HomeMy WebLinkAbout2020-07-28; City Council; ; Clean Energy Alliance Loan TermsITEM #14 – CLEAN ENERGY ALLIANCE LOAN TERMS
- Motion to adopt Option A failed – 2/2 (Hall, Blackburn
– No).
CA Review CKM
CITY COUNCIL
Staff Report
Meeting Date: July 28, 2020
To: Mayor and City Council
From: Scott Chadwick, City Manager
Craig Lindholm, City Treasurer
Staff Contact: Ryan Green, Assistant Finance Director
ryan.green@carlsbadca.gov, 760-602-2414
Jason Haber, Intergovernmental Affairs Director
jason.haber@carlsbadca.gov, 760-434-2958
Subject: Clean Energy Alliance Loan Terms
Recommended Action
1) Provide feedback on the proposed terms of a potential loan to fund the Clean Energy
Alliance's community choice aggregation program launch
2) Consider the following options to direct staff to either:
a. Return to the City Council with a proposed loan agreement based on the terms
discussed and agreed on by the City Council to obtain the council's final approval
authorizing the city manager to execute the loan agreement and appropriate the
funds
b. Adopt a resolution appropriating $4,450,000 from the city's unassigned General
Fund reserve and authorizing the city manager to negotiate terms, within the
City Council's agreed upon parameters, and execute a loan agreement with the
Clean Energy Alliance
c. Take no further action on the matter
Executive Summary
The Clean Energy Alliance community choice aggregation joint powers authority was formed in
partnership with the cities of Solana Beach and Del Mar to provide an alternative electric power
source to San Diego Gas & Electric, giving the cities control to determine the mix of energy
purchased, which more in line with the cities' climate action plans, while providing residents
with savings through lower rates. The alliance requires funding, through a loan, to launch its
community choice aggregation program in 2021.1
'Community choice aggregation refers to programs that enable local governments to obtain electric power on
behalf of their residents, businesses and municipal accounts from an alternative supplier while still receiving
transmission and distribution service from their existing utility provider.
July 28, 2020 Item #14 Page 1 of 11
As requested by the City Council on July 14, 2020, staff is proposing terms of a loan to the
alliance from the city's unassigned General Fund reserve for the City Council's consideration.
The proposed loan totals $4,450,000, has a three-year term, includes a variable interest rate
based on the city treasurer's portfolio returns and is partially guaranteed by Solana Beach and
Del Mar.
The city is not obligated to loan the funds and the alliance has alternative funding options to
fund its launch. If the city does not offer a loan, the alliance plans to complete an alternative
funding option. As proposed, the city loan option is less costly to the alliance. The cost savings
will be used to reduce customer rates and/or procure more climate-friendly power for the
alliance.
The loan will generate a higher rate of return than an investment in the treasurer's portfolio,
though it also exposes the city to default risk. The risk is minimized because $3 million of loan
will be used for collateral deposits required because of the Alliance's lack of established credit
history, which could be recouped by the city.
Discussion
Background
The City Council has approved several resolutions that laid the foundation for this Alliance in a
series of decisions taken since 2017, as detailed in Exhibit 2. Among these actions are the
following decisions relevant to the loan terms.
On April 16, 2019, the City Council adopted a resolution accepting the North San Diego County
Cities Community Choice Aggregation Technical Feasibility Study, which determined that a
community choice aggregation program is both technically and financially feasible and could
provide environmental and economic benefits to residents and businesses in the City of
Carlsbad. The study concluded a 2% savings was feasible on the combined cost of the
transmission and distribution of electricity and from the charges from electricity generation.
The study was later confirmed by a peer review analysis prepared by Pacific Energy Advisors, an
advisory group specializing in California's electric utility sector, including community choice
aggregation programs. The City Council adopted a resolution accepting the peer review of the
study on Nov. 12, 2019, and simultaneously loaned the Alliance $150,000 for the city's share of
the Alliance's fiscal year 2019-20 budget. This loan was made from the City Council's
Contingency Fund.
Many of the assumptions used in preparing the study have since changed, such as the
assumption of forming a community choice aggregation partnership with the cities of Carlsbad,
Encinitas, Del Mar and Oceanside. Because of these changes, the Alliance has continued to
obtain updated proforma financial statements from Pacific Energy Advisors. The thirteenth and
latest version of proforma financial statements (Exhibit 3) shows that with a minimum 50%
renewable energy mix,' a 2% rate discount, as compared to SDG&E's electricity generation rate,
2 Renewable energy ramps up from 50% to 100% by 2035. The Alliance will initially buy 82% of its renewable energy in
California and will ramp that up to 100% by 2023.
July 28, 2020 Item #14 Page 2 of 11
is achievable. This excludes the combined transmission and distribution of electricity as the
price for this service is controlled by SDG&E.
Other major assumptions include:
• A 90% customer participation rate (community choice aggregation agencies are typically
averaging 93% participation)
• Using the latest future power pricing
• The SDG&E rates projected by Pacific Energy Advisors3
On July 14, 2020, the City Council directed staff to develop and present an alternative credit
option to fund the Alliance's community choice aggregation program launch with a $4,450,000
loan from the city's unassigned General Fund reserve, in consultation with the city attorney and
the city treasurer.
The Alliance's funding needs
The Alliance plans to launch May 2021 and has identified the funding it needs to execute a
successful launch. The expected timeline of funding needs, assuming a May 2021 or delayed
launch, are summarized in the chart below:
Chart 1: Timing of the Alliance's funding needs
1St half of FY 2020-21 budget including start-up costs
Repayment of initial start-up loans from member cities
2nd half of FY 2020-21 budget including start-up costs
Collateral deposits and cash flow'
CAISO deposits
Sept. 2020
Sept. 2020
Jan. 2021
Jan. 2021
Jan. 2021
$500,000
450,000
500,000
2,500,000
500,000
Total funding required $4,450,000
The Alliance has offers for alternative funding from JP Morgan and River City Bank. Given the
City Council's July 14, 2020, decision not to approve the $2,250,000 loan guaranty required to
secure the River City Bank alternative, the Alliance currently has the ability to accept only the
3 SDG&E rates are projected by experts who track electric utility rates statewide for CCAs. CCAs employ these experts due
to the complexity of the utility rate setting process, which is conducted through a variety of applications to, and decisions
by, the California Public Utilities Commission). In Nov. 2020, SDG&E will file an updated rate application to the commission and
the Clean Energy Alliance will have a strong indication of the rates that will be in effect in May 2021.
4 Collateral deposits are required for the Alliance to enter into conventional energy contracts due to the entity's lack of
established credit history. Collateral must be held by a third party and will be held by River City Bank. The exact value required
is predicated on results of negotiations with suppliers. If the result is lower, the funding provided will be less. If there is a delay
in launch date, the outflow of funding would be delayed.
5 CAISO, or California Independent System Operator, oversees the state's electrical grid. This deposit is required for
participation in the state energy agency's congestion revenue rights program. Congestion revenue rights are financial
instruments that allow holders of such rights to manage variability in transmission congestion costs. This deposit will be
returned to the Alliance or depositor once it has accumulated $10 million in total assets. The city can directly deposit this
amount on behalf of the Alliance and will request reimbursement of the deposit at the earlier of the end of the loan term, when
the alliance achieves $10,000,000 in assets or market withdrawal.
July 28, 2020 Item #14 Page 3 of 11
alternative funding from JP Morgan. The terms of the alternative funding options are detailed in
Exhibit 4. The Alliance intends to secure financing from the city or elsewhere to meet its needs.
Based on the terms previously presented at the July 14, 2020, City Council meeting, the benefits
to the Alliance of obtaining a city loan are:
• Cost savings related to loan initiation fees
• Favorable interest rate terms
• The cash flow benefit of paying interest annually
• A streamlined process for executing the loan agreement and drawing down the funds
City loan option
The City Council has the authority to appropriate funding to offer and execute a loan with the
Alliance because the expenditure would be for a public purpose and for the public's benefit. It is
not obligated to do so.
A loan of this nature would require an appropriation of funds, so it is not considered an
investment and is not subject to the Investment Policy. As fiduciaries of taxpayers' funds, it is
important for the city to consider the benefits and risks with providing a loan to the Alliance.
Chart 2: Pros and cons of a city loan
The city determines terms of the loan • Risk of default and loss of funds
• The city earns more interest than the • Reduces liquidity of the city's short-term
funds would in the Treasurer's portfolio capital
• Lower loan costs used to benefit
residents and customers of the Alliance
Proposed terms
The total amount to be loaned by the city is $4,450,000, disbursed in a phased manner based
on Chart 1: Timing of the Alliance's funding needs, or later, if delays occur. The proposed loan
term is three years after the initial disbursement and the principal balance shall be paid in full
at the end of the third year from initial disbursement. No loan fees would be charged by the
city6, but the cost of preparing loan documents will be paid by the Alliance.
Interest will be charged at a rate of 3% or equal to the prior 12-month average return on the
city treasurer's portfolio', whichever is higher, calculated annually, payable at the end of the
first, second and third years from initial disbursement. Total interest, assuming 3% for the
entire period and that interest is charged on the entire loan value, not the disbursed amount,
would result in interest income to the General Fund of $378,000. Comparatively, total interest
6 The two alternative financing options include approximately $40,000 in loan fees. The reduction in loan fees borne by the
Alliance will be applied indirectly towards savings to its customers.
7 As of June 30, 2020, the prior 12-month return on the treasurer's portfolio was 2.1%. The June 30, 2020 monthly rate of
return on the Treasurer's portfolio was 1.7%.
July 28, 2020 Item #14 Page 4 of 11
costs for the other two loan options are approximately $500,000. The reduced interest cost
incurred by the Alliance will be applied indirectly towards savings to its customers.
Additional conditions of the loan should include:
• The funds be used in the specific manner described in Chart 1: Timing of Alliance's
funding needs. Any deviation requires City Council approval.
• Guaranties from other participating cities totaling $250,000.
o Alternatively, reconsider the repayment of initial deposits'.
• Cash will be held by the city and, if a delay in the planned May 2021 launch date occurs,
an updated schedule of funding must be approved by the City Council.
• The California Independent System Operator deposit required to be on the state's
power grid will be made by the city on the Alliance's behalf.
Fiscal Analysis
There is no fiscal impact to the city until the City Council agrees to appropriate funds. If the City
Council decides to make a loan to the Alliance and appropriate the funding, there would be a
reduction in the unassigned General Fund reserve balance in the amount of the loan.
In City Council Policy 74, General Fund Reserve Policy, the city committed to maintaining
General Fund unassigned reserves at a target of 40% of General Fund annual operating
expenditures. The total unassigned reserve level will be calculated using the prior fiscal year's
adopted General Fund budgeted expenditures. The fy 2018-19 General Fund reserve balance
ended at 47.2% of General Fund annual operating expenditures, approximately $12 million in
excess of the 40% requirement. While the fy 2019-20 General Fund reserve balance is not yet
known, the General Fund reserve balance is forecasted to meet the 40% requirement when
including the proposed loan.
Next Steps
If the City Council directs staff to return to the City Council with a proposed loan agreement,
staff will return with a loan agreement, request an appropriation be made to fund the loan, and
request authorization for the city manager to execute the loan.
If the City Council adopts a resolution directing staff to appropriate $4,450,000 from the city's
General Fund and authorizing the city manager to negotiate terms, within the City Council's
agreed-upon parameters, and execute a loan agreement with the Alliance, staff will negotiate
with the Alliance to execute a loan agreement within the parameters set by the City Council.
If the City Council directs staff to take no further action on the subject, staff will notify the
Alliance of the City Council's decision and take no further action.
Environmental Evaluation (CEQA)
This action does not constitute a "project" within the meaning of the California Environmental
Quality Act under California Public Resources Code Section 21065 in that it has no potential to
8 It should be noted that due to economic impacts of the COVID-19 pandemic, the member agencies of Del Mar and Solana
Beach have requested an early payback of their $150,000 initial start-up contributions.
July 28, 2020 Item #14 Page 5 of 11
cause either direct physical change to the environment, or a reasonably foreseeable indirect
change in the environment, and does not require environmental review.
Public Notification and Outreach
Public notice of this item was posted in accordance with the Ralph M. Brown Act and it was
available for viewing at least 72 hours prior to the meeting.
Exhibits
1. Resolution
2. History of City Council resolutions on Clean Energy Alliance
3. Proforma financial statements
4. Alternative funding options
July 28, 2020 Item #14 Page 6 of 11
Exhibit 1
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, AUTHORIZING THE CITY OF CARLSBAD TO PROVIDE UP TO A
$4,450,000 LOAN TO THE CLEAN ENERGY ALLIANCE
WHEREAS, on October 8, 2019, the City Council approved Resolution 2019 —197 approving the
city's participation in the Clean Energy Alliance (Alliance), a new regional community choice
aggregation (CCA) program); and
WHEREAS, the Alliance consists of the cities of Carlsbad, Del Mar and Solana Beach (Member
Agencies) and is scheduled to launch in May 2021; and
WHEREAS, initial start-up costs for fiscal year 2019-20 were funded through advances from the
Member Agencies in the amount of $150,000 from each Member Agency, for a total $450,000; and
WHEREAS, the Alliance requires financing of up to $4,450,000 from a financial institution or
other third party to fund its launch needs in fiscal year 2020-21; and
WHEREAS, on July 14, 2020, the City Council requested that staff develop and present an
alternative credit option to fund the Alliance's CCA program launch with a $4,450,000 loan from the
city's unassigned General Fund reserve, in consultation with the city attorney and city treasurer; and
WHEREAS, the loan terms proposed by staff include:
a. The total amount to be loaned by the city will not exceed $4,450,000, disbursed in a phased
manner based on the Alliance's funding needs, and
b. The loan term is three years after initial disbursement and the principal balance shall be
paid in full at the end of the third year from initial disbursement, and
c. Interest will be charged at a rate of 3% or equal to the prior 12-month average return on
the Treasurer's portfolio, whichever is higher, calculated annually, payable at the end of the
first, second and third years from initial disbursement, and
d. The funds shall be used in a specific and agreed manner, and any deviation shall require City
Council approval, and
e. Guaranties must be obtained from other participating cities totaling $250,000, and
f. Cash will be held by the city and, if a delay in the planned May 2021 launch date occurs, an
updated schedule of funding needs must be approved by the City Council, and
g. The California Independent System Operator deposit required to be on the state's power
grid will be made by the city on the Alliance's behalf; and
July 28, 2020 Item #14 Page 7 of 11
WHEREAS, the City Planner has determined that a loan to the Clean Energy Alliance does not
constitute a "project" within the meaning of the California Environmental Quality Act under California
Public Resources Code Section 21065 in that it has no potential to cause either direct physical change
to the environment, or a reasonably foreseeable indirect change in the environment, and does not
require environmental review.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1. That the above recitations are true and correct.
2. That a loan of up to $4,450,000 to the Alliance to fund its launch needs in fiscal year
2020-21 serves a public purpose and provides a public benefit.
3. That the deputy city manager, administrative services is authorized to appropriate up to
$4,450,000 from the city's unassigned General Fund reserve balance to fund a loan to
the Alliance.
4. That the City Council authorizes the city manager to act on behalf of the City, in
consultation with the City Attorney, to negotiate and execute all agreements and other
documents necessary to provide a loan up to $4,450,000 to the Alliance within the
parameters approved by the City Council.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of
Carlsbad on the ___ day of ,2020, by the following vote, to wit:
AYES:
NAYS:
ABSENT:
MATT HALL, Mayor
BARBARA ENGLESON, City Clerk
(SEAL)
July 28, 2020 Item #14 Page 8 of 11
Exhibit 2
History of City Council Resolutions on Clean Energy Alliance
The City Council has been approving resolutions that laid the foundation for this alliance in a
series of decisions taken since 2017:
• July 11, 2017 - Adopted Resolution No. 2017-141, authorizing the city's participation in a
community choice aggregation (CCA) Technical Feasibility Study.
• Feb. 26, 2019 - Adopted Resolution No. 2019-025, authorizing the city's participation in
an evaluation of CCA program governance options.
• March 19, 2019 - Adopted Resolution No. 2019-036, expressing the City Council's
intention to pursue a CCA program that prioritizes certain operating principles.
• April 16, 2019 - Adopted Resolution No. 2019-052, accepting the North San Diego
County Cities CCA Technical Feasibility Study and authorizing the procurement of joint
legal services to assist in negotiating and preparing CCA formation documents.
o The CCA Technical Feasibility Study determined that a CCA program is both
technically and financially feasible, and could provide environmental and
economic benefits to residents and businesses in the City of Carlsbad.
• June 25, 2019 - Adopted Resolution No. 2019-112, authorizing the formation of a City
Council ad-hoc subcommittee, comprised of Mayor Hall and Councilmember
Schumacher, to receive information and advise the City Council on CCA.
• Aug. 20, 2019 - The Carlsbad City Council directed staff to obtain a peer review analysis
of the Study.
o The Pacific Energy Advisors Peer Review of the Study did not discover any fatal
flaws that would jeopardize anticipated feasibility of the CCA program.
• Oct. 8, 2019 - Adopted Resolution No. 2019-197 approving and authorizing the
execution of the Joint Exercise of Powers Agreement creating the Clean Energy Alliance,
a CCA Joint Powers Authority.
• Oct. 15, 2019 - Approved Ordinance No. CS-362 authorizing the implementation of a
CCA program in Carlsbad.
• Nov. 12, 2019 — Adopted Resolution No. 2019-229, accepting the Peer Review of North
San Diego County Cities Community Choice Energy Technical Feasibility Study and
authorizing funding of the city's proportional share of Alliance Joint Powers Authority
Board of Directors draft fiscal year 2019-20 Initial Budget from the City Council
Contingency Fund.
• July 14, 2020 - The City Council directed staff to develop and present an alternative
credit option to fund the Alliance's fiscal year 2020-21 budget with a $4,450,000 loan
from the city's General Fund, in consultation with the city attorney and city treasurer.
July 28, 2020 Item #14 Page 9 of 11
Exhibit 3
Annual DRAFT Pro Forma Projections for a Community Choice Aggregation Program - Pcc2 Phaseout Scenario with 2% Discount City of Carlsbad Loan, May 2021 Launch
Clean Energy Alliance
Fiscal Year Ending: 2020 2021 2022 2023 2024 2025
I Revenue - 9,634,093 67,733,082 69,062,278 70,413,027 71,785,662
II. Operating Expenses
Power Supply 8,988,017 61,018,825 60,161,460 61,785,316 62,526,043
Staff 50,000 235,000 600,000 618,000 636,540 655,636
Administrative Costs* 253,000 1,108,938 2,459,148 2,497,813 2,558,347 2,616,275
Subtotal Operating Expenses 303,000 10,331,956 64,036,023 63,094,529 64,706,915 65,532,998
Operating Margin (303,000) (697,862) 3,697,059 5,967,749 5,706,112 6,252,664
III. Financing
Interest 81,250 133,500 133,500 22,250
Principal 450,000 - 4,450,000
Subtotal Financing 531,250 133,500 133,500 4,472,250
Operating Margin Less Financing (303,000) (1,229,112) 3,563,559 5,834,249 1,233,862 6,252,664
IV. Cash From Financing 450,000 4,450,000 - -
V. Other Uses
CPUC and CAISO Deposits 147,000 500,000 - -
Collateral Deposits 0 2,500,000 - -
Reserve Additions 220,888 3,386,654 3,453,114 3,520,651 3,589,283
Subtotal Other Uses 147,000 3,220,888 3,386,654 3,453,114 3,520,651 3,589,283
VI. Net Surplus/(Deficit) (0) 176,905 2,381,135 (2,286,790) 2,663,381
VII. Cumulative Reserve - 220,888 3,607,542 7,060,656 10,581,307 14,170,590
VIII. Cumulative Net Surplus - (0) 176,904 2,558,039 271,250 2,934,630
IX. Combined Cumulative Reserve &
Cumulative Net Surplus - 220,888 3,784,446 9,618,695 10,852,557 17,105,221
* Comprised of Technical and Legal Services, Customer Outreach and Communications, Utility Services Fees, Data Management Services, Uncollectibles
TT 40 IT a2ed Comparison of Bank Financing Options vs Proposed City of Carlsbad
Loan Date: Sept. 2020
Repayment Date: Sept. 2023 ozoz `sz Ainr Exhibit 4
Note 1- Interest costs are estimates based on recent LIBOR rates.
River City Bank/Calpine Carlsbad JP Morgan
Loan Amount 4,500,000.00 4,500,000.00 4,450,000.00
Term 3 Years 3 Years 3 years
Loan Fees 50,000.00 33,750.00
Int Cost through Life of Loan' 525,000.00 463,541.66 378,000.00
TOTAL COST OF CREDIT 378,000.00 497,291.66 575,000.00
Notes: $2,500,000 initial Loan
9/1/20 River City Bank;
$500,000 Loan from Calpine
Dec/Jan;
$1,500,000 River City Bank
loan Dec./Jan. Time Frame
$950,000 Sept. 2020 for
repayment to cities and
initial fy 20/21 budget;
$3,500,000 Jan. 2021 for
collateral and CAISO deposits
and remainder fy 20/21
budget.
Variable - 3.0% - 3.5% floor;
variable based on 1-month T-
Bill
Variable 1 or 3-month LIBOR
plus 3.35%; funds not drawn
subjec to an "Undrawn fee"
of 1.95%
Higher of: (1) Fixed 3% or (2)
12-month average return on
Treasurer's portfolio
Int Rate
Guaranty or Cash Collateral
for $2.5M of loan amount by
one or more members or
creditworthy 3rd party
Rates set to cover operating
and debt service costs;
Operating reserve sized at a
minimum 90 days of
operating costs to be funded
on a TBD Schedule;
Debt Service Coverage ratio
of 1.40x tested quarterly;
No new debt may be issued
by CEA during term
Guaranties from Del Mar and
Solana Beach totaling
$250,000
Security/Covenants
Tammy Cloud-McMinn
All Receive - Agenda Item # /1-71
For the Information of the:
CITY COUNCIL
Date CA ,7---CC
CM ACM L. DCM (3) -
Dear Mayor Hall, Mayor Pro Tern Blackburn, Council Member Bhat-Patel, and Council Member Schumacher,
Please do not loan $4.45 million in city reserve funds to this fledging project with zero income and no track record of
success. With the economic uncertainty that currently exists and will only grow due to the global pandemic, why would
our elected city officials take money out of our city reserves for something so risky? I know many of you, perhaps all of
you, believe in CEA and that it will deliver all that it promises to deliver. I do not share your optimism, especially after
watching some of the CEA board meetings, especially the July 23, 2020 meeting.
The CEA will have other options to obtain financing. Our city is not a bank, nor should it be.
Of the choices before you, please choose C and "take no further action on this matter."
Thank you.
Best regards,
Athena Runner
92011
CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content
is safe.
From: Athena Runner <athena.runner@gmail.com>
Sent: Tuesday, July 28, 2020 7:43 AM
To: Council Internet Email; City Clerk
Subject: Agenda Item 14 - Clean Energy Alliance Loan Terms
1
Tammy Cloud-McMinn
From:
Sent:
To:
Subject:
Dear Council Members -
Shauna Hurst <hurst.shauna@gmail.com >
Tuesday, July 28, 2020 8:36 AM
City Clerk; Council Internet Email
Agenda Item 14 - Clean Energy Alliance Loan Terms
All Receive - Agenda Item # V
For the Information of the:
CITY COUNCIL
Date -- CA CC
CM ACM VDCM (3)
Please do not loan $4.45 million in city reserve funds to this unproven project that currently shows no income. Our
city faces economic uncertainty due to the pandemic. Our city continues to see businesses close and revenues
fall. Given these tremulous times why would our council use precious city reserves for a risky unproven project? Our
city is not a lending institution and it should not be.
Please choose C and "take no further action on this matter".
Thank you.
Shauna Hurst
92010
CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content
is safe.
1
Tammy Cloud-McMinn
From: Council Internet Email
Sent: Tuesday, July 28, 2020 8:34 AM
To: City Clerk
Cc: Jason Haber; Sheila Cobian
Subject: FW: URGENT call for Council member Schumacher's recusal - Item 14, 7/28/20 Council
meeting
All Receive - Agenda Item # i
For the Information of the:
CITY COUNCIL
Date CA CC --
CM ,-- ACM -- DCM (3)
From: Arnie Cohen <asmallbizhelper@gmail.com>
Sent: Tuesday, July 28, 2020 12:06 AM
To: Attorney <attorney@CarlsbadCA.gov>; Manager Internet Email <Manager@CarlsbadCA.gov>
Cc: Council Internet Email <CityCouncil@carlsbadca.gov>
Subject: URGENT call for Council member Schumacher's recusal - Item 14, 7/28/20 Council meeting
We are Carlsbad residents and are writing to call on Council member Cori Schumacher to recuse
herself on Item 14 of the July 28, 2020 City Council meeting. We provide the following
information that makes such a recusal an imperative.
• Cori Schumacher serves as a member of the Carlsbad City Council, essentially the city's
Board of Directors. She also serves as a Board member of the Clean Energy Alliance.
• She represents 25% of the City Council membership and 33.33% of the CEA Board
membership. As such, her votes on each Board are extremely significant and could
determine how this matter proceeds.
• In these roles Ms. Schumacher has the fiduciary responsibility to act in the best interests
of each entity and of the citizens that those entities represent. When acting on behalf of
one entity she must give a lower priority for the best interests of the other entity.
• The City of Carlsbad is proposing to act as a lender of $4.45 million to the Clean Energy
Alliance, the borrower. It is this specific business relationship that presents a unique set of
standards for identifying conflicts of interest for anyone serving as a member of both
Boards/agencies simultaneously.
• Item 14 of the July 28 Council meeting agenda requires a vote of the Council to give
guidance to staff on proceeding with the negotiations of the terms for such a loan.
• During the July 23, 2020 meeting of the CEA Board it was stated that the CEA Board
would also have to subsequently vote in order to accept those negotiated terms and to
"Authorize financing from Carlsbad".
• Ms. Schumacher's fiduciary responsibilities in this proposed transaction are undeniably in
conflict since she cannot fairly ensure that each entity would garner the most
favorable financial terms in the proposed loan. The City's interests are to maximize it's
return on the investment in such a loan with the lowest risk possible, and the CEA's
interests are to obtain the lowest cost loan possible with the lowest interest rate possible.
Those interests appear to naturally conflict.
• If she does not recuse herself and proceeds to act in her role on each agency, Ms.
Schumacher will become an active participant for both sides in detailed discussions about
the negotiations of the terms of this loan. She would then be voting on granting the loan
and also voting to accept the loan. Her respective roles and those votes might be in
conflict if there is vigorous debate about the loan terms on either Board, making her
fiduciary duties difficult to fully and fairly perform.
1
• There is likely not a Board of Directors of any bank or lending institution that would allow
one of its Board members to take part in ANY aspect of a loan transaction where that
member also serves on the Board of the entity that will be the borrower, unless there is
full disclosure to and properly executed approval from their shareholders. To allow that
would be a clear breach of its fiduciary responsibilities and make that Board subject to
legal action by those shareholders as well as by multiple regulatory agencies.
• The burden is on Council member Schumacher to unequivocally state and prove to her
constituency, in advance, that her participation in this matter would not be subject to
prioritizing considerations for the needs of the CEA over the needs of the City. Then and
only then could the citizens, if they so choose, elect to waive the obvious potential for
conflicts that exist.
• To be clear, we are not suggesting any type of personal financial conflict exists here for
Ms. Schumacher. However, her fiduciary responsibility as an elected official to the citizens
of Carlsbad who she represents is preeminent. Inherent in that lies an expectation that
she will not in any way act to put the competing priorities of another entity on which she
serves ahead of those of the city and its taxpayers. That preeminence was not modified or
impacted in any way by her subsequent appointment to the CEA Board.
• This call for recusal is only directed at Ms. Schumacher due to her current dual roles as a
Council member and as a CEA Board member. The same standards for avoiding conflicts
in this lender / borrower relationship would apply to any Council member serving in both
positions at the same time.
It is incumbent on Council member Schumacher to recuse herself at this time from any
participation on Item 14. If she does not do so, she would be placing herself in the position of
negotiating loan terms and voting on its approval while being both the lender and the borrower.
It would then be up to the citizens of Carlsbad to consider what subsequent actions they wish to
take.
As a final point of clarification, this call for Council member Schumacher's recusal does not in
any way represent an opinion on the implementation of the Clean Energy Alliance nor make a
recommendation as to the City Council's action on this cagenda Item. It is solely intended to
bring this serious conflict of interest matter to the attention of the City Attorney, City Manager
and City Council so that they may take the appropriate actions to protect the best interests of
city's taxpayers and residents.
Please direct any questions, comments or responses to Arnie Cohen at
asmallbizhelperPgmail.com or by phone at 760-535-4657.
Sincerely,
Arnie and Teri Cohen
Carlsbad District 3 residents
Catherine Miller
Carlsbad District 2 resident
Julie Baker
Carlsbad District 1 resident
Larry Posner
Carlsbad District 2 resident
2
All Receive - Agenda Item #
For the Information of the:
CITY COUNCIL
Date CA CC
-CM ACM DCM (3)
City of
Carlsbad
Council Memorandum
July 28, 2020
To: Honorable Mayor Fha and Members of the City Council
From: Jason Haber, lntergo iaental Affairs Director
Via: Scott Chadwick, Ci y nager
Re: Additional Materials Related to Staff Report Item No. 14 — Clean Energy Alliance Loan
Terms
On Monday, July 27, city staff received a copy of the attached letter from SDG&E notifying the
Clean Energy Alliance of SDG&E's decision to delay deployment of its new Customer Information
System from January 2021 to April 2021.
Given that SDG&E's delay will result in a corresponding yet unspecified delay in the Clean Energy
Alliance's planned May 2021 community choice aggregation program launch, staff is providing
this letter for City Council's consideration.
Attachment:
July 27, 2020, Letter from SDG&E
cc: Geoff Patnoe, Chief Operations Officer
Celia Brewer, City Attorney
Laura Rocha, Deputy City Manager — Administrative Services
Ryan Green, Assistant Finance Director
City Manager's Office
Intergovernmental Affairs
1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2958 t
SD GI a
Scott Crider
Vice President
Customer Services
Sempra Energy' utility
8330 Century Park Court
San Diego, CA 92123-1530
Tel: 858.654.1270
SCrider@sdge.com
July 27, 2020
Ellie Haviland
Chair, Clean Energy Alliance
1050 Camino Del Mar
Del Mar, CA 92014
Joe Mosca
Chair, San Diego Community Power
1200 Third Street, 18th Floor
San Diego, CA 92101-4195
Jewel Edson
Chair, Solana Energy Alliance
City Hall 635 S. HWY 101
Solana Beach, CA 92075
Dear Chairs Haviland, Mosca and Edson:
Thank you for your July 22 letter and for the ongoing engagement as the region continues
the expansion of service via community choice aggregation. We recognize the importance
of your launch schedules and SDG&E remains firmly committed to being a good partner to
ensure the transition to San Diego Community Power and Clean Energy Alliance results in
an exceptional experience for our joint customers. This transition has been a key focus
during development of our Customer Information System (CIS) replacement program.
As you are aware, on June 11, 2020, the California Public Utilities Commission (CPUC)
approved a Decision (D.)20-06-003 (Decision) that substantially changes how utilities
manage residential disconnections and includes a number of new customer programs,
engagement tools, and other requirements that must be in place no later than April 2021.
Among other things, the Decision caps residential disconnections, prohibits utilities from
requiring service deposits or charging connection fees, requires utilities to offer all
residential customers 12-month payment plans, and requires improved disconnection
notices so customers are better informed about available financial assistance programs. It
also requires creation of a customer facing Low Income Home Energy Assistance Program
(LIHEAP) portal and creates an Arrearage Management Payment (AMP) plan for eligible
low-income customers to assist with unpaid past-due balances. The Decision outlines
numerous implementation, notification, and reporting requirements for the AMP and
creates an AMP working group to address outstanding issues, including CCA cost recovery.
SDG&E is committed to reducing the burden of customer disconnections. Many of the
requirements in the Decision, however, have to be custom built in SDG&E's new CIS and
some are technically complex. Particularly with respect to the AMP and the customer-facing
LIHEAP portal, the programs will require extensive design and development work within
the new CIS in order to deliver the functionality.' These programs are unlike any previously
offered by SDG&E and the technical changes for programs like AMP should not be
understated. They require complex changes to enable the capabilities and testing to ensure
that key billing and financial reporting processes are not inadvertently impacted. Testing is
essential to ensure that all customer bills and payments are processed correctly, including
those not participating in the program. Bill accuracy and successful payment processing are
of course critical to the success of all of our organizations.
Since the Decision was issued last month, SDG&E has explored a number of regulatory and
technical solutions to comply with the Decision while avoiding impacts to our January 2021
CIS deployment date and ultimately your transition schedules.
SDG&E first examined whether we could build the functionality in the new CIS prior to
deploying the system in January 2021. This option was determined to not be feasible given
it would take several months to design and build the solution. When designing and building
solutions, SDG&E can often accelerate timelines by leveraging similar existing
programming. In this case, extensive custom programming will be required to ensure it is
supported across SDG&E's customer channels and is fully integrated into all of SDG&E's
business processes. The new CIS is already built and we are well into the testing phase.
There is simply not enough time at this late stage to introduce significant new custom
software code and still deploy in January 2021.
SDG&E also evaluated an option to concurrently develop the technical functionality
required in the Decision and then merge with the new CIS following deployment in January
2021. This option was rejected because of the significant risk it introduces. As mentioned,
programs like AMP require significant changes to software code that is foundational to the
calculation of accurate monthly bills for customers. After deployment, the CIS program
must undergo a stabilization period, during which no substantive changes should be made.
The overall objective of the stabilization period is to reduce the risk of potential customer
impacts and billing system issues. Implementing a major code merge during the
stabilization period — while at the same time transitioning customers to SDCP and CEA -
risks the integrity of the system and could result in billing errors for SDG&E and CCA
customers.
Finally, as noted in your letter, we sought approval from the CPUC to delay implementation
of the disconnection decision, which was denied. SDG&E met with The Utility Reform
Network (TURN) to attempt a coordinated resolution that addressed TURN's objection to an
extension of D.20-06-003's requirements. Due to the limited timeframe for negotiations,
SDG&E and TURN were unable to reach a resolution.2 We have determined that submitting
a revised request is not possible given our need to make an imminent decision on the
1 The technical complexity of the AMP program is supported by the record in the Disconnection
proceedings (R.18-07-005). Eversource, a New England energy utility, presented on its AMP program
during a webinar. Eversource detailed that coding took "between 6-12 months, because Eversource
wanted to be precise with billing." See R.18-07-005, Administrative Law Judge's Ruling Requesting
Comments and Reply Comments to Six Questions and Comments and Reply Comments on Five
Attachments (November 14, 2019) at Attachment 2.
2 As directed in the Executive Director's letter denying SDG&E's extension request, SDG&E continues
to collaborate with TURN and the CCAs regarding implementation of D.20-06-003 during the AMP
Working Group process.
program's schedule. Changing the CIS deployment date requires significant planning and
work needs to start immediately on building the Decision functionality. Giving the CPUC
only days to assess a revised request considering the concerns expressed by some
stakeholders is not feasible.
After careful consideration, SDG&E unfortunately needs to shift the deployment date of the
CIS to early April 2021. We understand this will be a concern to you but the shift is
necessary to provide sufficient time to design, build, and test the programs and functionality
required in the Decision. This delay is also disappointing to the company and to me
personally. Absent this latest development with the Decision, we had high confidence in
completing the project in January 2021 as anticipated.
In light of this change, we would appreciate the opportunity to immediately meet with your
teams to discuss potential options we are exploring to mitigate some of the impacts to your
schedules. This is a top priority for SDG&E and we stand ready to further collaborate on
solutions.
Your acknowledgement that SDG&E has done a commendable job keeping the program on
track even in light of the ongoing COVID-19 health emergency is appreciated. CIS
replacement programs are among the most difficult and complex initiatives for a utility
given the scope, risks and operational impacts. Most CIS replacements, including SDG&E's,
generally occur only once in a generation. Our team has worked tirelessly since 2017 on
this transformation program to replace our 23-year-old CIS and they have managed to stay
on schedule even with hundreds of employees and contractors transitioning to remote
work across three continents due to the pandemic.
In closing, I want to reiterate SDG&E's commitment to operationally supporting SDCP and
CEA through this transition and beyond. Our shared customers are counting on us to
provide a seamless experience and world-class customer service. While we are focused
today on this short delay, please remember the capabilities we are developing within our
new CIS will enable us to reliably deliver on these expectations for decades to come. Thank
you.
Sincerely,
Scott Crider