HomeMy WebLinkAbout6 Budget Workshop AGENDA ITEM #6
Public Utility District m
MEETING DATE: August 16, 2023
TO: Board of Directors
FROM: Michael Salmon, Chief Financial Officer
SUBJECT: FY2024-2025 Budget - Workshop #1
APPROVED BY:
Brian C. Wright, General Manager
RECOMMENDATION:
Receive the information from this workshop item and provide strategic direction to staff
regarding Budget 2024 & 2025 preparations.
BACKGROUND:
The District prepares a budget on a biennial basis. This workshop officially starts the
FY2024-25 budget development, utilizing the current budget, actual and forecast
trends, as well as the strategic plan as the foundational basis.
The current Board approved (6/7/2023) Budget 2024-25 workshops and the approval
schedule is as follows:
• August 16, 2023 (tonight) — Workshop #1 - Discussion of Goals, Objectives, and
Key Assumptions;
• September 20, 2023 (5pm-7pm) — Workshop #2 — Purchased Power Plan,
Operating & Capital Budgets for Electric and Water Utilities, and Financial Master
Plan drafts; Public Hearing Notice of 11/1/2023 Public Hearing on Budget 2024 &
2025 Approval
• October 18, 2023 (5pm-7pm) — Workshop #3 — Operating and Capital Budgets
for all support services, Revenue/Rates, Reserves & Financial Master Plan drafts
• November 1, 2023 (6pm start) — Public Hearing and Action Item — Review and
approval of Budget 2024 & 2025
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.
Values of the District
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Safety — Safety is our way
Safety is our first priority. We are committed to the health and safety of our employees,
customers, and the 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 honesty 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, and in 2023 updated the Strategic
Plan. The plan includes four key initiatives as follows:
❑ Community Broadband
❑ Service Reliability and Safety
❑ Net Carbon Reduction
❑ Local Watershed Stewardship
Reference Documents
The following links provide useful financial information:
1. 2022 Annual Comprehensive Financial Report
2. 2022 and 2023 Budget (Current Budget)
3. District Code Title 3 Finance and Accounting
4. Strategic Plan Initiatives 2023 Update
5 .Strategic Plan 2021 — 2024
This budget process is essential in planning operational and capital expenses that are
in alignment with the District's Mission, Values, and Strategic Plan.
ANALYSIS AND BODY:
1. Electric Utility
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• 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
2. 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
• Drive the Strategic Plan stewardship initiative
• Execute on capital improvement plan
3. Inflation Factors
• After over a year of above average inflation and recent Federal interest rate
hikes; the June 2023 inflation rate for USA was 3.0%, USA Core inflation
(excluding food and energy) was 4.8%, and the CPI-W (SFO) for June was
2.3%. The current fed funds rate is just over 5% and whether a recession
occurs and if so how deep, is much debated and at this time a coin toss.
There is general uncertainty as to what will actually occur.
• In the current budget, FY22 and FY23 anticipated a 4.5% and 3.0%
respectively rate of pay increases. The actual rate of pay increases were
5.0% and 5.0% respectively. This has a compounding impact on FY24
budget rates of pay of 2.43% or approximately $360,000 including overhead.
• For 2024, we are currently utilizing 3.0% as a place holder for wage scale
increase for all employees. The Represented employees' MOU specifies CPI-
W (SFO) for October less 1.0% for 2024, with a maximum cap at 5.0 and floor
of 2.0%. For unrepresented employees (Management, Engineering and
Technical), the District has most often mirrored Represented employee's rate
of pay change. Including overhead, the rate of pay increase of 3.0% equates
to a $450,000 increase in operating expense.
• For expense costs we are utilizing current estimates by category/item, plus
3.0% when applicable.
• For 2025, staff recommends utilizing 3.0% for all categories (wage scale and
expenses) applied to 2024 amounts.
• Account Growth assumptions are 0.5% for both utilities for both FY24 and
FY25.Account Growth Rates - LTM June 2023 and 3 year Averages (2020-
2022)
o Electric — 0.6% and 1.5%
o Water— 0.8% and 0.9%
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o The accounts growth rate assumption is appropriately conservative,
particularly in light of potential for recession.
4. Purchased Power
• For FY23, purchased power represents 50% of Electric Utility's operating
expenses.
• Demand is relatively consistent, however weather does influence, and
electrification momentum is strong.
• Costs can be volatile, as we saw in the second half of 2022 and January of 2023
• YTD June 2023 cost of$7.95 million is $959,000 or 14% over budget and the
FY23 forecast of $15.22 million is $1.2 million or 9% over budget.
• For FY24 and FY25, staff developed a detailed purchased power estimate of
$16.0 million and $16.8 million respectively. For FY24, the $16.OM is $1 .88M or
13% greater than FY23 budget. This increase is driven by multiple factors
including customer growth, demand growth, power sources cost per MW
increases, power source mix shifts, transmission cost increases, and energy
imbalance market (EIM) costs. The budget for FY23 was 171,823 MWH
purchased and the budget for FY24 is 174,000. Both a 3 year and 5 year
average were analyzed and adjusted for customer growth and demand trends in
developing FY24's 174,000.
• The district has an Electric Rate Reserve policy (50% of annual power costs)
with a balance of $4.8 million as of June 30, 2023. This reserve balance was
drawn down by $2,36M in April 2023 to address material purchased power cost
overruns in 2022 and January of 2023. Replenishment of this draw from electric
rates is proposed to occur over 3 years. A legal settlement of $480k for CVPIA
related purchased power from more than a decade ago was received in 2023,
and these funds are recommended to be credited to the rate reserve. Net
replenishment for the April draw equates to $627,000 for FY24, Fy25, and
FY26. The replenishment has an approximate 1 .9% impact on electric rates.
• The $1.88M cost increase for the FY24 budget as compared to the FY23
budget, drives a related 50% increase in the rate reserve requirement of
$941,000. Staff recommends funding for this increase be spread over three
years, resulting in $314,000 per year from FY24-FY26. This reserve funding
increase has an approximate 1.0% impact on electric rates.
• Hts.jz uap & i raae casn runds nave Deen consisienuy uwizea as a non-races
funding source. Consistent with budget, utilization in FY22 was $1 M and FY23
was $550,000. The Financial Master Plan anticipates the utilization amount to
be $350,000. This decrease of $200,000 equates to a shift to rates for funding
with an approximate 0.6% impact on electric rates.
5. Personnel
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• The District has reviewed the organizational structure numerous times over last
12-18 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 2022 and 2023 that differ from Budget, and impact 2024
and 2025 Budget:
1. Additions — none
2. Eliminations - none
3. Modifications or re-alignments
o Electric Ops — Electrician position planned in budget elimination via
attrition has not occurred, therefore +1 FTE in 2023. This position is
not planned of budgeted for in FY24 or FY25
■ All of above; 0 FTE's net impact on Budget 2024/2025
compared to Budget 2023
• Potential changes proposed for Budget 2024 (and continuing in 2025)
1. Add +5
2. Eliminate -1 (changing job description, part of the Add)
3. Change — one range upgrade
• Net FTE Change, + 4.0 (3 to operating expense, 1 to capital)
0 81.0 Budget 2023
0 85.0 Budget 2024 and 2025
6. Overhead Costs
A. Pension
1. Unfunded Accrued Liability— Classic Plan - Adding $67,000 or 6% in
Budget 2024 compared to Budget 2023, for a total of$1.26 million, based
on CalPERS Annual Valuation Report issued in July 2023
2. Employer Contribution Rates — consistent with current rates, dollar
amount increases with persable compensation (3.0% current assumption)
B. Medical and Dental
1. Adding $170,000 or 6% increase to Budget 2024 for anticipated premiums
increase, based on industry forecast averages. For FY25 to utilize 5%
increase.
C. Fleet costs
1. As briefed at the August mid-year 2023 financial report; fleet repairs,
maintenance, fuel and rental costs are running materially over current
budget. This has an impact beyond base inflation of approximately
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$150,000 for FY24 budget and will drive up the transportation overhead
rate per hour from FY23 budget of $14 to closer to $20.
7. Other Expenses (accounts payable)
A. Info Tech — dropping $90,000 in consulting added in FY23 budget (not used)
for FY24 and FY25, due to position add proposed in E) above, therefore not
necessary
B. Electric Ops - We anticipate NV Energy to file a rate case with FERC to
significantly increase electric transmission costs in fall of 2023. To defend this
rate case, impacted utilities are anticipated to partner with a specialist legal
firm to mitigate the rate increase impact. We currently estimate the District's
share of this cost to be $100,000 for FY24
C. Resources must be committed for the Strategic Plan initiatives. The current
budget includes $160,000 specific for progressing strategic
initiatives. Currently the plan for FY24-25 budget is this same amount,
however, shifting $40,000 from Electric to Water for the new Stewardship
centric initiative.
8. Capital Expenditures Electric, Water, Fleet and IT are updating the ten year capital
improvement plans for this budget cycle. Review is scheduled in the October
workshop.
9. Debt
• No new debt is proposed in FY24 or FY25. Current debt service is as follows:
Electric Water
2023 431 .181 1,987,488
2024 429,181 1,984,788
2025 431 ,931 1,990,588
2026 429,181 1,984,438
2027 431 ,181 1,986,788
10. Investment Income
In 2021 and 2022, investment yields were below 1%. Current investment yields of
2.5%-5% are significantly above current budget expectations (0.5%). For budget 2024
and 2025 staff recommends a conservatively budgeted investment yield level in the 2%
to 3% range.
11. 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, purchase power costs, rate reserve
replenishment and rising operating costs. As the cost of service develops for 2024 and
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2025 budgets this fall, the revenue requirement will be determined and recommended
for incorporation into budget revenue expectations to balance the budget. The study
includes a time of use and purchased power adjustment in rates for review and
consideration. The District's current electric rates are on the low end of the competitive
benchmark set, and are anticipated to remain competitive. Despite what is potentially a
rate increase for FY24 and FY25 that is materially above the historically benign 3%-6%
range, the District's current electric rates are on the low end of the benchmark set, and
are anticipated to remain competitive and on the low end as compared to our
benchmark set going forward.
12. Customer Rates - Water
Water rate approvals in December 2020 included an average increase of 8.0% for
2024 and 7.0% for 2025. A cost of service study will be budgeted to be performed in
FY25.
GOALS AND OBJECTIVES:
District Code 1 .05.020 Objectives:
1. Responsibly serve the public.
2. Provide a healthy and safe work environment for all District employees.
3. Provide reliable and high quality water supply and distribution system to meet
current and future needs.
4. Provide reliable and high quality electric supply and distribution system to meet
current and future needs.
5. Manage the District in an environmentally sound manner.
6. Manage the District in an effective, efficient and fiscally responsible manner.
District Code 1 .05.030 Goals:
1. Manage for Financial Stability and Resiliency
2. Environmental Stewardship: Create a sustainable resilient environment for all our
communities.
3. Engage with our customers and communities in a welcoming and transparent way to
identify opportunities.
4. Take the best of private sector thinking to modernize the utility and add value to our
communities.
5. Developing an inclusive culture drives organizational integration and success.
FISCAL IMPACT:
None for this workshop.
ATTACHMENTS:
None
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