Loading...
HomeMy WebLinkAbout5B OCRCITY COUNCIL STAFF REPORT DATE: January 27, 2022 NEW BUSINESS SUBJECT: DESERT COMMUNITY ENERGY LINE OF CREDIT GUARANTY FROM: Justin Clifton, City Manager BY: Department of Development Services, Office of Sustainability SUMMARY: Desert Community Energy (DCE) is requesting the City enter into a Guaranty Agreement with River City Bank guaranteeing all obligations of DCE pursuant to a credit agreement between DCE and River City Bank for a revolving line of credit (RLOC) and subsequent option for term loan conversion. The RLOC will be utilized to augment cash flow for DCE during periods of power market volatility and at times when power supply payment obligations precede corresponding revenue realization. The funds will also allow DCE to enter into additional power purchase agreements to provide more locally produced, cleaner energy to residents and businesses in Palm Springs. RECOMMENDATION: 1.Adopt Resolution No. _____, “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, APPROVING AN UNCONDITIONAL GUARANTY OF THE OBLIGATIONS OF DESERT COMMUNITY ENERGY UNDER A CREDIT AGREEMENT WITH RIVER CITY BANK.” 2.Authorize the City Manager, in consultation with the City Attorney, to negotiate and take such actions necessary and appropriate to finalize and execute the Guaranty and associated documents. BACKGROUND: Desert Community Energy (DCE) was created in October 2017 as a joint powers agency to provide a Community Choice Aggregation (CCA) program to member agencies, which are currently the cities of Palm Springs and Palm Desert. In June 2019, the City Council voted unanimously to move forward with Community Choice Aggregation for Palm Springs. Palm Springs customers were enrolled in the 100% Carbon Free product and became DCE customers beginning April 1, 2020. Palm Desert has not moved forward with implementation; therefore, the City is currently the only member with residents and businesses who are served by DCE. Item 5B - 1 At the November 18, 2021 City Council meeting, DCE staff provided an update to the City Council on current DCE activities and future plans. Included in that report was expressed appreciation to the City Council, residents and businesses in Palm Springs for the significant progress made in reducing greenhouse gas emissions as a result of participation in Desert Community Energy. As a result of this participation by Palm Springs City Council, residents, and businesses, the City reduced 2020 greenhouse gas emissions by 16%, the equivalent of taking more than 25,000 cars off the road. The report also highlighted steps DCE has taken to benefit Palm Springs customers including DCE’s lower cost Desert Saver product, a bill-protection credit for low-income customers, and signing long-term contracts for carbon free and renewable power sources, including three wind projects within Palm Springs City limits. DCE offers additional benefits including more choice in electricity supply, local control, and promoting the transition to a cleaner, more efficient energy supply. It is commonplace for electric energy enterprises, including CCAs like DCE, to experience fluctuations in cash flow as a result of timing differences between when a CCA incurs energy and other operating expenses and collects corresponding revenues. These fluctuations are typically managed through the establishment of operating reserves that accumulate over time. Operating reserves also help a CCA to establish a good credit rating. Because DCE launched service in April 2020, it has not had sufficient time to accumulate such reserves, especially given the COVID pandemic and other challenges. As noted later in this staff report, DCE projects more positive financial conditions during 2022, and an improved ability to build reserves. For the time being, however, DCE requires a buffer in the form of a revolving line of credit to address the inherent fluctuations in the power business, including market uncertainties, imposed regulatory fees and requirements, and other factors outside DCE’s direct control. To address short-term capital requirements, DCE sought proposals for a credit facility and recently completed a due diligence process with potential lenders. DCE was pleased to receive two competitive proposals, from current banking partner, River City Bank, and from Union Bank. Both proposals included a requirement for an unconditional guaranty from the City of Palm Springs as the active member of DCE. DCE staff and financial advisors completed a negotiation and evaluation process and determined that River City Bank’s proposal for an up to $8 million revolving line of credit for up to three years best matched DCE’s current needs. The amount of the line of credit was thoroughly evaluated, using financial projections and cash flow analysis over the next five years. DCE requires sufficient capital liquidity to pay energy suppliers, to fund operations, to provide customers with a reliable energy supply at stable rates, and to address uncertainty related to extreme weather events should they occur. While DCE is unlikely to need the full amount of available credit offered by River City Bank, the availability of a credit line up to $8 million (about 15% of DCE’s total annual revenues) allows flexibility to address fluctuations and volatility in the energy market, uncertainties in power prices, and likely future heat events related to the impacts of climate change. Item 5B - 2 The past two years have been financially challenging for DCE, as well as for other CCAs throughout the state, due to impacts of the summer 2020 heat storm and related energy price spikes, COVID-related power demand shifts, delinquent customer payments, and revenue implications, as well as natural gas shortages nationwide and associated power price increases in Summer 2021. The DCE Board has taken all necessary steps to address these challenges. In early 2021, DCE signed four long-term contracts for renewable energy which will further stabilize and control costs; however, three of these projects will not come on-line until 2023 and early 2024. The line of credit and guaranty will allow DCE to access such funds at favorable rates and thus manage market uncertainty until sufficient reserves can be accumulated. Since inception, DCE’s Board has emphasized prudent fiscal management. Financial policies include setting budgets and rates as necessary to meet operating costs, reserve targets, debt repayment, and DCE’s obligations under its power supply and other contracts, including future programs and projects. DCE’s risk management policy ensures that supply and operating risks are actively managed; a risk management team meets monthly to implement, maintain, and oversee compliance with these policies. These Board approved policies have been adhered to by the Board as it has historically exercised its responsibility to control costs and maintain necessary revenues by way of adopting rate revisions, including the flexibility to automatically adjust rates in response to unanticipated cost changes. As reported at the November 2021 City Council meeting, the financial outlook for DCE in 2022 significantly improves and DCE does not anticipate the need for a rate increase. A five-year projection prepared by DCE consultants shows an encouraging picture. DCE is currently projecting net revenues close to $10 million in 2022 and $20 million in 2023 and expects to meet these targets with similar projections for subsequent years. DCE anticipates positive cash flow by mid-2022 coupled with the ability to build financial reserves during the second half of this year and beyond. Once DCE transitions to its longer-term fixed price renewable/carbon free power contracts over the next several years, it anticipates much greater financial and rate stability. The DCE Board, at its January 10 meeting, unanimously voted to approve the credit facility by resolution and authorized the Executive Director, in consultation with DCE’s Legal Counsel, to take necessary actions to finalize and execute the credit agreement with River City Bank, consistent with the term sheet, and pending final credit approval and a guaranty from the City of Palm Springs. DCE staff is working with River City Bank to complete the credit approval process and finalize the credit agreement for signature. DCE legal counsel, the City Attorney, and River City Bank legal counsel have worked together to prepare the guaranty included in this agenda packet. DCE would like to complete and execute the credit agreement as soon as feasible, potentially by the end of this month. Item 5B - 3 Backing in the form of a guaranty from the City of Palm Springs, with its long existing, high quality credit rating, is the key to making this process a success and providing DCE the financial flexibility it requires over the next few years as it builds reserves. Credit Guaranty Key Elements: Key elements of the credit guaranty agreement include: • Palm Springs becomes the Guarantor of any/all DCE borrowings pursuant to the revolving credit agreement and optional subsequent term loan facility between DCE and River City Bank. • Palm Springs’s credit support obligations would commence only in the event that DCE defaults in any repayment obligations pursuant to the revolving credit agreement and optional subsequent term loan facility. • Palm Springs guaranty amounts are limited to any unpaid principal amounts that may be outstanding and due plus any reasonably incurred expenses by River City Bank which may be necessary to collect such amounts. STAFF ANALYSIS: The proposed guaranty (Attachment 1) identifies the City of Palm Springs as the Guarantor and commits the City to guaranty all obligations of Desert Community Energy as Borrower, in accordance with the terms of the credit agreement with River City Bank. The maximum and most unlikely risk for the City would result from a sudden and unexpected event that might cause the cessation of DCE’s power business operations and a subsequent default on the credit agreement. In this event, the risk to Palm Springs would be the requirement to repay any then outstanding balance owed pursuant to the River City Bank revolving credit agreement, after DCE has undertaken all available steps to repay any outstanding amounts through rate actions, sale of already procured power, or other available financial avenues. While there is risk associated with the proposed guaranty, that risk is limited given the following mitigating factors: • DCE being the default local electricity provider in Palm Springs, with a stable customer base and revenue stream. • DCE’s ability to raise rates as may be necessary to enhance revenues to meet operating requirements. • Revenue projections which target $10 million in net revenues during each of the next five years. • DCE’s prudent fiscal policies, sound financial practices, and active risk management efforts. There are also risks if the guaranty required for DCE to secure the line of credit is not consummated. Potential negative outcomes that would likely occur absent the proposed guaranty and line of credit include: Item 5B - 4 • Significant challenges for DCE to manage cash flow and reduced ability to accommodate the mismatch of timing between power procurement costs and receipt of revenues. • Increased cost of credit which may translate to increased rates and higher cost of electricity for Palm Springs customers. • Impacts to DCE’s ability to provide 100% carbon free electricity and the associated positive greenhouse gas emissions reduction and climate mitigating benefits made possible by Palm Springs, its residents and businesses. As a start-up in the Community Choice Energy business, DCE has been particularly vulnerable to market volatility and energy price increases not evident since the California energy crisis of nearly 20 years ago. The proposed line of credit, backed by Palm Springs’ guaranty, will be a significant positive step to help DCE build reserves to manage this volatility, revenue accrual swings, and uncertainty regarding factors out of DCE’s direct control. In a time of challenging market conditions over the last two years, DCE has implemented strategies and taken other steps to reduce costs, manage volatility and promote rate stability for its customers. DCE’s record includes:  Two years of successful business start-up and operations  Stable customer base. Almost 85% of Palm Springs customers continue to be DCE customers and most are enrolled in DCE’s 100% Carbon Free plan.  DCE is current on all accounts with all suppliers and service providers.  Environmental benefits including effective greenhouse gas emissions reduction and climate supportive mission and products.  Hedging strategy of procuring fixed price energy on a forward basis over time which tempers most of the impact from volatile energy prices, as in summer 2021. DCE continues to implement forward hedging practices for procurement of energy to serve customers in 2022, 2023, and beyond.  DCE Board approval of four, long-term contracts for renewable and carbon free energy projects will result in significant savings, added stability, and increased rate certainty for DCE customers. These long-term power sources (wind energy in north Palm Springs and a solar plus battery storage project in Tulare County) will lock in associated supply costs for roughly 60% of DCE’s portfolio by 2024. These Power Purchase Agreements (PPAs) will also help DCE meet its program goals of building a carbon free and significantly renewable energy resource mix. At the time of signing the contracts in early 2021, the lifetime cost savings of these PPAs was estimated at $20 to $60 million.  Offering a lower cost product for its most price sensitive customers. DCE’s Desert Saver product continues to be offered at a discount of at least 0.5 percent less than Southern California Edison’s base rate. Customers can opt down to Desert Saver at any time and pay the lowest electricity prices available in Palm Springs. DCE is conscious of the needs of lower income communities.  Implementation of conservative fiscal policies and limited overhead costs, including policies to fully recover all costs.  Demonstrated ability to adjust rates as warranted to meet revenue requirements. Item 5B - 5  Leadership by locally appointed elected officials who are directly responsible to local community and constituency.  Ability to take all necessary and responsible steps to meet all business costs in a timely manner, including any balances incurred pursuant to the River City Bank credit arrangement under consideration.  Successful repayment of the outstanding balance on a one-year $2 million line of credit with River City Bank at the end of 2021.  Strong partnership with consultant team with many years experience in the public power business and Community Choice Energy, including The Energy Authority and energy consultant Don Dame.  Commitment to periodically report to the DCE Board, DCE’s members, and the City of Palm Springs about DCE activities and its financial health. Among the founding principles for DCE is to reduce greenhouse gas emissions related to the use of power, develop and implement sustainable energy initiatives that reduce energy demand and advance the use of clean, efficient, and renewable resources, and stimulate and sustain the local economy by developing local clean energy jobs. As discussed at the DCE City Council presentation in November 2021, DCE’s carbon free product is a relatively cost-effective way for the City to help achieve greenhouse gas reduction goals. The participation in DCE’s carbon free energy by the City and Palm Springs residents and businesses has demonstrated benefits in addressing climate change. As it builds reserves, DCE staff is evaluating opportunities and potential funding sources so that DCE may offer new programs, with a particular focus on programs to benefit low-income customers. Programs may include electric vehicles and their charging stations, building electrification, energy storage, grid resiliency, energy efficiency, weatherization, and demand response. ENVIRONMENTAL ASSESSMENT: The proposed action does not result in a “Project” as defined by the California Environmental Quality Act (CEQA). Pursuant to Section 15378(a), a “Project” means the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. FISCAL ANALYSIS: There is no immediate fiscal impact of the proposed guaranty provided DCE meets its obligations as provided in the credit agreement with respect to the RLOC and optional subsequent term loan facility with River City Bank. Should DCE not meet its fiscal obligations, then the City will be liable for such obligations as provided in the terms of the Guaranty Agreement. However, this potential liability risk is mitigated by DCE’s prudent management noted above. Item 5B - 6 It should also be noted that the City of Palm Springs is one of the largest power customers of DCE for the City’s electricity usage. The guaranty will assist DCE in providing increased rate certainty for its customers, whereas failure to approve the guaranty, thus precluding DCE from securing the line of credit, could lead to increased rates and higher cost of electricity for Palm Springs customers, including the City of Palm Springs. REVIEWED BY: Department Director: Flinn Fagg City Manager: Justin Clifton ATTACHMENTS: 1. Guaranty by City of Palm Springs. 2. Draft Resolution. Item 5B - 7 SAMPLE GUARANTY This GUARANTY is made effective as of ___________, 2022 (“Guaranty”) by the City of Palm Springs (the “Guarantor”) in favor and for the benefit of Lender under the Credit Agreement (each as hereinafter defined). RECITALS A. Pursuant to a certain credit agreement dated as of ______, 2022 (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms thereof in effect, the “Credit Agreement”) by and between Desert Community Energy (“Borrower”) and ______ Bank (“Lender”), Lender has agreed to make certain Advances to Borrower up to a limit of [$____________] (“Commitment”). Capitalized terms not defined herein have the meanings ascribed to them in the Credit Agreement. B. The Borrower is a joint powers authority that serves energy to commercial and residential customers within the boundaries of Guarantor and Guarantor is a member of Borrower. B.C. It is a requirement under Section ____ of the Credit Agreement that the Guarantor shall execute and deliver a Guaranty and that this Guaranty shall be in full force and effect. C.D. This Guaranty is given by the Guarantor in favor of Lender to guaranty all of the Obligations of Borrower in accordance with the terms of the Credit Agreement. NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Guarantor hereby agrees as follows: l. Guaranty. (a) To induce Lender to make the Advances upon the terms and conditions set forth in the Credit Agreement, and in consideration thereof, the Guarantor hereby unconditionally and irrevocably severally (based on Guarantor’s percentage responsibility set forth on Exhibit A attached hereto (each a “Guarantor’s Share”)): (i) guarantees to Lender and its successors, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) and at all times thereafter of the Obligations of Borrower (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Federal Bankruptcy Code of 1978, as amended, or any state bankruptcy statute) under the Credit Agreement (including without limitation the Term Loan); and (ii) agrees to pay any and all reasonable expenses (including reasonable attorneys’ fees and disbursements and expert witnesses’ fees and disbursements) which may be paid or incurred by Lender in enforcing any rights with respect to, or collecting, any or all of the Obligations under the Credit Agreement and/or enforcing any rights with respect to, or collecting against, Guarantor under this Guaranty (collectively, the “Guaranteed Obligations”). Notwithstanding the foregoing, Item 5B - 8 “Guaranteed Obligations” shall not include principal in an amount greater than the amount of Advances under the Credit Agreement without the prior written consent of the Guarantor. (b) Guarantor agrees that this Guaranty constitutes a guaranty of payment when due and not of collection and waives any right to require that any resort be had by Lender to any security held for payment of any of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of Lender in favor of Borrower or any other Person. (c) No payment or payments made by Borrower or any other Person or received or collected by Lender from any other Person by virtue of any action or proceeding or any set off or appropriation or application at any time or from time to time in reduction of or in payment of the Guaranteed Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made to Lender by a Guarantor or payments received or collected by Lender from a Guarantor, remain liable for Guarantor’s Share of the Guaranteed Obligations until the Guaranteed Obligations are indefeasibly paid in full in cash or cash equivalents. (d) Guarantor understands, agrees and confirms that this is a guaranty of payment when due and not of collection and that Lender may, from time to time, enforce this Guaranty up to the full amount of Guarantor’s Share of the Guaranteed Obligations owed to Lender without proceeding against any other Person, against any security for the Guaranteed Obligations, against any other guarantor or under any other guaranty covering the Guaranteed Obligations. 2. Waiver by Guarantor. Until the payment and satisfaction in full of all Guaranteed Obligations and the expiration or termination of any commitment to lend by Lender under the Credit Agreement, Guarantor hereby waives absolutely and irrevocably any claim which it may have against Borrower or any or its respective Affiliates by reason of any payment to Lender, or to any other Person pursuant to or in respect of this Guaranty, including any claims by way of subrogation, contribution, reimbursement, indemnity or otherwise. Guarantor further agrees that Guarantor’s liability as guarantor shall not be impaired or affected by any renewals or extensions which may be made from time to time, with or without the knowledge or consent of Guarantor of the time for payment of interest or principal under the Credit Agreement or by any forbearance or delay in collecting interest or principal under the Credit Agreement, or by any waiver by Lender under the Credit Agreement or any other Loan Documents, or by Lender’s failure or election not to pursue any other remedies it may have against Borrower or Guarantor, or by any change or modification in the Credit Agreement or any other Loan Document, or by the acceptance by Lender of any additional security or any increase, substitution or change therein, or by the release by Lender of any security or any withdrawal thereof or decrease therein, except that payment in full of the indebtedness shall automatically release Guarantor of its obligations under this Guaranty, or by the application of payments received from any source to the payment of any obligation other than the indebtedness even though Lender might lawfully have elected to apply such payments to any part or all of the indebtedness (in which case Guarantor will be automatically released), or by the failure or invalidity of, or any defect in, the Credit Agreement, or by any Item 5B - 9 legal disability or other defense of Borrower, or by the cessation, limitation or termination from any cause whatsoever of any of the Obligations under the Credit Agreement, except upon payment in full of the indebtedness (in which case Guarantor will be automatically released), or by the application by Borrower of the proceeds of the Advances for purposes other than the purposes represented by Borrower to Lender or intended or understood by Lender or Guarantor, it being the intent hereof that Guarantor shall remain liable for its ratable share of obligations hereunder to the extent of Guarantor’s obligations provided herein, notwithstanding any act or thing which might otherwise operate as a legal or equitable discharge of a surety. Guarantor hereby waives any and all rights or defenses based on, and understands and agrees that Guarantor’s liability as guarantor shall not be impaired or affected by, an election of remedies by Lender, even though that election of remedies, such as a non- judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor’s rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise, or the foreclosure of any of the security for the Advances, including without limitation the security described in any Security Agreement, or Guarantor’s right to a fair value hearing under Section 580a of the California Code of Civil Procedure, it being intended that this Guaranty shall survive the realization upon any of the security for the Advances, including without limitation the security described in the Security Agreement, including without limitation non-judicial foreclosure, where applicable, and notwithstanding any defense, right, or claim that any such foreclosure satisfied the obligations secured thereby. Guarantor agrees that the payment of all sums payable under the Credit Agreement or any of the other Loan Documents or any part thereof or other act which tolls any statute of limitations applicable to the Credit Agreement or the other Loan Documents shall similarly operate to toll the statute of limitations applicable to Guarantor’s liability hereunder. Without limiting the generality of the foregoing or any other provision hereof, Guarantor expressly waives to the extent permitted by law any and all rights and defenses that Guarantor may have if Borrower’s debt is secured by real property. This means, among other things: (1) Lender may collect from a Guarantor without first foreclosing on any security for the Advances (whether such security is real or personal property) pledged by Borrower; and (2) if Lender forecloses on any real property security pledged by Borrower (including without limitation the real property described in a Deed of Trust), (A) the amount of the Indebtedness may be reduced only by the price for which that security is sold at the foreclosure sale, even if the security is worth more than the sale price, and (B) Lender may collect from Guarantor even if Lender, by foreclosing on the real property security, has destroyed any right Guarantor may have to collect from Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have if Borrower’s debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure, and/or Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code, or any of such sections. Guarantor further understands and agrees that Lender may at any time enter into agreements with Borrower to amend and modify the Credit Agreement, Loan Agreement, Security Agreement or other Loan Documents, and may waive or release any provision or provisions of the Credit Agreement, Loan Agreement, Security Agreement and other Loan Documents or any thereof, and, with reference to such instruments, may make and enter into any such agreement or agreements as Lender and Borrower may deem proper and desirable, without in any manner impairing or affecting this Commented [1]: My understanding is that the only security other than the Guaranty would be participation in the lockbox. Item 5B - 10 Guaranty or any of Lender’s rights hereunder or Guarantor’s obligations hereunder. Notwithstanding the foregoing, Lender shall not enter into any amendment or modification of the Credit Agreement which would increase the amount of the Commitment made available to Borrower for Advances without the prior written consent of Guarantor. 3. Consent by Guarantor. Guarantor hereby consents and agrees that, without the necessity of any reservation of rights against Guarantor and without notice to or further assent by Guarantor, any demand for payment of any of the Guaranteed Obligations made by Lender may be rescinded by Lender and any of the Guaranteed Obligations continued, and the Guaranteed Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guaranty therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by Lender; and the Credit Agreement or other guaranty or documents in connection therewith, or any of them, may be amended, modified, supplemented or terminated, in whole or in part, as Lender may deem advisable from time to time; and any guaranty or right of offset may be sold, exchanged, waived, surrendered or released, all without the necessity of any reservation of rights against Guarantor and without notice to or further assent by Guarantor, which will remain bound hereunder, notwithstanding any such renewal, extension, modification, acceleration, compromise, amendment, supplement, termination, sale, exchange, waiver, surrender or release. Notwithstanding the foregoing, Lender shall not enter into any amendment or modification of the Credit Agreement which would increase the amount of the Commitment made available to Borrower for Advances without the prior written consent of Guarantor. Lender shall have no obligation to protect, secure, perfect or insure any property at any time held as security for the Guaranteed Obligations. When making any demand hereunder against Guarantor, Lender may, but shall be under no obligation to, make a similar demand on Borrower, any other Person who at any time guarantees or pledges any assets to secure the Guaranteed Obligations, or any one or more of them (a “Credit Party”) or any such other guarantor, and any failure by Lender to make any such demand or to collect any payments from such other Credit Party or any such other guarantor or any release of such other Credit Party or any such other guarantor or of Guarantor’s obligations or liabilities hereunder shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of Lender against Guarantor hereunder. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings. 4. Waivers; Successors and Assigns. Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by Lender upon this Guaranty or acceptance of this Guaranty, and the Guaranteed Obligations shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guaranty, and all dealings between Guarantor and any other Credit Party, on the one hand, and Lender, on the other hand, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guaranty. Guarantor waives diligence, presentment, protest, demand for payment and notice of default or non- payment to or upon any Credit Party or Guarantor with respect to the Guaranteed Obligations. This Guaranty shall be construed as a continuing, absolute and unconditional guaranty of payment without regard to the validity, regularity or enforceability of the Credit Agreement, Item 5B - 11 the other Loan Documents, any of the Guaranteed Obligations or any guaranty therefor or right of offset with respect thereto at any time or from time to time held by Lender and without regard to any defense (other than the defense of payment), set-off or counterclaim which may at any time be available to or be asserted by any Credit Party against Lender, or by any other circumstance whatsoever (with or without notice to or knowledge of Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Guaranteed Obligations, or of Guarantor under this Guaranty, in bankruptcy or in any other instance, and the obligations and liabilities of Guarantor hereunder shall not be conditioned or contingent upon the pursuit by Lender or any other Person at any time of any right or remedy against any Credit Party or against any other Person which may be or become liable in respect of all or any part or the Guaranteed Obligations or against any collateral security or Guaranty therefor or right of offset with respect thereto. This Guaranty shall be a primary obligation of Guarantor to secure the payment of the Guaranteed Obligations and Lender shall have no obligation whatsoever to seek payment of the Guaranteed Obligations from Borrower in the event an Event of Default has occurred and is continuing. This Guaranty shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon Guarantor and the successors and assigns thereof, and shall inure to the benefit of Lender, and their respective successors, transferees and assigns (including each holder from time to time of Guaranteed Obligations), until all of the Guaranteed Obligations and the obligations of Guarantor under this Guaranty shall have been satisfied by indefeasible payment in full in cash or cash equivalents, notwithstanding that from time to time during the term of the Credit Agreement any Credit Party may be released from all of its Guaranteed Obligations thereunder. 5. Effectiveness; Reinstatement. This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Credit Party, or upon or as a result of the appointment of a receiver, intervenor or conservator of; or trustee or similar officer for, any Credit Party or any substantial part of its property, or otherwise, all as though such payments had not been made. 6. Payments of Guaranteed Obligations. Guarantor hereby guarantees that its Guarantor’s Share of the Guaranteed Obligations will be paid for the benefit of Lender without set-off or counterclaim in lawful currency of the United States of America at the office of Lender located at _______________, ___________, California _____. Guarantor shall make any payments required hereunder within thirty (30) calendar days of receipt of written notice thereof from Lender; provided, however, that such written notice may only be sent after the occurrence and during the continuation of an Event of Default and provided, further, however, that the failure of Lender to give such notice shall not affect Guarantor’s obligations hereunder. 7. Representations and Warranties. To induce Lender to enter into the Credit Agreement and to make the Advances thereunder, Guarantor represents and warrants to Lender that, as to Guarantor, the following statements are true, correct and complete on and as of the date hereof: Item 5B - 12 (a) Organization and Qualification; Authority; Consents. Guarantor is a City duly organized, validly existing under and operating pursuant to the laws of the State of California, has full and adequate power to own its Property and conduct its business as now conducted, and is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the Property owned or leased by it requires such licensing or qualifying unless the failure to be so licensed or qualified would not have a material adverse effect on its business, operations or assets. Guarantor has full right and authority to enter into this Guaranty and to perform each and all of the matters and things herein provided for; and this Guaranty does not, nor does the performance or observance by Guarantor of any of the matters or things herein or therein provided for, contravene any provision of law or any organizational document of Guarantor or any covenant, indenture or agreement of or affecting Guarantor or any of its Properties. The execution, delivery, performance and observance by Guarantor of this Guaranty and any other instruments and documents executed by Guarantor in connection with this Guaranty do not and, at the time of delivery hereof, will not require any consent or approval of any other Person, other than such consents and approvals that have been given or obtained. (b) Legal Effect. This Guaranty constitutes a legal, valid and binding agreement of Guarantor, enforceable in accordance with its terms, subject to laws relating to bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and the application of equitable remedies if equitable remedies are sought. (c) Litigation. There is no litigation or governmental proceeding pending, nor to the knowledge of Guarantor threatened in writing, against Guarantor which if adversely determined would result in any material adverse change in the financial condition, Properties, business or operations of Guarantor. (d) Compliance with Laws. Guarantor is in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to its Properties or business operations (including, without limitation, laws and regulations establishing quality criteria and standards for air, water, land and toxic or hazardous wastes and substances), non- compliance with which could have a material adverse effect on the financial condition, Properties, business or operations of Guarantor. Guarantor has not received notice to the effect that its operations are not in compliance with any of the requirements of applicable federal, state or local environmental, health and safety statutes and regulations or are the subject of any governmental investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non- compliance or remedial action could have a material adverse effect on the financial condition, Properties, business or operations of Guarantor. (e)(d) Other Agreements. Guarantor is not in default under the terms of any covenant, indenture or agreement of or affecting Guarantor or any of its Properties, which default if uncured would have a material adverse effect on the financial condition, Properties, business or operations of Guarantor. Item 5B - 13 8. Covenants. Guarantor agrees that so long as any credit is available to or in use by Borrower under the Credit Agreement, except to the extent compliance in any case or cases is waived in writing by Lender: (a) Financial Reports. Guarantor shall maintain a standard system of accounting in accordance with GAAP (as applied to government entities) and shall furnish to Lender and its duly authorized representatives any publicly available information respecting the business and financial condition of Guarantor as Lender may reasonably request. (b) Compliance with Laws. Guarantor shall comply in all respects with the requirements of all laws, rules, regulations, ordinances and orders applicable to or pertaining to its Properties or business operations, non-compliance with which could have a material adverse effect on the financial condition, Properties, business or operations of Guarantor or could result in a Lien upon any of its Property. (c) Notices of Claims and Litigation. Guarantor shall promptly inform Lender in writing of (l) all material adverse changes in Guarantor’s financial condition and (2) all existing litigation and all written threats of litigation, claims, investigations, administrative proceedings or similar actions affecting Guarantor which could materially affect the financial condition of Guarantor. 98. Expenses. If: (a) this Guaranty is placed in the hands of an attorney for collection or is collected through any legal proceeding; (b) an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Guaranty; or (c) an attorney is retained to represent Lender in any proceedings whatsoever in connection with this Guaranty and Lender prevails in any such proceedings, then Guarantor shall pay to Lender (as the case may be) upon demand Guarantor’s Share of all reasonable attorney’s fees, costs and expenses incurred in connection therewith (all of which are referred to herein as “Enforcement Costs”), in addition to all other amounts due hereunder, regardless of whether all or a portion of such Enforcement Costs are incurred in a single proceeding brought to enforce this Guaranty as well as the other Loan Documents. 109. No Waiver. No failure to exercise and no delay in exercising, on the part of Lender, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other power or right. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 1110. Notices. All notices, demands, instructions or other communications required or permitted to be given to or made upon any party hereto shall be given in accordance with the provisions of the Credit Agreement and at the address set forth therein or as provided on the signature page hereof. Item 5B - 14 1211. Amendments, Waivers, etc. No provision of this Guaranty shall be waived, amended, terminated or supplemented except by a written instrument executed by Guarantor and Lender. 1312. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. 1413. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST GUARANTOR WITH RESPECT TO THIS GUARANTY AGREEMENT SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COUNTY OF SACRAMENTO, CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY AGREEMENT GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 1514. Counterparts. This Guaranty and any amendments, waivers, consents or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. [remainder of page intentionally left blank] Item 5B - 15 City of Palm Springs By: Its: Address: Item 5B - 16 EXHIBIT A (to Guaranty) GUARANTOR’S SHARE Guarantor Guarantor’s Share of the Obligations City of Palm Springs 100.00% Item 5B - 17 RESOLUTION NO. _____ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, APPROVING AN UNCONDITIONAL GUARANTY OF THE OBLIGATIONS OF DESERT COMMUNITY ENERGY UNDER A CREDIT AGREEMENT WITH RIVER CITY BANK WHEREAS, Desert Community Energy (“DCE”) is a joint powers authority established on October 30, 2017 for the purpose of implementing community choice aggregation programs under Public Utilities Code Section 366.2.0; and WHEREAS, DCE currently provides clean energy for the residents and businesses of the City; and WHEREAS, the energy provided by DCE has resulted in a substantial reduction in greenhouse gas emissions within the City while maintaining competitive rates; WHEREAS, DCE needs working capital to address short term fluctuations in cash flow and working capital requirements as a result of its operations; and WHEREAS, DCE received credit proposals that would provide financing and credit support for DCE operation and power procurement (“Credit Facility”), as well as working capital requirements; and WHEREAS, DCE’s Board of Directors has approved entering into a Credit Facility consistent with a term sheet negotiated with River City Bank (“RCB”) to provide a Commercial Revolving Line of Credit in the amount of up to $8,000,000 (“Credit Facility Term Sheet”); and WHEREAS, DCE is a relatively new entity that is still in the process of building operating reserves, RCB is requiring that the City, as the sole active member of DCE, provide an unconditional guaranty the Credit Facility as security for its repayment, and WHEREAS, the financial stability and flexibility provided by the Credit Facility will directly benefit the City and its ratepayers; and WHEREAS, the willingness of the City to provide a guaranty will result in favorable terms pursuant to the Credit Facility Term Sheet that would not otherwise be available to DCE; and WHEREAS, DCE staff and DCE’s legal counsel are in the process of negotiating a Credit Agreement and related security agreements that are consistent with the terms of the Credit Facility Term Sheet pursuant to authority granted by the DCE Board of Directors, including the draft unconditional guaranty that is attached hereto as Exhibit “A” (“Guaranty”); and Item 5B - 18 WHEREAS, the City Attorney has reviewed and approved the attached form of Guaranty and will continue to monitor the negotiation of the Credit Agreement with RCB; and WHEREAS, it is important from a timing perspective that the Guaranty of the Credit Facility be approved by the City Council and that authority be given to the City Manager, with the advice of the City Attorney, to finalize and execute the Guaranty subject to review of the final Credit Agreement between DCE and RCB; THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, HEREBY RESOLVES, DETERMINES AND APPROVES AS FOLLOWS: Section 1. Factual Findings. The true and correct recitals above are incorporated by this reference herein as the basis and foundation for the City’s adoption of this Resolution. Section 2. Approval of Unconditional Guaranty. The City Council hereby approves the unconditional guaranty of a Credit Facility from River City Bank to provide working capital for the operations of Desert Community Energy in a principal amount not to exceed $8,000,000 and agrees that the City of Palm Springs will be liable to River City Bank for the payment of all amounts due to River City Bank in connection with the Credit Facility upon the occurrence of an event of default by Desert Community Energy with respect to its obligations to River City Bank. Section 3. Authority of City Manager. The City Manager is hereby authorized to finalize and execute the Guaranty, with the advice of the City Attorney, in substantially the form which is attached to this resolution and subject to review and approval by the City Manager, with the advice of the City Attorney, of the terms of the Credit Agreement between DCE and RCB. Section 4. Effective Date. This Resolution will become effective immediately upon adoption and remain effective unless superseded by a subsequent resolution. PASSED, APPROVED, AND ADOPTED BY THE PALM SPRINGS CITY COUNCIL THIS ___ DAY OF __________, 2022. JUSTIN CLIFTON, CITY MANAGER Item 5B - 19 ATTEST: ANTHONY J. MEJIA, MMC, CITY CLERK CERTIFICATION STATE OF CALIFORNIA ) COUNTY OF RIVERSIDE ) ss. CITY OF PALM SPRINGS ) I, ANTHONY J. MEJIA, MMC, City Clerk of the City of Palm Springs, hereby certify that Resolution No. _____ is a full, true and correct copy as was duly adopted at a regular meeting of the City Council of the City of Palm Springs on _____________, 2022, by the following vote: AYES: NOES: ABSENT: ABSTAIN: __ ANTHONY J. MEJIA, MMC, CITY CLERK Item 5B - 20