Three community choice aggregators in the San Francisco Bay Area expect to reap considerable savings from the issuance of $2.2 billion in tax-exempt bonds to cover the costs of more than 400 MW of renewable power contracts over 30 years.
The bonds are an alternative way to pay for the power supply contracts. The aggregators have been paying annually.
A new organization, the California Community Choice Financing Authority, has issued two bonds on behalf of East Bay Clean Energy, Silicon Valley Clean Energy and Marin Clean Energy to prepay for existing and new power projects.
The three community aggregators estimate they will save about $7 million per year for the first five to 10 years compared to paying annually. Longer savings projections were not included because the initial power contract deliveries under the two bonds are six and 10 years.
“Using the federal and state tax code to get a lot lower long-term borrowing costs by selling tax-free bonds is at least a short-term win-win,” said Joseph Fichera, Saber Partners CEO. He has advised utilities, including Southern California Edison, and commissions on ratepayer-backed bonds. He noted the only risk is the one associated with “all long-term contracts, that the price you lock in may go down in the future.”
The Clean Energy Project Revenue bonds are a type of wholesale electricity prepayment that requires a tax-exempt public electricity supplier–in this case, the CCA–a taxable energy supplier, and a municipal bond issuer–the CCCFA in this instance.
According to SVCE and EBCE, after the initial 10-year bond issuance the subsequent contracts will have to yield at least a $2/MWh savings over the typical annual payments. For Marin, its board requires that the savings be at least 5% when its bond resets at the end of 2027.
Municipal utilities have long used the prepayment structure to reduce the costs of purchased natural gas. This is the first time this kind of bond has been used to buy clean electricity, according to the three community aggregators.
“By leveraging a decades-old process available for natural gas procurement savings and making it work for clean electricity, we’re picking it up and repurposing it to meet the needs of today,” said Nick Chaset, EBCE CEO.
$1.5 B and $700 M Bonds
The first issuance was a $1.5 billion 30-year bond, underwritten by Morgan Stanley. What is known so far is that it will initially prepay for about 9.1 million MWh, or 109 MW, for EBCE and SVCE. Moody’s gave the bond, issued in early September, an “A1” rating.
The two aggregators’ joint purchase is for an initial 10-year delivery period for existing contracts. Of the 109 MW over a decade, EBCE will receive 59 MW, representing about 7% of its load. SVCE will receive the other 50 MW, representing about 11% of its load.
What mix of generation will subsequently be contracted for has not been determined yet. But it has to meet the California Emission Performance Standard requirements,” said Pamela Leonard, SVCE spokesperson.
The second bond issuance by the community financing authority is $700 million for 295 MW of renewables transaction for MCE. The issuance was underwritten by Goldman Sachs and received an “A2” rating from Moody’s.
MCE’s 30-year bond will initially pay for contracts for four solar projects. The initial savings to the power provider is 10.3% over six years, about $3 million a year, on the prepaid energy compared to annual payments, said spokesperson Jenna Tenney. Marin may change the mix of resources after the 2027 bond reset.
MCE began exploring prepayment bonds three years ago “to reduce the cost of our renewable energy portfolio,” said Dawn Weisz, CEO of MCE. “This transaction will help us deliver on our promise of cleaner power, community reinvestment and competitive rates.”
CCCFA is a Joint Powers Authority, and its initial members include Central Coast Community Energy, EBCE, SVCE and MCE.