HomeMy WebLinkAbout13 Budget 2022 & 2023 Workshop 1
AGENDA ITEM #13
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MEETING DATE: August 18, 2021
TO: Board of Directors
FROM: Michael R. Salmon, Chief Financial Officer
SUBJECT: Budget 2022 & 2023 - Workshop #1 - Discussion of Goals,
Objectives, and Key Assumptions
APPROVED BY______________________________
Brian C. Wright, General Manager
RECOMMENDATION:
Receive the information from this workshop item and provide strategic direction to staff regarding
Budget 2022 & 2023 preparations.
DISCUSSION:
For over a decade, the District has prepared the budget on a biennial basis. This workshop
officially starts the FY2022-23 budget development, utilizing the current budget, actual and forecast
trends, as well as the strategic plan as the foundational basis.
The current Board approved (6/16/2021) Budget 202- 2023 workshops and approval schedule is as
follows:
August 18, 2021 (tonight) – Workshop #1 - Discussion of Goals, Objectives, and Key
Assumptions;
October 6, 2021 (5pm-7pm) – Workshop #2 – Purchased Power Plan, Operating & Capital
Budgets for Electric and Water Utilities, and Financial Master Plan drafts; Public Hearing
Notice of 11/3/2021 Public Hearing on Budget 2022 & 2023 Approval
October 20, 2021 (5pm-7pm) – Workshop #3 – Operating and Capital Budgets for all support
services, Revenue/Rates, Reserves & Financial Master Plan drafts
November 3, 2021 (6pm start) – Public Hearing and Action Item – Review and approval of
Budget 2022 & 2023
District’s Mission
The Mission of the Truckee Donner Public Utility District is to provide reliable, high quality utility
and customer services while managing District resources in a safe, open, responsible, and
environmentally sound manner at the lowest practical cost.
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Values of the District
Safety – Safety is our way
Safety is our first priority. We are committed to the health and safety of our
employees, customers, and community through the continuous practice of
prevention, education, and awareness.
Communication – Send and receive
Foster positive engagement by creating a strong communicative environment that
includes; active listening, transparency, clear, concise, and the timely transmission of
information, with empathy and respect. This also includes providing and receiving
honest feedback.
Integrity – Honest and ethical
Highest quality service to the public and employees, utilizing honest and ethics as our
base principles.
Accountability – Own it
A strong performing team with the obligation and willingness to accept responsibility
for our actions, maintaining a sense of humility and inclusiveness.
Timeliness – Meet our goals and commitments
A highly effective agency and responsive organization meeting goals and
expectations in a timely manner.
Work Life Balance – Work hard, play hard
We value every employee and foster a healthy work life balance culture, allowing
employees to bring their best selves to work every day.
Strategic Plan
In May 2021, the Board adopted a Strategic Plan. The plan included four key initiatives as follows:
Undergrounding of Overhead Power lines
100% Clean Renewable Energy
Local Clean Power Generation
Community Broadband
Resources must be committed to these initiatives.
Reference Documents
The following links provide useful financial information:
o 2020 Comprehensive Annual Financial Report
o https://www.tdpud.org/home/showpublisheddocument/9071/637602239358200000
o 2020 and 2021 Budget (Current Budget)
o https://www.tdpud.org/home/showpublisheddocument/8319/637116702088370000
o District Code Title 3 Finance and Accounting
o https://www.tdpud.org/home/showpublisheddocument/1883/637495858240030000
o Strategic Plan 2021 – 2024
o https://static1.squarespace.com/static/5fcc9c705d43e676cbc9a16d/t/60b8566e1d838
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50f7a6f9806/1622693504127/Draft+Strategic+Plan.pdf
This budget process is essential in planning operational and capital expenses that are in alignment
with the District’s Mission, Values, and Strategic Plan.
Specific to Budget 2022 and 2023 the following key goals, objectives and assumptions are
presented for review and discussion throughout the FY2022-23 Budget workshop process.
A) Electric Utility –
Drive Strategic plan initiatives progress
Maintain focus on repair and maintenance of facilities and equipment
Maintain and improve reliability and safety of distribution systems, including wildfire mitigation
efforts and PSOM preparedness
Execute on capital improvement plan
B) Water Utility –
Maintain focus on repair and maintenance of facilities and equipment
Improve reliability and resiliency of water production, storage and distribution systems
Address increasing regulatory requirements
Execute on capital improvement plan
C) Inflation
Federal Bureau of Labor Statistics (BLS) CPI-W (SFO) for June was 4.3% and for all items
less food and energy 4.5%. The current general consensus is current rates are ‘transitory’
and will taper back down over next 12-18 months closer to 2.0%. There is general
uncertainty as to what will actually occur.
For 2022, we are currently utilizing the current 4.5% BLS figure as a place holder for wage
scale increase for all employees. The Represented employees’ MOU has a maximum cap
at 5.0%.For unrepresented employees (Management, Engineering and Technical), the
District is conducting a compensation and benefits study to inform wage determinations for
FY2022-23.
For expense costs we are utilizing current estimates, plus 3.0% when applicable.
For 2023, recommend utilizing 3.0% for all categories (wage scale and expenses) applied to
2022 amounts.
D) Purchased Power
Represents approximately 53% of Electric Utility’s operating expenses, therefore an
important estimate in Budget
Demand is relatively consistent, readily estimated
Costs can be volatile
YTD June 2021 cost of $6.6 million is $225,000 or 3.5% over budget and $920,000 or 16%
over last year. Compared to prior year, demand is up slightly, while costs per MW are up
significantly.
2021 Budget is $12.9 million and 2021 Forecast is $13.1 million, $225,000 or 1.7% over
budget
District has an Electric Rate Reserve policy (50% of annual power costs) with a balance of
$6.4 million as of June 30, 2021 and generally consistent with policy; but will need to be
adjusted each year to keep pace with purchase power costs budgeted.
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E) General Fund Operating Reserve [District Code 3.01.01.04] – Staff will recommending revisions
to this policy during the budget process
Current District code wording for Electric is as follows:
o Electric general fund should have a cash reserve equal to one half of the annual
budgeted operating expenses, excluding depreciation
Recommended revision to the following:
o Electric general fund should have a cash reserve equal to one half of the annual
budgeted operating expenses, excluding depreciation and purchased power
Staff recommends this modification to the reserve policy due the existence of an Electric
Rate Reserve. As the reserve policy is currently defined, including purchased power costs,
Electric’s operating reserve is relatively high, as 53% of the operating expenses are
purchased power. This is deemed as duplicative or too conservative, as there is a separate
Electric Rate Reserve. For example purposes, utilizing 2021 Budget:
o operating expenses (as currently defined) x 50% = $12.1 million goal
o operating expenses (as recommended defined) x 50% = $5.6 million goal
Electric’s operating general fund balance was $10.9 million as of December 31, 2020. With
the change in policy definition, the amount in excess of goal would be transferred to the
Electric Capital Reserve, which was $2.1m short of policy goal at year end; and a portion to
Electric Vehicle Reserve. The subject funds are rate generated, the reserve fund ‘bucket’ is
a Board designation.
F) Personnel
The District has reviewed the organizational structure numerous times over last 18-24
months and has developed several recommend changes to align the structure with the
evolving landscape of public utility operations and management, consistent with the District’s
Mission, Values, and Strategic Plan.
Changes approved in 2020 and 2021 that differ from Budget, and impact 2022 and 2023
Budget:
o Additions
Human Resources Manager
Vehicle Mechanic
Accounting Specialist Lead
o Eliminations
Financial Analyst
o Modifications or re-alignments
Administrative Services Director to Chief Financial Officer (no change in FTEs)
Electric reorg to three line crews and eliminate service crew, add Troubleman
position and second substation lineman/Inspector (no change in FTEs)
o All of above; + 2 FTE’s net impact on Budget 2022/2023 compared to Budget 2021
Potential changes proposed for Budget 2022 (and continuing in 2023)
o ADD
General Administration – Communications Analyst/Tech
Electric Ops - Vegetation Management Coordinator
Water Ops – two part-time/seasonal helpers (1 FTE)
Water Ops – Water Pump and Motor Controls Technician
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o Change
Electric Ops – change 2 Apprentice Lineman positions to Journeyman
Lineman positions
Net FTE Change, + 6.0
o 73.0 Budget 2021
o 79.0 Budget 2022 and 2023
G) Other Expenses (accounts payable)
1) Electric – Electric Ops – Wildfire Mitigation Costs
Adding $500,000 in Budget 2022 compared to Budget 2021, for a total of $1.5 million,
consistent with Forecast 2021 and Actual 2020
2) Electric-Board – Strategic Plan Initiatives
Adding $160,000 in both Budget 2022 Budget 2023 for professional services specific to
strategic plan initiatives; $320,000 for the two budget years combined.
3) Info Tech – added $40,000 in 2022 and $20,000 in 2023 for Cyber security consulting
services.
H) Capital Expenditures – Vehicle Fleet
Electric operations is recommending the addition of six (6) vehicles as follows:
o 2022 - $316,200 total
$ 40,800 – Pole Trailer
$132,600 – Excavator with attachments
$ 61,200 – Info Tech team truck
$ 81,600 – Line Crew UTV
o 2023 - $512,000
$95,800 – Substation/Inspector Truck
$416,200 – Digger Derrick
Vehicle fleet replacement plan for upcoming 10 years has been reviewed and adjusted for
known fleet conditions and year to year overall expenditure smoothing. Average age at
replacement year is 16.1 years, and current age of fleet is 9.9 years. All future years have
an inflation factor of 2.0% (an exception to general 3.0% inflation factor) applied to current
replacement cost estimates.
Fleet size is currently 81(any equipment on wheels) and increases to 87 as proposed
I) Current Debt ($ thousands)
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Debt 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 12/31/2026
E-POBs(sidefund) 1,578 539 - - - - -
E-Dark Fiber 25 13 - - - - -
W-DWR Prop55 Loan 151 - - - - - -
W-2015 & 2016(4.0%) COPs 11,924 10,655 10,025 9,370 8,690 7,980 7,245
Debt 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 12/31/2026
E-POBs(sidefund) 1,035 1,072 546 - - - -
E-Dark Fiber 27 13 13 - - - -
W-DWR Prop55 Loan 306 153 - - - - -
W-2015 & 2016(4.0%) COPs 1,721 1,705 1,034 1,034 1,033 1,035 1,032
Change in Water Debt Service Y2Y (170) (824) (0) (1) 3 (3)
Change in Water Debt Service 2022 versus 2022 (994)
SRF Loan of $4.1 12/31/2020 not presented, paid with DLAD funding and paid off in 2021
Principal Balance
Debt Service (P&I) - Cash Flow
J) New Debt
1) Pension Obligation Bonds (POBs)
o The 12/31/2020 Net Pension Liability was $14.0 million, an increase of 9% or
$1,150,000 from prior year end. CalPERS Miscellaneous Plan (Traditional)
Unfunded Actuarial Liability (UAL) required minimum annual payment for 2021
was $1,071,000, discounted to $1,036,000 with full annual payment in July 2021
(which the District paid). CalPERS projects a $1.2 million UAL payment
requirement in 2022. For the PEPRA plan, the UAL payment in 2021 was
$15,000.
o As part of agendized workshop, Brandis Tallman will provide an overview of
the District’s pension situation and POBs as a potential re-financing savings
solution.
2) Capital Project Bonds (Certificates of Participation)
i. One source of capital funds to fund the capital improvement plan is bond
issuance.
ii. As indicated in Current Debt item I) above, Water Debt Service in 2022 is
currently $994,000 less than 2020 level and $824,000 less than 2021 level.
iii. Current near term identified capital improvement plan projects which are
potential bond funded projects are the following (planning amounts):
1. $3-4 million water tank and pump station
2. $2-3 million water pipeline
3. $6-8 million electric, new ops building (corp yard)
Refinement will formulate as the 10-year Financial Master Plan is drafted over the
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next 30-45 days; integrating and balancing the operating budgets, capital
expenditures, numerous other variables, and the resulting revenue requirements.
iv. $1m in Debt Service at 4.0% equates to the following principal amounts,
varying by term, for reference:
20 years $13.6m 25 years $15.7m 30 years $17.3m
v. Debt financing of certain projects spreads the cash flow requirement over the
period of benefit, leveraging the relatively low current interest rate market.
vi. Any new debt issuance must comply with District Code Title 3, Chapter
3.01.03 Debt Goals and Chapter 3.07 Debt Issuance and Management Policy.
The cost of debit issuance is an operating expense.
K) Investment Income
Current investment yields are significantly below current budget expectations.
Budget 2021 – Electric $389,000 Water $103,000
Forecast 2021 - Electric $ 107,000 Water $ 60,000
Budget 2022 and 2023 are recommended to be conservatively budgeted at current low
investment yield levels of 0.2-0.3%.
L) Customer Rates – Electric
The Electric Utility currently has an active cost of service study underway being performed by a
third-party electric cost of service professional services firm. The cost of service includes
numerous headwinds, including labor costs, strategic initiatives, and wildfire mitigation costs.
As the cost of service develops for 2022 and 2023 Budget this fall, the revenue requirement will
be determined and recommended for incorporation in Budget revenue expectations to balance
the budget.
M) Customer Rates - Water
Water rate approvals in December 2020 included an average increase of 8.9% for 2021, 8.9%
for 2022 and 7.9% for 2023.
N) LCFS Credits Monetization
The District plans to convert LCFS credits accumulated life to date and earned each year
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though EV registrations into restricted cash funds. This is currently forecasted to conservatively
provide $50,000 - $60,000 range per year in cash funds to be utilized for transportation
electrification specific programs.
FISCAL IMPACT:
There is no direct fiscal impact associated with this workshop item.
ATTACHMENTS:
None