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HomeMy WebLinkAbout10 Budget WorkshopTRUCKEE DONNER Public Utility District MEETING DATE: October 20, 2021 TO: Board of Directors AGENDA ITEM #10 FROM: Michael R. Salmon, Chief Financial Officer SUBJECT: Budget 2022 & 2023 - Workshop number 3 - Operating and Capital Budgets for all support services, Revenue/Rates, Reserves & Financial Master Plan drafts V _ r APPROVED BY Brian C. Wright, General Manager RECOMMENDATION: Receive the information from this workshop item and provide strategic direction to staff regarding FY2022-2023 Budget preparation. DISCUSSION: For over a decade, the District has prepared the budget on a biennial basis. This is the 3rd workshop for 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 Budget 2022- 2023 workshops and approval schedule is as follows: • August 18, 2021 —Workshop #1 - Discussion of Goals, Objectives, and Key Assumptions; • October 6, 2021 — 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 (tonight) — 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. Page 1 of 15 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 October 6, 2021 — Workshop #2 — 1 st Draft Purchased Power, Electric and Water Budget Drafts, Operating Expenses, Capital Expenditures & Debt, Personnel, Reserves, Financial Master Plan Workshop #2 starts on Page 35 of PDF o August 18, 2021 — Workshop #1 - Discussion of Goals, Objectives, and Key Assumptions Workshop #1 starts on Page 54 of PDF o Strategic Plan 2021 — 2024 0 2020 Comprehensive Annual Financial Report 0 2020 and 2021 Budget (Current Budget) o District Code Title 3 Finance and Accounting Page 2 of 15 Workshop #3 Agenda detail for current draft of 2022 & 2023 Budget is presented below: A) CPI Trends B) Electric and Water - Historical Financial Information C) Electric Utility Budget Draft (Attachment 1) D) Water Utility Budget Draft (Attachment 2) E) Overheads (Attachment 4) F) Personnel and Full Time Equivalents (Attachment 5) G) Financial Master Plan, 10 Years, 2022 to 2031 (Attachment 6) Capital Expenditure Summary and Detail, Electric and Water (Attachment 3) A) Consumer Price Index (CPI) Trends • U.S Bureau of Labor Statistics (BLS) most current information for CPI-W: C0115unler Price Index for Urban Wage Earners and Clerical Workers (CPI-W): Selected areas, all items index, not seasonally adjusted (1982-84=100 unless otherwise noted) Percent change to Sep Percent change to Aug Area 2021 from 2021 from Back Jun Jul Aug Sep Sep Jul Aug Aug Jun Jul (Links provide news releases) data 21321 2021 2021 2021 2020 2021 2021 2024 2021 2021 V.S. Cit V Average 0 1266.412 267.789 j 268.387259_086 5. S i;. 5 : 0.3 5.8 0.7 0.2 West regionW 281.156 282.738 283.286i283.830 5.8 0.4 0,2 51 0.8 0.2 West - Size Class A (over 2.5 million) 0 287.2441289.069 269.706�290,234 5.4 0.4 0.2 5.1 0.9 0.2 west- Size Class 8fC (2.5 million orless)W ,� 159.071 169.901 170.186 170.528 6.2 0.4 0.2 6.2 0.7 0.2 MountainW © 113.657 114.427 114,7771115.1401 6.6 0.6 0.3 6.3 1.0 0.3 PacificW 0 112.598 113.192 113.3701113.542 5.5 1 0.3 0.2 5.5 1 0.7 0.2 Metropolitan areas published monthly Los eles-Long Beach -Anaheim, CA 280.687I282.2711282.591 Z83.19i 4.8 0.3 0.. 4.5 0.7 0,1 Metropolitan areas published in January, March, May, July, September, and November Phoenix-Mesa-ScotLsdalG M0J 152.7441 1153.0351 304.97' 307.423�- San Francisco Oakland Hayward, CA 0 4.9 O.S The October CPI-W for San Fran -Oak -Hay (SOH) region (released in 2r,d week of November) is the metric specified within the current Memorandum of Understanding (MOU) between the District and the International Brotherhood of Electrical Workers (IBEW) Local 1245for 2022 rate of pay change, subject to 5.0% maximum cap. Regarding CPI-U, U.S. City Average for September 2021 was 5.4%, and SOH for August 2021 was 3.7%. Federal economists call the current inflation figures `transitory'. In related news, on 10/13/2021 the Social Security Administration announced retirees on Social Security will get a 5.9% boost in benefits for 2022. The biggest cost -of -living adjustment in 39 years. Page 3 of 15 B) Electric and Water— Historical Financial Information During the October 6th, 2021 budget workshop discussions, a comparison of Electric and Water financials was mentioned. Below are a several key comparative financial metrics. Combined Source - Audited Financial Statements Electric Water TDPUD Comments Item Year $ thousands I % CAGR 2020 72,117 63,312 135,428 Net Position similar to retained earnings or Net Position 2019 67,286 7% 63,045 0% 130,331 4% net worth. Revenues increase, expenses 2015 48,343 8% 61,375 1% 109,717 4% decrease, capital expenditures no impact. 2010 43,555 5% 65,306 -0.3% 108,862 2% Trends: E improving, W stagnant, declined In 2010, Water had a greater Net Position than Electric; now in 2020 Electric's is greater than Water. Over the last ten years, Net Position of Electric grew 5% while Water's had a slight decline. Net Position: The difference between an entity's assets plus deferred outflows of resources and its liabilities plus deferred inflows of resources represents its net position. Source - Audited Combined Financial Statements Electric Water TDPUD Comments Item Year 1 $ thousands I % CAGR 2020 59,493 72,539 132,032 Net Capital Assets is comprised of gross Net Capital 2019 58,756 1% 75,056 -3% 133,812 -1% fixed assets (capital expenditures) less Assets 2015 47,079 5% 75,338 -1% 122,417 2% accumulated depreciation (accounts for 2010 40,084 4% 81,988 -1% 122,072 1% deterioration over time of assets) plus construction work in progress. Trends: E increasing, W declining Net Capital Assets of Electric have a 4% growth rate, whereas, Water has a negative 1 % growth rate. For Water, depreciation has exceeded capital re -investment, ie aging infrastructure. Year end 2010, Net Capital Assets for Water of $82m were 105% greater than Electric. Year end 2020, Net Capital Assets for Water of $73m were 22% greater than Electric. Page 4 of 15 Combined Electric Water TDPUD Comments Metric Year I Metric varies I % CAGR 2020 10.2 11.0 10.7 Age of Plant is a financial estimate Age of Plant 2019 9.7 5% 11.2 -1% 10.6 1% of plant age in years. (Years) 2015 9.1 2% 10.1 2% 9.7 2% 2010 9.6 1% 7.2 4% 8.0 3% Accumulated Depreciation /Depreciation Expense Plant 2020 19.7 14.6 16.6 Plant Remaining Useful Life is a financial Remaining 2019 20.3 -3% 16.6 -12% 18.0 -8% estimate of plant's non -depreciated life in Useful Life 2015 19.8 0% 21.0 -7% 20.5 -4% years. (Years) 2010 24.9 -2% 26.1 -6% 25.7 -4% Net Capital Assets /Depreciation Expense 2020 34% 43% Plant Life 2019 32% 5% 40% 7% Cycle Ratio 2015 32% 1% 33% 6% 2010 28% 2% 22% 7% Age of Plant/(age ofplant+remaining useful life) Lowerlife cycle generally equates to lower investment needs. A life cyle % >45% generally indicates elevated investment needs. Source: Fitch Ratings - Public Finance - US Water and Seiner Rating Criteria (March 2021) 39% Life Cycle Ratio is a financial ratio used 37% 6% to benchmark the capital investment need 32% 4% of the utility. 24% 5% Trend - Water is approaching Fitch Rating threshold of >45% 'elevated' level. The above three metrics are a method of evaluating/estimated utility plant age, remaining useful life and stage in life cycle. Over last ten years; Electric's remaining useful life has decreased 5.2 years and the life cycle ratio has increased at a growth rate of 2%, Water's remaining useful life has decreased 11.5 years and the life cycle ratio has increased at a growth rate of 7%. Metric Year 2020 Debt to 2019 Equity Ratio 2015 2010 LTD / Net Position 2020 Debt to Net 2019 Capital 2015 Assets 2010 LTD /Net Capital Assets Combined Electric Water TDPUD Comments Metric varies I % CAGR 2% 26% 13% Debt to Equity Ratio is a common financial 4% -43% 30% -12% 16% -18% metric of debt level/leverage. 12% -28% 45% -10% 30% -15% Trend - E has nominal debt, W has moderate 22% -21 % 59% -8% 45% -11 % and is trending down with existing debt. 3% 23% 14% 4% -39% 25% -9% 16% -14% 12% -26% 37% -9% 27% -13% 24% -20% 47% -7% 40% -10% Debt to Capital Assets Ratio is a 2nd common financial metric of debt level/leverage. Both utilities debt ratios have improved significantly over the last 10 years. Page 5 of 15 Source - Audited Combined Financial Statements Electric Water TDPUD Comments Item Year 1 $ thousands I % CAGR Operating 2020 29,471 14,007 43,478 Operating Revenues includes residential, Revenues 2019 27,808 6% 13,207 6% 41,015 6% commercial, standby, backflow, pole (before 2015 23,662 4% 10,789 5% 34,451 5% contacts, and cap&trade income. Excludes Eliminations) 2010 23,621 2% 11,568 2% 35,189 2% investment income, connection/fac fees. Revenues are influenced by price changes, customer usage and customer growth. Volume (demand), customer growth and rate changes influence Operating Revenues. The ten year growth rate for both utilities is 2% rounded; 2.2% Electric and 1.9% Water. Combined Electric Water TDPUD Comments Average of E&W December - 2020 14,270 13,325 13,798 This is # of customers at year-end December. Number of 2019 14,111 1. 1% 13,101 1.7% 13,606 1% It is not the average # of customers for year. Customers 2015 13,431 1.2% 12,772 0.9% 13,102 1% 2010 13,145 0.8% 12,573 0.6% 12,859 1% Operating 2020 $ 172 $ 88 $ 263 Afinancial metric of operating revenues per Revenue per 2019 $ 164 5% $ 84 4% $ 251 5% customer per month, with prior years to provide Customer/ 2015 $ 147 3% $ 70 4% $ 219 4% context. Month 2010 $ 150 1% $ 77 1 % $ 228 1 % Trends - should not the 10yr for both E & W is Includes E Cap&Trade revenues, pole contacts, standby fees, backflowtesting fees, and miscellaneous otherrevem 1 %, below industry averages and inflation. not just standard monthly customer billings. Operating Revenue growth per Customer is Electric 1.4% and Water 1.3% over the ten year period. 2020 6,749 5,821 12,570 Operation and Maintenance (O&M) costs O Costs 2019 5,197 30% 5,779 1% 10,976 15% are the core operational annual costs to (before (b eliminations) 2015 3,467 14% 4,422 6% 7,889 10% provide service to customers. 2010 3,348 7% 4,391 3% 7,739 5% Trends. E- 2020 influeced by wildfire mitig- ation costs increase of $787K, as well as, in 2020 less payroll costs charged to capital projects than in 2019. Both E&W had rate of pay increases greater than 3% and regulatory costs continue to escalate. Customer 2020 4,976 3,777 8,753 Costs for supporting customers and O&M Service, 2019 5,141 -3% 3,773 0% 8,914 -2% efforts. Trends: 2020 down/flat due to Admin, 2015 4,129 4% 3,039 4% 7,168 4% primarily to turnover position vacancies. General 2010 3,860 3% 2,338 5% 6,198 4% Operating expenses are grouped into the above two categories for audited financial statements. See notes to right of each for key notes on trends. Page 6 of 15 C) Electric Utility Budget The current draft of Budget 2022 (B22) and Budget 2023 (B23) is provided as Attachment 1. B22 notables and changes since 10/6 in comparison to Budget 2021 (1321) are provided below. Operating Expenses Include the annual operating expenses associated with providing and maintaining electrical service. Operating Expenses B22 of $26.9 million are $2.74m or 11 % greater than B21. As compared to 10/6 draft of B22, operating expenses have increased $79,000. The primary drivers of this cost increase are as follows ($ in thousands): 1) $594 - Purchased Power, as detailed previously in section A) 2) $500 - Wildfire Defensible Space increase from $1.03 B21 to $1.53 B22 3) $234 - Rate of Pay Increase impact of assumption of 4.5%, based on current MOU and Federal Bureau of Labor Statistics (BLS) related specifications. a. The BLS CPI-W for August was 4.9%, the MOU maximum cap is 5.0%. Next update and MOU specified CPI-W is the October figure. (includes overhead, across all departments) 4) $104 - Impact of Rate of Pay increases in 2020 & 2021 greater than Budget 2020 & 2021 5) $160 - Strategic Plan Initiatives funding to continue momentum (Dept. BoD) 6) $ 75 - other legal costs estimate (Dept. BoD) 7) $150 - additional FTE, 50% Electric, Human Resources Director (Dept. Gen.Mgmt) 8) $99 - additional FTE, 50% Electric, Risk & Compliance Coordinator (Dept. Gen.Mgmt) 9) $94 - additional FTE, -50% Electric, Vehicle Mechanic (cost charged through Transportation Overhead, across all Depts.) 10) $87 - additional FTE, 50% Electric, Communications Specialist (Dept. Gen.Mgmt) 11) $30 - Grant application/writing professional services (Dept. Gen.Mgmt) 12) $28 - Laserfiche & Microimaging services (Dept. Gen.Mgmt) 13) $48 - safety programs, costs increases $23 and new SDS subscription $25 (Dept. ELOps) 14) $30 - Avian program development (Dept. ELOps) 15) $15 - Survey services (Dept. Gen.Mgmt) 16) ($264) - transfer 1 FTE, Electrician to Water Operations (Dept. ELOps) 17) ($132) - drop'/2 FTE, Electrician 2nd half of 2022 (Dept. ELOps) 18) $64 - Compensation Study contingency, including overhead (across all departments) 19) $321 General Services organizational structure changes, add 2 FTEs to adequately service facilities throughout the District, this cost on Electric is recovered partially via Rent charged to Water Division (lower by 20k than prior draft) 20) $105 - Vegetation Hazard analysis, shifted from B23 to B22, as a high priority 21) $393 - net increase +3.5%, all other changes +/- (across all departments) (was $399 in 10/6 draft) Capital Expenditures reflect the long-term investment in capital infrastructure necessary to provide electric utility service to customers. Capital investment includes replacement of depreciated capital assets, as well as, expansion capital investment due to growth and changing needs of the utility. Page 7 of 15 A 10 year capital improvement plan for the electric utility has been prepared and includes a 10 year total of $72AM or an average of $7.2M per year. The plan has increased $9.6M from 10/6 draft, due to primarily to the addition of $9.25M in battery storage ($250k design in 2023 and $3m in 2024, 2026, and 2027). An EV charging station for District use of $25k was also added in plan for 2023. The balance of changes were shifts between years, which due to inflation increased the dollar total for the 10 years. The plan includes $6M for a new building located at the corporate yard for electric and the building is drafted in budget to be funded by the issuance of bonds, which spreads the cost (and rate impact) at a low interest rate over proposed 20 year debt service schedule. Capital expenditures for B22 of $16.38M and include the notable projects of ($ thousands): 1) $6,000 Proposed new building at corp yard (bond debt financed) 2) $3,000 District Office building modernization (water pays a portion of this thru rent) 3) $1,500 District Office drainage system and paving (water pays a portion of this thru rent) 4) $1,300 SCADA Reliability Improvement Project Phase 6 5) $ 520 Line Extensions and Upgrades 6) $ 444 Pole Replacements (q50) 7) $ 455 SRIP Pole Replacements (q33) 8) $ 390 Martis Valley Substation Rebuild (planning costs) ($1.4m in 2023 to complete) 9) $ 356 Glenshire Substation Rebuild (planning costs) ($2.1 m in 2023/2024 to complete) 10)$ 652 Information Technology projects, including $150k GIS/OMS software and $75k for Fleet GPS hard/software, and $125k for call recording/reporting hard/software 11)$ 497 Vehicles — five new/add equipment items and $39k to replace a dump trailer Capital expenditure details can be further referenced in Attachment 3. Electric vehicles (EV) as part of future fleet replacements (Electric and Water) is under consideration; however this is a complex matter for utilities life/safety mission critical fleet equipment with this new/evolving technology. Revenues for the electric utility are primary generated from customer rates. The revenue requirement to balance the utility's budget is based on the cost of service result of various components including operating expenses, capital expenditures, reserve requirements, and debt service requirements. Budget 2022 operating revenues of $31.65M represent an increase over B21 of $3.97M or 13.7%. This 13.7% increase is comprised of the following component; customer growth 0.5%, 4.7% current demand trend change from B21 expectations, and rate increase of 8.5%. The Budget 2022 includes an 8.5% average rate increase and Budget 2023 includes an average rate increase of 6.0%. An independent consultant is concurrently preparing a cost of service analysis for the District, with results expected in November. Post the noted planned increases, the District electric utility rates will remain competitive in the region and below average for California market. A `Green Rate' is also ready for Board review for 2022 launch. Page 8 of 15 Electric's rate history information from 2020 Annual Report: (2021 was a 3.0% increase) Electric Utility A N b f C st T" vI R 'd t' I A M thl Dill ; erage um er o u omers Residential Residential Non - Year Primary Secondary Residential Total Residential Non -Residential (1) (1) (2) Mix 2020 4,898 7,659 1,619 14,176 89% 1 11% 2019 4,810 7,565 1,585 13,960 89% 1 11% 2018 4,798 7,462 1,558 13,818 89% 1 11% 2017 4,784 7,389 1,535 13,708 89% 1 11% 2016 4,738 7,303 1,527 13,568 89% 1 11% 2015 4,642 7,235 1,512 13,389 89% 1 11 % 2014 4,646 7,157 1,517 13,320 89% 1 11% 2013 4,611 7,116 1,517 13,244 89% 1 11% 2012 4,611 7,060 1,520 13,191 88% 1 12% 2011 4,656 6,983 1,526 13,165 88% 1 12 % 2010 4,694 6,912 1,535 13,141 88% 1 12% (A): 5yrCAGR 1.1% 1.1% 1.4% 1.1% NA 10yrCAGR 0.4% 1.0% 0.5% 0.8% NA mca es en is verage on y Primary Secondary Primary Secondary @ 500 KwH @ 500 KwH @ 785 KwH @ 420 KwH $82.33 $80.25 $77.50 $75.35 $73.51 $73.51 $73.51 $73.51 $73.51 $73.51 $73.51 2.3% 1.1% $91.83 $89.75 $87.00 $84.85 $83.01 $83.01 $83.01 $83.01 $83.01 $83.01 $83.01 2.0 % 1.0 % $120.04 $117.96 $115.20 $113.05 $111.21 $111.21 $111.21 $111.21 $111.21 $111.21 $111.21 1.5% 0.8 % $79.73 $77.65 $74.89 $72.74 $70.90 $70.90 $70.90 $70.90 $70.90 $70.90 $70.90 2.4% 1.2% Average Rate Increase Prim. I Secon (5) 1.8% 1 2.7% 2.4% 1 3.7% 1.9% 1 3.0% 1.7% 1 2.6% 0.0% 1 0.0% 0.0% 1 0.0% 0.0% 1 0.0% 0.0% 1 0.0% 0.0% 1 0.0% 0.0% 1 0.0% N/A Electric's rate comparison information from 2020 Annual Report: (2021 was a 3.0% increase for District Electric utility) Information to right is 2020 rates. District's increase for 2021 was 3.0%. Liberty has filed for a rate increase in excess of 40%. We estimate majority, if not all other utilities had 2021 increase and are planning increases for 2022 and 2023. TDPUD Blended(3) + 3.0% for 2021 + 8.5% recommended for 2022 equates to an average rate of $98.38 Electric Utility Santa Clara Imperial ID Merced ID Roseville Azusa Turlock ID Lompoc Riverside TDPUD Primary(1) Palo Alto Liberty Anaheim TDPUD Blended(3) Modesto ID Lodi TDPUD Secondary (2) Redding SMUD SCE Plumas-Sierra Pasadena LADWP PG&E SDG&E Monthly Bill * $62.66 $70.45 $72.70 $75.60 $79.34 $81.14 $81.66 $82.09 $82.33 $82.39 $85.26 $86.10 $88.03 $90.35 $91.57 $91.83 $92.55 $96.74 $99.96 $108.89 $109.24 $113.95 $127.87 $149.55 N/A N/A Page 9 of 15 D) Water Utility Budget The current draft of Budget 2022 (1322) and Budget 2023 (1323) is provided as Attachment 2. B22 notables in comparison to Budget 2021 (B21) are provided below. Operating Expenses include the annual operating expenses association with providing water service and maintaining water service assets including wells, tanks, pump stations and pipelines. Operating expenses increased from 10/6 draft by $190,000 due to sync of electricity costs for water to electric utility revenue amount (+48k), costs splits b/w water and electric and overhead corrections (+194k), and line item review cost reductions of (-52k). Operating Expenses B22 of $11.11 million are $1.32m or 13% greater than B21. The primary drivers of this cost increase are as follows ($ in thousands): 1) $ 234 - Rate of Pay Increase impact of assumption of 4.5%, based on Memorandum of Understanding (MOU) and Federal Bureau of Labor Statistics (BLS) related specifications. a. The BLS CPI-W for August was 4.9%, the MOU maximum cap is 5.0%. Next update and MOU specified CPI-W is the October figure. (Includes overhead, across all departments) 2) $104 - Impact of Rate of Pay increases in 2020 & 2021 greater than Budget 2020 & 2021 3) $ 75 - other legal costs estimate (Dept. BoD) 4) $150 - additional FTE, 50% Water, Human Resources Director (Dept. Gen.Mgmt) 5) $ 99 - additional FTE, 50% Water, Risk & Compliance Coordinator (Dept. Gen.Mgmt) 6) $ 87 - additional FTE, 50% Water, Communications Specialist (Dept. Gen.Mgmt) 7) $ 30 - Grant application/writing professional services (Dept. Gen.Mgmt), successful grant fund applications will more than offset the additional administrative costs 8) $ 27 - Laserfiche & Micro imaging services (Dept. Gen.Mgmt) 9) $ 15 - Survey services (Dept. Gen.Mgmt) 10)$94 - additional FTE, -50% Water, Vehicle Mechanic (cost charged through Transportation Overhead, across all departments) 11)$ 264 - transfer 1 FTE, Electric to Water Operations (Dept. Water Ops) 12)$ 177 - additional FTE, Maintenance Program Lead (Dept. Water Ops) 13)$ 64 - Compensation Study contingency, including overhead (across all departments) 14)($ 104) - net decrease of 1.1 %, all other changes +/- (across all departments) (draft 10/6 was decrease of $292k) Capital Expenditures reflect the long-term investment in capital infrastructure necessary to provide water utility service to customers. Capital investment includes replacement of depreciated capital assets, as well as, expansion capital investment due to growth and changing needs of the utility. A 10 year capital improvement plan for the water utility has been prepared and includes a 10 year total of $90.7M or an average of $9.1 M per year. The total is down $2.7m from 10/6 draft due to refinement of various items decreasing, Martiswoods pumpstation shifted to out year 2027, and adding Pioneer Trail Pipeline and Pump station expenditures. B22 has decreased and B23 has increased due to timing, with the 2 year total of $24.7m and $10m excluding debt Page 10 of 15 financed projects. The plan includes $15M of projects funded by the issuance of bonds, which spreads the cost (and rate impact) at a low interest rate over a proposed 25 year debt service schedule at $960K range per year. This new debt service is at a level that replaces the current debt service that falls off by a similar amount. Capital expenditures for B22 of $9.40M and include the notable projects of ($ thousands): 1) $2,555 Pioneer Trail pipeline, new debt financed 2) $2,000 pipeline replacement, new debt financed 3) $ 500 Hirschdale Connection new pipeline, new debt financed 4) $ 740 pump station rehabilitations 5) $ 949 water tank rehabilitations 6) $ 463 Information Technology projects, including $150k GIS/OMS software and $75k for Fleet GPS hard/software, and $125k for call recording/reporting hard/software 7) $ 644 Vehicles — four truck replacements and two trailer replacement Shifted from B22 in 10/6 draft to B23 in current draft: $1,000 new water tank, facility fees portion funded $2,120 new water tank, new debt financed (this portion reduced from $3.Om in prior draft) Capital expenditure details can be further referenced in Attachment 3. Revenues for the water utility are primary generated from customer rates. The revenue requirement to balance the utility's budget is based on the cost of service result of various components including operating expenses, capital expenditures, reserve requirements, and debt service requirements. Budget 2022 operating revenues of $16.43M represent an increase over B21 of $2.23M or 15.7%. This 15.7% increase is comprised of the following component; customer growth 0.5%, 6.0% rate increase in 2021 greater than B21 expectation, 0.2% current demand trend change from B21 expectations, and rate increase of 9.0% (as approved in December 2020). The Budget 2022 includes a 9.0% average rate increase and Budget 2023 includes an average rate increase of 8.0%. An independent consultant prepared a cost of service analysis/rate recommendation in 2020 and the Board adopted the recommendation in included in B22/B23 and the Financial Master Plan. Post the planned increases, the District water utility rates will remain competitive in the region. E) Overheads There are four overhead charges applied throughout the District's financials. The calculation methodologies and application to B22 and B23 are consistent with prior years. • Labor Overhead — distributes cost of all payroll related costs (taxes, insurance, pension) and non -productive compensation costs across all our operations/work orders/capital projects • Transportation Overhead — distributes the cost of our Fleet across all our operations/work orders/capital projects • Administrative Overhead — distributes Purchasing/Warehousing common costs across operations/work orders/capital projects • Construction Overhead — distributes administrate overhead cost to all capital projects Page 11 of 15 Labor Overhead The District's payroll costs include the cost of salaries and wages (rate of pay x hours) aka compensation, as well as, numerous other costs directly associated with compensation. For the District (as employer), these other costs include employer's cost portion of payroll taxes, health insurance, pension, OPEB, and workers compensation insurance. The District's financially accounts for the above costs in two main categories, Labor and Overhead. Labor is the direct cost (compensation) for productive labor time costs. Labor includes the cost of hours charged to operations, capital projects and service work orders. Labor cost charging is specific to the hours and personnel charging their time, and includes overtime and standby compensation costs. Labor Overhead captures the cost of all the other costs referenced above, as well as, the cost of non -productive labor costs (vacation, sick, administrative, and holiday pay). Overhead cost components are accumulated for the District as a whole, then proportionally distributed to all operations, capital, and service work orders based on the Labor costs charged. For Budget 2021, the Overhead rate is 98% and the rate has decreased for B22 to 92% and B23 95%. Therefore, for every dollar of productive labor cost in B22, overhead charged is 92 cents. There are numerous drivers of the overhead cost components, including rate of pay increases, position additions/deletions, health insurance cost and plan changes, and turnover impacts on pension costs (traditional to PEPRA) and paid time off accrual rates. Labor Overhead for B22 of $8.4m increased 8% to B21, whereas total recommend labor is an increase of 15%, therefore the effective Labor Overhead rate decreased 6%. The five largest cost components for Labor Overhead are as follows: • $2.8m Pension Costs — up 13% to B21 due primarily to increase in UAL traditional annual payment • $2.8m Medical/Dental insurance costs — up 4% to B21 due primarily to premium renewal cost increase • $1.5m Non -productive labor costs — up 18% to B21 primarily due to rate of pay increases, net FTE position additions, partially offset by turnover • $0.77m FICA/Medicare payroll taxes, employer portion — up 8.5% due to payroll increases • $0.24m Workers Compensation insurance — down 22% due primarily to a favorable experience rate modification to base calculation Attachment 4 provides overhead detail calculations. Transportation Overhead — distributes the cost of our Fleet across all our operations/work orders/capital projects. The Transportation Overhead amount for B22 of $1.3m increased $269K or 27% to B21. This was driven primarily by the addition of vehicle mechanic position. The overhead rate charged per applicable transportation hour for B22 of $13.82 compares to $11.24 in B21. Administrative Overhead — distributes Purchasing/Warehousing common costs across operations and work orders/capital projects Page 12 of 15 The Administrative Overhead amount for B22 of $373k increased $20K or 6% to B21. This was driven primarily by cost increases driven by rate of pay changes and inflation. The overhead rate charged per applicable labor hour for B22 of 4.1 % compares to 4.4% in B21. The rate decrease is due to the cost being spread over a larger number of overall labor hours for District in total due to FTE increase. Construction Overhead — distributes administrate overhead cost to all capital projects The Construction Overhead amount for B22 of $273k increased $14K or 5% to B21. This was driven primarily by cost increases driven by rate of pay changes and inflation. The overhead rate charged per applicable labor hour capital projects for B22 of 16.7% compares to 16.9% in B21. Attachment 4 provides overhead detail calculations F) Personnel and Full Time Equivalents Personnel is at the core of operational and strategic success and a significant cost/investment for the District. This item was reviewed in detail at workshop #2 on October 6t", 2021. Attachment 5 provides this information for reference, no changes from the October 6t" draft. G) Financial Master Plan The Financial Master Plan (FMP) is a tool to help the Board and staff understand how the proposed budget impacts long-term goals. The FMP includes revenues and expenditures the current budget cycle years, as well as, the following eight years, for a 10 year horizon view of the financial position, in particular reserve balances, for the District. Further, the FMP is reviewed during the budget cycle to ensure that the proposed budget is consistent with long-term goals. The FMP makes assumptions on customer growth and inflation. Further, the FMP incorporates the 10 year capital improvement plans of the utilities. Changes in FMP from October 6t" draft include factoring changes to operating expenses, capital expenditures, factoring debt issuance costs, and adding goal % attainment by year on key FMP schedules. The key measure of financial stability for the District in the FMP is reserve balances. Electric Utility achieves the policy target balances most years in the plan. Water Utility achieves the policy target balances only in the final year 2031, due primarily to the current low reserve balances compared to policy targets and a $9.1 m/year average capital improvement plan expenditure level. Attachment 6, Financial Master Plan, provides FMP draft Electric and Water utilities key summary pages of revenue, expenditures, and reserve information for the subject 10 year period. Reserve balances and relationship to goals (highlighted) and related rate change recommendations are summarized below: ELECTRIC Page 13 of 15 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 OpGF+RR %of OpExp (Goal 50%) 50% 50% 49% 50% 50% 50% 51% 51% 52% 54% Capital Reserves%CapxGoal 100°i 84% 74% 46% 53% 42% 45% 89% 97% 104% 100% Cash & Reserve Balances Operating Cash Balance (GenFd) $ 6,593 $ 6,815 $ 6,872 $ 7,262 $ 7,593 $ 7,926 $ 8,280 $ 8,844 $ 9,278 $ 10,361 Rate Reserve Balance 6,774 7,011 7,291 7,582 7,885 8,200 8,527 8,867 9,221 9,589 Capital Reserve Balance 5,221 4,642 2,765 3,383 2,810 3,138 6,569 7,535 8,410 8,394 Capital Vehicle Reserve Balance 374 433 491 471 294 358 496 384 366 226 Deferred Liability 2,100 2,108 2,119 2,133 2,150 2,172 2,194 2,216 2,238 2,260 Facility Fee Reserve Balance 204 386 518 151 282 421 568 723 886 1,057 Cash & Reserve Balances $ 21,266 $21,395 $20,056 $20,982 $21,014 $22,215 $ 26,634 $ 28,569 $ 30,399 $ 31,887 Change to Proposed FY22 & FY23 0.0% 0.0% Proposed rate change 8.5% 6.5% 3.0% 3.0% 3.0% 2.5% 2.0% 2.0% 2.0% Net Rate Increase in active FMP 8.5% 6.5% 3.0% 3.0% 3.0% 2.5% 2.0% 2.0% 2.0% 2.0% FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 WATER FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 OpGF Reserve%of OpExp Goal 50% 50% 50% 51% 51% 51% 51% 52% 52% 52% 52% Capital Reserves%CapxGoal 100% 14% 2% 11% 10% 28% 25% 57% 54% 81% 99% Cash & Reserve Balances Operating Cash Balance (GenFd) $ 5,562 $ 5,814 $ 6,084 $ 6,278 $ 6,590 $ 6,787 $ 7,126 $ 7,338 $ 7,572 $ 7,874 Capital Reserve Balance 920 (37) 573 477 1,856 1,675 4,591 4,537 7,168 9,239 Vehicle Reserve Balance 110 207 280 358 415 415 382 314 329 202 Deferred Liability 107 107 108 108 108 109 109 109 110 110 Facility Fee Balance 2,427 1,543 1,522 1,501 1,484 1,486 1,506 1,543 1,602 1,683 Cash & Reserve Balances $ 9,126 $ 7,634 $ 8,567 $ 8,722 $ 10,453 $ 10,472 $ 13,714 $ 13,841 $ 16,781 $ 19,108 Debt service coverage 4.49 3.43 3.95 4.49 5.08 5.74 6.10 6.49 6.82 7.16 (1.25 required until 2036) Change to Proposed FY22 & FY23 0.0% 0.0% Proposed rate change 8.9% 7.9% 8.0% 7.0% 7.0% 7.0% 4.0% 4.0% 3.50% FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 Electric has a net increase in General Fund (Operating Reserve) of $389k in B22 and $222k in B23, which holds the subject reserve balance right at 50% target balance. This is achieved in part by the Capital Reserve being slightly below target balance in B22 and B23. Electric has debt issuance costs estimate of $185,000 in B22 cash flows. Water has a net increase in General Fund (Operating Reserve) of $856k in B22 and $252k in B23, which holds the subject reserve balance right at 50% target balance. This is achieved with the Capital Reserve being significantly below target balance in B22 and B23 and through 2029 in FMP. Only in last two years of FMP (2030 and 2031) does Water achieve near or at target reserve balances. Water has debt issuance costs estimate of $285,000 in B22 cash flows. Few keynotes regarding designated reserves: Operating Reserve is the General Fund balance and is intended for unanticipated cost items or cost increases, or an unanticipated loss of revenues. The primary source of incoming funds is customer rates for electric and water utility service provided. The Capital Reserve is funded with rates, via transfers from General Fund to Capital Reserve. This reserve is intended to fund any year-to-year `spikes' in capital expenditures, in addition to serving as a funding source for any unplanned capital needs. Both of the above referenced reserves (and the rate stabilization reserve for electric) are an important component of the overall financial strength of the District, serving as key funding reserves, in addition to essential components of debt ratings or other review of the District's financial position. Page 14 of 15 FISCAL IMPACT: There is no direct fiscal impact associated with this workshop item. ATTACHMENTS: A. 1 Electric Utility Budget Summary B. 2 Water Utility Budget Summary C. 3 Capital Expenditure Summary and Detail, Electric and Water D. 4 Overheads E. 5 Personnel F. 6 Financial Master Plan, 10 Years, 2022 to 2031 Page 15 of 15