New SV Clean Energy
PowerPoint Template
Subtitle
Item 2
PRESENTATION
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Item 2
Purpose
PRESENTATION
Recap of ERM Framework
Presentation Highlights
Present findings of the
stress test analyses
Construction of Stress Tests
5-yr Financial Stress Test
Long-Term Load Uncertainty
Financial Stress Tests and
Implied Reserve Targets
Portfolio and Risk
Management with Load
Growth Uncertainty
Next Steps
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PRESENTATION
Recap of the ERM Framework
Comprehensive organization-wide assessment of risks
Optimally manage enterprise risks to achieve the organization’s mission and goals.
1. Risk Register
Record of organization’s risks
Lists current and additional risk mitigations
Identifies a risk owner
2. Risk Matrix
Assess the likelihood and consequence of risk
Calibrate risks
Identify risk tolerance levels
3. Stress Tests
An essential component of ERM
Model scenarios of interrelated risks that are
extreme but plausible
Important for commodity trading portfolios
because of the inherent weakness of market risk
measures in assessing black swans, such as
disruptions in markets
Impact/Consequence
Frequency/Likelihood
Insignificant Minor Moderate Major Catastrophic
Risk Easily
Mitigated
through Day-to-Day Operations
Risk is
Manageable/Low
Impact on Mission
Moderate Erosion
of
Reserves/lmpact
on Mission
Significant
Erosion of
Reserves/lmpact
on Mission
Risk of
Existence
Certain >90% chance High(l) High (2) Extreme (3) Extreme (4) Extreme (5) Likely 50%- 90% Chance Moderate (6) High (7) High (8) Extreme (10) Moderate 10%-50% Chance Low (11) Moderate ( 12) High (13) Extreme (15) Unlikely but Plausible 5%-10% Chance Low (16) Low (17) Moderate (18) High (19) Extreme (20) Rare <=5% Chance Low (21) Low ( 22) Moderate (23) High (24) High (25) Additional review slides are in the appendix (28-30).
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PRESENTATION
0 Past Stress Test Learnings
Examined both increases
and decreases in market
prices for energy
Among them, the price
collapse scenario was the
most consequential
Price collapse
scenario remains one
of the most significant
financial risks in the
near term
First Set of Stress Tests
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 counterpartiesand CAISO
• Increasein POLR (Provider of Last Resort)funding (called FSR - FinancialSecurity 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
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PRESENTATION
Recap -Price Uncertainty
Biggest contributor to financial risk: PCIA and PG&E Generation Rate Uncertainty.
PG&E Gen Rate
SVCE
Discount
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(U
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CD
0 LU
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cn
PCIA and PG&E Gen Rate determine SVCE Rates and,
therefore, Revenues
Revenues Revenues
PG&E Rate 'T'
PG&E Rate 4-
PCIA increases and PG&E generation rates decrease when energy prices decline Because of hedging, power supply costs are locked
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PRESENTATION
Stress tests are extreme but plausible scenarios
CD This Year’s Stress Tests
Financial Stress Test
Continue to model the price collapse scenario over the next 5 fiscal years for adequate reserve planning
Additional Stress Tests -Load Growth Uncertainty
Explore longer-term load growth uncertainty and its strategic implications
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Financial Stress Test Description
Forward Energy Prices Collapse to the one percentile level Economic Recession Creates Load Loss
Customer Uncollectables Increase
Additional Financial Liquidity Stress
In the past, we modeled the draw on reserves from the new potential requirement from the POLR Proceeding POLR decision significantly mitigates the previously modeled risk that would have required posting collateral or cash equivalent of two highest months of procurement
For the current stress test, staff continued to model the requirement of a one-time cash draw equivalent to two months of procurement under the very low-price scenario as a proxy for other potential business operating and regulatory risks Larger counterparty collateral postings from collapse in prices
SILICON VALLEY
CLEAN ENERGY 8
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PRESENTATION
Stress Test and Reserve Planning
Continue with the current methodology
Manage reserve targets to ensure the ability to withstand price collapse risk
Maintain competitive rates over the next two fiscal years without drawing down reserves below 120 days of cash on hand (DCOH) Set the upper reserve target by ensuring SVCE’s reserves stay above 90 DCOH over the next five fiscal years
Other considerations include feedback from rating agencies 9 •
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Financial Projections - More Uncertainty Than Past
Background:
Energy prices have always been highly volatile
Fairly liquid forward energy prices are available
Now RA, CF, and RPS* prices are also highly
volatile
Limited forward RA, CF, and RPS prices are
available
CPUC’s market price benchmarks (MPB)
Used in computing PCIA
Forecast Energy Prices - uses market forwards
Forecast RA and RPS - based on past LSE’s**
transactions
CPUCwill publish MPBs in fall
Issue:
Revenue forecast has become extremely difficult
Last Fiscal Year
Adjusted budget in December 2023 was higher by ~$120
million than the initial budget
Main driver: higher MPBs from higher RA and RPS prices
Next fiscal year’s revenue forecast ranges:
$600 million -using incremental market observed RA
and RPS Prices
$2^ n $400 million - adjusting incremental prices per
million implied adjustment observed in last year’s MPBs $385 million - using NewGen consultant’s model
prices -based on last year’s MPBs
* RA: Resource Adequacy, CF: Carbon Free, RPS: Renewable Portfolio Standard 10
** LSE: Load-serving entity
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Past, Current, and Stress Case Modeled Commodity Prices Forward prices have fallen13-
41% from their recent highs.
Currently substantial contango
between 2024 and 2025
forward prices.
Traded prices were at the
modeled stress test levels as
recently as three years ago.
95 ^—2024 2025 ^—2026 ^—2027 ^—2028 2029
90 85 /
/A.
8° / / u / /
/
1 75 /!
65 '
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\/// \
/ / \ Modeled 1st Percentile Prices $ 34.4 $ 34.0 $ 37.3 $ 39.5 $ 37.5 $ 32.7 6° / / \
50 -18 -15 -12 -9 -6 -3 0 3 6 9 12 15 18
Months Relative to Now
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PRESENTATION
Price
($/kW-month)
Cm Past MPB, Current, and Stress Case Modeled RPS and System RA Prices
System RA Prices RPS Prices
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Calendar Year
Stressed Prices: Modeled 1st
Percentile Prices $50.0 $55.0 $40.0 $28.0 $7.0 $8.4 $8.2 2024 2025 2026 2027 2028 2029 2030
0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Calendar Year
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2025 2026 2027 2028 2029
Days Cash on Hand 274 97 52 8 (38)
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Base Case versus Financial Stress Scenario
Base Case
Uses the lower end of the revenue projections
If modeled assumptions prevail:
Reserves fall from the current forecast level of $420 million at the end of the current fiscal year to $368 million at the end of the next fiscal year.
Reserves continue to fall in subsequent years and then rise to $360 million towards the end of the 5-year forecast period Caveats:
PCIA and PG&E Gen Rate portfolio assumptions based on
public data as best modeled by NewGen Consultants
PG&E’s portfolio management strategy and portfolio contents may change from those modeled
CPUC may moderate future rate impacts
Uncertainty increases further out in time
Focus on the delta of the base case to stress test
results
Stress Case
If the modeled stress scenario were to occur,
reserves would drop to $292 million at the end of
FY2025 (A drawdown of $128 Million)
Projected Days Cash on hand will also be below
the minimum target of 120 DCH
Below minimum
target of 120 DCOH.
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Risk Mitigations
Best Mitigation
Hold Sufficient Reserves
Other Mitigations
Revisit the current energy hedging
strategy
Allow for loss in revenues from price
collapse to be mitigated by a reduction in
power supply costs
Challenge: Determining the level of
hedging given the uncertainty in
modeling PCIA and PG&E Generation
Rates
SVCE will collaborate with CCAs who
have recently come to the same
conclusion
Use the results of these analyses to propose a reserve target for the next fiscal year’s budget
Build reserves such that if the stress scenario were to occur, reserves do not fall below the minimum reserve threshold of holding 120 DCOH over the next 2 years and 90 DCOH over the years 3 to 5
Current Illustrative Implied
Targets
Minimum 120 120
Goal (Target) 300 315
Maximum (Upper
Target)
490 420
The stress test analysis will be updated using prices consistent with those used to construct next year’s fiscal budget. The above table will then be revised and used to update the targets in the reserves policy.
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Fairly Stable CA Load Over the Last Few Decades
Load changes year-over-year are mainly due to
weather
Longer-term load growth in
the past was largely
moderated by energy
efficiency measures
PER CAPITA ELECTRICITY CONSUMPTION
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CD Future Load Growth is Highly Uncertain
The future, while highly uncertain,
will be unlike the past
Over the longer term, significant
load growth is expected
Electric Vehicles
Building Electrification
Data Center Load - Al
Energy efficiency, behind-the-meter PV, and batteries will continue to lessen the impact of
the above drivers
SVCE’s load growth scenarios
range from cumulative base case
growth of 46% to high case of
86% over the period from 2024
to 2050
Total Load Forecast
Basecase
Low Load
IGFC
High Load
High Electrification
Actual
2024-2050 Base Case IGFC HE HL LL
CAGR 1.5% 1.9% 1.9% 2.4% 0.7%
Cumulative 46% 62% 65% 86% 21% 17
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PRESENTATION
Load Growth Scenario Assumptions
Scenario
BTM PV EV EE
Load Modifier
BE BTM ESS Opt-Out Others
Base 12% CAGR 61% by 2035 12% CAGR 68% space heating
and 19% water
heater by 2035
13% CAGR No No
IGFC 11% 67% by 2035 Base 75% space heating
and 55% water
heater by 2035
Base No No
High
Electrification
Base 90% by 2035 Base 86% space heating
and 81% water
heater by 2035
Base No No
High Load Base 90% by 2035 Base 86% space heating
and 81% water
heater by 2035
Base No Data Center
3*Current large
sized load by 2035
Low Load Base 30% by 2035 Base 53% space heating
and 14% water
heater by 2035
Base 4% DA Open "400
GWh by 2035
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PRESENTATION
Long-Term Portfolio Management Risks
SVCE’s planning is based on its base case scenario
If these
load
scenarios
prevail in
the future
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Higher Future Prices Lower Future Prices
High load
High portfolio costs;
Uncompetitive rates if
other suppliers hedged a
greater portion of their
load; Procurement
Compliance Penalties
Procure additional volumes
at lower prices
Base Case
Regret or Opportunity
Cost- could have
procured more volumes
Regret or Opportunity Cost
- could have procured at
lower costs
Low load
Sell excess volumes at
higher prices
High stranded costs;
Uncompetitive rates if
other suppliers hedged a
lower portion of their load
or from new entrants.
Factors that can affect future
market prices:
Resource Development
CAISO
Interconnection
Transmission
Supply Chain Issues
Load growth uncertainty
Technology
Similar to the lOU’s predicament with load departure to CCAs. However, PCIA protects the lOUs, but CCA’s do not have such protection. 19 •
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Current Risk Management Strategy
1. 5-yr short-term laddered energy hedges per
the Energy Risk Management Policy
Period ERMP
Min
ERMP
Max
Prompt
Quarter 85% 110%
2024
(balance) 80% 110%
2025 70% 90%
2026 55% 80%
2027 50% 80%
2028 50% 80%
2. Longer-term hedges through Power Purchase Agreements (PPA) Meet SVCE target of 75% RPS by 2030
Meet CPUC procurement orders for reliability
Comply with SB 350
65% RPS from long-term contracts of 10 years or longer
Comply with SB 100 and SB 1020
60% RPS by 2030; 90% clean by 2035; 95% clean by 2040;100% clean by 2045 SVCE RPS Resources vs Load
6,000,000
2022202320242025202620272028202920302031203220332034203520362037203820392O4O20412042204320442O45 20 •
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Current Plan and Future Considerations
1. Assess long-term pathways to 2045
Conducting analyses with consultant Energy Environmental Economics (E3) for use in developing long-term clean targets
Expect to present results to the Board in late summer/early fall Monitor Central Procurement Entity (CPE) activity and fair cost allocation
2. Continue with laddered procurement of long-term resources Reduces risks from advances in technology, changes in resource cost, and load uncertainty Focus on resources coming online after 2030 as those currently under contract roll-off
3. Work with CC Power to assess the economics and risks of direct ownership versus PPA
Take advantage of IRA benefits and further diversity portfolio
4. Revisit hedging targets
Take account of PCIA and PG&E generation rate impact on revenues Will reduce the amount of hedges needed
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Next Steps
June August
Finance Committee and Board
reviews and provides staff
feedback on the proposed
budget and any changes to
reserves targets
Staff presents stress
analysis to the Board
September TBD
Board approves FY 2024 -
2025 budget with updated
reserves targets
Staff completes
hedge target
analyses and
proposes new
hedging targets
22 New SV Clean Energy
PowerPoint Template
Subtitle
Item 2
PRESENTATION
Operating Load | Mean Costs| Old Revenue Components 2025 2026 2027 2028 2029 Revenues $ 384 $ 459 $ 416 $ 450 $ 438
Power Supply Costs $ 397 $ 485 $ 360 $ 370 $ 360
Operating Margin $ (13) $ (26) $ 56 $ 80 $ 78
Other Costs $ 40 $ 66 $ 47 $ 41 $ 43
Net Contribution to Reserves $ (53) $ (91) $ 9 $ 39 $ 35 Reserve Balance $ 368 $ 277 $ 286 $ 325 $ 360
Days Cash on Hand 307 183 257 289 326
Item 2
PRESENTATION
Summary of Base Case Results
Using NewGen Consultant's Model Prices as RA & RPS MPB Estimates $ millions
Constructed for stress analysis. Does
not account for additional expenditures
for programs and customer discounts
beyond the 1 % level. 24
Operating with period of 5% load loss | P1 Costs| P1 - Adj. Old (FO Ratio) Revenue Components 2025 2026 2027 2028 2029 Revenues $ 167 $ 225 $ 239 $ 288 $ 308
Power Supply Costs $ 277 $ 308 $ 249 $ 282 $ 309
Operating Margin $ (110) $ (84) $ (10) $ 6 $ (1)
Other Costs $ 40 $ 66 $ 47 $ 41 $ 43
Counterparty Collateral Outflow $ (10) $ (11) $ - $ - $ - Net Contribution to Reserves $ (140) $ (138) $ (57) $ (35) $ (43) Reserve Balance $ 292 $ 154 $ 97 $ 62 $ 18
Reserve after Risk Adjustment $ 237 $ 99 $ 42 $ 7 $ (37) Days Cash on Hand 274 97 52 8 (38)
Item 2
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O Summary of Stress Test Results
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Days Cash on Hand Comparison
SVCE Target Days Cash on Hand is 300
CCA Published Targets
SCP 280
MCE 240
EBCE 183
PCE 180
SJCA 180
26 Source: http://epis.com/powermarketinsights/index.php/2017/05/18/how-good-is-the-eia-at-predicting-henry-hub/ 70% during the 2008 financial crisis
Item 2
PRESENTATION
Volatility in Natural Gas Markets Translates to Volatility in Electricity Markets CD Past Price Collapse
2008 financial crisis natural
gas prices dropped ~70% with
a corresponding drop in power
prices
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PRESENTATION
Price
<$/MWh)
2024-2029 Forward Prices Across Time
28 —2024 2025 —2026 2027 2028 2029
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Load Forecast Results -Percentage in Total (2035)
Scenario
BTM PV EV EE
Load Modifier
BE BTM ESS Opt-Out Others
Base 6.3% 15.5% 2.0% 4.5% 0.1%
IGFC 5.6% 15.7% 2.3% 10.6% 0.1%
High
Electrification
5.3% 19.5% 2.3% 14% 0.1%
High Load 4.6% 17% 2% 12.3% 0.1% 12% Data
Center
Low Load 8.2% 8.9% 2.7% 5.8% 0.2% 4% 10% goes to
DA
29 Unmitigated With Current Mitigations With Additional Mitigations 1 Financial Economic Recession: Prices Collapse and PCIA goes up and revenues go down Amrit Reserves to withstand the shocks; Stress Tests, Cashflow Modeling Reassess reserve adequacy Extreme (15) Extreme (14) High? (13) (Depends on Reserve Set Aside) 2 Financial Price Collapse leads to insufficient liquidity (collateral postings) Amrit Reserves to withstand the shocks; Stress Tests, Cashflow Modeling Reassess reserve adequacy High (13) Moderate (12) Low (11) 3 Financial Load Loss to due economic recession (may not be immediate financial impact) Amrit Reserves to withstand the shocks Reassess reserve adequacy Moderate (12) Low (11) Low (11) 4 Financial Bad Debt increase due to economic recession Adam Send back to PG&E after 3 months of non-payment; Reserves to withstand the shock Reassess reserve adequacy Moderate (12) Moderate (12) Moderate (12) 5 Financial Price collapse and increase in desire for DA (as PCIA goes up) subject to the DA cap Amrit Reserves to maintain competitive pricing; CPUC Decision not opening DA None Low (22) Low (22) Low (22) 6 Financial Load Loss due to DA and distributed/ behind the meter (generation and storage) Adam Custom Customer Pricing; CPUC Decision not opening DA Moderate (12) Moderate (12) Moderate (12) 7 Financial Significant PPAs default/delay/renegotiate for higher prices Monica Supplier & Technology diversity; plan for contingencies; Contractual language for delay damages and default provisions Moderate (23) Moderate (23) Moderate (23) 8 Financial Counterparty Default - Loss of MS business - Risk of losing prepay Amrit Credit risk management Update credit guidelines Moderate (23) Moderate (23) Moderate (23) 9 Financial Member agency leaving Girish Strong SVCE value proposition; Effective communication and alignment with members Moderate (23) Moderate (23) Moderate (23) 10 Financial Governance Risk (Limited knowledge of key stakeholders resulting in an uneconomic/suboptimal business model/operations; Divergent Board member objectives) Girish Continous training and stakeholder interest alignment Moderate (23) Moderate (23) Moderate (23) 11 Financial PG&E failures affect our cashflows since they are our cash register (high gas prices leading to customer bad debt, billing issues) Adam Seek fair treatment from CPUC; No residential waterfall Moderate (12) Low (11) Low (11) 12 Regulatory/Compliance POLR Proceeding - Large Tie up of Financial Reserves Amrit Hold Adequate Reserves Manage and shape regulatory proceeding against PG&E Pool Proposal Extreme (14) High (13) Moderate (18) 13 Regulatory/Compliance CPE Policy Procurement (Pumped Storage, Ofshore wind etc, more asset procurement); Loss of procurement autonomy thru backstop procurement (@ governers office) Monica Manage and shape regulatory proceeding (add more specifics?) Moderate (23) Moderate (23) Moderate (23) 14 Regulatory/Compliance RA reform, uncertainties on design and procurement targets and penalties for market structural imbalances Monica Manage and shape regulatory proceeding (add more specifics?) High (13) High (13) High (13) 15 Regulatory/Compliance Loss of PG&E hydro and Nuclear allocation Monica Manage and shape regulatory proceeding (add more specifics?) Moderate (12) Moderate (12) Moderate (12) 16 Regulatory/Compliance CPUC rejects some of our MTR contracts - especially if it's out of money Monica Manage and shape regulatory proceeding (add more specifics?) Low (17) Low (17) Low (17) 17 Regulatory/Compliance CPUC imposed hedges that may not be optimal for our portfolio Monica Manage and shape regulatory proceeding (add more specifics?) High (19) High (19) High (19) 18 Regulatory/Compliance Potential for deregistration (CPUC No longer lets us operate as an LSE) Monica Manage and shape regulatory proceeding (add more specifics?) High (25) High (25) High (25) 19 Regulatory/Compliance Green Regulatory Risk - Change in the accounting of green. REC has a definition today, Green e / Green prime - VREP has some exchange between REC and Cap/Trade, this could increase our costs in the long term. Monica Low (22) Low (22) Low (22) 20 Reputational Risk of Relevancy - IOUs power portfolio just as green. How do we distinguish ourselves? What's our value proposition?Justin Cheaper (competitive advantage thru tax exempt financing) and community benefits from programs Moderate (18) Moderate (18) Moderate (18) 21 Reputational Emissions on PCL increase; Impact on our mission and customers perception of our value proposition Adam Effective customer communications Moderate (23) Moderate (23) Moderate (23) 22 Reputational Customer Activism & Unfavorable Political scenarios derailing our mission - High PG&E T&D costs and high energy prices resulting in more customer activism and movement against electrification; customer affordability - Political environments ("Make Coal Great Again!")
- Lobbying from natural gas industry Adam Effective customer communications Moderate (23) Moderate (23) Moderate (23) 23 Reputational Aggressive SVCE electrification efforts creates customer backlash ("Let go of my gas stoves!") Justin Moderate (23) Moderate (23) 24 Reputational Daisy and 3rd Party (Calpine, other Vendors) System Failures and Data Breach - Customer Identifiable data compromised; Mandatory customer communication - Customers Opt Out
- CPUC Compliance Risk
Justin CPUC Data audit; Contract provisions Moderate (18) Moderate (23) Moderate (18) 25 Reputational Risk of not spending program dollars well (impact on the reserves - give back the reserves) Justin Moderate (23) Moderate (23) Moderate (23) 26 Reputational Grid Readiness to support our mission Justin Moderate (23) Moderate (23) Moderate (23) 27 Reputational Stranded Program Assets (technology changes, hydrogen cheaper than electricity) Justin Moderate (23) Moderate (23) Moderate (23) 28 Reputational Major Disruption of the T&D/Grid operator, Grid Reliability - affects our mission Girish Moderate (18) Moderate (18) Moderate (18) 29 Operational and Business Continuity Natural Disaster Recovery (Earthquake, flooding) - Cover key business functions (procurement, scheduling, collateral calls …) Monica Key Desk Procedures Low (22) Low (22) Low (22) Operational and Business Continuity Staff turnover Amrit - Employer of Choice Initiatives -benefits,Comp, Hybrid Work, Team Buildings Key Desk Procedures; BPO Moderate (18) Moderate (18) Moderate (18) 30 Operational and Business Continuity Cyber risks (wire fraud, social engineering, ransomware) Amrit IT IRP Plans and Tabetop exercises, VCISO, Human Firewall Trainings Moderate (18) Moderate (18) Moderate (18) 31 Operational and Business Continuity Insider Threat/Rogue Employee Amrit Code of Conduct, Risk Controls Moderate (23) Moderate (23) Moderate (23) 32 Operational and Business Continuity Physical Security/Active Shooter Amrit Staff Training Moderate (23) Moderate (23) Moderate (23) 33 Operational and Business Continuity Scheduling system failure Monica Schedule remotely Low (22) Low (22) Low (22) 34 Operational and Business Continuity Calpine system failure Adam Moderate (23) Moderate (23) Moderate (23) 35 Operational and Business Continuity Daisy Failures (Quality of data impact on Revenue forecasting) Justin Low (22) Low (22) Low (22) Proposed Stress Tests (Modeled Scenarios) Economic Recession (Price Collapse -5th percentile) Coupled with Adverse Regulatory Outcomes (POLR) Extreme (20) Extreme (20) High(19) Draft Confidential Initial Placement to Get Discussions Going Risk Matrix Placement (Impact over 5-years) Risk ID Risk Category Risk Description Risk Owner (Initial Straw Proposal) Current Mitigations (High level right now to get discussions going) Any Additional Planned Mitigations/Actions (High level right now to get discussions going) Item 2
PRESENTATION
Key Components of the ERM Framework
Stress
Tests
• Record of organization’s risks
• Identify current and additional planned mitigations
• Identify risk owner
• Risk Rubric. Assess the likelihood and consequence of risk events • Calibrate risks
• Identify risk tolerance -level of acceptance
• Model scenarios (financial position, systems, and processes) of interrelated risks that are extreme but plausible
• Develop appropriate risk management strategies, including the adequacy of reserves
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Insignificant Minor Moderate Major Catastrophic
Risk Easily
Mitigated
through Day-to-Day Operations
Risk is
Manageable/Low
Impact on Mission
Moderate Erosion
of
Reserves/Impact
on Mission
Significant
Erosion of
Reserves/Impact
on Mission
Risk of
Existence
Certain >90% chance High (1) High (2) Extreme (3) Extreme (4) Extreme (5) Likely 50%- 90% Chance Moderate (6) High (7) High (8) Extreme (9) Extreme (10) Moderate 10%-50% Chance Low (11) Moderate (12) High (13) Extreme (14) Extreme (15) Unlikely but Plausible 5%-10% Chance Low (16) Low (17) Moderate (18) High (19) Extreme (20) Rare <=5% Chance Low (21) Low (22) Moderate (23) High (24) High (25) Item 2
PRESENTATION
Risk Matrix
Assess the likelihood (frequency of
occurrence) and consequence (impact)
Calibrate risks/opportunities and optimally
Significant financial risks will be explicitly
quantified and used for reserve planning,
like last year’s stress test analyses 31
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Draft and
Illustrative
Risk ID Risk Category Risk Description Risk Owner Current Mitigations Any Additional Planned Mitigations/Actions
Risk Matrix Placement (Impact Over 5Yrs)
(Initial Placement to Get Discussions Going)
Unmitigated With Current Mitigations With Additional Mitigations 1 Financial
Prices Collapse (insufficient liquidity,
collateral postings; MTM losses on
investments); PCIA Increases; Revenues
Decrease (under current rate
methodology); Credit downgrade;
insufficient liquidity, Increase DA load
Amrit
Reserves to withstand the shocks; Stress Tests,
Cashflow Modeling; Reserves to maintain
competitive pricing; CPUC Decision not
opening DA
Reassess reserve adequacy; Hedging
Strategy Extreme (20) High (19) High (19)(Depends on Reserve Set Aside) 7 Financial Significant Number of PPAs
Default/Delay/Renegotiate for higher prices Kris
Supplier & Technology diversity; plan for
contingencies; Contractual language for delay
damages and default provisions; credit
provisions
Renegotiated several PPAs; reserve
litigation path for some PPAs. Over
procure relative to compliance
requirements.
Moderate (14) Moderate (12) Moderate (12)
15 Regulatory/
Compliance
POLR Proceeding - Large Tie up of Financial
Reserves Amrit Hold Adequate Reserves
Manage and shape regulatory
proceeding against PG&E Pool
Proposal
Extreme (14) High (13) Moderate (12)
30 Customer Opt-Out Ineffective or sluggish spending of approved program dollars; Justin
Program plans developed with stakeholders,
ongoing feedback during design/management,
increased staff/resources, and emphasizing
larger-scale programs.
Additional staffing, new supporting
systems, and public reporting on
impacts. SVBEST, additional Study
Sessions, systematizing processes.
High (19) Moderate (18) Low (17)
34 Customer Opt-Out Major Disruption of the T&D/Grid operator, Grid Reliability - affects our mission Monica Shape Regulatory and Legislative Initiatives Moderate (18) Moderate (18) Moderate (18) 37 Operational and Business
Continuity
Natural Disaster Recovery/Pandemic/War
(Earthquake, flooding)
-Cover key business functions
(procurement, scheduling, collateral calls
…)
Amrit System backups and desk procedures Add'l Desk Procedures and Continuity Plans Low (22) Low (22) Low (22)
43 Operational and Business
Continuity
Calpine system failure; issues that SVCE
has to pay to resolve (such as billing issues) Adam
Verify Calpine/third party security risks,
compliance status and mitigation strategy.
eg.SOX compliance
Moderate (23) Moderate (23) Moderate (23)
Item 2
Risk Register
PRESENTATION
Risk Register:
Records risks/opportunities
Briefly describes each
risk/opportunity
Lists existing and planned
mitigations
Ranks risks/opportunities
Identifies risk owner
Cross-functional teams
brainstormed and identified risks
and opportunities
Bucketed the risks into the
following categories:
Financial
Regulatory and Compliance
Customer Opt-Out Risk
Operational and Business
Continuity
Opportunities
New SV Clean Energy
PowerPoint Template
Subtitle
Item 3
PRESENTATION
SILICON VALLEY
CLEAN ENERGY
FY 24-25 Budget
Framework
Amrit Singh
Finance and Administration Committee
May 13, 2024
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Item 3
Purpose
PRESENTATION
Discuss Budget Framework
1. 2. Reserve Targets
3. 4. Power Supply Costs
5. Other Cost Drivers
Seeking high-level feedback/validation
on principles and assumptions
Customer Discount Rate,
Additional Funding for Programs,
and Set Aside for Reserves
Revenue Modeling
PCIA and PG&E Gen Rate
Uncertainty
Budget numbers to be computed in
July based on feedback
Methodology could be tweaked if
results from actual numbers in July do
not align with expectations
Item 3
PRESENTATION
FY24-25 Budget will be ready for Review in August
May 3 June 12 August (tbd) August 14
Discuss the high-level
budget framework with
the Finance and Admin
Committee
Discuss the high-level Review the draft
budget framework with budget with the
the BOD Finance & Admin
Committee
—
Present the draft
budget to the BOD
September 11 November (tbd) December 11 February (tbd) March 12, 2025 Present the
recommended budget
to the BOD for approval
Review adjustments to the
budget to reflect updates
to PCIA and PG&E gen
rate assumptions with the
Finance and Admin
Committee
Present the
adjusted budget
to the BOD for
approval
Review the mid¬
year budget with
the Finance and
Admin Committee
Present the mid¬
year budget to the
BOD for approval
3 Item 3
PRESENTATION
0 SVCE Planning & Budgeting Process
Budget
Comprehensive assessment of risks and
opportunities to optimally achieve mission
SVCE Mission: Reduce dependence on fossil fuels by
providing carbon-free, affordable, and reliable electricity and innovative programs for the SVCE community.
Organization-wide priorities and
alignment toward achieving the mission
Funding in alignment with achieving
the strategic focus areas
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Item 3
PRESENTATION
Revenue Forecast Depends on PG&E Generation and PCIA Rates Jan-Jun 2024
Rate**
Jul-Dec 2024
Rate***
PG&E Gen Rate:
5.03 c/kWh
* Power Charge Indifference Adjustment (PCIA) is a
charge our customers pay to PG&E such that they can
recover commitments made on behalf of the customer
when they were part of PG&E’s portfolio.
Issue: Rate Uncertainty Staff
Recommendation
Implications/Reasons
PG&E is expected to
issue the 2024 ERRA
forecast by May 15 with
preliminary 2025 PG&E
generation and PCIA
rate forecasts
PG&E will update this
forecast in the fall.
CPUC normally adopts
the rate in December
based on this update
Given the high volatility
in energy, RA, and RPS
prices, when staff
prepares the budget in
July, the PG&E estimate
may be outdated
Use latest market
data in Cal-CCA
NewGen model
after calibrating
the NewGen
model to PG&E’s
forecasted rates
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 can be made
by the Board in December
when actual PG&E and
PCIA rates are known
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Item 3
PRESENTATION
Current Rate Projections - Highly Uncertain
Higher uncertainty in forecasting CPUC’s fall market price benchmarks, given volatile Resource Adequacy (RA) and Renewable Portfolio Standard (RPS) prices, will continue to make revenue projections difficult.
Staff’s current 2025 rate projection scenarios, illustrated below, correspond to revenue projections ranging from about $385 to $600 million.
NewGen Model RA/RPS Prices*
SVCE Load portfolio
weighted Rates
PG&E Gen Rate:
12.38 C/kWh
^^VCEdiscount
Market RA/RPS Prices Adjusted Based
on 2024 implied adjustment
Market RA/RPS Prices*
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Item 3
PRESENTATION
Issue: Update Reserve Targets Staff Recommendation Implications/Reasons Ensure SVCE maintains sufficient
reserves to manage risks such as those
modeled under the stress test analyses
Staff will likely update the stress test
analyses in July using market prices
consistent with those used to develop the
annual budget
Target to keep reserves above 120 Days
of Cash On Hand (DCOH) for FY 2024-
2025 and FY 2025-2026 under the
modeled stress scenario
Reset upper reserve target such that
over the next 5 fiscal years, reserves do
not fall below 90 DCOH under the
modeled stress scenario
FY 25 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
The upper reserve target
enables the agency to take
advantage of good margin
years to manage risks over a
5-year period
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Item 3
PRESENTATION
Additional Funding for Programs and Customer Discounts
1% customer discount over 12 months of
2024 is ~$5.5 million
Monthly Average Bill Savings of 1%*
Discount:
Residential - "$0.80
Small Commercial - "$2.80
Medium Commercial -"$30.85
Issue: Balancing
Priorities
Staff Recommendation Implications/Reasons
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
To be developed later after
completing the budget analysis
Likely to keep current discount
through the end of this year
Set a preliminary discount for
next year
Board can change the budgeted
discount rate once actual PG&E rates
are known towards the end of the
year
Staff will likely present several
options to the Board on different
levels of discount rates, additional
spending on programs, and set aside
for reserves
Keeping reserves at or
above target levels
ensures SVCE can
withstand adverse risk
scenarios and helps
maintain/improve credit
ratings
Keeping the discount
rate at 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
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Item 3
PRESENTATION
Power Supply Expenses
(>90% of Expenses)
Issue: Volatile Prices Staff Recommendation Implications/Reasons Power prices are very volatile and have
declined significantly.
In addition to power price volatility, recent
volatility in RA and RPS prices makes
budget projections highly uncertain
Budget will be developed based on a
snapshot of market prices in July 2024
Contract delays/renegotiations further add
uncertainty
Resource adequacy requirements are
changing, and costs are high. Slice of Day
methodology is expected to be
implemented in January 2025, and the
portfolio is well positioned for its
implementation.
Continue hedging to current ERM (Energy Risk
Management) targets
Staff to develop additional analysis to revisit
the hedging targets to account for impacts
from PCIA and PG&E Gen Rate
SVCE’s clean policy
Clean resources are scarce, and prices are
at record-high levels
For 2024, SVCE is expecting to be at 85%
clean portfolio position
For 2025, given the scarcity and high prices
ofclean resources, staff will propose lower
than 100% clean targets
Proposals are currently being
developed and will be discussed with
the Executive Committee in May and
the Board in June
Balance customer value
proposition of providing clean
energy with greenhouse gas
reduction benefits.
Buying high-priced carbon-free attributes may not
advance incremental
greenhouse gas reductions
in the market.
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Item 3
PRESENTATION
Other Costs
(Staffing, Cost of living/Merit, Operations)
Status Staff Recommendation Implications/Reasons
Review and assess staffing in all
areas of the organization
13 new budgeted positions
added in FY23-24
11 new staff hired since Sept
2023
5 vacancies
Adjust employee salaries for
cost-of-living and
merit/promotions
Review existing employee
benefits to remain competitive
with peer CCAs
Current budgeted headcount of 62
Expect staffing levels to stabilize
Currently anticipate 3 headcounts:
2 in Decarbonization Area and 1 in
Risk Management
Adjustment for COLA
Propose to continue using the 6-month (Jan
- June 2024) rolling average of SF Bay Area
CPI- current trailing 6-mo average is 2.8%
CEO discretion applied depending on
employee pay relative to market range,
performance, and date of hire
Any additional increases for merit and
promotions based on CEO discretion
Budgeted at 3%
Employee benefits - under review
Evaluate staffing levels to:
Scale up decarbonization programs
Reduce the high level of existing employee
workload
Advance strategic focus area goals
Create organizational depth for business continuity
Sustained investments in cybersecurity
preparedness and business process optimization
projects continue
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Item 3
PRESENTATION
Next Steps
Discuss framework for developing the budget with
the Board in June
Analyze PG&E’s forecast of 2024 generation and
PCIA rates
Develop/finalize recommendations:
Customer discount levels
Any additional funding for programs
Reserve targets and set aside
Final staffing needs
Employee cost of living, merit, and benefits adjustments May 3
Discuss the high-level
budget framework with
the Finance and Admin
Committee
June 12
Discuss the high-level
budget framework with
the BOD
August (tbd)
Review the draft
budget with the
Finance & Admin
Committee
August 14
Present the draft
budget to the BOD
December 11 February (tbd) March 12, 2025
Present the
recommended budget
to the BOD for approval
Review adjustments to the
budget to reflect updates
to PCIA and PG&E gen
rate assumptions with the
Finance and Admin
Present the Review the mid¬
adjusted budget year budget with
to the BOD for the Finance and
approval Admin Committee
Present the mid¬
year budget to the
BOD for approval
Committee
Present draft budget for Finance Committee review in early August and then to the Board The board adopts the budget in September
11 Item 3
PRESENTATION
Thank you! / Questions?
12 Item 3
PRESENTATION
2023-2024 Mid¬
Year Operating
Budget
SILICON VALLEY CLEAN ENERGY
FY 2023-24 OPERATING BUDGET
($ in thousands)
FY 2023-24
MD-YEAR
ADJUSTED
DESCRIPTION BUDGET
ENERGY REVENUES
Energy Sales 550,852
Green Prime 1.962
Other Income 50
TOTAL ENERGY REVENUES 552.864
ENERGY EXPENSES
Power Supply 365,617
OPERATING MARGIN 187,247
OPERATING EXPENSES
Data Management 3,413
PG&E Fees 1,470
Salaries and Retirement 14.818
Professional Services 8,210
Marketing
& Promotions 1,250
Notifications 315
Lease 551
General
& Administrative 2.091
TOTAL OPERATING EXPENSES 32,118
OPERATING INCOIVE (LOSS) 155.129
NON-OPERATING REVENUES
Interest Income 12.867
Grant Income
0 TOTAL NON-OPERATING REVENUES 12.867
NON-OPERATING EXPENSES
Financing
3 Interest
0 TOTAL NON-OPERATING EXPENSES
3 TOTAL NON-OPERATING INCOIVE
(EXPENSES) 12,864
CHANGE IN NET POSITION 167,994
CAPITAL EXPENDITURES. INTERFUND
TRANSFERS
& OTHER
Capital Outlay 50
Building Fund 20.000
Transfer to CRCR Fund
0 Program Fund 28.874
Nuclear Allocation 2,188
Multi Family Direct Install Program0
Electrification Discount Program
0 Customer Bill Relief 4.300
Other
0 TOTAL CAPITAL EXPENDITURES. INTERFUND
TRANSFERS
& OTHER $55412
BALANCE AVAILABLE FOR RESERVES S112.582
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