Environmental Sustainability Subcommittee
Energy Subcommittee
July 20, 2026
Analysis Concerning the Benefits and Drawbacks of Joining the Orange County Power Authority
The Energy subcommittee of the Environmental Sustainability Committee has concluded the first phase of our analysis of the benefits and drawbacks of joining the Orange County Power Authority (OCPA). Throughout this process, we were particularly attentive to the request by the City Council as well as the City Manager and City Attorney to better understand the risks to the City associated with joining OCPA. As a result, we spent a considerable amount of time delving into OCPA’s finances and the various programmatic elements driving them (e.g., customer retention). Appended to this summary are two documents: a financial snapshot of OCPA, and a review of their performance through March 30, 2026, which contains more detailed analysis and color commentary.
Our analysis has led us to conclude that the risks to the City by quickly moving to join OCPA seem to us to outweigh potential benefits. As a result, we are recommending postponing any further analysis on our part or discussions with OCPA management until we see how they weather the next few months, during which time our concerns will either be confirmed or mitigated. If the latter, we can resume work aimed at joining toward the end of 2027.
Key drivers of this recommendation are:
• During the last year, OCPA has only been able to maintain rates and stay barely break-even by relying heavily on reserves and income from investments. $45 million was set aside in a rate stabilization reserve in 2025 and used in its entirety as planned. Investments may continue to produce substantial income, but that would assume ongoing growth in the stock market, which is highly uncertain. Management has indicated that they continue to build up general reserves to provide a buffer against cost volatility that might impact rates, but they have provided no guidance on future rates beyond the following: “The OCPA Board has also authorized a cost-ofservice rate study to support the 2027 rate-setting process. The purpose of the study is to establish a more durable and transparent rate framework that is grounded in OCPA’s actual revenue requirement, cost structure, customer classes, product design, and reserve targets.”
• Because two of OCPA’s largest customers (Huntington Beach and the County) pulled out over the last year, the stability of the customer base is shakier now than a couple of years ago. While Irvine has threatened to depart, they seem committed at the moment. However, the risks to a small town like Laguna Beach are increased when there isn’t a stable base of large customers to ensure ongoing operations. We realize that this is a bit of a Catch 22 – if Laguna doesn’t join, who else will want to jump in? Attachment 1
6 But holding off for a year could give us a chance to recruit others to join simultaneously and/or give the County an opportunity to reconsider. • While OCPA staff maintain that costs to the City to join OCPA are minimal, they are not zero. In addition to the upfront costs highlighted by the City Manager and City Attorney during the most recent Council discussion of OCPA, there are ongoing costs in the form of additional staff, something the City might be challenged to provide in its current financial situation.
• For the bulk of our residents and businesses (those served by Southern California Edison), joining OCPA will increase electricity bills. Part of that increase comes from the fact that OCPA’s underlying energy costs are higher than SCE’s, even at the same mix of renewable and fossil resources. Under options that include higher percentages of renewables, that difference is even more dramatic (e.g, average monthly residential bills would increase ~15% if we chose 100% renewable energy as a default). On top of energy costs, a major driver of the difference in rates is the Power Change Indifference Adjustment (PCIA), effectively a fee that Community Choice Aggregation (CCA) customers are required to pay to the incumbent Investor-owned Utility for leaving. The PCIA was a burden but manageable until last year, when the California Public Utilities Commission dramatically increased it. While the CCAs have been fighting these changes, the IOUs have been effective in convincing the CPUC to adopt their perspective and maintain these high fees. Residential customers served by SDG&E would probably not see will increases at 100% renewable energy and might even see modest decreases at the lowest tier of renewables – again, assuming that the differential in the energy costs between SDG&E and OCPA remain the same in 2027.
• Beyond reducing the City’s carbon footprint, there are benefits to joining OCPA, to be sure. These include more favorable net metering tariffs and potentially other programs directing incentives to the City and our residents. However, these are highly dependent on OCPA maintaining profitability without dramatically increasing rates as well as retaining their existing customer base and even expanding it. These conditions are far from certain.
If we postpone further consideration of OCPA until next year, there are steps we can take in the interim.
• One question remains: if not OCPA, is there another Joint Powers Authority (JPA) that makes sense for us to join? Three years ago we took a fairly detailed look at Clean Energy Alliance, which serves several communities in north San Diego County. Since their charter only allows them to deal with SDG&E, adding a city served mostly by SCE might be a challenge for them. Still, it would be worth a conversation to see if joining a more financially stable JPA would still be attractive to them and to us. • SCE has a (state-mandated) program in which individual residents can have their energy needs covered by the output of specific solar farms around the state. Rates may differ from SCE’s normal rates, but ratepayers would be guaranteed 100% renewable energy. SDG&E appears to have a similar program, though it’s not easy to 7 access. For those residents who are most interested in committing to 100% renewable energy but can’t install solar on their homes, we could make it as easy as possible to join these programs.
• Several members of our community have been adamant about joining OCPA, and we will need to reach out to help them understand why postponing a decision is wise. • We will also need to continue to monitor emissions relative to the goals of the Climate Action and Adaptation Plan adopted by the City Council last year. While it isn’t necessary to join OCPA or another JPA to reach those goals, it would obviously make it easier to achieve them sooner.
Appendices Follow:
1. Financial Snapshot of OCPA as of March 31, 2026
2. Financial Review of OCPA, January 2024 through March 31, 2026 APPENDIX 1: FINANCIAL SNAPSHOT AS OF MARCH 31, 2026
Operating Revenue $217.6
M
↓ from $283.5M at Jun 2025
Total assets $107.0
M
↓ from $144.0M at Jun 2025
Total liabilities $65.7M ↓ from $69.3M at Jun 2025
Net position $41.3M ↓ from $45.0M at Jun 2025
Debt to net position 1.59× Healthy range is < 2.00×. Total liabilities ÷ net position. Lower = stronger balance sheet. For context, this excludes the $929.4M prepayment bond (held at the CCCFA level, not on OCPA's balance sheet).
Liquidity ≥1.44× Above 1.0× = can cover short-term obligations. For energy retailers with large monthly payables, ≥1.2× is healthy. OCPA is considered adequate.
Cost of energy as % of
expenses
97.7% The dominant cost driver. Typical CCA range: 85%–97%.
The rising energy cost % directly reflects PCIA increases squeezing the margin between procurement cost and what
OCPA can charge customers without rate increases. In
FY2023 the gap between revenue and electricity cost was a comfortable $47.5M; by FY2026 YTD it had narrowed to just $4.9M.
Unrestricted cash $57.5M Down from $61.7M at FY2025 year-end. Includes the drawdown of the Rate Stabilization Fund to protect customers from rate increases in a challenging market year.
8 Days cash on hand ~62.7 Days cash on hand is the most watched metric by rating agencies. The decline from 87 days (FY2024 peak) to ~63 days (Mar 2026)
reflects the planned RSF drawdown. OCPA's own board
documents acknowledged the need to rebuild reserves
before pursuing a credit rating.
Operating Cash Flow (−$27.9
M)
The biggest driver is the $30M Rate Stabilization Fund
drawdown — the fund is being unwound as a cash inflow on the income statement but shown as an outflow in operating cash flows under GASB accounting rules. Strip that out and the underlying operations are much closer to breakeven. The timing of heavy energy supplier payments ahead of billings also weighs on the number.
Rate Stabilization
Fund
$0 Fully drawn by Mar 2026
Reserves (RSF) Ratio 0% Policy Target is >20%. By March 31, 2026 — the full $30M remaining balance was drawn in Q1 FY2026 to offset PCIAdriven revenue shortfalls, exactly as management disclosed in the FY2025 MD&A. This is the most significant financial risk heading into the remainder of 2026 and beyond.
Operating
Income(deficit)
(4.7M)
Operating Margin (2.2%) For a public CCA, positive margin = surplus added to reserves; negative = drawing on reserves (by design). OCPA target range:
0%–8% in normal years. Mature CCAs like MCE, Peninsula
Clean Energy, and East Bay Community Energy typically
operate with thin surpluses — 3–8%
Investment Activity $21.7M OCPA redeemed $22M in maturing investments rather than rolling them over — converting investment securities back to liquid cash.
Sources: OCPA Audited Financial Statements FY2023–FY2025; Q3 FY2026 Treasurer's Report (nine months ended March 31, 2026, unaudited).
9 ACTUAL VERSUS BUDGETED EXPENSES FOR Q1 2026
Key Expense Variances
1. Cost of Energy: Actual $212.67 million vs. Budget $211.50 million (100.6% of budge t, slightly over).
2. Staffing Costs: Actual $3.89 million vs. Budget $3.76 million (103.6% of budget, ove r due to new hires).
3. Professional Services: Actual $1.01 million vs. Budget $1.41 million (71.5% of budg et, under).
4. Marketing and Outreach: Actual $1.06 millionmillion vs. Budget $1.15 million (92. 1% of budget, under).
5. Other G&A: Actual $0.90 million vs. Budget $0.94 million (95.8% of budget, under).
6. Energy Programs: Actual $0.52 million vs. Budget $0.56 million (92.6% of budget, u nder).
ASSESSMENTS
Positives
• Five consecutive clean audits
• Liquidity remains strong, with substantial cash reserves and no credit facility drawdowns.
• investment returns and cost controls provide positive offsets. • Revenue and cost performance are closely aligned with budget, demonstrating operational discipline.
• Locked 2026 rates. However because the cost of electricity exceeded budget, they needed to draw from the Rate Stabilization Fund.
• First green prepayment bond. HOWEVER, we need to look further to understand this better.
• NEM 2.0 preserved with 10% higher net surplus rate than SCE — favorable for solaradopting residents • Community reinvestment programs: grants, EV charging, Disadvantaged Community Green Tariff, low-income solar loans
Risks
• Member instability. Huntington Beach exited. The County of Orange withdrew. Irvine voted to withdraw in Dec 2024, then rescinded in Sept 2025 in a 5-2 vote. Political shifts within member cities can disrupt OCPA's customer base and finances 10 significantly. Irvine’s shift to Basic Choice—resulted in revenue loss with OCPA utilizing the remaining $30 million
• Because it is essentially still in startup mode, risks are higher. (3 cities active, and 1 onboarding).
o Economies of scale are limited compared to larger CCAs. o All the bugs haven’t been worked out, which is evident by the departure of HB, Irvine considering departing (but did not) and Costa Mesa deciding in December 2025 not to participate at this time.
• Cost of electricity is 97.7% of operating costs leaving almost no room for the rest of the cost structure — G&A, staff, contract services — before hitting zero margin. In FY2023 the gap between revenue and electricity cost was a comfortable $47.5M; by FY2026 YTD it had narrowed to just $4.9M
• PCIA methodology changed by CPUC in 2025, structurally shifting costs onto CCA customers vs. SCE bundled customers.
• OCPA doesn't expect to apply for an investment-grade credit rating until ~2028.
Without it, capital market access is limited and borrowing costs are higher than rated peers.
• Operating margin is −2.2%, reflecting the tough market dynamics • Depletion of the Rate Stabilization Fund
• SCE Green Energy program as competition does not incentivize them to work easily with CCA’s.
Considerations
• What default energy plan will the city set? 100% Renewable is more expensive — Irvine's switch away from 100% to Basic Choice saved residents ~5%/month • Does LB have the durable political will to stay in and how will it handle political pressure to exit? Both Huntington Beach and Irvine faced council reversals — cities should assess their council's long-term commitment
• PCIA exposure: the 2025 CPUC structural changes disadvantaged all CCAs vs SCE for the foreseeable future — how does OCPA plan to offset this? • Though the steps to onboard are defined clearly, the process takes ~2 years. We should talk to Fountain Valley and see how they are progressing and if there are any bumps in the road.
• Whether the council has durable political will to stay in, given that exits are disruptive to OCPA.
• A very clear plan for communication to the residents will be the most critical for success.
START UP CITY ACTIONS REQUIRED
Legal & legislative - Council ? Onboarding - Staff
• City staff liaison to coordinate with
OCPA during onboarding — no
11 • Adopt a resolution expressing intent to
join OCPA and approve the JPA
Agreement
• Requires full council vote
• Adopt an ordinance implementing
OCPA's CCA program within the city's
boundaries
• Standard local ordinance process —
public hearing required
• Execute a non-disclosure agreement
with SCE to allow OCPA access to the
city's electric load data for feasibility
modeling
• Select a default energy tier (Basic
Choice, Smart Choice, or 100%
Renewable) for city residents and
businesses
• Critical decision — has direct rate
impact on constituents
dedicated FTE required; can be
managed by existing sustainability,
utilities, or city manager's office staff
• Appoint an elected official to the OCPA
Board of Directors
• Ongoing monthly board meetings; OCPA
handles board admin
• Appoint 2 community representatives to
the OCPA Community Advisory
Committee
• Residents or business owners; meets
monthly
• Support public outreach —
informational sessions and community
communications during the 60-day prelaunch window
• OCPA sponsors events and provides
materials; city co-promotes
ONGOING CITY RESPONSIBILITIES
Governance Monthly
• Board representative attends monthly
OCPA board meetings and votes on
budgets, rates, contracts, and policy
• City council must reappoint the board
representative each year and may
replace at any time
• City council retains the right to change
the default energy tier — requires
advance notice to OCPA per JPA rules
Communications As needed
• Serve as local conduit for resident and
business inquiries — OCPA's customer
service line handles most issues directly
• Co-promote OCPA programs: EV
charging rebates, energy efficiency kits,
community grants, solar incentives
• City website may host OCPA
information page (as Fountain Valley
and Irvine do) — minimal ongoing
maintenance
YEAR OVER YEAR KEY FINANCIAL STANDINGS
OPERATIONS
12 CASH INVESTMENTS
REVENUE VS. OPERATING EXPENSE
13 DEBT TO EQUITY RATIO
LIQUIDITY RATIO
OPERATING INCOME AND NET SURPLUS (DEFICIT) ($millions)
OPERATING MARGIN %
14 APPENDIX 2: Financial review of Orange County Power Authority (“OCPA”) January 2024 through March 30, 2026
Sources: OCPA Audited Financial Statements FY2023–FY2025; Q3 FY2026 Treasurer's Report (nine months ended March 31, 2026, unaudited). The documents are available at Orange County Power Authority Key Documents page and the FY2025 audited statements at OCPA FY2025 Audited Financial Statements PDF.
Executive summary
From 2024 through early 2026, OCPA remained financially solvent and continued receiving unmodified (“clean”) audit opinions, but its financial momentum weakened materially during FY2025 after the withdrawal of Huntington Beach from the agency. OCPA still maintained positive net position and sizable reserves, but operating profitability deteriorated and cash balances declined significantly.
The biggest themes over the review period were:
• Strong reserve accumulation during FY2024
• Creation of a $45 million Rate Stabilization Fund
• Huntington Beach’s withdrawal and customer migration impacts • Declining operating revenue and cash flow in FY2025
• Growing dependence on reserve usage to stabilize rates into 2026 The independent auditors stated that the FY2024 and FY2025 financial statements were fairly presented under GAAP and did not identify material weaknesses in internal controls.
1. FINANCIAL PERFORMANCE TREND: FY2024 (ENDED JUNE 30, 2024): STRONG
EXPANSION YEAR
OCPA reported:
• Operating revenue: $337.1 million
• Operating expenses: $333.0 million
• Change in net position: +$6.33 million
• Ending net position: $44.9 million
Management attributed FY2024 growth to:
• territory expansion,
• increased customer rates,
• and reserve building.
A major strategic action was the establishment of a $45 million Rate Stabilization Fund, designed to defer revenue into future years to cushion future market volatility and rate pressure.
OCPA’s board also approved a FY2024–25 budget projecting:
• $306 million net revenues,
• $289 million expenditures,
• and reserves exceeding $100 million.
15 At this stage, OCPA appeared to be transitioning from startup mode toward reserve accumulation and credit-strength improvement.
FY2025 (ended June 30, 2025): Financial slowdown; FY2025 results showed meaningful deterioration:
Metric FY2024 FY2025 Change
Operating revenue $337.1M $283.6M -15.9%
Operating expenses $333.0M $287.8M -13.6%
Operating income +$4.1M -$4.2M Negative swing
Net position $44.9M $45.0M Essentially flat
Cash balance $85.3M $65.1M -23.7%
The primary reason was the withdrawal of Huntington Beach from OCPA service. And as a result, electricity sales fell sharply:
• FY2024: $382.1 million
• FY2025: $268.5 million
OCPA offset some of this decline by recognizing $15 million from the Rate Stabilization Fund into operating revenue. Without that reserve draw, FY2025 losses would have been materially worse.
2. LIQUIDITY AND BALANCE SHEET CONDITION. Cash and current assets weakened Current assets fell from:
• $158.2 million (FY2024) to $130.2 million (FY2025).
Total cash declined from:
• $85.3 million to $65.1 million.
OCPA stated the decline resulted from:
• Huntington Beach’s withdrawal,
• accelerated payments for energy products,
• and collateral/deposit requirements with energy suppliers.
Despite the decline, liquidity remained reasonably strong relative to liabilities.
Liabilities improved modestly
Current liabilities decreased from:
• $74.7 million to $60.5 million.
The largest liability category remained accrued electricity costs:
• FY2024: $71.6 million
• FY2025: $58.0 million
16 Long-term debt remained relatively limited. OCPA’s main long-term obligation was approximately:
• $7.5 million owed to the City of Irvine,
Related to startup and collateral financing. Compared with many California CCAs, OCPA’s leverage remained relatively low.
3. PROFITABILITY AND OPERATIONAL QUALITY
Operating margins deteriorated
FY2025 operating income turned negative:
• FY2024 operating income: +$4.1 million
• FY2025 operating income: -$4.2 million
This matters because:
• nonoperating investment income masked underlying operational weakness, • and reserve releases supported reported results. Investment income rose significantly due to higher interest rates and reserve balances:
• FY2024: $2.47 million
• FY2025: $4.63 million.
Without investment income, net position would likely have declined.
Cash flow weakened substantially
Operating cash flow shifted dramatically:
• FY2024 operating cash flow: +$71.3 million
• FY2025 operating cash flow: -$22.2 million.
That is one of the most important indicators in the reports. The negative swing reflected:
• lower customer receipts,
• continued large power procurement payments,
• reserve adjustments,
• and collateral requirements.
This suggests OCPA entered 2026 under considerably more financial pressure than it faced in 2024.
4. HUNTINGTON BEACH WITHDRAWAL IMPACT
The Huntington Beach exit was financially significant. The audited statements disclosed:
• renewable procurement savings of approximately $7.47 million, • and final settlement of withdrawal-related liabilities in September 2024.
OCPA ultimately concluded Huntington Beach had:
• no additional liability to OCPA after offsets and settlements. 17 However, the customer loss reduced:
• load volume,
• revenue scale,
• and operating leverage.
That withdrawal remains the dominant financial event affecting OCPA’s FY2025 and 2026 outlook.
5. 2026 OUTLOOK (THROUGH MARCH 30, 2026)
As of March 30, 2026, there does not yet appear to be a published audited FY2026 financial report. The latest audited financials available are for the fiscal year ending June 30, 2025.
However, OCPA’s FY2025 management discussion identified substantial expected pressure in 2026 from:
• higher PCIA charges,
• lower Southern California Edison bundled rates,
• lower statewide energy prices,
• and CPUC regulatory changes.
Management specifically stated it expected to use the remaining:
• $30 million Rate Stabilization Fund balance
during 2026 to mitigate customer rate impacts and financial pressure.
That is an important signal:
• OCPA entered 2026 anticipating margin compression and competitive pressure, • but still with sufficient reserves to absorb some of the impact.
6. OVERALL ASSESSMENT
Strengths
• Clean audit opinions every year through FY2025
• Positive net position (~$45 million)
• Significant reserve structure established
• Limited long-term debt burden
• Strong investment income during high-rate environment Concerns
• Major revenue contraction after Huntington Beach withdrawal • Negative operating income in FY2025
• Negative operating cash flow in FY2025
• Heavy reliance on reserve releases and investment income • Competitive pressure from Southern California Edison pricing and PCIA dynamics in 2026
BOTTOM-LINE CONCLUSION
OCPA was financially stable through the end of FY2025, but its trajectory weakened materially after the Huntington Beach withdrawal. The organization still possessed substantial liquidity 18 and reserves entering 2026, yet the reports indicate OCPA was transitioning from a growthand-reserve-building phase into a reserve-utilization and margin-management phase.
The agency did not appear to face immediate solvency risk as of March 2026, but its future financial health depended heavily on:
• retaining customers,
• managing procurement costs,
• navigating CPUC/PCIA policy shifts,
• and avoiding further member withdrawals.
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