SVCE finance staff say reserves and stress testing leave agency positioned but recommend cautious budgeting

Silicon Valley Clean Energy staff on June 11 presented the authority's annual financial stress-test results and recommended holding the draft September budget approach in place while preparing contingency options for the December budget update.

Amrit (staff member) framed the exercise as part of SVCE's enterprise risk management framework and said the test is designed to examine extreme but plausible market movements and the agency's capacity to continue operations. "It's time to do stress testing — not to stress us out, actually to keep us out of stress," Amrit said.

Staff's updated base-case forecast reflects continuing declines in forward market prices since the March midyear projection. The presentation said falling forward prices lower projected procurement costs but, through the regulatory true-up process for PG&E's generation rates and the PCIA (nonbypassable charge), can also reduce SVCE's revenue headroom in subsequent years. The net effect, staff said, is a smaller projected reserve balance over the five-year horizon compared with the earlier midyear forecast.

In the stress case, staff modeled a large, rapid drop in forward prices and corresponding declines in resource-adequacy (RA) and renewable portfolio standard (RPS) attribute prices. Even under an aggressive stress case, staff reported SVCE remained above the board's minimum reserve policy levels and the agency retained days-cash-on-hand materially above the minimum through the five-year window, though reserves eroded more quickly than in the base case.

Staff recommended no major budget changes for the September budget release because the updated base case and stress test indicate SVCE remains financially prepared under current policies and reserve targets. Staff said they will continue to monitor market movements, re-evaluate in December when the CPUC rate decisions and true-ups are clearer, and prepare a menu of operational and financial levers the board could use if conditions deteriorate.

Directors asked detailed questions about the drivers of volatility in RPS and RA prices, the timing of future compliance periods, and other risk scenarios such as wildfire-driven load disruption or a major counterparty failure. Staff noted the stress test focused on market-price-driven revenue risk because that is the dominant financial vulnerability in the near term but that enterprise risk management covers other risks (cyber, load uncertainty, etc.).

Staff highlighted that prior management decisions to build reserves and manage procurement exposure created the flexibility to act strategically rather than reactively if market conditions change. The presentation listed possible levers staff will analyze further (examples given: adjusting customer discounts, changing procurement hedging horizons, timing of earmarked-program spend).

Ending: Staff will incorporate this stress-test work into the September budget materials and return in December with more detailed recommendations after regulatory rate clarity. Directors and staff agreed to continue monitoring forward markets and resource attribute prices and to prepare contingency options for the board.