FMRC approves parameters to pursue energy prepayment transaction; staff cite multi‑million dollar annual savings potential

The Finance and Risk Management Committee on June 12 recommended that the board adopt Resolution 2025‑07 authorizing staff to pursue an energy prepayment transaction using the California Community Choice Financing Authority (CCCFA) as the conduit issuer.

Jeff (Jeb) Spangler, strategic finance manager, and Dr. Eric Washington, chief financial officer, explained the structure and objectives of a prepayment transaction: SDCP (through CCCFA) issues tax‑exempt bonds; proceeds are used in a transaction that effectively converts variable energy contract payments to a fixed financing structure, with an expected reduction in annual power costs. Spangler said prior CCA prepayment transactions have been used since the early 1990s in gas markets and more broadly since the 2000s; he said CCAs nationwide have completed similar deals and that the 2024 SDCP transaction produced annualized savings in the millions.

Staff described the expected minimum savings threshold (staff stated an illustrative minimum of about $4.5 million in average annual savings and cited a prior transaction that produced about $6.9 million annual savings) and the typical transaction parties (prepay supplier/bond underwriter, funding recipient counterparty, municipal advisor PFM, bond counsel, custodian US Bank, commodity swap counterparty, rating agency Moody’s, and a green bond opinion provider). Spangler explained key risks and mitigants: market timing and pricing risk, staff and transaction costs, tax or regulatory changes that could affect tax exemption, and the administrative complexity of the transaction. He said non‑recourse debt would not appear on SDCP’s balance sheet and that the agency would not assume direct liability for the bonds; staff noted that if a transaction failed or terminated the agency would generally revert to the original contract arrangements and forfeit the savings.

The committee voted to recommend Board adoption of Resolution 2025‑07 to authorize execution of prepayment transaction documents subject to board‑approved parameters (maximum issuance, fee limits, and minimum savings thresholds). Staff said they will return materials to the board for final approval and will coordinate briefings for board members who request additional detail.