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HomeMy WebLinkAbout12-03-2013 ac veium ss1Heather From: Sent: To: Subject: Attachments: Mejia, Anthony Monday, December 02,20L3 3:47 PM Goodwin, Heather FW: SLO Clean Energy - Letter to SLO City Council on Item SSL 131-203 SLO Clean Energy - Letter to SLO City Council.pdf AGENDA CORRESPONDENCE oate \Z k ll 3 ftem# SS I _Anthony J. Mejia I City Clerk c¡[;\r $l' *¿v: lu:* d]tìtspo 9go Palnr Sl.rcet San Luis Obispo, C,A g34o:" tel I tìer5.78:..7roa From : Eric Veium Ima ilto :eric@sloçleaneneroy.orq] Sent: Monday, December 02,2013 3:45 PM To: Ashbaugh, John; Carpenter, Dan; Christianson, Carlyn; Codron, Michael; Dietrick, Christine; Lichtig, Katie; Max, Jan; Smith, Kathy; Mejia, Anthony Cc: mladenbandov@gmail.com; scott@slocleanenergy,org; gradofcal@yahoo.com; erlc@slocleanenergy,org Subject: SLO Clean Energy - Letter to SLO City Council on Item SS1 Honorable Council Members: Please find the attached letter from SLO Clean Energy for tomorrow evening's SLO City Council CCA Study Session. Please let me know if you have any questions or requests. Respectfully, Eric Veium Eric Veium I Leadership ïeam ( 805 ) 835-3669 | eric@slocleanenergy.org I slocleanenerqv.orq 3.t Ç cr-EAN E$\ ËRCVJ 1 iìKÜLL:*J L fr December 2, 2013 Dear Mayor Marx and honorable Council Members: Thank you to your council and staff for taking this opportunity to begin exploring Community Choice Aggregation (CCA) and what it makes possible for SLO City, its families and businesses. We thank your staff for doing a great job presenting the CCA basics in their staff report. This letter intends to provide additional information for your consideration (see attachments), provide a general update on SLO County communities’ CCA efforts, and offer some comments regarding the staff report. Communities around the state and nation are exploring, launching, and operating Community Choice energy programs. These communities are recognizing that CCA is a powerful tool for communities in support of local values and priorities. The following list provides a snapshot of opportunities made possible by CCA: Local Control & Accountability ●A CCA program operates as a Business with a locally accountable board of directors. ●Goals, programs, and rates are decided based on local values and priorities. ●All aspects of the business are funded through ratepayer funds NOT taxpayers funds. Choice & Competition ●Allow families and businesses a choice where they currently have none. ●Leverage market competition to encourage innovation and performance. Long Term Electric Rate Stability ●Existing CA CCA programs offer customers competitive rates for more renewable energy. ●MCE and Sbusinesses are enjoying ●Programs for low income customers are not affected. Local Economic Growth & Jobs ●A program focused on local power production and energy efficiency programs will maximize positive impacts to the local economy and jobs. ●Potential to invest over $100 million per year of local money back into the local economy. ●Recognizing that Diablo Canyon is a valuable economic engine for SLO County, a CCA can coexist without any negative impacts to the plant or its beneficiaries while taking proactive steps to diversify our local economy in preparation for Diablo Canyon’s eventual closure. Clean Energy & Local Self-Reliance ●Existing CCA programs in CA offer renewable energy options of 33%, 53%, and 100%. ●Expand the local market for increased investment in efficiency and clean energy. Update on CCA progress within SLO County Communities ●There is rapidly growing interest in CCA from both elected and business leaders. ●The City of Morro Bay has passed a resolution supporting the exploration of CCA. ●SLO Clean Energy is hosting the first meeting of the CCA Exploration Advisory Committee (CEAC) in the 1st quarter of 2014. Interested communities, business leaders, and other stakeholders are invited to attend. December 2, 2013 Comments and clarifications of Staff Report Major City Goals - In support of SLO City’s Major Goals, a CCA program could: ●make available financial tools and non-taxpayer funded resources focused on facility utility cost reduction, efficiency & on-site generation projects, and CAP implementation. Over time, this would reduce demands on city resources allowing staff to focus on other important priorities such as infrastructure and openspace. ●focus on programs and projects that increase business competitiveness, create local jobs, and generate tax revenues from increased local economic activity. ●offer special rates to attract and retain business clusters such as agriculture, specialized manufacturing, and knowledge & innovation. Feasibility Study costs - The developing CCA market is driving down exploration costs. SLO Clean Energy now anticipates exploration to cost between $50,000 and $100,000. Additionally, private-sector support and other private funding may be available. Pre-formation issues - As public organizations that have already gone through the formation process, MCE and Sonoma Clean Power (SCP) offer a significant library of publicly available resources which support communities exploring CCA including: feasibility studies, implementation plans, JPA formation documents, sample contracts, surveys, marketing materials, etc. Startup cost recovery - Upon launch of SCP in May 2014, Sonoma County and Sonoma County Water Agency (SCWA) expect full reimbursement for costs incurred during exploration, formation, and start-up of SCP. Creating a cost-center for tracking CCA related expenses is recommended. Resources for your council and staff SLO Clean Energy is a group of citizen-volunteers committed to supporting the exploration of CCA in SLO County communities. SLO Clean Energy offers support from the leadership team, technical advisory group and network of topic experts. Please utilize SLO Clean Energy as a resource during your exploration of CCA. In closing, SLO Clean Energy requests that the City of San Luis Obispo in cooperation with other interested SLO County communities, and with the support of SLO Clean Energy, formally explore Community Choice Aggregation. Respectfully, Eric Veium, June Cochran, Mladen Bandov, Scott Mann Leadership Team SLO Clean Energy North Bay Business Journal — http://www.northbaybusinessjournal.comSonoma Clean Power inks first power contractEric Gneckow, Business Journal Staff ReporterTuesday, November 19, 2013, 5:05 pmCategories: Breaking News, Energy, Industry News, North Bay News, Sonoma Report, Sonoma Report newsletter 3rd-level stories, Top News Stories | NoComments(UPDATED NOV. 20) SANTA ROSA — Sonoma County’s startup public power agency has signed its first power supply contract with Baltimore, Md.-basedConstellation Energy, a deal that agency staff announced will allow average retail rates that are lower than Pacific Gas & Electric Co.’s projected rates in 2014.The contract with Constellation, a subsidiary of Chicago-based Exelon, will supply the majority of electricity for Sonoma Clean Power’s customers over itsthree-year term. While retail rates won’t be available until January, the deal represents a significant milestone for the agency as it prepares to begin service to aninitial group of customers in May of 2014.“We’re quite confident that we can beat PG&E’s rates and provide real environmental benefits right from day one,” said Geof Syphers, CEO.The decision followed the establishment of a framework for negotiations by the agency’s governing board this month, setting a ceiling for average retailcosts that would be equal to or less than the 9.72 cents per kilowatt-hour projection that PG&E most recently shared with the California Public UtilitiesCommission.Staff had asked for that preapproval to allow for quick action in a wholesale power market that can change significantly on a day-to-day basis. Mr. Syphersjoined Sonoma Clean Power Authority Vice Chair Mark Landman in signing the agreement.In a separate effort, agency staff is also asking for approval during the board’s Nov. 21 meeting to approve a 10-year contract for geothermal power fromCalpine Energy Service. The company, which operates a network of 15 geothermal plants at The Geysers along the Sonoma and Lake county border, wouldsupply around 10 percent of the agency’s power needs over the contract term.Sonoma Clean Power is anticipating the need to purchase nearly 400,000 megawatt-hours of electricity during its first year of operation, and just shy of500,000 by 2016.Mr. Syphers declined to reveal the wholesale price per kilowatt-hour in the Constellation contract, citing ongoing competitive negotiations with Calpine andfuture energy providers. While the final energy cost depends on that wholesale rate, the agency has budgeted $27.6 million for electricity purchases in 2014 and$74.6 million for 2015 — its first full year of operation. That number rises to $114.8 million by 2017, according to material presented with the agency’s fiscal yearbudget on Aug. 15, 2013.Exelon’s $7.9 billion purchase of Constellation Energy was completed in 2012. The company sells electricity to utilities and directly to consumers, withExelon (NYSE: EXC) earning $18.7 million in revenue for the fiscal year ended Sept. 30, 2013. Exelon has electricity production capacity of around 35,000megawatts.Constellation has some business customers in California, but the Sonoma Clean Power contract would represent its first residential customer pool in thestate, according to information from the company.Sonoma Clean Power’s electricity mix is required to be from at least 33 percent renewable sources, a strict definition that does not include low-carbonsources like hydroelectric. Those sources currently account for around 20 percent of PG&E’s portfolio.That definition does allow for some renewable energy “credits,” a mechanism in which renewable energy producers are able to sell their electricity and therenewable attribute of that power separately. The contract includes no power from nuclear sources, with 70 percent considered “carbon-free.”The agreement also includes a provision for Constellation to develop custom pricing structures for individual customers at Sonoma Clean Power’s request.It is a concept that has drawn the interest of heavy power users in Sonoma County, including a wine industry that sees the majority of its power use during thebusy harvest months.“It’s a bit conceptual at this point, but the rules in CCA allow for direct access,” he said, noting some ratepayers including Sonoma State University haveentered into such agreements in the limited window allowed in California. “There are customers that have a big enough energy bill every year that it’s worth ourtime and theirs to go out to the market, maybe with a pool of those customers, and negotiate another contract on their behalf.”“The reality is, PG&E could be an eligible bidder in that pool,” he added.NRG Energy and Direct Energy were two other wholesale power providers under consideration, with competitive talks that lasted until the final hour beforeNorth Bay Business Journal » Sonoma Clean Power inks first power contract » Print http://www.northbaybusinessjournal.com/83448/sonoma-clean-power-inks-first-power-contract/...1 of 212/2/2013 8:19 AM approval, Mr. Syphers said.Sonoma Clean Power purchases electricity and delivers it to its customers over the grid largely maintained by PG&E. It the second “community choiceaggregation” agency in California after MCE Clean Energy — formerly Marin Clean Energy.Mr. Syphers noted that the competitive nature of the primary supplier agreement differed from the approach seen in Marin, and would likely serve as amodel for other CCAs under development in California.The Sonoma County Water Agency began researching the possibility of launching a CCA in California in March of 2011. That agency spent around $1.2million laying the groundwork for the agency, and will ultimately be repaid through Sonoma Clean Power’s revenue.The agency will launch to around 20,000 customers in 2014 — largely commercial ratepayers — and gradually roll out to around 80 percent of SonomaCounty ratepayers in three years. Participants will be allowed to remain with PG&E, but will be enrolled automatically if no “opt out” action is taken.Retail rates are expected to be released in January. For MCE customers in Marin County and the City of Richmond, rates currently average 1.15 percentmore than PG&E for residential customers consuming 500 kilowatt-hours per month, or $79.04. For commercial customers consuming 1,225 kilowatt-hoursduring summer, rates currently average 3.1 percent less, or $253.66 per month.The city governments of Rohnert Park, Petaluma and Cloverdale have chosen not to allow the agency to serve their residents and businesses at launch.Those cities will be given an opportunity to consider joining in 2014. Healdsburg operates its own utility, and is considered out of contention for joining.Link to article: http://www.northbaybusinessjournal.com/83448/sonoma-clean-power-inks-first-power-contract/© 1988–2013 North Bay Business Journal. Copyright policy: http://www.northbaybusinessjournal.com/contact/copyright-policy/.North Bay Business Journal » Sonoma Clean Power inks first power contract » Print http://www.northbaybusinessjournal.com/83448/sonoma-clean-power-inks-first-power-contract/...2 of 212/2/2013 8:19 AM North Bay Business Journal — http://www.northbaybusinessjournal.comSonoma Clean Power offers businesses opportunityBusiness Journal Guest SubmisssionMonday, July 22, 2013, 5:05 amCategories: Commentary, Energy, Green, Guest Columnists, North Bay News, Sonoma Report | 1 CommentSonoma Clean Power, the local program to buy and produce electricity, may be one of the most exciting opportunities for Sonoma County businesses inyears. We often talk about voting with our wallets and supporting local businesses, well this is our chance to walk our talk!Besides creating opportunities to convert underutilized spaces into power producing assets, businesses will be able reduce their energy expenses. Earlyestimates indicate that the energy costs for businesses will be slightly reduced with the new Community Choice Aggregation (CCA) program. In addition, newjobs will be created, as green projects are developed countywide.There is much information now available to the public that CCAs have been successfully implemented throughout the nation, state and even next door, inMarin County. The benefits of the proposed Sonoma Clean Power are too big to ignore and too important to reject due to fear of change, especially since CCAshave been proven to be effective in other states. In addition to the obvious benefits of local control and reduction of greenhouse gases in our community is theenormous investment in infrastructure and green-energy projects that will result from Sonoma Clean Power.The county is responsible for providing a guaranty on $2.5 million of the total $10 million in start-up costs. The JPA (joint powers agreement) for SonomaClean Power (SCP) establishes a firewall between the program and the county/participating cities, protecting our municipalities from financial risks.Under the working deal, PG&E would continue to manage the billing, servicing and electricity delivery for Sonoma Clean Power. This is a tried and truemodel. For a local example, you can Google “Marin Clean Energy”.Countywide businesses and government are working together to invest in renewable energy resources, most visible will be the planned solar field oncounty-owned land near the Charles M. Schulz–Sonoma County Airport. Plus, Sonoma Clean Power will provide additional support and incentives to rewardproducers of renewable energy, which will spur more private energy development jobs and assist in the agency’s goal of producing and procuring as much poweras possible from local producers.Finally, by investing in our local energy resources and infrastructure, Sonoma County is keeping its money local, at every step of the economic cycle. Newenergy resources will be built, locally, creating jobs, locally. Your energy bill will be reinvested locally to benefit everyone.About $12 million is collected from local ratepayers annually for use by PG&E for efficiency programs, yet ratepayers have no say over what programs areimplemented. A CCA has the ability to request a portion of those funds to administer new programs that are better suited to our county. Today, estimated profitsof more than $10 million from energy sales are taken out of the county. Those funds could be better used within Sonoma County on services and projects thatbenefit ratepayers and for future rate reductions.CCAs have an impressive track record of providing affordable energy in other states including Ohio, Massachusetts and Illinois, where over 300municipalities participate. At the end of the day, energy consumers in Sonoma County can also choose to reduce our carbon footprint and keep our localeconomy growing by keeping dollars local.…Debbie Meekins is president and chief executive officer of First Community Bank, Santa Rosa. The institution is providing a $2.5 million startup loan toSonoma Clean Power, secured by the county of Sonoma, and has offered the organization a $7.5 million unsecured line of credit for operations.Link to article: http://www.northbaybusinessjournal.com/76794/sonoma-clean-power-offers-businesses-opportunity/© 1988–2013 North Bay Business Journal. Copyright policy: http://www.northbaybusinessjournal.com/contact/copyright-policy/.North Bay Business Journal » Sonoma Clean Power offers businesses opportunity » Print http://www.northbaybusinessjournal.com/76794/sonoma-clean-power-offers-businesses-opportu...1 of 112/2/2013 8:13 AM MARIN ENERGY A U T HORITY Financial Statements Years Ended March 31, 2013 and 2012 with Report of Independent Auditors MARIN ENERGY AUTHORITY YEARS ENDED MARCH 31, 2013 AND 2012 TABLE OF CONTENTS Independent Auditors’ Report 1 Management’s Discussion and Analysis 3 Financial Statements: Statements of Net Position 6 Statements of Revenues, Expenses and Changes in Fund Net Position 7 Statements of Cash Flows 8 Notes to the Financial Statements 10 5000 Hopyard Road, Suite 335 Pleasanton, CA 94588 Tel: 925.734.6600 Fax: 925.734.6611 www.vtdcpa.com FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA  RIVERSIDE SACRAMENTO 1 INDEPENDENT AUDITORS’ REPORT Board of Directors Marin Energy Authority San Rafael, California We have audited the accompanying financial statements of the Marin Energy Authority (“MEA”), as of and for the years ended March 31, 2013 and 2012, which collectively comprise MEA’s basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Marin Energy Authority, as of March 31, 2013 and 2012, and the respective changes in financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis,as listed in the table of contents,be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Pleasanton, California August 6, 2013 2 MARIN ENERGY AUTHORITY 3 MANAGEMENT’S DISCUSSION AND ANALYSIS The Management’s Discussion and Analysis provides an overview of Marin Energy Authority (MEA) financial activities for the fiscal years ended March 31, 2013 and 2012. The information presented here should be considered in conjunction with the audited financial statements. FINANCIAL HIGHLIGHTS MEA began providing electrical power to customers in May 2010 and continues to experience increases in its number of customers. Its efficient use of financial resources and growing customer base allowed MEA to see a significant jump in net position from the prior year. During the 2012-13 fiscal year, revenues exceeded expenses by approximately $3,995,000, causing net position to increase from approximately $3,918,000 to $7,913,000. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to MEA’s basic financial statements. MEA’s basic financial statements comprise two components: (1) government-wide financial statements and (2) notes to the financial statements. The government-wide financial statements are designed to provide readers with a broad overview of MEA’s finances, similar to a private-sector business. The Statement of Net Position presents information on all of MEA’s assets and liabilities, with the difference between assets and liabilities reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of MEA is improving or deteriorating. The Statement of Revenues, Expenses and Changes in Fund Net Position presents information showing how MEA’s net position changed during the fiscal period. All changes in net position are recognized at the date the underlying event that gives rise to the change occurs, regardless of the timing of the related cash flows. The Statement of Cash Flows presents information about MEA’s cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities. This statement shows the sources and uses of cash, as well as the change in the cash balances during the fiscal years. MEA is a single-purpose entity that has elected to account for its activity as a governmental enterprise fund under governmental accounting standards. Accordingly, MEA presents only government-wide financial statements. MARIN ENERGY AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) 4 The following table is a summary of MEA’s assets, liabilities, and net position. 2013 2012 2011 Current and other assets 18,007,926$ 7,549,498$ 3,706,432$ Capital assets 68,679 32,566 32,890 Total assets 18,076,605 7,582,064 3,739,322 Current liabilities 7,079,985 2,283,437 1,599,794 Noncurrent liabilities 3,083,746 1,380,702 1,820,690 Total liabilities 10,163,731 3,664,139 3,420,484 Net position: Net investment in capital assets 68,679 32,566 32,890 Restricted 598,200 263,200 263,200 Unrestricted 7,245,995 3,622,159 22,748 Total net position 7,912,874$ 3,917,925$ 318,838$ MEA began serving customers in May 2010 and completed fiscal 2011-12 with approximately 14,000 customers. During 2012-2013, with expansion throughout Marin County, the number of active customer accounts increased to approximately 90,000. This increase in activity resulted in an increase in cash and receivables as well as trade liabilities. MEA obtained an additional loan during the year and we continue to make payments on our debt. Our results of operations are summarized as follows: 2013 2012 2011 Operating revenues 52,579,310$ 22,918,843$ 14,323,650$ Contributions received 20,000 - 22,260 Interest income 900 - - Total income 52,600,210 22,918,843 14,345,910 Operating expenses 48,429,076 19,210,349 12,892,000 Interest expense 176,185 109,407 173,821 Total expenses 48,605,261 19,319,756 13,065,821 Increase (decrease) in net position 3,994,949$ 3,599,087$ 1,280,089$ MEA’s expansion throughout Marin County resulted in a dramatic increase in electricity sales, which was accompanied by corresponding increases in costs directly related to acquiring energy and servicing customer accounts. Despite the growing customer base, significant general and administrative expenses held fairly steady and led to an increase in net position. In addition to providing renewable energy, MEA began its Energy Efficiency Program during 2012-13 to encourage energy efficiency improvements in both commercial and residential properties in our coverage areas. MARIN ENERGY AUTHORITY MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) 5 DEBT AND CAPITAL ASSET ADMINISTRATION In July 2012, MEA obtained a new loan for $3,000,000. MEA continued to make payments on this and previous debt. Note 5 to the financial statements provide details on debt activity. There was no significant capital asset activity. ECONOMIC OUTLOOK Since commencing service to customers in 2010 MEA has entered into multiple power purchase agreements with various providers to serve MEA’s projected load. This process creates price certainty as MEA continues to serve customers. In addition to increasing its customer base from approximately 14,000 to 90,000 in 2012-13, MEA will enter its next phase of expansion and increase its customer base by approximately 30,000 additional customers. Management intends to continue its conservative use of financial resources and expects ongoing operating profits. REQUESTS FOR INFORMATION This financial report is designed to provide MEA’s customers and creditors with a general overview of the Authority’s finances and to demonstrate MEA’s accountability for the funds under its stewardship. Please address any questions about this report or requests for additional financial information to 781 Lincoln Avenue, Suite 320, San Rafael, CA 94901. BASIC FINANCIAL STATEMENTS MARIN ENERGY AUTHORITY 6 The accompanying notes are an integral part of these financial statements STATEMENTS OF NET POSITION AS OF MARCH 31, 2013 AND 2012 2013 2012 Current assets Cash and cash equivalents 9,817,159$ 3,790,860$ Accounts receivable, net 4,572,796 2,180,568 Accrued revenue 2,857,212 1,151,397 Prepaid expenses 29,561 30,475 Total current assets 17,276,728 7,153,300 Noncurrent assets Capital assets 68,679 32,566 Restricted cash - debt service reserve 598,200 263,200 Deposits 132,998 132,998 Total noncurrent assets 799,877 428,764 Total assets 18,076,605 7,582,064 Current liabilities Accounts payable 910,367 201,158 Accrued cost of electricity 4,300,363 1,568,514 Other accrued liabilities 152,595 73,776 Deferred revenue 643,566 - Notes payable to bank 1,073,094 439,989 Total current liabilities 7,079,985 2,283,437 Noncurrent liabilities Notes payable to bank 3,083,746 1,380,702 Total liabilities 10,163,731 3,664,139 Net investment in capital assets 68,679 32,566 Restricted for debt service reserve 598,200 263,200 Unrestricted 7,245,995 3,622,159 Total net position 7,912,874$ 3,917,925$ LIABILITIES NET POSITION ASSETS MARIN ENERGY AUTHORITY 7 The accompanying notes are an integral part of these financial statements STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION YEARS ENDED MARCH 31, 2013 AND 2012 2013 2012 OPERATING REVENUES Electricity sales 52,392,025$ 22,918,843$ Energy Efficiency Program revenue 187,285 - 52,579,310 22,918,843 OPERATING EXPENSES Cost of electricity 43,224,840 16,868,479 Energy Efficiency Program expense 187,285 - Professional services 3,708,760 1,535,634 Staff compensation 1,041,907 634,232 General and administration 266,284 172,004 Total operating expenses 48,429,076 19,210,349 Operating income 4,150,234 3,708,494 NONOPERATING REVENUES (EXPENSES) Contributions received 20,000 - Interest income 900 - Interest expense (176,185) (109,407) Total nonoperating revenues (expenses)(155,285) (109,407) CHANGES IN NET POSITION 3,994,949 3,599,087 Net position at beginning of period 3,917,925 318,838 Net position at end of period 7,912,874$ 3,917,925$ MARIN ENERGY AUTHORITY 8 The accompanying notes are an integral part of these financial statements STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2013 AND 2012 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 48,937,548$ 21,672,890$ Cash payments to purchase electricity (40,119,335) (16,284,978) Cash payments for professional services (3,384,155) (1,535,634) Cash payments for staff compensation (964,179) (578,045) Cash payments for general and administration (237,657) (162,024) Net cash provided by operating activities 4,232,222 3,112,209 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Proceeds from bank financing, net of reserve 2,665,000 Principal payments of bank term loans (663,851) (416,967) Interest expense (176,185) (109,407) Net cash provided by non-capital financing activities 1,824,964 (526,374) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (31,787) (9,243) CASH FLOWS FROM INVESTING ACTIVITIES Investment income 900 - Net increase in cash and cash equivalents 6,026,299 2,576,592 Cash and cash equivalents at beginning of year 3,790,860 1,214,268 Cash and cash equivalents at end of year 9,817,159$ 3,790,860$ MARIN ENERGY AUTHORITY 9 The accompanying notes are an integral part of these financial statements STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED MARCH 31, 2013 AND 2012 2013 2012 Operating income 4,150,234$ 3,708,494$ Adjustments to reconcile operating income to net cash provided (used) by operating activities Depreciation expense 15,674 9,568 (Increase) decrease in net accounts receivable (2,392,228) (649,856) (Increase) decrease in accrued revenue (1,705,815) (596,097) (Increase) decrease in prepaid expenses 914 (22,225) (Increase) decrease in security deposit - 1,704 Increase (decrease) in accounts payable 709,209 20,934 Increase (decrease) in accrued cost of energy 2,731,849 583,501 Increase (decrease) in deferred revenue 643,566 - Increase (decrease) in accrued liabilities 78,819 56,186 Net cash provided by operating activities 4,232,222$ 3,112,209$ In-kind capital assets of $20,000 were provided through contributions in 2013. RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 10 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY Marin Energy Authority (MEA) is a joint powers authority created on December 19, 2008 and its members consist of the following parties: the County of Marin, the cities of Belvedere, Larkspur, Mill Valley, Novato, San Rafael, Sausalito and Richmond and the towns of Corte Madera, Fairfax, Ross, San Anselmo, and Tiburon (collectively, “the parties”). It is governed by a thirteen member Board of Directors appointed by each of the parties. MEA was formed to study, promote, conduct, operate, and manage energy and energy- related climate change programs, and to exercise all other powers necessary and incidental to accomplishing these objectives. A core function of MEA is to provide electric service that includes the use of renewable sources under the Community Choice Aggregation Program under California Public Utilities Code Section 366.2. MEA began its energy delivery operations in May 2010. Electricity is acquired from commercial suppliers and delivered through existing physical infrastructure and equipment managed by Pacific Gas and Electric Company. INTRODUCTION MEA’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). MEA has implemented Governmental Accounting Standards Board Statement No. 63, Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position, for both years presented in these financial statements. MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 11 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) BASIS OF ACCOUNTING The Authority’s operations are accounted for as a governmental enterprise fund, and are reported using the economic resources measurement focus and the accrual basis of accounting – similar to business enterprises. Accordingly, revenues are recognized when they are earned and expenses are recognized at the time liabilities are incurred. When both restricted and unrestricted resources are available for use, it is the Authority’s policy to use restricted resources first, then unrestricted resources as they are needed. CASH AND CASH EQUIVALENTS For purpose of the statement of cash flows, MEA has defined cash and cash equivalents to include cash on hand, demand deposits, and short-term investments. Amounts restricted for debt service are not included. CAPITAL ASSETS AND DEPRECIATION MEA’s policy is to capitalize furniture and equipment valued over $500 that is expected to be in service for over one year. Contributed capital assets are valued at their estimated fair value as of the date contributed. Depreciation is computed according to the straight-line method over estimated useful lives of three years for electronic equipment and seven years for furniture. OPERATING AND NON-OPERATING REVENUE Revenue from the sale of electricity to customers is considered “operating” revenue. Contributions received from members of the public and investment income are classified as “non-operating revenue. REVENUE RECOGNITION MEA recognizes revenue on the accrual basis. This includes invoices issued to customers during the period and electricity estimated to have been delivered but yet to be billed. Management estimates that approximately one percent of earned revenue will be uncollectible. Accordingly, an allowance has been recorded. MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 12 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ELECTRICAL POWER PURCHASED Electrical power sold to customers was purchased primarily through one energy supplier, Shell Energy North America. MEA has been increasing its renewable energy purchases from other sources as well. The cost of power and related delivery costs have been recognized as “cost of electricity” in the statement of revenues, expenses and changes in net position. As part of the agreement with Shell Energy, MEA is required to maintain a cash balance of $1,500,000 to ensure funds are available to purchase electrical power. STAFFING COSTS MEA pays employees semi-monthly and fully pays its obligation for health benefits and contributions to its defined contribution retirement plan each month. MEA is not obligated to provide post-employment healthcare or other fringe benefits and, accordingly, no related liability is recorded in these financial statements. INCOME TAXES MEA is a joint powers authority under the provision of the California Government Code. As such it is not subject to federal or state income or franchise taxes. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. CASH AND CASH EQUIVALENTS MEA maintains its cash in both interest and non-interest-bearing accounts at River City Bank of Sacramento, California (RCB). MEA had no deposit or investment policy that addressed a specific type of risk that would impose additional restrictions beyond the California Government Code Section 16521. This code section requires that River City Bank collateralize amounts of public funds in excess of the FDIC limit of $250,000 by 110%. Accordingly, the amount of risk is not disclosed. Risk will need to be monitored on an ongoing basis. MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 13 3. ACCOUNTS RECEIVABLE 2013 2012 Accounts receivable from customers 5,413,646$ 2,367,348$ Allowance for uncollectible accounts (840,850) (186,780) Net accounts receivable 4,572,796$ 2,180,568$ MEA has provided a reserve for uncollectible accounts. Electricity sales revenue has been reduced by $654,070 and $42,097, in 2013 and 2012, respectively, for the estimated uncollectible amounts. 4. CAPITAL ASSETS Changes in capital assets were as follows: Furniture & Leasehold Accumulated Equipment Improvements Depreciation Net Balances at March 31, 2011 38,251$ - (5,361)$ 32,890$ Additions 7,590 1,654 (9,568) (324) Balances at March 31, 2012 45,841 1,654 (14,929) 32,566 Additions 47,560 4,227 (15,674) 36,113 Balances at March 31, 2013 93,401$ 5,881$ (30,603)$ 68,679$ MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 14 5. DEBT NOTES PAYABLE TO RIVER CITY BANK Date of note January 2011 July 2012 Original note amount 2,300,000$ 3,000,000$ Approximate monthly payment 44,000 56,000 Reserve requirements 263,200 335,000 Maturity date January 2016 October 2017 Interest rate 5.25%4.22% Balance at March 31, 2013 1,380,712 2,776,128 The January 2011 note is subject to a fixed income rate of 5.25%. The July 2012 note is subject to the Federal Home Loan Bank Five Year Fixed Rate plus 1.25%. MEA has agreed to maintain revenues in excess of maintenance and operating costs of 125% of the sum of debt service payments Changes in notes and notes payable were as follows: Beginning Additions Payments Ending Year ended March 31, 2012 River City Bank 2,237,658$ - (416,967)$ 1,820,691$ Totals 2,237,658$ - (416,967)$ 1,820,691 Amounts due within one year (439,989) Non-current portion 1,380,702$ Year ended March 31, 2013 River City Bank 1,820,691$ - (439,979)$ 1,380,712$ River City Bank - 3,000,000 (223,872) 2,776,128 Totals 1,820,691$ 3,000,000$ (663,851)$ 4,156,840$ Amounts due within one year (1,073,094) Non-current portion 3,083,746$ MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 15 5. DEBT (continued) Future debt service requirements are as follows: Principal Interest Total For the years ending March 31: 2014 1,073,094$ 176,411$ 1,249,505$ 2015 1,076,763 117,116 1,193,879 2016 1,040,808 65,342 1,106,150 2017 639,105 28,402 667,507 2018 327,070 3,962 331,032 Total 4,156,840$ 391,233$ 4,548,073$ 6. DEFINED CONTRIBUTION RETIREMENT PLAN The Marin Energy Authority Plan (Plan) is a defined contribution pension plan established by MEA to provide benefits at retirement to its employees. The Plan is administered by Nationwide Retirement Solutions. At March 31, 2013, there were 16 plan members. MEA is required to contribute 10% of annual covered payroll and contributed $80,500 and $43,500 during the years ended March 31, 2013 and 2012, respectively. Plan provisions and contribution requirements are established and may be amended by the Board of Directors. 7. RISK MANAGEMENT MEA is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; and errors and omissions. During the year, MEA purchased liability and property insurance from a commercial carrier. Coverage for property general liability, errors and omissions and non-owned automobile was $2,000,000 with a $1,000 deductible. MARIN ENERGY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2013 AND 2012 16 8. COMMITMENTS AND CONTINGENCIES MEA had outstanding power purchase commitments of $247.6 million contingent upon construction of landfill waste to energy projects and solar photovoltaic generation facilities that continue for up to twenty five years from the commercial operation date of each project. MEA had outstanding non-cancelable power purchase commitments of $261.7 million for energy and related services that have not yet been provided under power purchase agreements that continue from December 31, 2012 to December 31, 2024. As of March 31, 2013, MEA had outstanding non-cancelable commitments of $200,000 to professional service providers for services not yet performed. In September 2011, River City Bank extended MEA a revolving line of credit of $500,000 that expired in September 2012. In October 2012, MEA renewed this revolving line of credit and increased the limit to $1,000,000. It is set to expire on June 30, 2013. This line of credit has an interest rate equal to the Bank’s Base Commercial Loan Rate plus 1.25%. As of the year end, this line has not been drawn upon. 9. OPERATING LEASE Marin Energy Authority rents office space. During the year, expansions to the office space were made to accommodate an increase in staff. Due to these expansions, lease amendments were made to both update the lease term of the original premises and set terms for the expanded premises. MEA is obligated under a seven year non-cancelable lease for both the original and expanded office premises until December 31, 2019. Rental expense was $70,000 and $130,000 for the years ended March 31, 2012 and 2013, respectively. The rental agreement includes an option to renew the lease for five additional years. Future minimum lease payments under the lease are as follows: Year ended March 31, 2014 185,535$ 2015 196,679 2016 202,773 2017 208,854 2018 215,118 2019-20 391,467 1,400,426$