Valley Clean Energy Board Meeting – Thursday, June 13, 2024 Item 12 - Receive legislative update presented by Pacific Policy Group 1 yvonnehunterphotography.com
yvonnehunterphotography.com
Public Comments
2 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 12 - Receive legislative update
3 Dates & Deadlines
• June 15 – Last day for the Legislature to pass Budget Bill • June 27 – Last day to submit ballot measures to the Attorney General • July 3 – Last day for policy committees to hear fiscal bills (2nd House) • July 4 – August 5 – Summer Recess
• August 31 – Last day of 2024 Legislative Session
• October 1 – Last day for Gov. Newsom to sign or veto bills • November 5 – Election Day
• December 2 – Legislature convenes the 2025 session
Item 12 - Receive legislative update
4 Legislation Letup
• Significant Energy Legislation over past few years
• Budget problems impact bill decisions
• Bills on bills – legislation looking into reducing rates • Can’t reverse PUC decisions
• NEM Bills
• IGFC Bills
Item 12 - Receive legislative update
5 Budget – From Bad to Worse
• Total budget deficit of $45 billion
• More deficit projected for the FY 2025-26
• Energy programs reduced and deferred
• Funding reduced for Reliability Reserve and Central Procurement Entity • Questions on Diablo Canyon loan
• Future Opportunities
• Clean Energy Reliability Investment Plan
• Clean Transportation Program
• Climate Bond
Valley Clean Energy Board Meeting – Thursday, June 13, 2024 Item 13 - Receive PPA Energy Prepayment Overview by PFM Financial Advisors 6 yvonnehunterphotography.com
yvonnehunterphotography.com
Public Comments
7 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.
© PFM 8
Energy Prepayment Overview
PFM Financial Advisors LLC 1150 S. Olive Street
10th Floor
Los Angeles, CA 90015
213.489.4075
June 13, 2024
© PFM 9
Prepayment Transaction Overview
Goal – Reduce cost of power purchases by 8% or more
How – Leverage use of tax-exempt bonding capacity to secure long-term supply Background
Codified in the U.S. tax law
Used since the 1990s largely for natural gas transactions Over 100 transactions totaling over $75 billion completed in the U.S. – mostly for gas Eleven energy prepayment transactions totaling $9.8 billion completed last few years for six California Community Choice Aggregators
➢ East Bay Community Energy ➢ Pioneer Community Energy
➢ Silicon Valley Clean Energy ➢ Clean Power Alliance
➢ Marin Clean Energy ➢ Central Coast Community Energy
© PFM 10
Prepayments That Have Been Completed by CCAs in California Date Amt. ($000) Issuer Description Beneficiary
09/2021 1,234,720 California Community Choice Fin Auth Elec (Green) SVCE, EBCE 11/2021 602,655 California Community Choice Fin Auth Elec (Green) MCE 06/2022 931,120 California Community Choice Fin Auth Elec (Green) EBCE 12/2022 459,640 California Community Choice Fin Auth Elec (Green) Pioneer 01/2023 841,550 California Community Choice Fin Auth Elec (Green) SVCE 02/2023 998,780 California Community Choice Fin Auth Elec (Green) CPA 06/2023 958,290 California Community Choice Fin Auth Elec (Green) CPA 08/2023 997,895 California Community Choice Fin Auth Elec (Green) EBCE 10/2023 647,750 California Community Choice Fin Auth Elec (Green) CCCE 12/2023 1,038,285 California Community Choice Fin Auth Elec (Green) MCE 01/2024 1,101,625 California Community Choice Fin Auth Elec (Green) SVCE Total $9,812,310
All transactions to date have achieved @9.5% savings or better.
Most recent transactions have been over 12%
© PFM 11
Prepayments That Have Been Completed by Municipal Utilities in California Date Amt. ($000) Issuer Description Beneficiary
06/2006 230,845 Vernon Nat. Gas Fin Auth Nat Gas City of Vernon Elec 01/2007 209,350 Roseville Natural Gas Fin Auth Nat. Gas City of Roseville Elec 05/2007 757,055 Northern Ca Gas Auth No. 1 Nat. Gas SMUD 09/2007 887,360 Long Beach Bond Fin Auth Nat. Gas City of Long Beach 10/2007 504,445 So. Ca. Pub. Power Auth Nat. Gas Multiple MOUs 10/2007 251,695 Long Beach Bond Fin. Auth Nat. Gas City of Long Beach 08/2009 901,620 M-S-R Energy Authority Nat. Gas MID/Redding/SVP 10/2009 514,160 So. Ca Pub Power Auth (Windy Flats) Elec (Wind) LADWP, Mult. MOUs 04/2010 778,665 Cal. Statewide Comm Dev Auth Nat. Gas SMUD 2010/11 394,700 So. Ca Pub Power Auth (Milford 1 & 2) Elec (Wind) LADWP, Mult. MOUs 12/2018 539,615 Northern Ca Energy Auth Gas/Elec SMUD
5/2024 592,270 So. Ca Pub Power Auth (Energy Prepay) Elec Anaheim Total $6,561,780
SCPPA/APU transaction last month saved over 15% on old/expensive PPAs © PFM 12
Entities Involved in an Energy Prepayment Transaction
VCE – Has existing Power Purchase Agreement(s) for clean energy Prepay Counterparty – Typically a financial institution with a commodity presence or a financial institution partnered with a commodity market participant Issuer – Bond issuing entity formed for sole purpose of selling the prepayment bonds, typically a Joint Powers Authority (“JPA”). CCAs to date have used the California Community Choice Financing Authority (“CCCFA”).
Existing Power Supply Counterparty – Agrees to limited assignment of the existing PPA Bond Investors – Purchase the non-recourse tax-exempt prepayment bonds © PFM 13
1) VCE limited assigns PPA to
Counterparty
2) The Counterparty delivers power
to CCCFA via a Master Power
Supply Agreement
3) VCE and CCCFA execute a
Clean Energy Purchase Contract
4) CCCFA delivers power to VCE
5) CCCFA issues non-recourse tax-exempt bonds
6) CCCFA makes a prepayment to
the Counterparty for power
supply
7) VCE makes payments to CCCFA
net of >8% savings
8) CCCFA makes debt payments
with payments from VCE
Summary of Energy Prepayment Structure Mechanics
PPA to be
“Partially
Assigned”
1 Non-Recourse
Tax-exempt
Debt Debt
Service
Bond
Proceeds
VCE
Counterparty
MWhs
Prepayment $$$
PPA Price
less Discount
MWhs
CCCFA
Clean
Energy
Purchase
Contract
2 3
4 5
6 7
8 © PFM 14
How are the Savings Generated?
The Counterparty values prepayment as an alternate source of capital funding at its higher cost of capital ~ 5%
PPA fixed price cash flows of ~$45MM annually over the life of the deal are discounted at that 5% rate to establish the upfront prepayment amount CCCFA issues tax-exempt bonds to pay the upfront prepayment at a lower interest cost ~ 4.25% versus the counterparty’s funding rate of ~5%
CCCFA bond payments ~$40MM annually are lower than the existing ~$45MM PPA payments
~$5MM in cashflow savings are generated
Savings are quoted net of all upfront and annual transaction expenses Numbers are for illustration purposes only.
© PFM 15
Favorable Risk Allocation – “Take-and-Pay” Structure
Prepay Counterparty default on energy
delivery
VCE receives too much energy and is unable
to have Qualified Use and/or has to meet new
renewable mandates in the future
Debt obligation could obligate VCE over long-term
Rating agency treatment of prepay debt
Debt is non-recourse to VCE, and VCE’s obligation
is take and pay. Rating agencies do not count
prepay transactions as debt or fixed costs of VCE
Prepay Counterparty will remarket the energy to
qualified entities to ensure VCE compliance with
Qualified Use
VCE only pays for energy if/when Prepay
Counterparty delivers the energy
Prepay Counterparty assumes debt obligations in
the event of Prepay Counterparty default
Risk Mitigation
Guaranteed Investmnet Contract (GIC)
provider counterparty fails to perform
Documents allow for replacement of GIC provider;
Supplier is likely GIC provider (thus no additional
risk)
Key Risk – Transaction terminates and VCE no longer receives expected savings © PFM 16
Valley Clean Energy Board Meeting – Thursday, June 13, 2024 Item 14 – 2024 Mid-Year Financials Update 17
Public Comments
18 To Provide Public Comment on any agenda item please:
➢ E-mail 300 words or less to: [email protected] OR
If in person, complete a COMMENT CARD
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)] 19 Item 14 – 2024 Mid-Year Financials Update : Overview Overview
VCE Staff continues to monitor and update the Board on budget performance for long-term financial sustainability and customer affordability. 2024 load actual have been lower than forecasted due to wet winter and lower spring temperatures.
This presentation will provide:
• Background of 2024 Budget Development
• 2024 Financials Update
• Short-term Outlook and Considerations
• Next Steps and Discussion
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 20 Item 14 – 2024 Mid-Year Financials Update : Budget Development 2024 Rates & Budget Background: Key objectives
• Operating Days Cash – Maintain Board approved cash target of +180 days • Debt Repayments – Early repayment of term loan with River City Bank in 2023. (Completed) • Power Cost Contingencies – (Increased)
• Operational Contingency 5%/ $3.6 M
• $1.5M for 2024 Resource Adequacy (RA) and Renewable Energy Certificates (RECs) • Power Purchase Agreement (PPA) Covenants – Maintain PPA covenants (no letters of credit) • Investment Grade Credit Rating – Update Timeline (Possible 2025) • Customer Programs and Dividends (Increased)
• $2M in programs budgeted for 2024
• Customer Programs and Dividends Policy - Q2 of 2024 (2023 audited financials) Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 21 Item 14 – 2024 Mid-Year Financials Update : Budget Development Long-term Outlook: Fixed Price PPAs
• Will increase by ~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) – Note: new RA “Slice of Day” regimen begins in 2025 increasing RA market uncertainty.
VCE PPA Contributions (Risk Reduction )
*Willy 9 Chap 2 Solar PV + Storage Project (72 MW
PV /36 BESS / approx. 215,000+ MWhs)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,000
750,000
800,000
850,000
900,000
950,000
1,000,000
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 MWh
Renewable 13% 18% 54% 80% 82% 85% 86% 83% 80% 77%
Annual RPS Position
Fish Lake Contracted
Ormat Contracted
Willow Springs Contracted
Gibson Contracted
Resurgence Contracted
Putah Creek Contracted
Indian Valley Contracted
Aquamarine Contracted
Short-Term RECs
VCE Retail Load
RPS Requirement
Description 2023 2024
Power Costs
Began 2023 with PPAs for
~150+ GWh
(approx. 13% of VCE
annual Load)
*Begin 2024 with PPAs
for ~400+ GWh
(approx. 50% of VCE
annual Load)
Power Cost
Contingencies
PPAs provide 75 MW RA
(approx. 36% of VCE
annual req.)
PPAs provide 143 MW RA
(approx. 70% of VCE
annual req.)
VCE Current Renewable Portfolio Trajectory
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 22 Item 14 – 2024 Mid-Year Financials Update : Load Update -
10,000
20,000
30,000
40,000
50,000
60,000
F A F A F A F A
January February March April
MWh
Lighting Industrial Large Commercial Med. Commercial Small Commercial Agriculture Residential -3.3% -8.1% -23.4% -33.8%
VCE Retail Load Update – Forecast vs Actual
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
F A F A F A F A F A F A F A F A F A F A F A F A
January February March April May June July August September October November December MWh
Lighting Industrial Large Commercial Med. Commercial Small Commercial Agriculture Residential 50% Load Forecast (Peak Season) 28% Load Forecast Off-Peak Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] Item 14 – 2024 Mid-Year Financials Update : Load Update VCE Retail Load Update
28% Load Forecast / Actuals
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 24 Item 14 – 2024 Mid-Year Financials Update : Proforma 2024 Budget Proforma Update (4 Months Actuals – unaudited) Note: The table does not account for anticipated increased power market price, renewable energy credits, and resource adequacy costs Key Highlights
• Revenues are lower than forecasted primarily due to lower load during mild wet winter and cool spring. • Power Costs have been higher than budgeted due to solar curtailment and lower winter temperatures.
Description Variance
Revenue $ 107,050 $ 104,519 $ (2,531)
Power Cost $ 75,200 $ 76,634 $ (1,434)
Other Expenses $ 7,350 $ 7,350 $ -
Net Income $ 24,500 $ 20,536 $ (3,964)
APPROVED
2024 BUDGET
2024 Proforma
(4 Month Actuals +
8 Month Budget)
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 25 Item 14 – 2024 Mid-Year Financials Update : 2024/25 Outlook Factors Impacting Forward Power Costs
2024 Mild Weather & Spring → Lower Energy Costs for 2024/2025 • Increased supply of hydro power → increase RECs / decreased energy prices • Increased curtailment of solar → decreased PPAs value / increase REC costs • Increased supply of natural gas storage → lower winter energy forwards Resource Adequacy Costs Higher - 2025 Slice of Day (Next Slide) • Increase demand for compliance – offset cost reductions / increase total costs • RA costs are forecasted to normalize over the long-term (+3 years) PG&E 2025 PCIA & Rates Proceeding
Lower power costs result in increased volatility in competitive rates for cost recovery. • PCIA is currently forecasted to increase significantly in 2025 (2024 under-collection) ~$14M Revenue Impact
• PG&E Bundled Rates are currently forecasted to decrease 2025 ~$10M Revenue Impact Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 26 Item 14 – 2024 Mid-Year Financials Update : 2024/25 Outlook 2025 Slice of Day (SOD) Compliance Outlook
• Slice of Day Transactability (Hourly) - no trading or SWAP market currently allowed • California Public Utilities Commission (CPUC) planning reserve margin of 17% • Increased demand for base Load – shift from peak load • New resources constrained by IOUs transmission systems (interconnection backlog) • Final CPUC SOD decisions / allocations to be released in July • Increased Power Costs → increase power cost trading collateral (cash or letters of credit) 2025 Other Considerations – Possible Mitigation Strategies (Reduce Costs) • Power Purchase Agreement Prepay – decrease overall power costs (Debt Policy) • Sell Long RA positions & Renewable Energy Credits - market value at all-time high (Procurement Policy)
• Raise Rates for Power Costs (Standard Green higher than PG&E) (Rate Policy) • Increased timeline for initial investment grade credit rating (2028 Strategic Plan Goal) Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 27 Item 14 – 2024 Mid-Year Financials Update : CAISO 2024 RA Outlook https://www.caiso.com/Documents/Briefingon2024SummerLoadsandResourcesAssessment-Presentation-May2024.pdf Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 28 Item 14 – 2024 Mid-Year Financials Update : RA Outlook (Example) -
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2020 2021 2022 2023 2024 2025 2026 2027
Resource Adequacy Costs
RA Costs (Thousands) RA MW Required Capacity RA $/MW
CPUC
Slice of Day Decision
2024 Test Year / 2025 Compliance Year
VCE Fixed Price Contracts (PPAs)
Reduce RA and power costs.
$MM
$
MW
Item X – Short Title and Slide Description [Calibri (Body) 29 font (not bold)] 29 Item 14 – 2024 Mid-Year Financials Update : Next Steps / Discussion Next Steps
• June 2024 – Issuance of RFP for PPA pre-payment (July RFP Award) • July 2024 – Release of CPUC final decision and evaluate power cost mitigation strategies. • September 2024 - Return to Board with power cost mitigation and financial forecast update. • October – December 2025 budget process.
Discussion