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Home My WebLink About12 Board Financial Goals Agenda Item # 12 DONNER Public Utility District WORKSHOP To: Board of Directors From: Mary Chapman Date: April 02, 2008 Subject: Discussion of the Board Financial Goals 1. WHY THIS MATTER IS BEFORE THE BOARD This is a year end review with the Board of the status of its financial goals. 2. HISTORY In 2004, the Board adopted a set of financial goals. Most of the financial goals were reviewed last summer in a series of workshops to educate the Board on the status of these goals and District finances. We discussed updating the status again after the end of the year. 3. NEW INFORMATION As staff was preparing this item, we identified several areas where we have not achieved the defined goals. In our previous discussion, the Board realized that it will take several years to achieve some of the reserve fund goals. Attached is a complete set of staff's response to the status of the goals. In the workshop, we would like to focus on the goals that have not been achieved. We would also like to make some recommendations to modify some of the goals. 4. FISCAL IMPACT There is no direct fiscal impact. 5. RECOMMENDATION To review this report and provide comments. (yV-)U Mary Chap n, AAministrative Services Michael D. Holley, General Manager Manager District Code Title 3.01. 001 Financial Goals (Prepared on Electric and Water only; does not include CFDs) Blue: goal achieved Red: goal not achieved Green: there's a proposal to modify the goal 3.01.01.1 The following goals are established to promote and maintain the financial strength of the District: Planning Goals • Review water and electric master plans at least every five years Last Electric Master Plan Review 2002; next scheduled for 2008 Last Water Master Plan Review— update 2004; next scheduled 2009 • Review finance master plan each year Last finance master plan review was November 7, 2007 during the 2008 budget process • Prepare annually five-year capital replacement budget Last five-year capital replacement budget— 2008 budget • Review rate structure and levels at least once every three years Last electric and water rate reviews—2008 budget • Review Financial Goals every three years (Proposal to change to every year) Last Financial Goals review— during summer of 2007 & again now 1 Revenue Goals • Set operating revenues to capture entire cost to provide service plus maintain reserves and satisfy debt coverage ratios Last electric rate increase adopted on November 19, 2007 to be effective January 1, 2008 to cover the 2008 electric operating expenses and budgeted transfers. Last water rate increase adopted on July 13, 2006 to be effective January 1, 2008 to cover the 2008 water operating expenses and budgeted transfers. Last miscellaneous fee rate increase was adopted on February 20, 2008 2007 electric debt service coverage calculation = 1.96 times debt Required debt service coverage ratio = 1.20 times debt 2007 water debt service coverage calculation = 2.15 times debt Required debt service coverage ratio = 1.25 times debt • Review connection charges each year and set them to recover all costs Last electric and water connection fee increases were adopted on February 6, 2008 • Review facilities fees every three years Last electric facilities fees increase was adopted on February 6, 2008; a complete review will be done after the 2008 update of the electric system master plan. Last water facilities fees increase was adopted on April 6, 2005; the water facilities fees were reviewed in 2008 and no increase was proposed. The next review of the water system master plan is scheduled to be completed in 2009. The facilities fees will be reviewed at that time. 2 Debt Goals • Separate debt that is serving development (facilities fees), debt serving current customers (rates), debt serving a special assessment district (assessments) and debt financed by billing surcharges. These categories of debt should be separately identified in the budget. Debt payments presented in the 2008 budget were broken down into these categories. At the October 3, 2007 presentation on the status of debt in relationship to the financial goals, the Board agreed that we should add the additional category of debt financed by billing surcharges. See attached debt schedules from the 2008 Budget. • One-half the debt service for all long-term debt in the aggregate is due in the first ten years Total Electric Debt (P & 1) $21,178,736 Electric Debt Due in First Ten Years $21,112,069 Percent of Debt due in the next 10 years 99.69% Total Water Debt $65,937,339 Water Debt Due in First Ten Years $33,402,854 Percent of Debt due in the next 10 years 50.66% • No more than one half the projected annual facilities fee revenue committed to debt service 2008 projected electric facilities fees revenue $225,000 2008 electric debt payments from facilities fees $ 0 Percentage of annual FF revenue committed to debt 0% 2008 projected water facilities fees revenue $664,200 2008 water debt payments from facilities fees $504,958 Percentage of annual FF revenue committed to debt 76% • No more than twenty-five percent of general fund revenues committed to debt service (Revenue taken from the 2008 Operating Budget). Electric budgeted general funds revenue $22,593,243 2008 debt service (P & 1) paid by General Fund $ 3,614,725 % of General Fund revenue committed to debt 16% Water budgeted general funds revenue $ 9,469,378 2008 debt service (P & 1) paid by General Fund $ 1,963,096 % of General Fund revenue committed to debt 21% 3 • No debt more than 25 year maturity See attached debt schedules from 2008 budget — longest term is 2006 COPs— 30 year financing • No debt longer than useful life of the project No debt has been financed for a period longer that its useful life 4 Cash Reserve Goals - Operations • Electric general fund should have a cash reserve equal to twice the highest month budgeted expenditure (This will be the month in which the highest wholesale electric bill is due plus the highest debt service payment.) Electric general fund reserve goal $9,630,499 Current electric general fund balance @ 12/31/07 $5,130,081 Less developer credits 2,070,223 Net electric general fund balance $3,059,858 • Water general fund should have a reserve equal twice the highest month budgeted expenditure (this will probably be the month in which principal and interest on debt is due) Water general fund reserve goal $3,079,961 Current water general fund balance @ 12/31/07 $ 982,220 Less developer credits (679,901) Net water general fund balance $ 302,319 DSC & Operating Reserve $ 252,481 • Electric rate stabilization fund should maintain a balance of $1,000,000 (Proposal to increase to $3,000,000). The December 31, 2007 balance in the rate stabilization fund was $1,148,106.43. 5 Capital Reserve Goals • There should be a revolving water capital reserve fund in the amount of $4,000,000 to permit projects to be initiated and funded prior to arrangement of long-term debt or other financing. The water reserve fund balances are as follows: Land Sales Trust Fund $3,552,291.08 Capital Replacement Fund 294,508.30 $3,846,799.38 There are still internal loans outstanding to the Land Sales Trust Fund in the amount of$1,034,814.86 plus accrued interest until repaid. • There should be an electric capital reserve fund in the amount of $1,000,000. (Proposal to begin funding in 2009 Budget). The electric capital reserve fund has not been funded yet. 6 Debt Reserve Goals • There should be a reserve fund for each debt instrument equal to one year's principal and interest (Proposal to change to set up reserve for debt instruments that require a reserve fund in the amount of the requirement). The following loans have Reserve Funds set up as required by the loan documents: Electric: 2003 COPs Reserve Fund Balance $1,502,249.23 Water: 2006 COPs Reserve Fund Balance $1,964,704.50 Prop 55 Reserve Fund Balance $ 310,184.32 DWR SRF Loan Reserve Fund Balance $ 160,172.00 (Add $40,026 two times per year until total reserve fund equals $800,852 Loans that do not have reserve funds and are not required to have reserve funds in the loan documents: Electric: West America Bank - Transformer loan MSG #9 - Lease purchase of equipment MSG #11 — Lease purchase of vehicles, equipment, hardware & software Water: MSG #1551 — Bridge Street Tank Construction MSG #1552 — Glenshire Pipeline Project MSG #9 — Lease purchase of equipment MSG #11 — Lease purchase of vehicles, equipment, hardware & software Internal loans 7 Recommendations to change goals or create new goals: • Change from a 5 year Capital Replacement Budget to a 10 year Capital Improvement Program. • Change from reviewing the financial goals every three years to reviewing every year. • Reserve recommendations: • Change the Electric Rate Stabilization Fund reserve goal from $1,000,000 to $3,000,000. • Electric capital reserve should be changed to read $1,000,000 "minimum". Begin funding this reserve fund in the 2009 operating budget. • Change debt reserve requirement from a blanket one year on all debt instruments to only those debt instruments requiring a reserve fund in the amount of the requirement. • Discuss Pay-As-You-Go versus Financing o Vehicle and Equipment Replacement Reserve 8