FRMC recommends board adopt wider reserve bands to protect against PCIA volatility

San Diego Community Powers Finance, Risk & Audit Committee on a unanimous recommendation asked the full board to adopt a fourth revision to the agencys financial reserves policy, aiming to reduce rate volatility tied to the Power Charge Indifference Adjustment (PCIA).

The committees recommendation — presented by Timothy Manglumont, director of finance — proposes a reserve band with a 180-day minimum, a 225-day target (staff estimated roughly $624,000,000), and a maximum near 270 days (staff cited a maximum-use figure of about $771,000,000). Manglumont told directors the proposed targets are informed by a bottom-up risk analysis that identified the PCIA and market-price benchmark volatility as the largest single risk to the agencys financial stability.

"PCIA is by far the biggest risk to the agency," Manglumont said, explaining the two PCIA components (a forecast/ERRA and a true-up/PABA) and showing examples of how CPUC market-price benchmarks can create large monthly swings. Senior strategic finance manager Jeff Spangler said the band was validated against peer CCAs and credit-rating criteria; the 225-day target is intended to cover normal cyclical fluctuations while the 180-day floor preserves operational continuity.

Staff told the committee it ran stress tests using historical 2021 market-price levels and modeled alternate scenarios (market snapbacks, participation declines and increases in uncollectible accounts). In one stress scenario modeled on 2021 benchmarks staff said the agency would use about $331,000,000 of reserves (about 120 days cash on hand under that scenario) but could recover to policy targets over time under the baseline financial practices presented.

The committee discussion also addressed how reserves would be defined and classified. Spangler said the draft policy replaces the previous net-position definition with "unrestricted cash, cash equivalents and investments" that are unencumbered and not earmarked, and it authorizes designation of rate-stabilization funds for balances above the 225-day target (accounting rules and a subsequent policy would be developed if the board adopts the change).

Action and next steps: a committee member moved to recommend the board adopt Resolution 2025-23; a second was recorded and the clerk called the roll. The committee recorded the motion as carried and will forward the recommendation to the full board for final action.

What happens next: The full board will consider Resolution 2025-23 at its next meeting; staff said any reserves held above the target but below the maximum could be considered for rate stabilization uses after the board adopts enabling accounting policy.