| Background
The VCEA was formed in January 2017 as a joint powers agency between the County of Yolo and the City of Davis to provide Community Choice Energy (CCE) programs within the member agencies. In June 2017, the City of Woodland also joined VCEA adding to the overall VCEA service territory.
Valley Clean Energy Alliance (VCEA) was formed in January, 2017 as a joint powers agency between the County of Yolo and the City of Davis to provide Community Choice Energy (CCE) programs within the member agencies. In June 2017, the City of Woodland also joined VCEA adding to the overall VCEA service territory. As part of the Fiscal Year 2017/18 budget process, the Yolo County Board of Supervisors approved a start-up loan of $500,000 to VCEA; equal loans were also made to VCEA by City of Davis and the City of Woodland. As per the Cooperation Agreement between the County and VCEA, the County's start-up loan, as referenced in Section 5.3.2 of the JPA Agreement, will be paid back with at the Treasurer's pooled rate.
Section 5.3.2 of the JPA Agreement also stipulates that VCEA may establish a reasonable time period to pay back the start-up funding and support provided by the participating agencies. The maximum terms of the credit facilities of VCEA are six and a half years, however financial projections provided by SMUD show that River City Bank could be paid as quickly as three years and member agencies could be paid as quickly as five years from go-live of the program of June 2018. This estimated pay-back time period is generally consistent with previous estimates based on other CCA program experiences and is considered a reasonable timeline by staff.
Subordination
VCEA initially solicited startup capital through a loan from each member agency of $500,000 for a total contribution of cash of $1,500,000. The member agencies also entered into co-operative agreements providing contracted staff and supplies during the implementation period. The implementation period of the JPA will continue until June 2018 when VCEA begins providing electricity service to customers.
VCEA initially solicited for competitive bids for banking and credit services during April 2017 and made final selections of a banking and credit services provider in December 2017. The delay in the selection was to ensure that VCEA had accurate financial and customer projections, which changed with the addition of the City of Woodland and was aided by the selection of a SMUD to provide power procurement and technical energy services. During this selection process, staff from each member agency was involved and ultimately in December 2017, River City Bank was selected as the most responsive bidder.
Part of the River City Bank proposal was to lend VCEA up to $11 million as a line of credit primarily to fund power purchases as part of administrating the CCE program. The line of credit may be outstanding for a term of up to 18-months. Following the initial 18-month period, the line of credit can be converted to a five year term loan with a fixed interest rate (total term of the two credit facilities would be six and a half years).
Since VCEA will not have a revenue stream until shortly after launch in June 2018, it is standard in commercial banking for the lender to request that the member agencies (City of Davis, City of Woodland, and County of Yolo), subordinate the loans made by the member agencies to VCEA to the River City Bank Line of Credit and related Loan. The Bank’s request for subordination was expected since VCEA’s inception, and therefore staff are requesting the Board to continue to support VCEA through the approval of the Subordination agreement (Attachment A).
The timeline for subordination and loan approval is as follows:
- Subordination of Member Agencies
- April 10 - City of Davis Council Meeting
- April 17 - City of Woodland Council Meeting
- April 24 - County of Yolo Board of Supervisors Meeting
- Approval of Final Loan Documents
- April 25 - VCEA Board of Directors meeting
VCEA Electrical Rate, Renewable Energy, and GHG Emissions Report (Attachment B)
As shown below, Section 6.3.1 of the Joint Powers Agency agreement requires VCEA to report back to the member agencies after receiving bids from power suppliers from the electrical consultant retained (SMUD), that compares the total estimated electrical rates that VCEA will charge customers as well as the estimated greenhouse gas emissions rate and the amount of renewable energy compared to the incumbent utility (PG&E). If VCEA was not able to achieve its goals of (1) lower electric rates, (2) providing power in a manner that has lower greenhouse gas emissions rate or (3) if VCEA uses less renewable energy, a member agency could withdraw its membership in VCEA prior to launch.
6.3.1 The Right to Withdraw Prior to Program Launch. After receiving bids from power suppliers, VCEA shall provide to the Parties the report from the electrical utility consultant retained by VCEA that compares the total estimated electrical rates that VCEA will be charging to customers as well as the estimated greenhouse gas emissions rate and the amount of estimated renewable energy used with that of the incumbent utility. If the report provides that VCEA is unable to provide total electrical rates, as part of its baseline offering, to the customers that are equal to or lower than the incumbent utility or to provide power in a manner that has a lower greenhouse gas emissions rate or uses less renewable energy than the incumbent utility, a Party may immediately withdraw its membership in VCEA without any financial obligation, as long as the Party provides written notice of its intent to withdraw to VCEA Board no more than fifteen (15) days after receiving the report. Any withdrawing Party shall not be entitled to any return of funds provided to VCEA, provided, however, that if, after the program is launched there an unobligated and unused funds, the withdrawing member shall be refunded its pro rata share of the unobligated and unused funds.
As shown in the attached report on VCEA power procurement activities from the electrical utility consultant (SMUD), VCEA has met the JPA provision by: (1) successfully achieving lower electrical rates by adopting rates 2.5% lower than PG&E at the VCEA March 2018 Board meeting, (2) providing power in a manner that has lower greenhouse gas emissions rate and (3) utilizing more renewable energy in comparison to the incumbent utility based on the latest available data. Therefore, staff requests that the County Board of Supervisors accept the SMUD report and find that the provisions of Section 6.3.1 of the JPA Agreement have been satisfied. |