HomeMy WebLinkAbout2020-07-14; City Council; ; $2,250,000 Credit Guaranty for the Clean Energy Alliance and Financing OptionsCA Review CKM
Meeting Date: July 14, 2020
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Jason Haber, Intergovernmental Affairs Director
jason.haber@carlsbadca.gov, 760‐434‐2958
Subject: $2,250,000 Credit Guaranty for the Clean Energy Alliance and Financing
Options
Recommended Action
1.Adopt a resolution:
a.Authorizing the City of Carlsbad to provide a $2,250,000 guaranty for a
$2,500,000 line of credit for the Clean Energy Alliance as proposed by River City
Bank or a third party approved by the alliance board
b.Authorizing the city manager to act on behalf of the city, in consultation with the
city attorney, to negotiate and execute all agreements and amendments
necessary for the guaranty
2.Consider directing staff to develop and present an alternative credit option to fund the
Clean Energy 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.
Executive Summary
On June 24, 2020, City Council Member Schumacher submitted the attached email to the city
manager (Exhibit 2) requesting that an agenda item be placed on the City Council’s July 14,
2020, meeting to discuss options and opportunities related to the Clean Energy Alliance’s fiscal
year 2020‐21 financing plan.1
At its regular meeting of June 18, 2020, the alliance’s board of directors approved a fy 2020‐
21 budget totaling $4,006,500. A portion of that budget will be funded by fiscal year 2019‐20
1 Carlsbad Municipal Code Section 1.20.060(C) states, “The city manager is responsible for scheduling matters for
consideration by the council based on established council priorities, the city’s business and governmental needs,
and requirements of applicable law. Items of business may be placed on the agenda by any member of the council,
the city manager or the city attorney, or by council action. Council‐originated items must be submitted to the city
manager not less than seven days before the date of the council meeting at which the member desires the item to
appear on the agenda. Nothing in this section precludes a council member from requesting council action to place
an item on the agenda for a future meeting.”
July 14, 2020 Item #16 Page 1 of 25
budget savings, while $4,000,000 is to be funded by a third‐party credit solution. In addition
to the funds needed for the budget, 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. At the same meeting, the board received a report
from alliance staff about two financing options to provide the necessary funds for the
alliance’s fy 2020‐21 cash needs. These options were from River City Bank and JP Morgan.
The alliance board directed staff to ask the member agencies about whether they could
provide the required security for the River City Bank option and to return to the board at its
July 16, 2020, meeting with the results of those inquiries.
This item is to consider approving a resolution authorizing the City of Carlsbad to provide a
credit guaranty in an amount not to exceed $2,250,000 for a $2,500,000 credit option for the
CEA as proposed by River City Bank or a third party approved by the alliance board. If approved,
the City Council is being asked to authorize the city manager to act on behalf of the city, in
consultation with the city attorney, to negotiate and execute all agreements and amendments
necessary for the guaranty.
In evaluating CEA’s guaranty request and other financing options under consideration by the
alliance, city staff identified the potential to develop 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. While
this option presents additional risk to the city, it could also offer benefits to both the city and
the alliance. This item presents a conceptual financing scenario that could be further developed
in consultation with the city attorney and city treasurer and presented for the alliance’s
consideration at the City Council’s direction.
Discussion
Background
On Oct. 8, 2019, the Carlsbad City Council adopted Resolution No. 2019‐197, approving the
Joint Powers Agreement creating the Clean Energy Alliance. The City Council also appointed
Council Member Schumacher as the primary representative and Mayor Hall as the alternate to
serve on the Clean Energy Alliance Board of Directors.
The alliance consists of the cities of Carlsbad, Del Mar and Solana Beach and is scheduled to
launch in May 2021. The fiscal impact of developing and launching the alliance was estimated at
$450,000 for fiscal year 2019‐20 and each member agency contributed an equal share of the
initial start‐up costs. The Carlsbad City Council adopted Resolution No. 2019‐229 on Nov. 12,
2019, authorizing the city to provide $150,000 for Carlsbad’s equal share of the alliance’s initial
costs and authorized the city manager to negotiate a no‐interest cost reimbursement for
member agency support agreement with the alliance. These initial costs are to be reimbursed
to each member agency when enough alliance revenues are available, but not longer than 36
months after launch. The city made the $150,000 payment to the alliance in April 2020.
Clean Energy Alliance financing options
Initial start‐up costs for fy 2019‐20 were funded through advances from the member
agencies of Carlsbad, Del Mar and Solana Beach in the amount of $150,000 from each
member agency, for a total $450,000. Future start‐up costs to be incurred in fy 2020‐21, as
July 14, 2020 Item #16 Page 2 of 25
well as the repayment of the advances from the member agencies, are to be funded through
a credit solution provided by a financial institution or other third party.
After these initial advance payments were made, the COVID‐19 pandemic hit and stay‐at‐
home orders were implemented, resulting in anticipated revenue losses to the member
agencies. As a result, Del Mar and Solana Beach reached out to the alliance to ask for early
repayment of the initial advances.
Total funding needs for alliance start‐up costs include:
Funding for fy 2020‐21 operating budget $1,000,000
Repayment of initial advances to member agencies 450,000
CAISO deposit2 500,000
Lockbox reserves and cash flow 2,500,000
Total funding needed $4,450,000
At its regular meeting of June 18, 2020, the alliance board received a report from alliance
staff about two financing options to provide the necessary funds for alliance’s fy2020‐21 cash
needs (Exhibit 3). These options were from River City Bank and JP Morgan.
The River City Bank line of credit is a lower cost option but requires security in the form of a
guaranty or cash collateral deposit of $2.5 million. The security can be provided by one or
more of the member agencies or a creditworthy third party.
The JP Morgan option has no security requirement but costs about $78,000 more than the
River City Bank option and includes operating covenants that the alliance would have to
adhere to. One covenant would require the alliance to set rates to cover all operating and
financing costs. This would restrict the alliance board’s ability to fund programs or offer rate
discounts funded through reserves if that funding caused operating costs to exceed
revenues. For these reasons, the alliance board preferred the River City Bank option.
At its June 18 meeting, the board directed alliance staff to reach out to the member agencies
to discuss whether there would be an option for one or more of the agencies to provide the
security required for the River City Bank option.
River City Bank credit option ‐ security requirements details
The total amount of the River City Bank credit subject to the security is $2,500,000. River City
Bank is willing to accept guaranties or cash collateral deposits from each member agency on
2 The CAISO or California Independent System Operator 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 once it has accumulated $10 million in total assets.
July 14, 2020 Item #16 Page 3 of 25
a pro‐rata share based on the agency’s percentage of the energy procured by the alliance.
The guaranty would require the city to execute a form of guaranty, a sample of which is
attached as Exhibit 4.
In this case, each member agency would be guaranteeing its share on an energy load‐based
pro‐rata allocation, as shown in the table below:
Member agency % of alliance
energy load
Pro‐rata share of
guaranty
Carlsbad 90% $2,250,000
Del Mar 3% $75,000
Solana Beach 7% $175,000
The security requirement would be in place through the maturity date of the $2,500,000
loan, which is two years, or until it is repaid, whichever comes first. River City Bank is
amenable to discussing the release of guaranties and cash collateral after the alliance has
launched operations and provided a track record of operations at a to‐be‐determined level
satisfactory to River City Bank.
The guaranties and cash collateral would come into play in the event of a default by the
alliance. In this event, each member agency would be responsible to pay its proportional
share of all outstanding obligations up to the amount of its guaranty.
If the City of Carlsbad agrees to the security requirement for a guaranty amount of up to
$2,250,000, the city will be repaid the $150,000 advance it made in April 2020 for the alliance’s
initial costs during fy 2019‐20.
River City Bank credit option ‐ risk of default
Assuming the alliance launches in May 2021 as planned, the current proforma indicates
sufficient revenue, at rate parity with San Diego Gas and Electric, to cover operational
expenses and financing costs, resulting in a low risk of default. The alliance board has not
decided what rate benefits, if any, to offer. However, repaying the loan would be a priority of
the alliance board no matter what rate is chosen. The risk of default can be considered high if
the alliance does not launch in May as anticipated. If that were to occur, the alliance would
return any unspent funds to the bank and any remaining funds due to the bank would need
to come from the member agencies, based on their guaranties.
Uses of the $2,500,000 loan subject to the guaranty are as follows:
Funding for fy 2020‐21 operating budget $1,000,000
Repay initial advances to member agencies 450,000
Lockbox reserve 1,050,000
TOTAL $2,500,000
July 14, 2020 Item #16 Page 4 of 25
In a worst‐case scenario, in the event the alliance does not launch in May 2021, the
$1,050,000 reserve would not have been spent and would be returned to the bank. The
member agencies would be liable for the portion of the remaining $1,450,000 that had been
spent, up to and allocated by the pro‐rata share, or $1,305,000 from Carlsbad, $43,500 from
Del Mar and $101,500 from Solana Beach.
Should the alliance become operational in May 2021, there would still be a very low risk of
default that could result from drastic change in market conditions, which could cause the
alliance to underperform compared to current projections. However, the alliance board
would have the ability to significantly mitigate such risk by cutting discretionary
expenditures, reducing reserve contributions, and/or setting rates as needed to cover the
alliance’s financial obligations.
City of Carlsbad – alternative credit option
In evaluating the alliance’s guaranty request and other financing options under consideration
by the alliance, city staff identified an opportunity to develop 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. While this option presents additional risk to the city, it could also offer benefits to both
the city and the alliance.
Exhibit 5 presents a side‐by‐side comparison of the River City Bank and JP Morgen credit
options, along with a conceptual scenario describing a potential loan from the city’s General
Fund. For comparison, staff applied conceptual financing terms that are subject to City Council
refinement, including: loan amount, term, interest rate, and security and covenants, among
others. Assuming a three‐year term and a 3% interest rate, the City of Carlsbad option could
reduce the alliance’s total interest obligation by nearly $120,000 compared to the River City
Bank option, while outperforming the city’s 1.9% projected average rate of return on its pooled
investment portfolio by more than 50%. (This would result in a projected gain of nearly
$150,000 over three years). At the City Council’s direction, staff could further develop this
solution in consultation with the city attorney and city treasurer and present it for the alliance’s
consideration.
Based upon staff’s current projections, a loan of $4,450,000 could be funded from the city’s
General Fund Unassigned Fund Balance while still maintaining a fund balance that exceeds the
minimum threshold of 40% of expenditures budgeted for fiscal year 2020‐21.
City of Carlsbad credit option ‐ risk of default
The alliance would use loan proceeds to fund fiscal year 2020‐21 cash needs, as follows:
Funding for fy 2020‐21 operating budget $1,000,000
Repayment of initial advances to member agencies 450,000
CAISO deposit 500,000
Lockbox reserves and cash flow 2,500,000
Total funding needed $4,450,000
July 14, 2020 Item #16 Page 5 of 25
In that worst‐case scenario, in which the alliance does not launch in May 2021, the
$2,500,000 lockbox reserves would not have been spent and would be returned to the city.
The CAISO deposit would also be returned to the city in full. The exposure to the city would
be the $450,000 repayment of initial advances – $150,000 of which would have been
returned to the City of Carlsbad, plus any portion of the remaining $1,000,000 that had been
spent to date.
Following the River City Bank model, it would be reasonable to require that the member
agencies guarantee their pro‐rata share of the $1,450,000 that would be at risk in the event
of a default (i.e., $43,500 from Del Mar and $101,500 from Solana Beach). The City of
Carlsbad would still be at risk of potentially losing its pro‐rata share totaling $1,305,000 if the
alliance fails to launch in May 2021.
As noted previously, once the alliance becomes operational, there would remain a very low
risk of default due to potential changes in market conditions. However, as noted above, the
alliance board would be able to significantly mitigate such risk by cutting discretionary
expenditures, reducing reserve contributions, and/or setting rates as needed to cover the
alliance’s financial obligations.
Fiscal Analysis
The city entering into a guaranty arrangement with River City Bank or other third party would
have no fiscal impact on the city unless the alliance is unable to launch in May 2021 or the
terms of the guaranty are otherwise implemented because of a default. There have been no
community choice aggregation programs in the State of California that have failed to launch.
Based on the financial proformas presented to the alliance board, the risk of the alliance
being unable to launch and operate a viable community choice aggregation program appears
low at this time.
An interagency loan, as contemplated by the City of Carlsbad credit option, is not necessarily
subject to the city’s Investment Policy. However, it may be reasonable to evaluate such use
of city funds similarly, in terms of the associated risk, liquidity and yield. While the alliance
may be considered a low risk use of funds, it is a higher risk than setting aside funding in the
city treasurer’s portfolio. Any funds loaned to the alliance would be obligated for up to three
years, which is within the city’s adopted maturity limits.
When compared to the city’s projected average rate of return on its pooled investment
portfolio, the City of Carlsbad credit option is expected to present a higher yield use of funds. In
considering whether to loan funds to the alliance, it is within the City Council’s discretion to
consider the totality of the factors noted above combined with the city’s clean energy
objectives and the collective benefit to be derived from supporting a successful alliance launch.
Should the city offer, and the alliance accept a loan from the city, the city would loan
$4,450,000 from the General Fund’s unassigned fund balance. The higher interest rate
earned on these funds would result in an estimated net benefit to the city’s General Fund of
nearly $150,000 over the anticipated three‐year loan term.
July 14, 2020 Item #16 Page 6 of 25
Under any of the potential alliance financing arrangements, the city will get back its initial
$150,000 advance made in April 2020 for alliance startup costs during fy 2019‐20.
Next Steps
Staff will inform the alliance of the City Council’s decision and the alliance will proceed with the
necessary steps to identify and secure its preferred financing alternative, as needed to fund the
alliance’s fy 2020‐21 cash needs.
If the City Council decides to offer a loan to the alliance, staff would return to the City Council
to approve the necessary appropriation and loan agreement within 60 days.
Environmental Evaluation (CEQA)
In keeping with Public Resources Code Section 21065, this action of authorizing a loan guaranty
and considering a potential General Fund loan to the Clean Energy Alliance does not constitute
a “project” within the meaning of the California Environmental Quality Act in that it has no
potential to cause either a direct physical change in the environment, or a reasonably
foreseeable indirect physical change in the environment, and therefore does not require
environmental review.
Public Notification
Public notice of this item was posted in accordance with the Ralph M. Brown Act and it was
available for public viewing and review at least 72 hours prior to the scheduled meeting date.
Exhibits
1.City Council resolution
2.Email from Council Member Schumacher ‐ June 24, 2020
3.Clean Energy Alliance Staff Report ‐ June 18, 2020
4.River City Bank Sample Guaranty Form
5.Comparison of Clean Energy Alliance Credit Options
July 14, 2020 Item #16 Page 7 of 25
- Exhibit 1
RESOLUTION NO. 2020-145
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, AUTHORIZING THE CITY OF CARLSBAD TO PROVIDE UP TO A
$2,250,000 GUARANTY FOR A $2,500,000 CREDIT OPTION FOR CLEAN
ENERGY ALLIANCE
WHEREAS, at the October 8, 2019, City Council meeting, the City Council approved Resolution
2019— 197 approving the city's participation in the new regional Community Choice Aggregation (CCA)
program the Clean Energy Alliance (CEA); and
WHEREAS, the CEA 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
founding member agencies of Carlsbad, Del Mar and Solana Beach in the amount of $150,000 from
each member agency, for a total $450,000; and
WHEREAS, future start-up costs totaling $4,450,000 to be incurred in fiscal year 2020-21 are to
be funded through a credit solution provided by a financial institution or other third party; and
WHEREAS, as part of the credit solution being proposed, security is required in the form of a
guaranty or cash collateral deposit for $2,500,000 of the credit solution. The security can be satisfied
by one or more of the member agencies or a creditworthy third party; and
WHEREAS, the City of Carlsbad's portion of the guaranty would be $2,250,000 based on its
prorated share of the expected total CEA load; and
WHEREAS, resort to the guaranty or cash collateral would occur in the event of a default by
CEA, with each member agency responsible for its prorated share; and
WHEREAS, staff has evaluated the risk to the city of a default by CEA and has determined that
the risk is low.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
i. That the above recitations are true and correct.
July 14, 2020 Item #16 Page 8 of 25
''''''' ••
2. That the City Council authorizes the City to provide up to a $2,250,000 guaranty for a
$2,500,000 credit option for the CEA as proposed by River City Bank or other third party
approved by the CEA Board.
3. 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
amendments necessary for the guaranty.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of
Carlsbad on the 14th day of July 2020, by the following vote, to wit:
AYES: Blackburn, Bhat-Patel, Schumacher.
NAYS: Hall.
ABSENT: None.
MATT HALL, Mayor
ARBAj ENGLE , City Cl rk
SEAL)
July 14, 2020 Item #16 Page 9 of 25
From:Cori Schumacher
To:Scott Chadwick
Cc:Jason Haber
Subject:Request for Agenda Item (CEA)
Date:Wednesday, June 24, 2020 7:29:23 PM
Attachments:Outlook-1508790555.png
Dear Scott,
On June 18, 2020 the Clean Energy Alliance (CEA) authorized the Interim Chief Executive
Officer and the Interim Treasurer to work with the member agencies to determine if there are
opportunities that can be identified related to CEA's FY 20/21 Financing Plan (Item #5).
Pursuant to CMC § 1.20.060, Items of business may be placed on the agenda by any member
of the council...
I would like to request that an agenda item be added to the July 14, 2020 meeting of the
Carlsbad City Council to review and discuss such options and opportunities.
Sincerely,
Cori Schumacher
Councilmember, District 1
City of Carlsbad
Exhibit 2
July 14, 2020 Item #16 Page 10 of 25
Staff Report
DATE: June 18, 2020
TO: Clean Energy Alliance Board of Directors
FROM: Barbara Boswell, Interim Chief Executive Officer
Marie Berkuti, Interim Treasurer
ITEM 5: Clean Energy Alliance Fiscal Year 20/21 Financing Plan
RECOMMENDATION:
1)Authorize Interim Chief Executive Officer and Interim Treasurer to work with the member
agencies to determine if there is an opportunity for one or all to provide security requirements
for the River City Bank credit option and if a solution is identified return to Board for approval.
Direct staff to return for final approval to finalize the agreements with River City Bank, Calpine
and the provider of the credit security should one be identified.
2)Should a solution for the security requirements for the River City Bank credit option not be
identified approve selection of JP Morgan to provide $4.5M credit solution and authorize
Interim Chief Executive Officer to submit documents, complete due diligence requirements and
execute loan agreements with JP Morgan, subject to General Counsel approval.
BACKGROUND AND DISCUSSION:
At its November 19, 2019 meeting, the Clean Energy Alliance (CEA) Board authorized issuance of an RFP
for Banking Services and Credit Solution. The banking services portion was awarded to River City Bank
at the February 20, 2020 CEA Board Meeting. Since that time, staff has continued working with financial
institutions that responded to the credit solution portion. Two submitted updated term sheets to
provide funding for fiscal year 20/21 budget and start-up costs, CAISO Deposit, Collateral Deposits and
Cash Flow needs, JP Morgan and River City Bank.
CEA is seeking $4.5M in funding to provide for the following:
$2.5M – Collateral Deposits and Cash Flow
$1.0M – FY 20/21 CEA Budget including start-up costs
$500,000 – CAISO Deposit
$450,000 – Repayment of initial start-up loans from member cities
$4.5M – Total financing
The following tables reflect the summary of the analysis of the two options.
ATTACHMENT 2
June 18, 2020 Item #5 Page 1 of 5
Exhibit 3
July 14, 2020 Item #16 Page 11 of 25
June 18, 2020
Financing Plan
Page 2 of 5
Option 1 – JP Morgan
Credit Facility Revolving Line of Credit (RLOC)
Amount $4,500,000 (offered up to $10.0M with an
additional $5.0M available for Standby Letters of
Credit for power purchase agreements)
Term 3 Years
Security CEA only – Nonrecourse to the member agencies
Interest Rate One-month or three-month LIBOR plus 3.35%
Undrawn Fee 1.95% calculated on the undrawn portion of the $4.5M RLOC
Loan Fees $50,000
Total Estimated Interest & Fees Estimated $575,300 over 3-year period
JP Morgan understands that the credit solutions will be unsecured until CEA is operational and
generating revenue. In order to provide this offer additional due diligence will need to be performed by
the bank which includes:
• Due diligence call related to the impacts of COVID-19;
• Satisfactory review of a final implementation timeline and implementation budget
(including startup costs, resource adequacy requirements, etc.);
• Receipt/satisfactory review of a near final drawn-down schedule for the implementation
budget;
• In-person or virtual meeting with CEA and the Member Agencies to discuss its commitment
to moving forward with launching CEA in FY 2021 and any major risks that could lead the
CEA and the Member Agencies to terminate the program pre-launch to customers;
• CEA shall have adopted operating rules and regulations satisfactory to the Bank;
• Evidence that CEA shall have established policies around the funding of an operating
reserve;
• CEA shall have delivered to the Bank copies of any Power Purchase Agreements;
• Evidence that the Bank has a security interest in the net revenues after payments to power
providers and O&M payments;
• Completion of satisfactory legal documentation;
• Delivery of satisfactory opinions of counsel which will include counsel to CEA; and
• Board approval of the Facility and definitive documents.
In addition, JP Morgan will require CEA to comply with the following covenants:
• CEA shall establish an operating reserve sized at a minimum of 90 of operating costs which
will be funded on a TBD schedule overtime (to be discussed upon finalizing the pro-forma
model);
• CEA shall set rates to cover operating and debt service costs;
• CEA shall be required to maintain a minimum Debt Service Coverage ratio of 1.40x, tested
quarterly on a rolling last twelve months basis of which such covenant may be waived at any
time by the Bank;
June 18, 2020 Item #5 Page 2 of 5
July 14, 2020 Item #16 Page 12 of 25
June 18, 2020
Financing Plan
Page 3 of 5
• CEA may not issue any new debt during the term of the Facility other than an upsize of this
Facility as referenced in “Facility Amount” above and/or any additional increments above
the total Facility Amount to be approved by the Bank debt or other than the Member
Agency Subordinate Loans.
The covenants related to setting rates to cover operating and debt service costs and Debt Service
Coverage ratio may limit the Boards flexibility to set rates to provide customers a discount on
generation costs compared to SDG&E.
Option 2 – River City Bank
Credit Facility Nonrevolving Line of Credit (NRLOC)/Revolving
Line of Credit (RLOC)
Amount $2,500,000 NRLOC
$1,500,000 RLOC
($500,000 CAISO deposit not included; would
require separate loan from 3rd party such as Calpine Energy Solutions)
Term 2 years with option to convert both NRLOC and
RLOC to term loan for up to an additional 3 years
Security $2.5M NRLOC secured by one of the following
options:
1) Guarantee from one or all of the JPA
Members or other creditworthy party
2) Cash Collateral for 100% of NRLOC loan
amount
3) Combination of guarantees and cash
collateral at levels acceptable to RCB
Interest Rate NRLOC - One-month US Treasury Bill yield plus
2.5% subject to a 3.00% floor
RLOC - One-month US Treasury Bill yield plus
3.0% subject to a 3.50% floor
Term Loan – 3-Year US Treasury Note yield plus
3.00% subject to a 3.50% floor
Loan Fees $15,000
Total Estimated Interest & Fees over five years Estimated $460,000 over 5-year period
The River City Bank option would require a separate loan from a 3rd party, such as Calpine Energy
Solutions, to provide the total funding need of $4.5M. The chart below summarizes the terms and cost
of the Calpine Energy Solutions loan.
Option 2a – Calpine
Credit Facility Cash Advance
Amount $500,000 (offer up to $650,000)
Term Principal and accrued interest repayment to
begin within 90 days of serving customers with
June 18, 2020 Item #5 Page 3 of 5
July 14, 2020 Item #16 Page 13 of 25
June 18, 2020
Financing Plan
Page 4 of 5
full reimbursement made on or before fifteen
months of serving customers.
Security None
Interest Rate 1-Month LIBOR plus 2% up to maximum 5%
Loan Fees None
Total Interest & Fees over three years Estimated $9,375
TOTAL ESTIMATED INTEREST & FEES RCB &
CALPINE
$469,375
The RCB/Calpine credit solution estimated total interest and fees are $105,000 lower than the credit
solutions from JP Morgan. However, RCB requires either a guarantee or 100% cash collateral for the
$2.5M NRLOC portion. CEA would need one or all of the member agencies, or a creditworthy party, to
provide the necessary security in order for CEA to move forward with RCB.
FISCAL IMPACT
The following updated base pro forma scenario (50% renewable/50% carbon free default energy and
rate parity with SDG&E) reflects the impact of the Option 1 financing with JP Morgan:
Annual DRAFT Pro Forma Projections for a Community Choice Aggregation Program - Base - JPMorgan Credit Solution
Clean Energy Alliance
Fiscal Year Ending: 2020 2021 2022 2023 2024 2025
I. Revenue - 9,913,235 69,767,349 71,127,161 72,508,987 73,913,166
II. Operating Expenses
Power Supply - 8,988,017 60,976,876 59,978,716 61,512,028 62,261,087
Staff 50,000 120,000 600,000 618,000 636,540 655,636 Administrative Costs* 253,000 1,223,938 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) (418,721) 5,731,326 8,032,632 7,802,071 8,380,167
III. Financing
Interest - 197,288 182,250 195,750
Principal - 450,000 4,500,000
Subtotal Financing - 647,288 182,250 4,695,750 - -
Operating Margin Less Financing (303,000) (1,066,009) 5,549,076 3,336,882 7,802,071 8,380,167
IV. Cash From Financing 450,000 4,500,000 - - - -
V. Other Uses
CPUC and CAISO Deposits 147,000 500,000 - - - -
Collateral Deposits 0 2,500,000 - - - - Reserve Additions - 495,662 3,488,367 3,556,358 3,625,449 3,695,658
Subtotal Other Uses 147,000 3,495,662 3,488,367 3,556,358 3,625,449 3,695,658
VI. Net Surplus/(Deficit) - (61,671) 2,060,708 (219,476) 4,176,622 4,684,509
VII. Cumulative Reserve - 495,662 3,984,029 7,540,387 11,165,837 14,861,495
VIII. Cumulative Net Surplus - (61,671) 1,999,038 1,779,561 5,956,183 10,640,692
* Comprised of Technical and Legal Services, Customer Outreach and Communications, Utility Services Fees, Data Management Services, Uncollectibles
Pursuant to the JP Morgan term sheet, the RLOC is due and payable at the end of three years, assuming
the RLOC is executed in July 2020, repayment would be due July 2023 (utilizing net revenues realized
through June 30, 2023). Based on the projected interest rates, annual net deficits are projected in FY
2021 and 2023, to be addressed with funds from operating reserves in FY 2021 and cumulative net
surplus in 2023. After repayment it is projected CEA cumulative operating reserve would be $7.5M and
cumulative net surplus $1.780M.
The base pro-forma scenario below reflects the impact of the Option 2 financing with RCB/Calpine:
June 18, 2020 Item #5 Page 4 of 5 July 14, 2020 Item #16 Page 14 of 25
June 18, 2020
Financing Plan
Page 5 of 5
Annual DRAFT Pro Forma Projections for a Community Choice Aggregation Program - Base RCB/Calpine Credit Solution
Clean Energy Alliance
Fiscal Year Ending: 2020 2021 2022 2023 2024 2025
I. Revenue - 9,913,235 69,767,349 71,127,161 72,508,987 73,913,166
II. Operating Expenses
Power Supply - 8,988,017 60,976,876 59,978,716 61,512,028 62,261,087
Staff 50,000 120,000 600,000 618,000 636,540 655,636
Administrative Costs* 253,000 1,223,938 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) (418,721) 5,731,326 8,032,632 7,802,071 8,380,167
III. Financing
Interest - 123,333 146,250 116,038 69,822 22,280 Principal - 450,000 500,000 1,287,015 1,332,791 1,380,194
Subtotal Financing - 573,333 646,250 1,403,053 1,402,613 1,402,474
Operating Margin Less Financing (303,000) (992,054) 5,085,076 6,629,579 6,399,458 6,977,693
IV. Cash From Financing 450,000 4,500,000 - - - -
V. Other Uses
CPUC and CAISO Deposits 147,000 500,000 - - - -
Collateral Deposits 0 2,500,000 - - - -
Reserve Additions - 495,662 3,488,367 3,556,358 3,625,449 3,695,658
Subtotal Other Uses 147,000 3,495,662 3,488,367 3,556,358 3,625,449 3,695,658
VI. Net Surplus/(Deficit) - 12,284 1,596,708 3,073,221 2,774,009 3,282,035
VII. Cumulative Reserve - 495,662 3,984,029 7,540,387 11,165,837 14,861,495
VIII. Cumulative Net Surplus - 12,284 1,608,993 4,682,213 7,456,222 10,738,257
* Comprised of Technical and Legal Services, Customer Outreach and Communications, Utility Services Fees, Data Management Services, Uncollectibles
The pro-forma above reflects the impact of the RCB NRLOC and RLOC converting to a term loan in year
three and being repaid in FY 2025 and repayment of the Calpine loan in FY 2022 pursuant to the terms
of the two financings. With Option 2 CEA annual net surplus remains in the positive through 2025.
Based on the impact to the CEA pro-forma and covenants related to the JP Morgan unsecured financing,
staff recommends the Board authorize to reach out and discuss whether there is any possibility of
providing the security requirements for the RCB secured financing solution.
ATTACHMENTS: None.
July 14, 2020 Item #16 Page 15 of 25
SAMPLE - NON REVOLVING CREDIT GUARANTY
This NON REVOLVING CREDIT GUARANTY (this “Guaranty”) is made effective as of
by the [ ] (“Guarantor”) to and for the benefit of River City Bank (“Lender”).
RECITALS
A.Pursuant to a certain Credit Agreement dated as of [ ] (as amended, amended andrestated, supplemented or otherwise modified from time to time, the “Credit Agreement”), byand between [ ] (“Borrower”) and Lender, Lender has agreed to extend credit to Borrower.Capitalized terms used but not defined herein have the meanings ascribed to them in theCredit Agreement.
B.It is a requirement under Section [ ] of the Credit Agreement that Guarantor shallexecute and deliver this Guaranty to Lender.
C.This Guaranty is given by Guarantor to guaranty all Obligations of Borrower under
the Non Revolving Credit in accordance with the terms of the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
Guarantor hereby agrees as follows:
l.Guaranty. (a) To induce Lender to make Advances upon the terms and conditions setforth in the Credit Agreement, and in consideration thereof, Guarantor hereby unconditionallyand irrevocably severally (based on Guarantor’s percentage responsibility set forth on
Exhibit A attached hereto (each a “Guarantor’s Share”)) (i) guarantees to Lender and its
successors, transferees and assigns, the prompt and complete payment and performance whendue (whether at the stated maturity, by acceleration or otherwise) and at all times thereafter ofall Obligations of Borrower (including amounts which would become due but for theoperation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, as
amended, or any state bankruptcy statute) under the Non Revolving Credit; and (ii) agrees to
pay any and all reasonable expenses (including reasonable attorneys’ fees and costs andexpert witnesses’ fees and expenses) which may be paid or incurred by Lender in enforcingany rights with respect to the Obligations and/or enforcing any rights under this Guaranty(collectively, the “Guaranteed Obligations”).
(b)Guarantor agrees that this Guaranty constitutes a guaranty of payment when due andnot of collection and waives any right to require that Lender resort to any security held forpayment of any of the Guaranteed Obligations or to any balance of any deposit account orcredit on the books of Lender in favor of Borrower or any other Person.
ATTACHMENT 3
Exhibit 4
July 14, 2020 Item #16 Page 16 of 25
(c) No payment or payments made by Borrower or any other Person or received or collected by Lender from any other Person by virtue of any action or proceeding or any setoff
or appropriation or application at any time or from time to time in reduction of or in payment
of the Guaranteed Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made to Lender by Guarantor or payments received or collected by Lender from Guarantor, remain liable for Guarantor’s Share of the Guaranteed
Obligations until the Guaranteed Obligations are indefeasibly paid in full in cash or cash
equivalents. (d) Guarantor understands, agrees and confirms that this is a guaranty of payment when due and not of collection and that Lender may, from time to time, enforce this Guaranty up to
the full amount of Guarantor’s Share of the Guaranteed Obligations owed to Lender without
proceeding against any other Person, against any security for the Guaranteed Obligations, against any other guarantor or under any other guaranty covering the Guaranteed Obligations. 2. Waiver by Guarantor. Until the payment and satisfaction in full of all Guaranteed
Obligations and the expiration or termination of any commitment to lend by Lender under the
Credit Agreement, Guarantor hereby absolutely and irrevocably waives any claim that it may have against Borrower or any of its Affiliates by reason of any payment to Lender, or to any other Person pursuant to or in respect of this Guaranty, including any claims by way of subrogation, contribution, reimbursement, indemnity or otherwise.
Guarantor further agrees that Guarantor’s liability as guarantor shall not be impaired or affected by any modifications, renewals or extensions of the time for any payment under the Credit Agreement, with or without the knowledge or consent of Guarantor, or by any forbearance or delay in collecting interest or principal under the Credit Agreement, or by any
waiver by Lender under the Credit Agreement or any other Loan Documents, or by Lender’s
failure or election not to pursue any other remedies it may have against Borrower or Guarantor, or by any change or modification in the Credit Agreement or any other Loan Document, or by the acceptance by Lender of any additional security or any increase, substitution or change therein, or by the release by Lender of any security or any withdrawal
thereof or decrease therein, or by the application of payments received from any source to the
payment of any obligation other than the indebtedness even though Lender might lawfully have elected to apply such payments to any part or all of the indebtedness (in which case Guarantor will be automatically released), or by the failure or invalidity of, or any defect in, the Credit Agreement, or by any legal disability or other defense of Borrower, or by the
cessation, limitation or termination from any cause whatsoever of any of the Obligations
under the Credit Agreement, except upon payment in full of the indebtedness (in which case Guarantor will be automatically released), or by Borrower’s application of the proceeds of Advances for purposes other than the purposes represented by Borrower to Lender or intended or understood by Lender or Guarantor, it being the intent hereof that Guarantor shall remain
liable for its ratable share of the Guaranteed Obligations notwithstanding any act or thing that
might otherwise operate as a legal or equitable discharge of a surety. Guarantor hereby waives any and all rights or defenses based on, and understands and agrees that Guarantor’s liability as guarantor shall not be impaired or affected by, an election of remedies by Lender,
July 14, 2020 Item #16 Page 17 of 25
even if an election of remedies, such as a non-judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor’s rights of subrogation and reimbursement
against the principal by the operation of Section 580d of the California Code of Civil
Procedure or otherwise, or the foreclosure of any of the security for the Advances, or Guarantor’s right to a fair value hearing under Section 580a of the California Code of Civil Procedure, it being intended that this Guaranty shall survive the realization upon any of the security for the Advances, including without limitation the security described in the Security
Agreement, including without limitation non-judicial foreclosure, where applicable, and
notwithstanding any defense, right, or claim that any such foreclosure satisfied the obligations secured thereby. Guarantor agrees that the payment of all sums payable under the Credit Agreement or any of the other Loan Documents or any part thereof or other act which tolls any statute of limitations applicable to the Credit Agreement or the other Loan Documents
shall similarly operate to toll the statute of limitations applicable to Guarantor’s liability
hereunder. Without limiting the generality of the foregoing or any other provision hereof, Guarantor expressly waives to the extent permitted by law any and all rights and defenses that Guarantor may have if the Indebtedness is secured by real property. This means, among other things: (1) Lender may collect from Guarantor without first foreclosing on any security for
the Advances (whether such security is real or personal property) pledged by Borrower; and
(2) if Lender forecloses on any real property security pledged by Borrower (including without limitation the real property described in a Deed of Trust), (A) the amount of the Indebtedness may be reduced only by the price for which that security is sold at the foreclosure sale, even if the security is worth more than the sale price, and (B) Lender may collect from Guarantor
even if Lender, by foreclosing on the real property security, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have if Borrower’s debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure, and/or Sections 2787 to
2855, inclusive, 2899 and 3433 of the California Civil Code, or any of such sections.
Guarantor further understands and agrees that Lender may at any time enter into agreements with Borrower to amend and modify the Credit Agreement or other Loan Documents, and may waive or release any provision or provisions thereof, and, with reference to such instruments, may make and enter into any such agreement or agreements as Lender and
Borrower may deem proper and desirable, without in any manner impairing or affecting this
Guaranty or any of Lender’s rights hereunder or Guarantor’s obligations hereunder. 3. Consent by Guarantor. Guarantor hereby consents and agrees that, without the necessity of any reservation of rights against Guarantor and without notice to or further assent
by Guarantor, any demand for payment of any of the Guaranteed Obligations made by Lender
may be rescinded by Lender and any of the Guaranteed Obligations continued, and the Guaranteed Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by Lender; and the Credit Agreement or other
guaranty or documents in connection therewith, or any of them, may be amended, modified, supplemented or terminated, in whole or in part, as Lender may deem advisable from time to time; and any guaranty or right of offset may be sold, exchanged, waived, surrendered or
July 14, 2020 Item #16 Page 18 of 25
released, all without the necessity of any reservation of rights against Guarantor and without notice to or further assent by Guarantor, which will remain bound hereunder, notwithstanding
any such renewal, extension, modification, acceleration, compromise, amendment,
supplement, termination, sale, exchange, waiver, surrender or release. Lender shall have no obligation to protect, secure, perfect or insure any property at any time held as security for the Guaranteed Obligations. When making any demand hereunder against Guarantor, Lender may, but shall be under no obligation to, make a similar demand on Borrower, any other
Person who at any time guarantees or pledges any assets to secure the Guaranteed
Obligations, or any one or more of them (a “Credit Party”) or any such other guarantor, and any failure by Lender to make any such demand or to collect any payments from such other Credit Party or any such other guarantor or any release of such other Credit Party or any such other guarantor or of Guarantor’s obligations or liabilities hereunder shall not impair or affect
the rights and remedies, express or implied, or as a matter of law, of Lender against Guarantor
hereunder. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings. 4. Waivers; Successors and Assigns. Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice of or
proof of reliance by Lender upon this Guaranty or acceptance of this Guaranty, and the Guaranteed Obligations shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guaranty, and all dealings between Guarantor and any other Credit Party, on the one hand, and Lender, on the other hand, shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guaranty. Guarantor
waives diligence, presentment, protest, demand for payment and notice of default or non- payment to or upon any Credit Party or Guarantor with respect to the Guaranteed Obligations. This Guaranty shall be construed as a continuing, absolute and unconditional guaranty of payment without regard to the validity, regularity or enforceability of the Credit Agreement,
the other Loan Documents, any of the Guaranteed Obligations or any guaranty therefor or
right of offset with respect thereto at any time or from time to time held by Lender and without regard to any defense (other than the defense of payment), set-off or counterclaim which may at any time be available to or be asserted by any Credit Party against Lender, or by any other circumstance whatsoever (with or without notice to or knowledge of Guarantor)
which constitutes, or might be construed to constitute, an equitable or legal discharge of the
Guaranteed Obligations, or of Guarantor under this Guaranty, in bankruptcy or in any other instance, and the obligations and liabilities of Guarantor hereunder shall not be conditioned or contingent upon the pursuit by Lender or any other Person at any time of any right or remedy against any Credit Party or against any other Person which may be or become liable in respect
of all or any part or the Guaranteed Obligations or against any collateral security or Guaranty
therefor or right of offset with respect thereto. Lender shall have no obligation whatsoever to seek payment of the Guaranteed Obligations from Borrower in the event an Event of Default has occurred and is continuing. This Guaranty shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon Guarantor and the successors
and assigns thereof, and shall inure to the benefit of Lender and its successors, transferees and
assigns (including each holder from time to time of Guaranteed Obligations), until all of the Guaranteed Obligations and the obligations of Guarantor under this Guaranty shall have been satisfied by indefeasible payment in full in cash or cash equivalents, notwithstanding that
July 14, 2020 Item #16 Page 19 of 25
from time to time during the term of the Credit Agreement any Credit Party may be released from all of its Guaranteed Obligations thereunder.
5. Effectiveness; Reinstatement. This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Credit
Party, or upon or as a result of the appointment of a receiver, intervenor, conservator, trustee
or similar officer for any Credit Party or any substantial part of its property, or otherwise, all as though such payments had not been made.
6. Payments of Guaranteed Obligations. Guarantor hereby guarantees that its
Guarantor’s Share of the Guaranteed Obligations will be paid for the benefit of Lender
without set-off or counterclaim in lawful currency of the United States of America at the office of Lender located at 2485 Natomas Park Drive, Sacramento, California 95833. Guarantor shall make any payments required hereunder within five (5) business days of receipt of written notice thereof from Lender.
7. Representations and Warranties. To induce Lender to enter into the Credit Agreement and to make the Advances thereunder, Guarantor represents and warrants to Lender that, as to Guarantor, the following statements are true, correct and complete on and as of the date hereof:
(a) Organization and Qualification; Authority; Consents. Guarantor is a City or County duly organized, validly existing under and operating pursuant to the laws of the State of California, has full and adequate power to own its Property and conduct its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which
the nature of the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying unless the failure to be so licensed or qualified would not have a material adverse effect on its business, operations or assets. Guarantor has full right and authority to enter into this Guaranty and to perform each and all of the matters and things herein provided for; and this Guaranty does not, nor does the performance or observance by
Guarantor of any of the matters or things herein or therein provided for, contravene any
provision of law or any organizational document of Guarantor or any covenant, indenture or agreement of or affecting Guarantor or any of its Properties. The execution, delivery, performance and observance by Guarantor of this Guaranty and any other instruments and documents executed by Guarantor in connection with this Guaranty do not and, at the time of
delivery hereof, will not require any consent or approval of any other Person, other than such
consents and approvals that have been given or obtained. (b) Legal Effect. This Guaranty constitutes a legal, valid and binding agreement of Guarantor, enforceable in accordance with its terms, subject to laws relating to bankruptcy,
insolvency or other laws affecting the enforcement of creditors’ rights generally and the
application of equitable remedies if equitable remedies are sought.
July 14, 2020 Item #16 Page 20 of 25
(c) Litigation. There is no litigation or governmental proceeding pending against Guarantor, nor to the knowledge of Guarantor threatened in writing, which if adversely
determined would result in any material adverse change in the financial condition, Properties,
business or operations of Guarantor. (d) Compliance with Laws. Guarantor is in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to its Properties or
business operations (including, without limitation, laws and regulations establishing quality
criteria and standards for air, water, land and toxic or hazardous wastes and substances), non- compliance with which could have a material adverse effect on the financial condition, Properties, business or operations of Guarantor. Guarantor has not received notice to the effect that its operations are not in compliance with any of the requirements of applicable federal,
state or local environmental, health and safely statutes and regulations or are the subject of any
governmental investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non- compliance or remedial action could have a material adverse effect on the financial condition, Properties, business or operations of Guarantor.
(e) Other Agreements. Guarantor is not in default under the terms of any covenant, indenture or agreement of or affecting Guarantor or any of its Properties, which default if uncured would have a material adverse effect on the financial condition, Properties, business or operations of Guarantor.
8. Covenants. Guarantor agrees that so long as any credit is available to or in use by Borrower under the Credit Agreement, except to the extent compliance in any case or cases is waived in writing by Lender:
(a) Financial Reports. Guarantor shall maintain a standard system of accounting in
accordance with GAAP and shall furnish to Lender and its duly authorized representatives any publicly available information respecting the business and financial condition of Guarantor as Lender may reasonably request.
(b) Compliance with Laws. Guarantor shall comply in all respects with the
requirements of all laws, rules, regulations, ordinances and orders applicable to or pertaining to its Properties or business operations, non-compliance with which could have a material adverse effect on the financial condition, Properties, business or operations of Guarantor or could result in a Lien upon any of its Property.
(c) Notices of Claims and Litigation. Guarantor shall promptly inform Lender in writing of (l) all material adverse changes in Guarantor’s financial condition and (2) all existing litigation and all written threats of litigation, claims, investigations, administrative proceedings or similar actions affecting Guarantor which could materially affect the financial
condition of Guarantor.
9. Expenses. If: (a) this Guaranty is placed in the hands of an attorney for collection or is collected through any legal proceeding; (b) an attorney is retained to represent Lender in
July 14, 2020 Item #16 Page 21 of 25
any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Guaranty; or (c) an attorney is retained to represent Lender in
any proceedings whatsoever in connection with this Guaranty and Lender prevails in any such
proceedings, then Guarantor shall pay to Lender (as the case may be) upon demand Guarantor’s Share of all reasonable attorney’s fees, costs and expenses incurred in connection therewith (all of which are referred to herein as “Enforcement Costs”), in addition to all other amounts due hereunder, regardless of whether all or a portion of such Enforcement Costs are
incurred in a single proceeding brought to enforce this Guaranty as well as the other Loan
Documents. 10. No Waiver. No failure to exercise and no delay in exercising, on the part of Lender, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other power or right. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 11. Notices. All notices, demands, instructions or other communications required or
permitted to be given to or made upon any party hereto shall be given in accordance with the
provisions of the Credit Agreement and at the address set forth therein or as provided on the signature page hereof. 12. Amendments, Waivers, etc. No provision of this Guaranty shall be waived, amended,
terminated or supplemented except by a written instrument executed by Guarantor and
Lender. 13. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAWS. 14. Counterparts. This Guaranty and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
[Signatures appear on following page.]
July 14, 2020 Item #16 Page 22 of 25
City of [ ]
By:
Its:
July 14, 2020 Item #16 Page 23 of 25
EXHIBIT A
GUARANTOR’S SHARE
Guarantor Guarantor’s Share
City of Carlsbad 90.0%
City of Del Mar 3.0%
City of Solana Beach 7.0%
Total 100%
July 14, 2020 Item #16 Page 24 of 25
Comparison of Bank Financing Options vs City of Carlsbad Exhibit 5
Loan Date:9/1/2020
Repayment Date:9/1/2023
RCB/Calpine JP Morgan Carlsbad
Loan Amount 4,500,000.00$ 4,500,000.00$ 4,450,000.00$
Term 3 years 3 Years 3 Years
Int Rate
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%Fixed 3%
Loan Fees 33,750.00$ 50,000.00$ -$
Int Cost through Life of Loan 463,541.66$ 525,000.00$ 378,000.00$
TOTAL COST OF CREDIT 497,291.66$ 575,000.00$ 378,000.00$
Security/Covenants
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 TBD
Notes:
$2,500,000 initial Loan
9/1/20 RCB;
$500,000 Loan from
Calpine Dec/Jan;
$1,500,000 RCB loan
Dec/Jan Time Frame
$1,450,000 initial
Loan 9/1/20 for
repayt to cities and
Fy 20/21 budget;
$3,000,000 loan
Dec/Jan Time Frame
for CAISO Deposit &
Lockbox Reserve
July 14, 2020 Item #16 Page 25 of 25
Tammy Cloud-McMinn
From:
Sent:
To:
Council Internet Email
Monday, July 13, 2020 8:40 AM
City Clerk
Subject: FW: Regarding 16. $2,250,000 GUARANTY FOR THE CLEAN ENERGY ALLIANCE AND
FINANCING OPTIONS All Receive -Agendf Item# 1./_p
From: ggpggp@pacbell.net <ggpggp@pacbell.net>
Sent: Sunday, July 12, 2020 9:44 AM
To: Council Internet Email <CityCouncil@carlsbadca.gov>
For the Information of the:
CITY COUNCIL ,,,---
Date if.l:t_ CA v'c:c_
CM £ACM ::::::::, DCM (3) _:::::-
Subject: Regarding 16. $2,250,000 GUARANTY FOR THE CLEAN ENERGY ALLIANCE AND FINANCING OPTIONS
Regarding 16. $2,250,000 GUARANTY FOR THE CLEAN ENERGY ALLIANCE AND FINANCING OPTIONS-Receive a report
and 1) Consider adoption of a resolution authorizing the City of Carlsbad to provide up to a $2,250,000 guaranty for a
$2,500,000 credit option for Clean Energy Alliance as proposed by River City Bank or a third party approved by the
alliance board; and Authorizing the city manager to act on behalf of the city, in consultation with the city attorney, to
negotiate and execute all agreements and amendments necessary for the guaranty; and 2) Consider directing staff to
develop and present an alternative credit option to fund the Clean Energy 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. (Staff contact:
Jason Haber, City Manager Department) City Manager's Recommendation: Receive the report, adopt the resolution and
provide direction as appropriate.
I request that you stop this boondoggle while there is still time. COVID has shown us how poorly government deals with
real world problems. Taking on management of a crucial part of our infrastructure is foolhardy. Similar districts are
showing less than promised results, but more than promised increase in staffing and costs.
We have been unable to attract significant allies in this venture. Time to stop catering to one inexperienced council
persons dream.
Vote to end this now!!
Gary Pearson
District 1.
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is safe.
1
Tammy Cloud-McMinn
From:
Sent:
To:
Council Internet Email
Monday, July 13, 2020 2:58 PM
City Clerk
Subject: FW: agenda item 16. $2,250,000 GUARANTY FOR THE CLEAN ENERGY ALLIANCE AND
FINANCING OPTIONS
-----Original Message-----
From: Lawrence Posner <lhposner@hotmail.com>
Sent: Monday, July 13, 2020 2:19 PM
All Receive -Agenda ltern # Jjp
For the Information of the:
ilff, roUNCIL
Date ~ CA ....--CC ~
CM ~CM _.-flCM (3)....:::::
To: Council Internet Email <CityCouncil@carlsbadca.gov>; Keith Blackburn <Keith.Blackburn@carlsbadca.gov>;
Priya Bhat-Patel <Priya.Bhat-Patel@carlsbadca.gov>; Cori Schumacher <Cori.Schumacher@carlsbadca.gov>
Subject: agenda item 16. $2,250,000 GUARANTY FOR THE CLEAN ENERGY ALLIANCE AND FINANCING OPTIONS
Please read into the record in public comment part of the council meeting.
I urge the city council to vote against this item because it goes against Carlsbad requirment to be a co-signer
for millions without a vote of the people ...
This is nothing more than a cheap budget trick.
And why do we, in Carlsbad, have to lend our good credit to Encinitas and Solana Beach?
However I see there's a active push for staff to ;'go around" a vote of the people in oder to satisfy the whim of
Cori Schumacher and her commitment to this pipe dream .. The staff should remember the last time they tried
to go around the will of the people ..
Now is not to time to invest in a organization that has no credit and can't raise their own money from banking
sources ...
There's an old saying "whats the name of a co signer on a loan ... A SHMUCK with a pen".
We demand a vote on this agenda item ...
Best Regards
Larry Posner
lhposner@hotmail.com
1
"Nothing sucks more than that moment, during an argument, when you realize you're wrong!"
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2
Tammy Cloud-McMinn
*Le
From: Tony Bona <tonybonafide@gmail.com>
Sent: Tuesday, July 14, 2020 1:42 PM
To: City Clerk
Subject: Public Comment
PLEASE READ ALOUD FOR AGENDA ITEM #16
Good Afternoon honorable Mayor, Mayor Pro-Tern and city staff
My name is Anthony Bona. I am a resident of Carlsbad and have been for
24 years. I would like to share some thoughts regarding agenda item 16
I am really shocked that you would be discussing this agenda item- in
light of being in the midst of a global pandemic. Both micro and macro
economies are tipped upside down. Money is tight!
What I find even more shocking is that councilmember Schumacher
would be trying to advance this item — AT THIS TIME. SO - Why do I say
this?
Well for one thing council member Schumacher has been drilling into the
finances of the city and looking at every penny spent. At every council
meeting, Schumacher wants to review numbers right down to the line-
item, yet council member Schumacher is advancing this agenda item to
spend between 2.2 and 4.4 M. This seems like hypocrisy to me — First
you are concerned with how much the city spends on tissue and PPE and
then you want to spend gobs of money on a risky investment?
Wasn't it just a couple weeks ago when the city of Carlsbad laid off the
equivalent of 14 FTEs?
Next Point — Let's remember that it was Cori Schumacher who told us all
that we would be rolling in dough with the battery farms. We all know
how foolish that idea was.
1
To say there is a "credibility void" with council member Schumacher and
her ideas on energy would be putting it mildly.
There is an old saying that "Timing is everything"
Mayor and Mayor Pro-Tem — This is NOT the time for such a risky
endeavor. Do the right thing and table this item for discussion at a date
in the future when there is more certainty with the macro and micro
economies.
Thank you for your attention!
Thank you,
Tony
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2
Clean Energy Alliance Guaranty Request
& FY 20-21 Financing Options
Jason Haber, Intergovernmental Affairs Director
July 14, 2020
CEA Guaranty & FY 20-21 Financing Options
•Agenda item request per CMC 1.20.060
–Council Member Schumacher
•Background
•CEA Financing Needs & Options
–CEA Request for Guaranty / Risks
•Alternative City-Funded Credit Option / Risks
2
Recommended Action
1.Adopt a resolution:
a.Authorizing City to provide $2,250,000 guaranty for $2,500,000 line of credit for Clean Energy Alliance
b.Authorizing city manager to act, in consultation with city attorney, to negotiate and execute agreements and amendments for the guaranty
And/Or
2.Consider directing staff to develop and present an alternative credit option to fund Clean Energy Alliance’s FY 2020-21 budget with a $4,450,000 General Fund loan, in consultation with city attorney and city treasurer3
Background
October 2019
City Council adopted Resolution No. 2019-197 -Approving Joint Powers
Agreement:
•Member Agencies share initial costs equally
•Develop & implement a financing and/or funding plan for ongoing
operations
•Obtain financing and/or funding as is necessary to support start up
and ongoing working capital for the CCA Program
•Powers to incur debts, liabilities, and obligations, including but not
limited to loans from private lending sources
•2/3 vote of CEA Board required to issue debt
4
Background
November 2019
City Council adopted Resolution No. 2019-22
•Authorized $150,000 to fund CEA FY 19-20 Budget
April 2020
•Payment of $150,000 to CEA
5
Implementation Status
•Implementation Plan certified by CPUC
•On track to begin service in May 2021
–Recent ongoing discussions with SDGE/CPUC
•City of Solana Beach Approved Guaranty
•City of Del Mar to consider -July 20
6
CEA Budget
•CEA FY 2020-21 Budget: $4,006,500
•Total Funding Needs:
7
Funding for fy 2020-21 operating budget $1,000,000
Repayment of initial advances to member agencies 450,000
CAISO deposit 500,000
Lockbox reserves and cash flow 2,500,000
Total funding needed $4,450,000
Financing Solutions RFP
•Bank Proposals:
1. River City Bank (w/Calpine)
•Lower cost
•Requires $2.5m guaranty from Member Agencies
2. JP Morgan
•Higher cost
•Requires operating covenants
8
9
Comparison of Bank Financing Options
Loan Date:9/1/2020
Repayment Date:9/1/2023
RCB/Calpine JP Morgan
Loan Amount
$
4,500,000.00
$
4,500,000.00
Term 3 years 3 Years
Int Rate
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%
Loan Fees $ 33,750.00 $ 50,000.00
Int Cost through Life of Loan
$
463,541.66
$
525,000.00
TOTAL COST OF CREDIT
$
497,291.66
$
575,000.00
Security/Covenants
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
Notes:
$2,500,000 initial Loan 9/1/20
RCB;
$500,000 Loan from Calpine
Dec/Jan;
$1,500,000 RCB loan Dec/Jan
Time Frame
CEA Board Direction
•June 18, 2020
–Identified River City Bank as preferred solution
–Request guaranties from Member Agencies
10
Member agency % of alliance
energy load
Pro-rata share of
guaranty
Carlsbad 90%$2,250,000
Del Mar 3%$75,000
Solana Beach 7%$175,000
River City Bank –Risk of Default
•Funds needed Sept/Oct 2020
•Proforma assumes May 2021 launch
–SDGE/CPUC Discussions
–Risk of delayed launch (need for flexibility)
–Uses of the $2,500,000 loan subject to the
guaranty are as follows:
11
Funding for fy 2020-21 operating budget $1,000,000
Repay initial advances to member agencies 450,000
Lockbox reserve 1,050,000
TOTAL $2,500,000
River City Bank –Risk of Default
Worst Case (Failure to launch):
•City of Carlsbad - $1,305,000
•City of Solana Beach - $101,500
•City of Del Mar -$43,500
•Very low risk of post-launch default
–Mechanisms to mitigate:
•Cut discretionary expenditures
•Reduce reserve contributions
•Set rates to cover expenses 12
13
City of Carlsbad -Alternative Credit Option
•$4,450,000 loan from General Fund Unassigned Fund Balance
•Terms set by City Council to present to CEA
•Potential benefits to City and CEA
–Higher rate of return to City, CCA success, ratepayer benefits
–Lower cost to CEA & greater flexibility
14
Comparison of Bank Financing Options vs City of Carlsbad
Loan Date:9/1/2020
Repayment Date:9/1/2023
RCB/Calpine JP Morgan Carlsbad
Loan Amount
$
4,500,000.00
$
4,500,000.00
$
4,450,000.00
Term 3 years 3 Years 3 Years
Int Rate
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%Fixed 3%
Loan Fees
$
33,750.00
$
50,000.00 $ -
Int Cost through Life of Loan
$
463,541.66
$
525,000.00
$
378,000.00
TOTAL COST OF CREDIT $ 497,291.66 $ 575,000.00 $ 378,000.00
Security/Covenants
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 TBD
Notes:
$2,500,000 initial Loan 9/1/20 RCB;$500,000 Loan from Calpine Dec/Jan;$1,500,000 RCB loan Dec/Jan Time Frame
$1,450,000 initial Loan 9/1/20 for repayt to cities and Fy 20/21 budget;$3,000,000 loan Dec/Jan Time Frame for CAISO Deposit & Lockbox Reserve
Funding for fy 2020-21 operating budget $1,000,000
Repayment of initial advances to member agencies 450,000
CAISO deposit 500,000
Lockbox reserves and cash flow 2,500,000
Total funding needed $4,450,000
15
City of Carlsbad Alternative –Risk of Default
•Use of $4,450,000 loan:
Worst Case (Failure to launch):
City of Carlsbad - $1,305,000
City of Solana Beach -$101,500 (if security is required)
City of Del Mar -$43,500 (if security is required)
16
City Council Options
•Allowable use of city funds
•Low risk of failure to launch or meet pro forma projections
•Ability to partially mitigate risk to City
•No CCAs in CA have failed to date
•Short-term obligation
•Potential for higher than projected return ($150K over 3 years)
•Increases likelihood of CEA success and benefit to ratepayers, including the city
17
City Council Options
A. Approve both elements of Staff Recommendation
1. Adopt Resolution authorizing $2.25m guaranty
2. Direct staff to develop and offer City-funded
credit solution
B. Approve either element of Staff Recommendation
C. Approve neither element of Staff Recommendation
Questions & Discussion
18
Recommended Action
1.Adopt a resolution:
a.Authorizing City to provide $2,250,000 guaranty for $2,500,000 line of credit for Clean Energy Alliance
b.Authorizing city manager to act, in consultation with city attorney, to negotiate and execute agreements and amendments for the guaranty
And/Or
2.Consider directing staff to develop and present an alternative credit option to fund Clean Energy Alliance’s FY 2020-21 budget with a $4,450,000 General Fund loan, in consultation with city attorney and city treasurer19