Valley Clean Energy Board Meeting – Thursday, December 12, 2024 Item 19 – 2025 Operating Budget & Customer Rates
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3 Item 19 – 2025 Operating Budget & Customer Rates
Overview
VCE’s financial outlook indicates increased stability and cost certainty with VCE’s long-term PPA’s on-line combined with continued growth in cash reserves positioning VCE to receive an initial investment grade credit rating in 2025. 2025 Proposed Customer Rates and Budget include the following Items:
• Lower 2025 VCE Customer Rates vs. PG&E Generation Rates • Continues to build programs in 2025
• Updated Financial Reserves Policy (Item 15) - Continues to build cash reserves for VCE’s credit rating & rate stabilization
This presentation provides:
1. Update on the 2024 Operational Budget (10 Months actuals)
2. Recommended 2025 Customer Rates
3. Proposed 2025 Budget
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4 Item 19 – 2025 Operating Budget & Customer Rates
1. 2024 Operational
Budget Update
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5 Item 19 – 2025 Operating Budget & Customer Rates
Key Factors influencing the VCE 2024 Budget
• Load Forecast - 2024 energy use in most sectors have been lower than forecasted in first half of 2024. 2024 Actual energy use lower than forecasted mostly related to agriculture due to a wet and long winter and cooler spring temperatures . Retail load normalized in the second half of 2024. • Budgeted revenues – 2024 Revenues lower than forecasted driven by lower usage as described above.
• Power Costs – 2024 power prices remained fairly consistent throughout 2024 despite lower load demand, stable natural gas storage levels and lower natural gas prices for an overall decrease of approximately 4%.
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6 Item 19 – 2025 Operating Budget & Customer Rates
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
100,000
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 ITEM X – SHORT TITLE AND SLIDE DESCRIPTION [CALIBRI (BODY) 29 FONT (NOT BOLD)]
7 Item 19 – 2025 Operating Budget & Customer Rates
Note: The 2024 interim audit will begin in January 2025 and will be completed in the second quarter of 2025. Adjustments, if any, will be included in the annual report. 2024 Operational Budget Update
Description Variance
Revenue $ 103,881 $ 100,800 $ (3,081)
Power Cost $ 75,200 $ 71,500 $ 3,700
Other Expenses $ 6,800 $ 6,305 $ 495
Net Income $ 21,881 $ 22,995 $ 1,114
APPROVED
2024 BUDGET
2024 Proforma
(10 Month Actuals
+ 2 Month Budget)
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8 Item 19 – 2025 Operating Budget & Customer Rates
2. Recommended 2025
Customer Rates
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9 Item 19 – 2025 Operating Budget & Customer Rates
VCE 2025 Proposed Rates
VCE Cost-Based Rate Policy: (Update Adopted November 2021) • VCE sets rates to collect sufficient revenue from participating customers to fully fund VCE's Budget and establish sufficient operating reserve funds. • VCE’s 2024 Target was set to fully fund 180 days of operating cash reserves and incorporated into 2024 rate setting.
2025 Customer Rates - Key Drivers
VCE has incorporated the following assumptions in its updated financial forecasts for 2025 (assuming PG&E rates/PCIA are implemented on January 1, 2025):
• PCIA: 75% decrease over 2024 PCIA (net zero charge)- Results in approximately + $4M in revenue for 2025 • PG&E Bundled rates (PCIA & Generation): 5-7% increase – Results in approximately + $6M revenue for 2025 Note: Staff continues to evaluate the balancing of rate affordability, rate equity, and environmental impacts through the cost recovery rate setting process.
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2025 Rate Discounts/Revenue Investment
Revenues can be “invested” in rate discounts, programs, increased procurement of clean energy resources (e.g. short-term RECs), or a combination of these and other elements. • Every 1% discount results in approximately $1.50/month reduction in the average residential customer bill and approximately $3.75/month reduction in the average small commercial customer bill
• Every 1% discount would be approximately $1M in reduced net income available for cash reserves, rate stabilization, programs, and procurement of additional clean energy resources. Net Income allocations for reserves and programs are normally evaluated in May as part of VCE’s audited financial results.
• If selected, rate discounts are best implemented during PG&E rate changes (e.g.
January), to minimize billing efforts, risk of errors, and customer messaging. 10 Item 19 – 2025 Operating Budget & Customer Rates
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11 Item 19 – 2025 Operating Budget & Customer Rates
VCE Rates Recommendation
Approve 2025 VCE Customer Rates:
1. Standard Green Rates (default rate): 5% Discount to PG&E’s 2025 generation Rates (increase VCE’s 2024 rate discount by 3%)
i. 10% Discount to PG&E 2025 Rates for CARE/FERA and Medical Baseline customers (increase VCE’s 2024 rate discount by 5.5%)
2. Base Green Rate (Opt-down rate option): discount of 2.5% to PG&E 2025 generation
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12 Item 19 – 2025 Operating Budget & Customer Rates
3. Proposed 2025 Budget
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13 Item 19 – 2025 Operating Budget & Customer Rates
2025 Budget (Proposed) & Multi-Year Forecast - Key Factors • 2025 Customer Rates (VCE & PG&E Comparison) VCE will set customer rates to collect sufficient revenue from participating customers to fully fund VCE's Budget and continue to contribute to reserve funds to obtain an initial investment grade credit rating.
• 2025 PCIA Forecast –75% decrease over 2024 PCIA (net zero charge)- Results in approximately $4M increase in revenue for 2025
• 2025 Customer Rates Forecast – 5-7% increase for PG&E Generation Rates – Results in approximately $6M revenue for 2025.
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14 Item 19 – 2025 Operating Budget & Customer Rates
2025 Budget (Proposed)
• 5% rate discount for Standard
Green (Total Bill)
• 10% rate discount for CARE/FERA
and Medical Baseline customers
• Includes a target of ~180+ days
cash reserves by the end of 2024
& Rate Stabilization Reserves in
2025.
• $2M in Customer Programs
VALLEY CLEAN ENERGY
2025 DRAFT BUDGET SUMMARY
ACTUAL (YTD)
APPROVED Oct. 31 2024 PROPOSED
2024 BUDGET 2024 Proforma 2025 BUDGET
OPERATING REVENUE $ 106,500 $ 96,250 $ 101,200
OPERATING EXPENSES:
Cost of Electricity 75,200 72,500 64,000
Contract Services 2,261 2,196 2,640
Outreach & Marketing 300 235 370
Programs 2,018 1,102 2,170
Staffing 1,632 1,632 2,100
General, Administration and other 1,139 1,560
TOTAL OPERATING EXPENSES 82,550 77,665 72,840
TOTAL OPERATING INCOME 23,950 18,585 28,360
NONOPERATING REVENUES (EXPENSES)
Interest income 550 826 990
Interest expense - -
TOTAL NONOPERATING REV/(EXPENSES) 550 826 990
NET MARGIN $ 24,500 $ 19,411 $ 29,350
NET MARGIN % 23.0% 20.2% 29.0%
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15 Item 19 – 2025 Operating Budget & Customer Rates
Updated Multi-Year Forecast
Note: 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.
Programs & +180 Days Operating Cash
Description 2022 2023 2024 2025 2026 2027 2028
Customer Revenue 85,323 95,430 100,800 101,200 97,300 100,500 101,700 Power Cost 75,130 68,528 71,500 64,100 72,100 69,700 68,400 Other Expenses 4,469 6,030 6,305 7,750 8,138 8,544 8,972 Net Income 5,724 20,872 22,995 29,350 17,063 22,256 24,328 Actual YTD
August 31 (10 MO)
+ Forecast (2 MO)
2025
Proposed
Actuals Budget *Preliminary Forecast
Customer Discounts, Programs & Rate
Stabilization Reserves
* The preliminary forecast is based on analysis by CalCCA, MRW, and TEA and power cost forwards.
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16 Item 19 – 2025 Operating Budget & Customer Rates
Other Considerations – Other Operating Expenses
Proposed costs in this category of expenses include:
• VCE’s initial investment grade credit rating in 2025
• Customer Programs - $2.2 M in customer programs related to AgFIT expansion, ERRO, EV Phase II, Member Agency Energy Advisory, and other programs. • Additional cost for office leasehold improvements
• Strategic Plan - “Major Update” and customer focus groups • Staffing Positions - Sr. Financial Analyst and Regulatory & Legislative Analyst • Staffing Adjustments - Allowance for Staffing market adjustments based on recent salary survey results; between 5-9% dependent on position and potential promotions. • 4% annual salary and contractor inflation rate based on the 2024 4% inflation rate.
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17 Item 19 – 2025 Operating Budget & Customer Rates
Operating Budget Outlook Summary
Consistent with the adopted Reserves, Rates, and Budget policy, Staff is recommending that VCE set rates and adopt a budget for 2025 at a level that will fully fund the 2025 budget, offer more affordable rates to VCE customers with additional financial relief to CARE/FERA and Medical Baseline customers while positioning VCE to achieve and maintain an investment grade credit rating in 2025.
Recommendation
Approve 2025 Budget with $102.1 M of operating revenues and $72.7 M of operating expenses for a net income of $29.4 M.
Valley Clean Energy Board Meeting – December 12, 2024
Item 20 – GHG-Free Allocations From Large Hydro and Nuclear Resources yvonnehunterphotography.com yvonnehunterphotography.com 18 yvonnehunterphotography.com
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o PG&E has historically provided hydro allocations to all eligible LSEs o Eligible LSE defined as:
1) Having forecasted load identified in PG&E’s ERRA Forecast Application for the first calendar year of the delivery period in which the allocation amount is accepted 2) Serves customers who pay the PCIA departing load charges for the market cost of non-RPS-eligible large hydro resources o Allocation amount is the amount of GHG-Free Energy generated from the non-RPS-eligible large hydro resources corresponding to each eligible LSE’s allocation ratio o Allocation ratio is the monthly % share allocated to each LSE calculated based on LSE’s load forecast for PCIA-paying customers responsible for the cost of the non-RPS-eligible large hydro resources and the total forecasted load for PCIA-paying customers responsible for the cost of the non-RPS-eligible large hydro resources
o VCE’s 2024 average monthly hydro allocation ratio = 1% (~89K MWhs for 2024)1 20 Item 20: PG&E Carbon Free Hydro Allocations
1) VCE rec’d 83k in ‘23, and ‘24 is tracking similar to yr 2023. VCE will not know the final 2024 volume until April 2025.
2) Hydro facilities are comprised of 25+ different resources from the PG&E system located in the Sierra’s. o Diablo Canyon Power Plant (DCPP) is licensed to operate until 11/2/24 (Unit 1) and 8/26/25 (Unit 2)
o An exception has been granted to continue operations until 10/31/29 (Unit 1) and 10/31/30 (Unit 2)1
o Under this extension, Unit 1 will be online as of 1/1/25 and Unit 2 will be online as of 9/1/25.
o Because PCIA-paying customers are paying for the extended operations, PG&E will allocate the “benefits” to eligible LSEs statewide beginning 1/1/25 (i.e. GHG-free attributes) o Eligible LSEs:
1) Pays for eligible DCPP extended operations costs
2) Has been identified by the Commission for the nuclear energy allocation ratio 21 Item 20: PG&E Carbon Free Nuclear Allocation
1) CPUC Decision 23-12-036 extended the operation of Diablo Canyon Nuclear Power Plant. o Nuclear allocation ratios will be an annual percentage share of the nuclear allocation amount o Annual percentage shares will be calculated by the CPUC with input from the CEC o VCE’s 2025 estimated nuclear allocation is ~21K MWh (0.4% annual allocation ratio) o Estimation is based on historical DCPP generation, historical IOU load data, and historical VCE load data
o Estimation reflects DCPP Unit 1 online date of 1/1/25 and DCPP Unit 2 online date of 9/1/25 o Nuclear allocation ratio (0.4%) vs. hydro allocation ratio (1%) o Nuclear allocation is statewide
o Hydro allocation is PG&E TAC area only
o VCE is allocated resource adequacy (RA) capacity from DCPP for the 2025 RA compliance year, with an average of 6 MW of nuclear capacity per month (ranges from approximately 4MW up to 10 MW)1 22 Item 20: DCPP Allocation
1) RA nuclear allocation is generally new for 2025, but it was also included in the November and December allocations for 2024 related to the extension of the unit’s operation. 23 Item 20: RA Slice of Day Resources
o Free product: no additional cost to VCE (VCE customers already paying for it) o Carbon Free nuclear allocation will not increase GHG Emissions Intensity reported on the PCL o CEC’s emissions factor for DCPP is 0
o Will increase VCE’s 2025 projected long carbon free position o Nuclear allocations cannot be marketed (resold)
o VCE staff considering the possibility selling a portion of the large hydro allocations o Many CCAs – including MCE, SCP, PCE, Ava, DCE, Pioneer, RCEA, and SVCE – have elected to accept the nuclear attributes for 2025
o Prior years nuclear was not allocated to LSEs for RA purposes. Now LSEs must take the nuclear RA allocations.
24 Item 20: Takeaways
1. Accept the 2025 allocation of large hydro GHG-free attributes;
2. Accept the 2025 allocation of nuclear power GHG-free attributes;
3. Recommend the Executive Officer enter into an agreement(s) with PG&E to accept the 2025 Large Hydro and Nuclear GHG-free allocations. 25 Item 20: Recommendation