HomeMy WebLinkAbout2020-08-20; Clean Energy Alliance JPA; ; Clean Energy Alliance Credit Solution UpdateClean Energy Alliance
JOINT POWERS AUTHORITY
Staff Report
DATE: August 20, 2020
TO: Clean Energy Alliance Board of Directors
FROM: Barbara Boswell, Interim Chief Executive Officer
ITEM 4: Clean Energy Alliance Credit Solution Update
RECOMMENDATION:
1) Authorize the Interim Chief Executive Officer to execute a Promissory Note with Calpine Energy
Solutions, subject to General Counsel approval, for $400,000, to provide funding for CEA operational
costs through February 2021; and
2) Direct the Interim Chief Executive Officer to continue to work towards a credit solution for the
remaining CEA start-up funding needs and to return with options at the November 19, 2020 CEA Regular
Board Meeting.
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 credit terms of the
proposed 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
The guaranty is proposed to be allocated to the Member Agencies based on percentage of load 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
Aug. 20, 2020
Item #4 iterf)6gegi bff7
August 20, 2020
Credit Solution Update
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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 Carlsbad City Council considered proposed terms and conditions for a loan to CEA at its meeting July
28, 2020. After consideration, the Carlsbad City Council did not approve the loan to CEA. In its
deliberations, the Carlsbad City Council cited concerns related to the uncertainty regarding the potential
delay in the CEA launch date and the impact of SDG&E's rate proceedings including the 2021 ERRA and
the PCIA Trigger Application.
CEA had received advances from the member agencies in a total amount of $450,000 to fund initial
operating costs. These funds have been sufficient to cover costs into the current fiscal year, however,
are projected to be fully spent in September 2020. As such CEA needs to identify funding for continuing
operations while staff continues to work on its long-term credit solution.
Advance for CEA Operations through February 2021
As part of its agreement with CEA, Calpine Energy Solutions provides for an advance of funds to fund
CEA launch and startup operations, up to a maximum $650,000. Staff has reviewed its cash flow needs
and determined that a $400,000 advance would cover projected costs through February 2021. The
advance would not provide funds to repay the initial advances from the cities of Carlsbad, Del Mar and
Solana Beach.
Projected uses of the Calpine Advances are as follows:
Professional Consulting Services 98,000.00
Technical Consulting Services 118,000.00
Legal Services 115,000.00
CalCCA Membership Dues 15,000.00
Balance due on CCA Bond 47,000.00
Total Operational Costs October 2020 - February 2021 $ 393,000.00
The interest rate on the advance is based on the 1-month LIBOR plus 2% per annum, with interest
accruing from the date funds are deposited in CEA's account. The interest rate applied shall be
calculated using the posted 1-month LIBOR rate available on the date funds are wired from Calpine's
account. If the funds were wired on August 14, 2020, the 1-month LIBOR rate was .15150, resulting in
an interest rate of 2.15150% on the advance. Advances are to be repaid in twelve equal monthly
installments beginning 90-days after the Power Start Date (or date CEA begins serving customers).
Aug. 20, 2020
Item #4 IterNigeg2 bff 7
August 20, 2020
Credit Solution Update
Page 3 of 3
Assuming a May 2021 launch, repayments would begin in August 2021 with full repayment by July 2022.
The loan is between CEA and Calpine, with no recourse to the Member Agencies.
Executing the promissory note (Attachment A) with Calpine provides needed cash to fund operations
while the issues of concern identified by the Carlsbad City Council, such as the impact of the delay in San
Diego Gas & Electric's (SDG&E) billing system on CEA's launch schedule, the SDG&E ERRA Rate
Proceeding and the SDG&E PCIA Trigger Application, are resolved and resulting impact to CEA are
known. During this time staff would continue to work on credit solution options, monitor the issues
affecting CEA launch and rates and assess their impact on CEA, and will return to the Board at its
November regular Board Meeting with an update and credit solution recommendation.
FISCAL IMPACT
The cost of the advance from Calpine has been factored into the CEA proforma, Option 2, which
assumes a 2% rate discount to customers and achieves 100% Portfolio Content Category 1 renewable
energy by 2023 (Attachment B).
ATTACHMENT
Attachment A - Promissory Note to Calpine
Attachment B — Clean Energy Alliance Pro Forma Option 2
Aug. 20, 2020
Item #4 iterNigeg3
Attachment A
Exhibit C
PROMISSORY NOTE
June 1, 2020
FOR VALUE RECEIVED, the undersigned, the CLEAN ENERGY ALLIANCE (the
"Borrower"), hereby unconditionally promises to pay to the order of CALPINE ENERGY
SOLUTIONS, LLC ("Calpine") the unpaid principal amount of each Advance (as defined in the
Agreement referred to below) made by Calpine to the Borrower on the Maturity Date and on such
other dates and in such other amounts as set forth in the Agreement (as defined below). All
payments of principal of the outstanding amounts of all Advances evidenced by this Promissory
Note shall be made in the manner specified in the Agreement (as defined below).
Borrower hereby further promises to pay interest in like money and funds on the daily
outstanding balance of each Advance for the period commencing on the date of each such Advance
until repaid in full, at the rate determined pursuant to, and in the manner specified in, the
Agreement (as defined below).
All payments of principal of and interest under this Promissory Note shall be made by the
Borrower not later than [2:00 pm] (Pacific Standard Time) on the date when due to Calpine at its
office located on the date hereof at 401 West A St., Suite 500, San Diego, CA 92101 (or such other
address as Calpine may designate in writing to the Borrower) in lawful money of the United States
of America, in immediately available funds without setoff, deduction or counterclaim and free and
clear of any present or future taxes, levies, imposts, duties, fees, assessments or other charges.
Calpine is authorized to make notations of all Advances made to the Borrower by Calpine
pursuant to the Agreement (as defined below) and all repayments of the outstanding principal
amounts and accrued interest on such Advances on the schedule attached to and made part of this
Promissory Note. Such notations, if made, will be conclusive and binding absent manifest error.
This Promissory Note is the Note referred to in the Professional Services Agreement dated
as of June 1, 2020 (as amended, restated, supplemented or otherwise modified from timeto time,
the "Agreement") between the Borrower and Calpine.
In addition to all principal and accrued interest on this Promissory Note, the Borrower
agrees to pay (a) all costs and expenses incurred by all of the holders of this Promissory Note in
collecting this Promissory Note, whether through probate, reorganization, bankruptcy or other
proceedings and (b) attorney' s fees when and if this Promissory Note is placed in the hands of an
attorney for collection.
Presentment, demand, protest and notices of any kind with respect to this Promissory Note
are hereby expressly waived by the Borrower.
Notwithstanding any other provision of this Promissory Note, in the event that any change
in any applicable law or regulation or in the interpretation thereof by any Governmental Authority
shall make it unlawful for Calpine to honor its obligation to make, issue or maintain any Advance
hereunder, then Calpine shall promptly notify Borrower thereof and Calpine 's obligation to make
Aug. 20, 2020 Attachment A Item #4 iterp5geg4107
such Advance, or to continue the Advance, shall be suspended until such time as Calpine may
again lawfully make and maintain the Advance and, on the date specified bi Calpine in light of
legal requirements applicable to Calpine, the Advance shall become payable at a rate per annum
established by Calpine in the Agreement.
THIS PROMISSORY NOTE AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CALIFORNIA.
CLEAN ENERGY ALLIANCE
By:
Name:
Title:
Date:
Aug. 20, 2020 Attachment A Item #4 Iterp5Eegs bff
Schedule to Promissory Note
of
the CLEAN ENERGY ALLIANCE
Dated June 1,2020
Date of Borrowing Principal Amount Interest Rate Payment Date
B-1
Aug. 20, 2020 Attachment A Item #4 Iterp6Eege bEff
OZOZ `OZ '2r1V 8 luew goellY Annual DRAFT Pro Forma Projections for a Community Choice Aggregation Program - 2% Discount and l00% PCCi. by 2023
Clean Energy Alliance
Fiscal Year Ending: 2020 2021 2022 2023 2024 2025
I. Revenue - 9,634,093 67,733,082 69,062,278 70,413,027 71,785,662
II. Operating Expenses
Power Supply 8,988,017 61,018,825 60,161,460 61,785,316 62,526,043
Staff 50,000 235,000 600,000 618,000 636,540 655,636
Administrative Costs* 253,000 1,108,938 2,459,357 2,498,727 2,559,714 2,617,600
Subtotal Operating Expenses 303,000 10,331,956 64,078,183 63,278,187 64,981,570 65 799,279
Operating Margin (303,000) (697,862) 3,654,899 5,784,091 5,431,458 5,986,383
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) (1,271,195) 3,008,649 4,381,038 4,028,845 4,583,909
IV. Cash From Financing 450,000 4,500,000 -
V. Other Uses
CP UC and CAISO Deposits 147,000 500,000 - -
Collateral Deposits 0 2,500,000 - - -
Reserve Additions 228,805 3,008,649 3,453,114 3,520,651 3,589,283
Subtotal Other Uses 147,000 3,228,805 3,008,649 3,453,114 3,520,651 3,589,283
VI. Net Surplus/(Deficit) - (0) 0 927,924 508,193 994,626
VII. Cumulative Reserve - 228,805 3,237,454 6,690,568 10,211,219 13,800,502
VIII. Cumulative Net Surplus (0) 0 927,924 1,436,117 2,430,743
VI. Combined Cumulative Reserve & Cumulative
Net Surplus 228,805 3,237,454 7,618,492 11,647,336 16,231,245
* Comprised of Technical and Legal Services, Customer Outreach and Communications, Utility Services Fees, Data Management Services, Uncollectibles g luat.uipell.v