Valley Clean Energy Board Meeting – December 8, 2022
via video/teleconference
Item 18 – Wholesale Energy Services Agreement with The Energy Authority 1 yvonnehunterphotography.com
Public Comments
2 To Provide Public Comment on any agenda item please:
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Item 18 – WES Agreement with TEA: Background
• Since VCE launch, Sacramento Municipal Utility District (SMUD) has provided VCE wholesale energy services (WES)1
• SMUD’s agreement for WES expires in 20232
• Staff issued a request for offers (RFO) for WES in September 2022 and received offers in October3
• Four qualified entities responded to the RFO and the preferred vendor is The Energy Authority (TEA) as a result of their qualifications, cost and ability to satisfy all the items identified in the scope of work 3 Note: 1) WES consists of portfolio management, scheduling coordinator, load forecasting and credit support. 2) SMUD will continue to provide other essential services to VCE under the overall Agreement (e.g. Call Center Services, Billing/Data Services, etc.) 3) VCE’s Wholesale Energy Services Request for Proposals Item 18 – WES Agreement with TEA: Who is TEA
4 The Energy Authority (TEA) is a nonprofit portfolio management, energy trading and advanced analytics firm that has operated in wholesale energy markets across the U.S. since August 1997
200+ total employees West Operations Center in
Bellevue, WA
California employees in Oakland and Irvine
>60 Publicly Owned
LSEs
served across
the U.S.
>27M MWh of
electricity
sold & scheduled last
year
>30,000 MW
Generation
of all fuel types
dispatched
>200K
Transactions
executed annually for
benefit of clients
Item 18 – WES Agreement with TEA: TEA Services to Other CCAs 5 Portfolio Management and Procurement
Scheduling Coordinator and CRR Management
Long-Term Renewable + Storage Procurement
Solar + Storage Microgrid
Residential & Commercial DERs
Portfolio Management and Procurement
Scheduling Coordinator and CRR Management
Long-Term Renewable + Storage Procurement
Renewable Natural Gas
Scheduling Coordinator
and CRR Management
Scheduling Coordinator
and CRR Management
Portfolio Management and Procurement
Scheduling Coordinator and CRR
Management
Long-Term Renewable Procurement
Portfolio Management and Procurement
Scheduling Coordinator and CRR Management
Long-Term Renewable, Storage, and
DER Procurement
Portfolio Management and Procurement
Scheduling Coordinator and CRR
Management
Scheduling Coordinator
and CRR Management
Joint CCA RA Procurement
Item 18 – WES Agreement with TEA: Agreement
• TEA will be providing the following services:
• Portfolio Management
• Scheduling Coordinator
• Long Range Load Forecasting
• Credit Support
• Term of the agreement is 3 years with the ability to extend for 2 additional two-year terms
• The services are billed monthly and the total cost for the services over the three-year term is $2,476,900.
• This amount represents a net reduction in cost for the range of WES services VCE currently contacts for
6 Item 18 – WES Agreement with TEA: Recommendation
Staff recommends that the Board adopt a resolution establishing the following:
• The VCE Executive Officer, in consultation with VCE Legal General Counsel, is authorized to finalize, approve, execute, and extend on behalf of VCE the agreement with The Energy Authority, Inc. for portfolio management, scheduling coordinator, load forecasting, and credit support services attached hereto for a not to exceed amount of $2,476,900 for a term of three (3) years ending December 31, 2025, with two optional extensions of two years each. • The VCE Executive Officer, in consultation with VCE Legal General Counsel, is authorized to approve minor changes to the agreement so long as the term and price are not changed.
7 Valley Clean Energy Board Meeting – December 8, 2022
via video/teleconference
Item 19 – 2023 Operating Budget & Customer Rates
8 yvonnehunterphotography.com
Public Comments
9 To Provide Public Comment on any agenda item please:
➢ E-mail 300 words or less to: [email protected] OR
Join the Public Comment Queue by
➢ “Raising Hand” on Zoom Meeting
OR
➢ Press *9 if joining by phone
Emailed comments received before the item has concluded will be read into the record.
Emailed comments received after the item has concluded but before the end of the meeting will not be read but will be included in the meeting record.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 10 Item 19 – 2023 Operating Budget & Customer Rates
Overview
VCE’s short-term outlook (2023-24) indicates continued volatility (PCIA power market prices and PCIA, which requires rate-setting to ensure cost recovery and the building of reserves. The longer-term outlook (2024+) indicates increased stability and cost certainty.
This presentation provides:
• Background on Rates & Budget Development
• Update on the 2022 Operational Budget (10 Months actuals) • Recommended 2023 Customer Rates
• Recommended 2023 Budget
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 11 Item 19 – 2023 Operating Budget & Customer Rates
Background
Recent actions to ensure financial and customer rate sustainability as part of the annual budget adoption and monitoring process.
• February 2022 –Budget/Rates adoption with CARES/FERA discount • March 2022 – Expanded River City Bank line of credit and term loan for liquidity • July 2022 – Mid-Year Financials Update
• July 2022 – Adopted Base Green “least cost” customer rate option • September 2022 – Mid-Year Customer Rates Review
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 12 Item 19 – 2023 Operating Budget & Customer Rates
Proposed 2023 Rates & Budget Key objectives (Short-Term) • Recovery of 2022 Net Income variance – 2022 (-11) -> 2023 (+11M) • Debt Repayments
• County of Yolo Line of Credit – 2022
• River City Bank - 1
st Quarter 2024. (Possible 2023)
• Power Cost Contingencies – increased 2.5% in 2022 -> 5% in 2023. • Power Purchase Agreement (PPA) Covenants – No letters of credit • Rate Adjustment Policy – Flexibility to address significant cost impacts in a timely manner
• Operating Days Cash - increase targeted operating days cash from 80+ days to 180+ days to provide additional fiscal stability and facilitate credit rating Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 13 Item 19 – 2023 Operating Budget & Customer Rates
Proposed 2023 Rates & Budget Key objectives (Long-Term) • Investment Grade Credit Rating – Reduce Risks
• Member agency support requests
• Banking institution lines of credit
• CPUC provider of last resort financial requirements (POLR) • Capital costs for VCE
• Rate Adjustment Policy - Rate stabilization
• Customer Programs and Dividends
• Continued to grow its customer programs in 2023
• Monitor results for possible customer dividends for Q1 of 2024.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 14 Item 19 – 2023 Operating Budget & Customer Rates
Operational Budget Primary Drivers - PCIA and Bundled Rates Based on information from VCE and CalCCA’s analysts, VCE has incorporated the following assumptions in its updated financial forecasts for 2023, including the assumption that 2023 PG&E rates/PCIA will be implemented on January 1, 2023:
• PCIA: 88% reduction over 2022 PCIA (net zero charge) - Approximately $17M in additional net revenue compared to 2022
• PG&E Bundled rates (PCIA & Generation): 3% increase – Approximately $2M in additional revenue
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 15 Item 19 – 2023 Operating Budget & Customer Rates
• Renewable resources –
• Increase ~140% in 2023
• Increase ~114% in 2024
• 80%+ of VCE’s annual load
by 2024
• Reduced VCE costs
compared to current RPS
and RA market costs
• Significantly reduce
volatility as VCE moves
forward (smaller open position)
Operational Budget Primary Drivers - Long-term Fixed Price PPAs Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 16 Item 19 – 2023 Operating Budget & Customer Rates
Key Factors influencing the VCE 2022 Budget
• Load Forecast - 2022 energy use has out-paced forecasts. • Residential energy - TOU transition, return to work/hybrid, heat storms, etc. • Commercial energy use related to agriculture - droughts, mild winter, heat storms, etc. • 2022 actual vs. load forecast remains within 5% overall • PG&E Rate Adjustments – Delays in annual rate setting. PG&E's current filings/CPUC proposed decision effective March 1st, 2022 (33% rate increase and a PCIA reduction of 57%) • Power Prices - Geopolitical climate resulting from the Ukraine conflict and multiple heat storm events
• Supply Chain interruptions – Manufacturing and import supply chains have been consistently interrupted.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 17 Item 19 – 2023 Operating Budget & Customer Rates
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 18 Item 19 – 2023 Operating Budget & Customer Rates
Note: The 2022 interim audit will begin in December 2022 and will be completed in March 2023. Adjustments, if any, will be included in the annual report.
2022 Operational Budget Update
Description Variance
Revenue $ 89,750 $ 86,470 $ (3,280)
Power Cost $ 66,990 $ 75,010 $ (8,020)
Other Expenses $ 5,292 $ 5,400 $ (108)
Net Income $ 17,468 $ 6,060 $ (11,408)
APPROVED
2022 BUDGET
2022 Proforma
(10 Month Actuals
+ 2 Month Budget)
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 19 Item 19 – 2023 Operating Budget & Customer Rates
VCE 2023 Proposed Rates
VCE Rate Policy (Updated November 10, 2021)
Cost-Based Rate Policy: VCE will set customer rates to collect sufficient revenue from participating customers to fully fund VCE's Budget and establish sufficient operating reserve funds.
2023 Customer Rates Drivers
Based on information from VCE and CalCCA’s analysts on the proposed PG&E rates decision outlined above, VCE has incorporated the following assumptions in its updated financial forecasts for 2023 (assuming PG&E rates/PCIA are implemented on January 1, 2023):
• PCIA: 88% reduction over 2022 PCIA (net zero charge)- Results in approximately $17M revenue for 2023
• PG&E Bundled rates (PCIA & Generation): 3% increase – Results in approximately $2M revenue for 2023
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 20 Item 19 – 2023 Operating Budget & Customer Rates
Customer Outreach & Communications
VCE continues a measured, transparent customer outreach strategy with an emphasis on VCE’s additional benefits such as more choice in electricity supply, local control, and community reinvestment through energy contracts and programs.
The longer-term outlook (2024+) shows increased stability and cost certainty due to VCE’s fixed price long-term renewable power purchase contracts coming on-line in 2023/24.
Based on VCE matching PG&E rates and other CCAs undertaking similar rate actions, staff does not anticipate significant opt-out customer activity in response to the rate changes.
VCE will continue to monitor customer activity as the rates are implemented for possible adjustments.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 21 Item 19 – 2023 Operating Budget & Customer Rates
VCE 2023 Proposed Rates
The fiscal effects on VCE customers are relatively small -> 1% increase of total bill • 3% generation rate increase - Avg. $2 per month Standard Green Residential • Continuing rate credits for low income and vulnerable customers (CARE, FERA, and Medical Baseline)
VCE Rates Recommendation
1. Standard Green Rates for 2023 to match PG&E 2023 generation rates.
2. Base Green Rate discount of 2.5% to PG&E 2023 generation rates
1. Automatically provide CARE and FERA customers Base Green Rate Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 22 Item 19 – 2023 Operating Budget & Customer Rates
2023 Budget & Multi-Year Forecast - Key Factors
• PCIA: 88% reduction over 2022 PCIA (net zero charge) - ~$17M in additional net revenue compared to 2022
• PG&E Bundled rates (PCIA & Generation): 3% increase – ~ $2M in additional revenue • Power costs – Include ~$3M+ in power cost contingencies for 2023. (Increase from 2.5% in 2022 to 5% for 2023)
• Long-term power contracts (PPAs). When VCE’s two largest PPA’s begin full deliveries in 2023: ~60% of VCE’s load served, growing to 80%+ by 2024. • Based on current forecast, 2024/25 offers greater financial stability.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 23 Item 19 – 2023 Operating Budget & Customer Rates
2023 Budget
• 1% rate increase for
Standard Green (Total Bill)
• 2.5% rate credit for
CARE/FERA and Medical
Baseline customers
• Includes a target of ~180+
days cash reserves by the
end of 2023.
VALLEY CLEAN ENERGY
2023 DRAFT BUDGET SUMMARY
ACTUAL (YTD)
APPROVED Oct. 31 2022 PROPOSED
2022 BUDGET 2022 Proforma 2023 BUDGET
OPERATING REVENUE $ 89,750 $ 86,470 $ 109,458
OPERATING EXPENSES:
Cost of Electricity 66,990 75,010 71,650
Contract Services 2,640 2,519 2,807
Outreach & Marketing 248 182 264
Programs 175 1,185 834
Staffing 1,300 1,162 1,442
General, Administration and other 840 350 1,017
TOTAL OPERATING EXPENSES 72,192 80,408 78,014
TOTAL OPERATING INCOME 17,558 6,062 31,444
NONOPERATING REVENUES (EXPENSES)
Interest income 17 36 42
Interest expense (107) (38) (66)
TOTAL NONOPERATING REV/(EXPENSES) (90) (2) (24)
NET MARGIN $ 17,468 $ 6,060 $ 31,420
NET MARGIN % 19.5% 7.0% 28.7%
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 24 Item 19 – 2023 Operating Budget & Customer Rates
Updated Multi-Year Forecast
Note: 2023, 2024, and 2025 forecasted financials are based on the most current available data and assumptions. These scenarios rely on future rate adjustments, reserves, or both to mitigate future power cost volatility.
Description FY2019 FY2020 FY2021 FY2022 2022 2023 2024 2025 Revenue 51,035 55,249 54,657 29,366 86,470 109,500 75,500 73,500 Power Cost 38,540 41,538 54,234 30,139 75,010 71,650 54,150 57,100 Other Expenses 3,850 4,346 4,267 2,285 5,400 6,430 6,800 7,100 Net Income 8,646 9,365 (3,844) (3,058) 6,060 31,420 14,550 9,300 2022
Actuals Proforma*
Reserve
Building
Margin
Policy
Preliminary
Forecast**
2023
Budget
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 25 Item 19 – 2023 Operating Budget & Customer Rates
Other Considerations – Other Operating Expenses
Nearly flat compared to the 2022 budget - 5% increase (2022 CPI ~7%) The primary factors of increased costs in this category of expenses include:
• Customer program related to AgFIT and other programs. • Reduced interest expenses related to the use of credit lines • Increased interest income with rising interest rates and cash deposits. • 5% annual salary and contractor inflation rate based on the 2022 7% inflation rate. • 5% administrative contingency rate for unanticipated expenses. • Additional cost related to post covid operations (e.g. remote meeting technology) and Board stipends to match other local JPA stipends.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 26 Item 19 – 2023 Operating Budget & Customer Rates
Operating Budget Outlook Summary
• Loss in net income during 2022 would be recovered by the end of 2023 • Consistent with the adopted Rate and Budget policy
• Meets proposed financial objectives (Costs & Reserves) • Fully fund the 2023 budget
• Build reserves to achieve a credit rating
• Rate Competitive with PG&E and provide a level of financial relief to VCE’s low-income and at risk customers.
Recommendation
Approve 2023 Budget with $109.5M of operating revenues and $78M of operating expenses for a net income of $31.4M.
Valley Clean Energy Board Meeting – December 8, 2022
via video/teleconference
Item 20 – Rate Adjustment System / Policy
27 yvonnehunterphotography.com
Public Comments
28 To Provide Public Comment on any agenda item please:
➢ E-mail 300 words or less to: [email protected] OR
Join the Public Comment Queue by
➢ “Raising Hand” on Zoom Meeting
OR
➢ Press *9 if joining by phone
Emailed comments received before the item has concluded will be read into the record.
Emailed comments received after the item has concluded but before the end of the meeting will not be read but will be included in the meeting record.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 29 Item 20 – Rate Adjustment System / Policy
Overview
The rate adjustment system/policy was Introduced to the Board in September 2022 and presented to the CAC in October and November for additional development and feedback.
The draft policy provides a framework to make timely within-year customer rate changes based on Board approved parameters, to reflect external cost variations outside VCE's direct control.
This presentation will provide:
• Background & Summary of Draft Rate Adjustment Policy
• Rate Adjustment Examples
• Discussion & Recommendation
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 30 Item 20 – Rate Adjustment System / Policy
Summary
A Rate Adjustment System “RAS” / Policy is a common administrative tool for Load Serving Entities (IOU’s, POU’s, CCA’s) to adjust customer rates within defined parameters to more timely and accurately adapt to cost impacts outside the LSE’s control. If adopted, the proposed policy incorporates VCE’s strategic plan goals and policies:
Budget Policy Reserve Policy
Rates Policy Strategic Plan
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 31 Item 20 – Rate Adjustment System / Policy
Rate Adjustment Drivers:
Rate adjustments are driven by the following types of impacts and factors outside of VCE’s direct control.
• Price shocks - are quite common in the power business • Obligation to Serve/Pay - VCE has an obligation to serve customers and pay suppliers • Regulatory Mandates - PG&E rates / PCIA / regulatory procurement mandates • Timeliness - Aligning more closely the "cost event(s)" Note: VCE does not have guaranteed “cost recovery” or balancing accounts Rate Adjustment System can help spread the annual rate adjustment requirements
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 32 Item 20 – Rate Adjustment System / Policy
Draft Rate Adjustment Policy
Key Policy features:
• Rates are reviewed annually by the VCE Board (annual budget). • Board approved parameters set the bounds for within-year rate adjustments.
• Within-year rate adjustments can only be triggered by energy supply cost and/or regulatory events.
• Rate adjustments require approval by the VCE's Energy Risk Oversight Committee (EROC) before implementation.
• Any with-in year rate adjustment(s) will be reported to the Board at its next regularly scheduled meeting.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 33 Item 20 – Rate Adjustment System / Policy
Draft Rate Adjustment Policy – Adjustment Categories
Energy Cost Adjustments
• Power costs including renewable resources, energy and energy hedges, resource adequacy, capacity products, and demand side management (DSM) costs, including revenue losses, not otherwise included in VCE's retail generation rates.
Regulatory Adjustments
• These adjustments are intended to recover and adjust VCE revenues to remain within Board authorized revenue requirements/total bundled rate discounts/ premiums when VCE’s finances are materially impacted by CPUC or other regulatory body decisions.
Item 20 – Rate Adjustment System / Policy
34 CAC Recommendation
The CAC recommended that the Board adopt the following:
a. Customer rate adjustments shall be calculated no more than once per month; b. Such monthly adjustment shall not result in more than a 7.5% 5% increase/decrease to VCE's weighted average total generation rate; c. The net annual cumulative limit for within-year customer rate adjustments authorized under this policy is a total of 15% 10% unless modified by the Board;
d. Rates are reviewed annually by VCE Board as part of the annual budget process.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 35 Item 20 – Rate Adjustment System / Policy
Draft Rate Adjustment Policy – Recommended Authorizations Type of Rate Adjustment Authorized Adjustments
Energy Cost
Adjustments
• No more than 1/mo
• Individual adjustment no more than a 5% increase/decrease Regulatory
Adjustments
(actions by
regulatory bodies
and/or PG&E)
• No more than 1/mo
• Individual adjustment no more than a 5% increase/decrease • Calculate and implement any such Regulatory Adjustment within 90 days following PG&E's implementation of such actions.
Annual
Cumulative Limit
• No more than 15%/yr. The Board may modify this limit.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 36 Item 20 – Rate Adjustment System / Policy
Summary
Staff recommends adopting a rate adjustment policy. The proposed policy is similar to those implemented by other utilities and CCAs. Staff believes its recommendation for VCE’s Rate Adjustment Policy is fiscally prudent and connects key financial policy and strategic plan principles.
• VCE’s Budget Policy
• Rates policy
• Reserve policy
• 2021-2023 Strategic Plan.
If approved, the rate adjustment policy would be implemented in 2023.
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 37 Item 20 – Rate Adjustment System / Policy
Recommendation
Adopt the Draft - Rate Adjustment Policy including the following key elements:
a. Customer rate adjustments shall be calculated no more than once per month;
b. Such monthly adjustment shall not result in more than a 5% increase/decrease to VCE's weighted average total generation rate; c. The net annual cumulative limit for within-year customer rate adjustments authorized under this policy is a total of 15% unless modified by the Board; d. Rates are reviewed annually by VCE Board as part of the annual budget process.