HomeMy WebLinkAbout2020-07-23; Clean Energy Alliance JPA; ; Clean Energy Alliance Credit Solution UpdateClean Energy Alliance
JOINT POWERS AUTHORITY
Staff Report
DATE: July 23, 2020
TO: Clean Energy Alliance Board of Directors
FROM: Barbara Boswell, Interim Chief Executive Officer
ITEM 2: Clean Energy Alliance Credit Solution Update
RECOMMENDATION:
Receive update regarding Clean Energy Alliance credit solution.
BACKGROUND AND DISCUSSION:
At its regular meeting June 18, 2020, the Clean Energy Alliance (CEA) Board received a report from staff
regarding two financing options to provide the necessary funds for CEA's fiscal year 20/21 cash needs.
The options included offers from River City Bank (RCB) and JP Morgan, received through a request for
proposals process. The CEA Board considered the two options, and based on the terms of the credit
solutions selected the RCB option to pursue. The Board directed staff to reach out to the Member
Agencies to determine whether there was the potential for assistance by providing the security required
by the RCB option through either a guaranty or cash collateral.
Total funding needs for CEA include:
$1,000,000 Funding for FY 20/21 Operating Budget
$450,000 Repayment of Initial Advances to Member Agencies
$500,000 CAISO Deposit
$2,500,000 Lockbox Reserves and Cash Flow
$4,450,000 Total Funding needed
Summary of credit solutions from River City Bank and JP Morgan
The RCB credit solution is a lower cost option but requires security 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 3rd party.
The JP Morgan option does not have a security requirement but is approximately $105,000 higher costs
than the RCB option and includes operating covenants that CEA would have to adhere to. The Board
discussed the covenants related to the JP Morgan solution and determined that the RCB option was the
option it was interested in pursuing initially.
Pursuant to Board direction, a memo (Attached) was sent to Carlsbad, Del Mar and Solana Beach
requesting consideration of providing the guaranty for the RCB credit solution. The guaranty is
proposed to be allocate to the Member Agencies based on percentage of load as reflected below:
July 23, 2020 Item 1*2 Page 1 of 5
July 23, 2020
Credit Solution Update
Page 2 of 2
AGENCY % OF LOAD PRO-RATA SHARE
$ OF GUARANTY
CARLSBAD 90% $2,250,000
DEL MAR 3% $75,000
SOLANA BEACH 7% $175,000
The Solana Beach City Council considered the request at its July 8 meeting and authorized the City
Manager to execute the guaranty up to $175,000.
The Del Mar City Council considered the guaranty at its July 20 meeting and authorized the City Manager
to execute the guaranty up to $75,000.
The Carlsbad City Council considered the request at its July 14 meeting, however, in addition to
consideration of providing the guaranty, the Carlsbad staff included an alternative option whereby the
City of Carlsbad would provide the needed funding to CEA, to be reimbursed by CEA from operational
revenues. The Carlsbad City Council directed staff to develop terms related to such a loan arrangement
with CEA and to bring them back to the City Council for consideration.
The benefits to CEA of accepting a loan from Carlsbad in lieu of the options from RCB and JP Morgan
included:
Reduced costs related to elimination of loan fees charged by both banks;
Lower interest rate terms (based on Carlsbad Treasurer's Avg Yield + 1%);
Cash flow benefit of annual interest payments vs monthly with banks
Streamlined process for executing the loan agreement and drawing down the funds.
CEA staff is working with Carlsbad to prepare information needed by the Carlsbad City Council as part of
their due diligence in considering making the loan. Should the Carlsbad City Council authorize providing
CEA the needed funding, staff will return to the CEA Board to seek authorization to approve the
reimbursement agreement subject to the terms as established by the Carlsbad Council.
FISCAL IMPACT
There is no fiscal impact associated with this item.
ATTACHMENT
Memo to Member Agencies Dated June 25, 2020
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Clean Energy Alliance
JOINT POWERS AUTHORITY
June 25, 2020
TO: Scott Chadwick, City Manager, City of Carlsbad
Christa Johnson, City Manager, City of Del Mar
Greg Wade, City Manager, City of Solana Beach
FROM: Barbara Boswell, Interim Chief Executive Officer, Clean Energy Alliance
Marie Berkuti, Interim Treasurer, Clean Energy Alliance
RE: Clean Energy Alliance Financing Solution Fiscal Year 20/21
At its regular meeting of June 18, 2020, the Clean Energy Alliance (CEA) Board received a report from staff
regarding two financing options (Staff Report attached) to provide the necessary funds for CEA's fiscal
year 20/21 cash needs. These options are from River City Bank and JP Morgan. The CEA Board directed
staff to reach out to the Member Agencies to inquire regarding potential assistance with providing security
related to the River City Bank (RCB) option and return to the Board at its July 16 meeting with the results
of those inquiries.
REQUEST OF CARLSBAD, DEL MAR & SOLANA BEACH
Through this memo, CEA is requesting member agencies consider assisting by providing the security
requirement for $2,500,000 of the River City Bank credit option, either in the form of a guaranty (sample
form attached) or cash collateral deposit. The amount each city is guaranteeing would be at the pro-rata
share based on load.
BACKGROUND
Initial start-up costs for Fiscal Year 19/20 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. Future start-up costs to be incurred in FY 20/21 are to be funded through a credit
solution provided by a financial institution or other 3`d party.
Subsequent to the initial advances, COVID-19 hit and local stay-at-home orders were implemented,
resulting in anticipated revenue losses to the cities. As a result, the cities reached out to CEA regarding
early repayment of the initial advances.
Total funding needs for CEA start-up include:
$1,000,000 Funding for FY 20/21 Operating Budget
$450,000 Repayment of Initial Advances to Member Agencies
$500,000 CAISO Deposit
$2,500,000 Lockbox Reserves and Cash Flow
$4,450,000 Total Funding needed
July 23, 2020
1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2808
thecleanenergyalliance.org Item #2
Attachment A
Page 3 of 5
Clean Energy Alliance
JOINT POWERS AUTHORITY
The River City Bank credit solution is a lower cost option but requires security in the form of a guaranty
(Attachment B sample form) 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 3rd party.
The JP Morgan option has no security requirement but is approximately $105,000 higher costs than the
RCB option and includes operating covenants that CEA would have to adhere to. The most concerning
covenant is that CEA would be required to set rates sufficient to cover all operating and financing costs.
It would restrict CEA's Board flexibility to fund programs or offering discounts funded through reserves if
that funding resulted in operating costs exceeding revenues. For these reasons the CEA Board saw the
RCB option as the option it was interested in pursuing initially.
At its June 18 meeting, the Board directed 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.
Security Requirements Details
The total amount of the River City Bank credit subject to the security is $2,500,000. RCB is willing to
accept guarantees or cash collateral deposits from each member agency on a pro-rata share based on
load. The guarantee would require the city to execute a form of guaranty, a sample of which is
attached.
In this case, each city would only be guaranteeing their share based on this pro-rata allocations as
reflected below:
AGENCY % OF LOAD PRO-RATA SHARE
$ OF GUARANTY
CARLSBAD 90% $2,250,000
DEL MAR 3% $75,000
SOLANA BEACH 7% $175,000 I
The security requirement would be in place through the maturity date of the $2,500,000 loan, which is
two years, or until repaid, whichever is first. RCB is amendable to discussing the release of
guarantees/cash collateral after CEA has launched operations and provided a track record of operations
at a to-be-determined level satisfactory to RCB.
The guaranty/cash collateral would come in to play in the event of a default by CEA, each city would be
responsible for their share based on the allocation above.
Risk of Default
Assuming CEA launches in May 2021 as planned the current pro-forma indicates sufficient revenue, at
rate parity, to cover operational expenses and financing costs, resulting in a low risk of default. The risk
of default can be considered high if CEA does not launch in May as anticipated. If that were to occur,
CEA 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 guaranty.
July 23, 2020
1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2808
thecleanenergyalliance.org Item #2 Attachment A Page 4 of 5
Clean Energy Alliance
JOINT POWERS AUTHORITY
Uses of the $2,500,000 loan subject to the guarantee are as follows:
$1,000,000 Fund FY 20/21 budget
$450,000 Repay initial advances
$1,050,000 Reserve for lockbox
$2,500,000
In a "worst case" scenario, in the event CEA does not launch in May 2021, the $1,050,000 reserve would
not have been spent and would be returned to the bank. The exposure to the cities would be the
portion of the remaining $1,450,000 that had been spent, allocated by the pro-rata share, or $1,305,000
from Carlsbad, $43,500 from Del Mar and $101,500 from Solana Beach.
We are happy to meet with city staff or at the city council meeting to answer any questions and discuss
the request being made by CEA.
July 23, 2020
1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2808
thecleanenergyalliance.org Item #2
Attachment A
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