HomeMy WebLinkAbout2020-06-18; Clean Energy Alliance JPA; ; Clean Energy Alliance Fiscal Year 20/21 Financing PlanClean Energy Alliance
JOINT POWERS AUTHORITY
DATE:
TO:
FROM:
ITEM 5:
Staff Report
June 18, 2020
Clean Energy Alliance Board of Directors
Barbara Boswell, Interim Chief Executive Officer
Marie Berkuti, Interim Treasurer
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.SM 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.SM in funding to provide for the following:
$2.SM -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.SM -Total financing
The following tables reflect the summary of the analysis of the two options.
June 18, 2020 Item #5 Page 1 of 5
Option 1-JP Morgan
June 18, 2020
Financing Plan
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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.SM 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 9f 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
June 18, 2020
Financing Plan
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• 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.SM 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.SM. 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
Security
Interest Rate
Loan Fees
Total Interest & Fees over three years
TOTAL ESTIMATED INTEREST & FEES RCB &
CALPINE
June 18, 2020
Financing Plan
Page 4 of 5
full reimbursement made on or before fifteen
months of serving customers.
None
1-Month LIBOR plus 2% up to maximum 5%
None
Estimated $9,375
$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.SM 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 proforma scenario (50% renewable/SO% carbon free default energy and
rate parity with SDG&E) reflects the impact of the Option 1 financing with JP Morgan:
Annual DRAFT Pro Form a 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
Ill. 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 Deposn:s 0 2,500,000
Reserve Addjtions 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 Surnlus/(Deflcit} (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 Surolus (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.SM 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
Annual DRAFT Pro Forma Projections for a Community Choice Aggregation Program Base RCS/Calpine Credit Solution
Clean Energy Alliance
Fiscal Year Endina: 2020 2021 2022
I. Revenue 9,913,235 69,767,349
II. Operating Expenses
Power Supply 8,988,017 60,976,876
Staff 50,000 120,000 600,000
Administrative Costs* 253,000 1,223,938 2,459,148
Subtotal Operating Expenses 303,000 10,331,956 64,036,023
Operating Margin (303,000) (418,721) 5,731,326
Ill. Financing
Interest 123,333 146,250
Principal 450,000 500,000
Subtotal Financing 573,333 646,250
Operating Margin Less Financing (303,000) (992,054) 5,085,076
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
Reserv@ Additions 495,662 3,488,367
Subtotal Other Uses 147,000 3,495,662 3,488,367
VI. Net Surolus/{Deficit) 12,284 1,596,708
VII. Cumulative Reserve 495,662 3,984,029
VIII. Cumulative Net Surplus 12,284 1,608,993
2023
71,127,161
59,978,716
618,000
2,497,813
63,094,529
8,032,632
116,038
1,287,015
1,403,053
6,629,579
3,556,358
3,556,358.
3,073,221
7,540,387
4,682,213
June 18, 2020
Financing Plan
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2024 2025
72,508,987 73,913,166
61,512,028 62,261,087
636,540 655,636
2,558,347 2,616,275
64,706,915 65,532,998
7,802,071 8,380,167
69,822 22,280
1,332,791 1,380,194
1,402,613 1,402,474
6,399,458 6,977,693
3,625,449 3,695,658
3,625,449 3,695,658
2,774,009 3,282,035
11,165,837 14,861,495
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-form a 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.
June 18, 2020 Item #5 Page 5 of 5