HomeMy WebLinkAbout19 Rate Reserve Transfer TRUCKEE DONNE
- AGENDA ITEM #19
Public Utility District
MEETING DATE: April 5, 2023
TO: Board of Directors
FROM: Michael Salmon, CFO
SUBJECT: Consideration to Transfer Funds from the Electric Rate Reserve to
the Electric General Fund Electric Rate Reserve Transfer to
General Fund
APPROVED BY—
Briari'C7. Wright, General Manager
RECOMMENDATION:
Authorize a transfer of $2,360,000 from Electric Rate Reserve Fund to the Electric General
Fund
BACKGROUND:
For the Electric Utility, the wholesale purchase of electricity (purchased power) represents 50%
of the annual operating expense budget. The purchase power expense budget is $13,509,000
for FY22 and $13,982,000 for FY23. Generally, this cost includes both the source energy and
the transmission into the District for distribution to customers.
The total dollar amount of purchase power expense is influenced by the District customers'
volume and demand for energy, as well as, the cost charged by suppliers of the energy at the
various generation sources. A separate annual purchase power review workshop has been
included on this board agenda providing more details related to the many components of the
District's purchased power portfolio for 2022.
In 2022, purchased power expense of $16.8M was over budget by $3.3M or 25%. The average
cost per MW of $96.79 was 22% over budget driving $3.033M of the variance and the volume
of MW purchased was 2.1% over budget driving $0.282M of the variance.
In January 2023, purchased power expense of $2.4M was over budget by $1.1 M or 81%. The
average cost per MW of$126.25 was 59% over budget driving $907,000 of the variance and the
volume of MW purchased was 14% over budget driving $185,000 of the variance.
February 2023 purchased power expense normalized and is not materially over budget.
The most notable driver of the recent cost increase is the well-documented extreme increase in
natural gas prices, influencing the cost of natural gas plant production of electricity. Most, if not
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all, electric utilities on the west coast, and particularly in California have experienced these cost
increases; most notably in summer/fall of 2022 and January 2023.
The volume/demand portion of the purchase power cost variances are recovered through
corresponding increases in billings to customers. The cost portion of the purchase power cost
variances are not fully recovered through billings.
For the volume/demand portion, the incremental billings are at customer retail rates, therefore,
there is some portion of recovery for the cost component of variance. For 2022 and January
2023 this has been calculated to amount to $418,000.
Unrelated to purchase power expense (PP), but related to Electric's general fund balance, the
District applied for and received Dec'21 disaster relief funds from CalOES of$1.2M in 2022.
Recapping above discussion items:
$ 3,033,000 PP cost component for 2022 (Dec'22 was $1.7M of this variance)
+ 907,000 PP cost component for January 2023
_ $3,940,000 purchased power variance to budget, cost portion
( 418,000) incremental volume/demand recovery at retail over wholesale rates
_ $3,522,000 subtotal
(1,160,000) CalOES disaster relief funds received (not budgeted) in 2022
( 2,000) rounding
_ $ 2,360,000 Net
Per District Code, the District maintains a Rate Reserve with a stated balance goal of 50% of
purchased power annual budget. This calculates to a reserve goal of$6,991,000 for 2023.
The current balance in the Rate Reserve is $7,057,000, which includes FY23 funding of
$210,000 from general fund operating funds, as budgeted.
District Code does not specially define trigger(s) for utilization of rate reserve funds, leaving the
decision at the discretion of the Board. Staff recommends the Board consider the above material
variance in PP as a qualifying event for rate reserve utilization.
Any draw from rate reserve funds, will need to be recovered via customers, over a period of
time. Whether as a specific line item on bill or incorporated into future rates for FY24. The
recovery or replenishment rate reserve would be based on KWH billed all rate classes, not per
account flat amounts. Average impacts for context, on a per account (14,660 as of Feb'23)
basis and over 12/24/36 months:
$3,940,000 / 14660 = $269 112 $22.42 /24 $11.21 /36 $7.47
$3,522,000 / 14660 = $240 /12 $20 /24 $10 /36 $6.67
$2,360,000 / 14660 = $161 /12 $13.42 /24 $6.71 /36 $4.47
Over a 3 year (36 month) period this would equate to an approximately 2.65% energy surcharge
based on 2023 kwh portion of rates. This is recommend to be applied to all accounts for 2024-
2026. This would be incorporated into next rate ordinance, with anticipated public hearing in
November or December of 2023. The active electric rate study will address this, as well as,
potential other options going forward; for this current overage and potential future overages.
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The General Fund serves as the operating reserve with the December 31, 2022 balance of
$6.52M increased from last year end by $670K. This reserve balance does not reflect the
accrual versus cash flow of numerous items. Generally, these timing items have nominal
differences year to year. However, of material note, the December 2022 purchased power costs
of$3.1 M were $1.76M over budget, and this cost and related overage was appropriately accrued
to December 2022, however, the cash flow payment of invoice and corresponding decrease in
General Fund occurred in 2023. In other words, the $6.52M reserve balance reduced by the
$1.76M overage, equates to as post-payment reserve balance of $4.76M or 35% of Operating
Expenses or 30% off the goal per District Code of 50% of Operating Expenses.
Goals and Objectives:
This item is in support of the following goals and objectives:
District Code1.05.030 Goals:
1. Manage for Financial Stability and Resiliency
2. Environmental Stewardship: Create a sustainable resilient environment for all of our
communities.
District Code1.05.020 Objectives:
1. Responsibly serve the public.
6. Manage the District in an effective, efficient, and fiscally responsible manner.
FISCAL IMPACT:
If the recommendation is not implemented, the general fund operating reserve would decrease
by $2,360,000; falling below District Code goal balance of $6.8M to approximately $4.2M
balance in general fund.
ATTACHMENTS:
None.
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