HomeMy WebLinkAbout2020-04-16; Clean Energy Alliance JPA; ; FY 20/21 Budget and Financing StrategyStaff Report
DATE: April 16, 2020
TO:
FROM:
Clean Energy Alliance Board of Directors
Barbara Boswell, Interim Chief Executive Officer
ITEM 2: Clean Energy Alliance Draft Financial Pro-Forma Review; FY 20/21 Budget and Financing
Strategy
RECOMMENDATION:
1. Receive report on draft financial pro-forma and provide direction for further pro-forma
refinement.
2. Provide direction for FY 20/21 staffing and consulting services and community
outreach/communication and marketing.
3. Provide direction on FY 20/21 budget financing strategy and direct staff to return with
finance plan with the draft budget at the May 21, 2020 Board Meeting.
BACKGROUND AND DISCUSSION:
At its February 20, 2020 regular meeting, CEA Board selected Pacific Energy Advisors (PEA) to
provide technical consulting services in support of its CCA program. One of the first tasks PEA
has undertaken is development of the draft CEA financial pro-forma for its community choice
aggregation (CCA) program, using 3-years historical usage data from San Diego Gas & Electric
(SDG&E), current and projected SDG&E rates, market energy pricing and CEA Joint Powers
Authority Agreement program goals.
Specific assumptions used in the draft pro-forma include:
10% opt-out rate for Del Mar & Carlsbad (conservative based on averages)
7.5% opt-out rate for Solana Beach (reflects current SEA opt-out rate)
50% default renewable energy
No Bucket 3 "Unbundled" Renewable Energy Credits (RECs)
No additional financing or advances from member agencies
Annual 5% revenue contribution to reserves
The chart below summarizes the results of the draft pro-forma over the first 5 full fiscal years of
service:
April 16, 2020 Item #2 Page 1 of 5
$90,000,000
$80,000,000
$70,000,000
$60,000,000
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
s-
CEA Draft Pro-Forma
2021 2022 2023 2024 2025 2026
-Financing -Revenue -Expenses -Net Surplus -cumulative Reserve
Based on current market conditions, CEA can operate a financially viable CCA program, which
generates sufficient revenue to cover its expenditures, contribute funds to an operating reserve
and leave a net surplus to fund Board directed discretionary programs. As with any pro-forma,
the near terms results are more reliable than those in the outer years due to the uncertainty
related to market conditions.
The pro-forma reflects policies and goals established in the JPA Agreement.
Additional program decisions for the Board to consider include:
Rate discount compared to SDG&E comparable generation rates -The draft pro-forma was
developed based on rate parity with SDG&E. The JPA Agreement est ablishes a target discount
of 2%. Based on current rate assumptions each 1% discount offered to customers reduces
revenue by $1,000,000 annually. Staff seeks Board direction regarding rate discount to be
offered by CEA at program launch.
Staffing plan for FY 20/21-The pro-forma identifies $260,000 to be used towards staffing
and/or consulting services to fill administrative positions to support implementation and initial
operations in FY 20/21. This amount increases to $600,000 beginning in FY 21/22, for the on-
going operational activities of CEA. Staffing costs are estimated at a lower amount in fiscal year
20/21 based on the projected activities related to procurement, customer outreach &
marketing, program implementation and initial service needs (based on a May 2021 launch).
These estimated costs subject to Board direction and can be scaled to meet the requirements
of the CCA program as determined by the Board.
CEA is currently staffed and supported by a combination of services by Member Agencies and
consulting services agreements.
April 16, 2020 Item #2 Page 2 of 5
The terms of current agreements are:
CONSULTING
FIRM/MEMBER AGENCY SERVICE STATUS
Bayshore Consulting Group, Interim Chief Executive Officer Through June 30, 2020;
Inc. may be extended through
mutual agreement
Pacific Energy Advisors Technical Consultant Through June 30, 2020;
may be extended through
mutual agreement
Richards, Watson & Gershon General Counsel Through June 30, 2020;
may be extended through
mutual agreement
Tosdal, APC Special Counsel -Regu latory Through June 30, 2020;
Affairs may be extended through
mutual agreement
City of Carlsbad Board Secretary Services/Clerk Through June 30, 2020;
Services may be extended through
Marketing & Communications mutual agreement
City of Del Mar Board Meeting & Clerk Services Through June 30, 2020;
(for meetings held at Del Mar) may be extended through
mutual agreement
City of Solana Beach Interim Finance Agent/Treasurer Through June 30, 2020;
Board Meeting & Clerk Services may be extended through
(for meetings held at Solana mutual agreement
Beach)
As CEA looks to fiscal year 20/21, it will be tasked with developing a comprehensive customer
outreach, education and marketing program in support of its CCA launch; developing
procurement policies and holding solicitations to procure energy to meet its renewable energy,
conventional energy and resource adequacy requirements; and establishing operating policies
and procedures that provide the foundation for an effective and efficient organization.
Options available to the Board to meet its needs are to recruit for full-time staff, continue with
its existing consulting arrangements, seek new consulting services, or any combination that the
Board deems will best fit its needs in the coming year. Should the Board decide to seek new or
additional consu lting services, it would be prudent to direct staff to initiate solicitation
processes to ensure a smooth transition going into the new fiscal year.
April 16, 2020 Item #2 Page 3 of 5
Operating Reserve Policy -A key component of a financially stable CCA program is the
adoption of reserve policies that set aside funds to mitigate the negative impacts that are
related to the uncertainties of a dynamic rate and energy market environment. In addition to
mitigating the market risk, healthy reserves also serve the purpose of supporting agency credit
requirements related to energy supply purchases. New CCA programs have set operating
reserves targets of 25% -50% of revenues, with annual contributions building reserves to the
targeted amounts. The pro-forma reflects an annual 5% reserve contribution that would result
in a 25% operating reserve within 5 years. The Board has discretion to confirm the reserve
targets as reflected in the pro-forma or direct adjustment to an amount it determines best fits
the needs of CEA.
Financing Strategy -The draft pro-forma assumed fiscal year 20/21 start-up costs are funded
by loans or lines of credit from 3rd parties and financial institutions, at an average 3% interest
rate. No additional advances from Carlsbad, Del Mar or Solana Beach were anticipated.
The initial FY 19/20 CEA budget was funded with $150,000 advances from each of the three
Member Agencies. The terms of the agreements state that the advances are to be repaid from
future CCA revenues, within three years of the commencement of serving customers (or by
May 2024). In light of the current economic impacts of COVID-19 that the member cities are
having to address, the CEA Board may want to consider amending the terms of the advance
agreements to provide an earlier repayment to the cities.
The advances could be refunded by including the repayment in the financing options shown
below:
Lender Amount Interest Rate
Loan from Calpine Energy $500,000 5%
Solutions
Line of Credit/Loan from Est. $4,000,000 Est. 2% -3% (to be
Financial Institution determined through
negotiation process)
Calpine Energy Solution's data management proposal included the offer of a $500,000 loan to
CEA to fund start-up costs at a 5% interest rate with repayment due within 15 months of CEA
starting service to customers. These funds would be available once the agreement between
CEA and Calpine has been executed (currently in progress), pursuant to the terms in the
agreement. These funds may be available quicker than funds acquired through financing from
a financial institution.
CEA received proposals for credit solution from River City Bank, JP Morgan Chase and MUFG
Union Bank in response to its Request for Proposal for Banking and Credit Solutions process.
With direction from the Board, staff will begin negotiation for credit terms with the three
April 16, 2020 Item #2 Page 4 of 5
financial institutions and bring the results back to the Board for final selection and approval of a
credit solution at its May 21, 2020 meeting.
FISCAL IMPACT
There is no fiscal impact associated with this item, however, the direction provided by Board
related to the policy decisions will be used to develop the fiscal year 20/21 budget to be
adopted by the Board at its June 18, 2020 meeting.
ATTACHMENTS:
None.
April 16, 2020 Item #2 Page 5 of 5