The Woodpecker’s June issue claims that in the thick of the COVID-19 budget crisis, Mayor Haviland has led the effort to fund the Clean Energy Alliance (CEA) with Del Mar chipping in $150,000, “with Haviland’s assurance in the May 18, 2020 special council meeting that there would be no further liability or cost. One month later, as a CEA board member, Haviland voted in favor of asking the 3 Alliance cities (Del Mar, Carlsbad, Solana Beach) to consider providing a guarantee or cash collateral of $4.5 MILLION to meet CEA’s approved startup budget for 2020/21.”
Once again, the Woodpecker misstates the facts and fails to provide relevant context, misleading readers as to the financial risks of the CEA.
The creation of the CEA Joint Powers Authority was approved by a 4-1 Council vote, putting Del Mar on track to provide greener energy at a lower cost than SDG&E, and providing local control over Del Mar’s energy, with service starting in May 2021. The CEA is the most significant way Del Mar can meet the greenhouse gas goals in its Climate Action Plan (CAP), which was adopted unanimously with strong community support. The CEA is the #1 priority of the CAP and the Sustainability Advisory Board. Each of the three cities in the CEA (Del Mar, Solana Beach and Carlsbad), which have equal voting power, agreed to advance $150,000 in start-up costs, which is planned be paid back within the next few months. The CEA’s May 2020 financial pro forma shows that once it begins selling power in May 2021, it will have the resources to service its loan, pay its operating costs, provide power at lower cost than SDG&E, and put money into a reserve, with an estimated $14.8 million in reserves by 2025.
The decision and commitment to fund Del Mar’s $150,000 share of the CEA’s start-up costs was made before the COVID-19 pandemic, and was included in the City’s budget; the June 15 Council action was simply unanimous approval of this previously-committed expenditure.
Because the CEA is a separate governmental entity, it serves as a “firewall” protecting participating cities from financial risk from its operations, as confirmed by legal counsel. Mayor Haviland’s assertion that there is no liability to the City is accurate. It is also accurate that no further costs can be imposed on the City without its consent, and as noted above, once the CEA starts selling power in May 2021, its financial pro forma shows it will have a positive cash flow and the ability to build substantial reserves.
The CEA has planned to secure a line of credit and loan to cover its operating expenses (including entering into power contracts) during its start-up period, so that it is prepared to sell power in May 2021. At its June meeting, the CEA’s board discussed two loan options. One of the two options under consideration by the CEA requires security totaling $2.5 million; the other loan option does not require security, but is more expensive. The member cities are expected to consider both loan options. The Woodpecker misstated the security requirement as “a guarantee or cash collateral of $4.5 million.” The $2.5 million (not $4.5) security can be met in a number of ways - including apportionment among the cities based on energy load (which would result in an approx. $75,000 share to Del Mar); or by third party participation. And only one of the two loans under consideration requires security. Either of these loans will result in Del Mar getting back its $150,000 advance for start-up costs within the next few months. While a security requirement would result in some risk, the pro forma and other financial analysis indicates that the risk is not significant, either in terms of the likelihood that the CEA would not be able to service the loan, or in terms of the total dollar amount at risk.
The Woodpecker reports that there were “calls from residents asking for City Council to hold off on getting into the electricity business,” but fails to note the strong support from many other residents, including the Sustainability Advisory Board, to move forward with the CEA in order to meet our Climate Action Plan and gain local control over our energy.