BUDGET
($ in thousands)
FY 2022-23
ADJUSTED
DESCRIPTION BUDGET
ENERGY REVENUES
Energy Sales 522,853
Green Prime 1,055
Other Income 50
TOTAL ENERGY REVENUES 523,958
ENERGY EXPENSES
Power Supply 392,436
OPERATING MARGIN 131,522
OPERATING EXPENSES
Data Management 3,413
PG&E Fees 1,470
Salaries and Retirement 11,285
Professional Services 8,016
Marketing & Promotions 862
Notifications 131
Lease 525
General & Administrative 1,857
TOTAL OPERATING EXPENSES 27,559
OPERATING INCOME (LOSS) 103,963
NON-OPERATING REVENUES
Interest Income 3,870
Grant Income 0
TOTAL NON-OPERATING REVENUES 3,870
NON-OPERATING EXPENSES
Financing 3
Interest 0
TOTAL NON-OPERATING EXPENSES 3
TOTAL NON-OPERATING INCOME
(EXPENSES) 3,867
CHANGE IN NET POSITION 107,830
CAPITAL EXPENDITURES, INTERFUND
TRANSFERS & OTHER
Capital Outlay 200
Transfer to CRCR Fund 0
Transfer to Program Fund 9,765
Nuclear Allocation 1,900
Multi Family Direct Install Program 9,500
Electrification Discount Program 9,500
Customer Bill Relief 3,600
Other 0
TOTAL CAPITAL EXPENDITURES, INTERFUND
TRANSFERS & OTHER $34,465
BALANCE AVAILABLE FOR RESERVES $73,365
Item 4
PRESENTATION
13 •
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Item 4
PRESENTATION
FY Budget MY Budget Changes Notes -- - -
Updated Data Management (Calpine) Unchanged Actual expenditures (Oct - Dec) tracking Costs $3.25MM within Budgets across most operating
expense categories
Billing (PG&E) Unchanged
$1.4MM No major shifts in program/ project priorities
G&A / Lease Unchanged
$2.4MM
Staffing Reduced by N$740k due to vacancies No new FTE headcount at MY $12.02MM
Staffing costs reduced due to lengthy
recruitment processes
Professional Services Unchanged
$8MM Anticipate additional DPP staffing later in
2023
Communications/ Noticing Unchanged
$1MM
14 ($ in Thousands)
2023 2024 2025 2026 2027
Operating Revenue (Budget) (Forecast) (Forecast) (Forecast) (Forecast) GWh Sales 3,784 3,749 3,769 3,917 3,792
Electricity Sales, Net $ 522,853 $ 458,368 $ 482,080 $ 493,546 $ 478,176 Available for PCIA/Gen Rate/Power Supply Cost Changes - - (40,000) (129,000) (221,000) Other Income 50 51 51 52 52
GreenPrime Electricity Premium 1,055 862 853 858 863
Total Operating Revenues 523,958 459,280 442,984 365,455 258,092 Operating Expense
Power Supply $ 392,436 $ 328,263 $ 319,711 $ 323,460 $ 279,812 Operating Margin 131,522 131,017 123,274 41,996 (21,720) Data Management 3,413 3,413 3,583 3,762 3,950
PG&E Service Fees 1,470 1,544 1,621 1,702 1,787
Staff Compensation 11,285 12,447 12,852 13,269 13,701
Consultants and other Professional Fees 8,016 8,417 8,838 9,280 9,744 Communications and Noticing 993 1,043 1,095 1,150 1,207 General and Administration 2,382 2,501 2,626 2,758 2,895 Programs 34,265 9,185 9,659 9,888 9,581
Total Operating Expenses 454,260 366,812 359,984 365,269 322,677 Operating Income 69,698 92,468 83,000 187 (64,586)
Nonoperating Revenue (Expense)
Investment Income 3,870 5,609 8,306 10,059 10,214
Capital Outlay & Financing Costs (203) (53) (53) (53) (53) Grant Income - - - - -
Total Non-Operating Revenue (Expense) 3,667 5,556 8,253 10,006 10,161 Change in Net Position/Available for Reserves 73,365 98,024 91,253 10,192 (54,424) Begin, Net Position 212,684 286,049 384,073 475,326 485,518 End, Net Position $ 286,049 $ 384,073 $ 475,326 $ 485,518 $ 431,094 Item 4
PRESENTATION
r r r r
I
r
For forecast years
FY23-24 onward:
Revenues are based
on GWh Sales from
the CEC IEPR load
forecast and CalCCA
NewGen Model for
SVCE margin analysis
using latest market
data
Power Supply Costs
are based on updated
portfolio positions and
latest market data
Operating Expenses
are assumed to grow
5% /year
Staffing Headcount is
unchanged from
proposed FY22-23
level
15 NP15 ATC $/Mwhr
Item 4
PRESENTATION
Prices in recent months have settled much higher than normal ATC NP15 Hi.storical and Simulated Monthry Prfoes
$300
$250
$200 FY2023 FY2024
a
.:::
Q. Budget $ 79.4 $ 68.1
j $150
:E MY Budget $ 94.0 $ 75.0
~ $100
$0
Oct-22 De,c-22 Feb-23 Api--23 J 11-23 Aug-H Ort-23 Dec:-23 Felb.-24 Apr-24 n-M A!ug-24 - NP-15 ATC ($/MWh) Historical - NP--15 ATC (S/MWht MEAN - 8 dget (07/15/2022 c:urvest 16 Item 4
PRESENTATION
© Energy Risk Management Min/Max Bands
We hedge to manage market price risk. 86% of Fiscal Year 23 load is hedged; 80% of Calendar Year 23 is hedged.
ERM Min ERM Max SVCETotal Period Year Tolerance - LRB Tolerance LRB Hedge% " "
Net Open Position T erance and IP sitioos
Balance
2023 80% 110% 80%
of Year
10 Year 2 -
2023
2024 70% 90% 83%
Year 3 -
2024
2025 55% 80% 69% 40%
Year 4 -
2025
2026 50% 80% 63%
20%
(1%.
Year 5 -
2027 50% 80% 60%
2026
2l'.12t
8-iDI!- Toli!ra nte- ltaitgi!· ....... Cfal tl!d
17 • Director
• Programs-focused team (3
staff)
• Policy and government
support team (3 staff)
• Data team (2 staff)
• Portfolio Management
Analyst
• Senior Programs Specialist
(Community Programs)
• Programs Lead (Policy)
• 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
• DPP anticipates additional hiring later in 2023, once new hires are fully integrated
• New positions likely focused on financing, program expansion • Search for / evaluate new tool to manage program portfolio Item 4
PRESENTATION
© Decarb Programs and Policy Staffing
Current Staff Ongoing Program Expansion:
Starting Spring 2023 More Staff Required; New Tools Required 18 $-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
>120 Days 31+ Days
Since March 2020, the overall arrearage amounts have grown roughly 3x.
•
•
•
Item 4
PRESENTATION
SVCEs Arrearage Total for customers 31+ days late, 120+ days late High
Low
Current
Date
11/29/2021
4/17/2020
1/30/2023
Amount
$7.99M
$2.54M
$7.45M
Green arrow indicates receipt of
$1.3M in Federal CAPP funds
An additional $750k in CAPP
funding provided winter '23
Growth at red arrow indicates short-term PG&E billing-hold issue in fal ~g '22 that was quickly resolved.
Progression of the SVCE Margin
20 •
•
•
Item 4
PRESENTATION
Budget 2023 Rate ***
PG&E Gen Rate:
Current Rate*
PG&E Gen Rate:
14.96 ¢/kWh
4% SVCE discount
PG&E Initial Forecast
2023 Rate**
PG&E Gen Rate:
12.62 ¢/kWh
¢ 1% SVCE Discount
12·95 ¢/kWh Higher Margil
2% SVCE Discount
--------
* Source: PG&E 2023 Average Rate, effective January 1, 2023 (Weighted for SVCE Portfolio Load) ** Source: PG&E Initial ERRA Forecast (Weighted for SVCE Portfolio Load) *** Using NewGen Model with 7/16/2022 Forward Curves and 10% haircut (Weighted for SVCE Portfolio Load) 20 Above margin analyses ignores minor reductions for franchise fees (0.09 ¢/kWh)