STAFF REPORT
City of Lancaster
CC 6
8/12/2025
TN
Date:August 12, 2025
To: Mayor Parris and City Council Members
From: Trolis Niebla, City Manager
Subject:Adoption of a Resolution Authorizing the Execution of an Amended Surety Bond to Meet the Financial Security Requirement for Lancaster Energy and Rescinding Resolution No. 23-22
Recommendations:
1. Adopt Resolution No. ______, authorizing the execution of an amended Surety Bond to meet the Financial Security Requirement for Lancaster Energy and rescinding Resolution No. 23-22.
2. Authorize the City Manager, or his designee, to execute this and subsequent amended Surety Bond documents to accommodate increases and decreases associated with the annual fee of the Surety Bond for an amount not to exceed $100,000 annually.
Effective September 1, 2025, the FSR for LE will increase from $147,000.00 to $4,103,705.00.
Therefore, to satisfy the increase to LE’s FSR obligation, the annual cost associated with maintaining LE’s surety bond will increase to $41,037.05. Staff is requesting a not-to-exceed amount of $100,000 annually to accommodate any future changes to FSR requirements.
G.C. Section 84308: No
Fiscal Impact:
The estimated fee for the current fiscal year, based on the revised bond amount, is $41,037.05.
Future appropriations will be budgeted accordingly in subsequent fiscal years.
Background:
The City’s Community Choice Aggregation (CCA) Program, Lancaster Energy (LE), was established by the City Council through the adoption of Ordinance 997 on May 27, 2014. LE began serving customers in May 2015.
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In 2018, the CPUC issued Decision 18-05-022 (Decision), which established reentry fees and financial security requirements for CCAs. The purpose of the Financial Security Requirement (FSR) is to ensure that a CCA can meet its payment obligations to the Investor-Owned Utility (IOU) during a service transition period if the CCA fails or ceases operations. The IOU may only withhold funds from the financial security instrument for unpaid administrative or procurement costs associated with the return of CCA customers to the IOU. Any withholding of those funds must first be approved by the California Public Utilities Commission (CPUC).
The Decision required all CCAs, including LE, to submit an advice letter with the FSR instrument to the CPUC before serving customers to show compliance with the Decision.
California Choice Energy Authority (CalChoice) worked with its legal team to draft the advice letter. The FSR amount was $147,000. A letter of credit (LC), which was secured with a 100% cash deposit, was used at that time to satisfy the FSR requirement.
In anticipation of a change to the methodology for calculating the FSR amount, the City Council authorized staff to replace the original LC financial security instrument with a surety bond in April 2023. The surety bond is flexible, allowing for increases and decreases as needed, and has an annual fee of 1% of the bond amount. Specifically, instead of maintaining a cash deposit of $147,000, the council approved the use of a surety bond to fulfill the FSR requirement, which limited its annual obligation to $1,470. This surety bond has been in place since its authorization.
The methodology used to calculate the FSR amount is established by the CPUC and is based upon anticipated IOU procurement and administrative costs that would be incurred if it must resume serving CCA customers. The CPUC assumes a six-month procurement period for calculating the IOU’s cost exposure if it must re-serve the CCA’s customers. The significant increase during this period is based on market pricing and other regulatory factors, such as state-mandated costs associated with the continued operation of Diablo Canyon. The costs related to Diablo Canyon are significant and are allocated proportionally to all load-serving entities, including CCAs.
Effective September 1, 2025, the FSR for LE will increase from $147,000.00 to $4,103,705.00.
Therefore, to satisfy the increase to LE’s FSR obligation, the annual cost associated with maintaining LE’s surety bond will increase to $41,037.05. Staff is requesting a not-to-exceed amount of $100,000 annually to accommodate any future changes to FSR requirements.
Attachments:
Resolution No. _________
Surety Bond Increase Penalty Rider