The URL can be used to link to this page

Home My WebLink About10 Financial Goals, Reserves, and Debt and Consideration of Updating District Goals Agenda Item 10 : ....:. TRUCKEE DONNER Public Utility Distri.ct ACTION To: Board of Directors From: Robert Mescher Dater August 01, 2012 Subject: Review of District Financial Goals, Reserves and Debt and Consideration of Updating District Goals 1. WHY THIS MATTER IS BEFORE THE BOARD This is an annual review with the Board of the status of its financial goals outlined in District Code. 2. HISTORY In 2004, the Board adopted a set of financial goals and directed that they be reviewed each year. The status of the financial goals was last reviewed with the Board on August 3, 2011. 3. NEW INFORMATION Attachment 1 lists all of the District financial goals and whether the goal was achieved or not. All of the District financial goals have been achieved with the exception of the following: • Debt Goals - The goal of committing to debt service no more than one half of the projected annual Water facilities fees was not achieved due to the continued downturn of new construction. • Cash Reserve Goals - The goals of retaining an Electric Cash Reserve of $10,000,000 and an Electric Rate Stabilization Fund of $3,000,000 have not yet been achieved. With the maturity of the 2013 COP debt, these goals are projected to be achieved by 2014. • Capital Reserve Goals - The goal of reserving $4,000,000 for Water Capital Replacement was achieved in 20.10, but the reserve has been utilized for specific projects as approved by the Board. Rates continue to fund this reserve and the goal is projected to be achieved by 2014. Also the goal of reserving $1,000,000 for Electric Capital Replacement has not yet been achieved. With the maturity of the 2013 COP debt, this goal is projected to be achieved in 2015. Staff reviewed the District Code Section 3.01.01 regarding financial goals and recommends some changes as redlined in Attachment 2 and described below: 0 3.01.01.01 The Finance Master Plan and Capital Improvement Plans should be reviewed every two years instead of annually and rates should be reviewed every two years instead of three years. • 3.01.01.02 The connection charges should be reviewed every two years instead of annually and facility fees should be reviewed after the completion of the master plans instead of during the budget cycle. • 3.01.01.04 The current Electric Cash Reserve goal of $10,000,000 is equal to twice the highest month budgeted expenditure, plus the highest debt service payment. Staff is recommending an update to maintain the Electric Utility's Cash Reserve goal to be one half of the annual budgeted operating expenses. 4. FISCAL IMPACT If the recommended change to the Electric Cash Reserve goal is approved, it will remain at $10,000,000 in 2013. 4 There are no other direct fiscal impacts associated with this item. 5. RECOMMENDATION Approve the following updates to the financial goals in District Code: • Review the ten-year Finance Master Plan every two years; • Review the ten-year Capital Improvement Plan every two years; • Review the rate structure and levels every two years; • Review connection charges every two years and set them to recover all costs; • Review facilities fees after the completion of a master plan; and • Electric general fund should have a cash reserve equal to one half of the annual budgeted operating expenses, excluding depreciation. Robert Mescher Michael D. Holley Administrative Services Manager General Manager Truckee Donner Public Utility District Code Title 3.01. 001 Financial Goals Achieved Planning Goals 1) Review Water and Electric Master Plans at least every five years a)A new Electric Master Plan was adopted by the Board in FY09 Yes b) An updated Water Master Plan was adopted ion July 18, 2012 Yes 2 Review each year ten-year Finance Master Plan h y a The Finance Master Plan was last reviewed on November 2, 2011 during the FY11-FY12 Budget process Yes 3) Prepare two-year operating budget with semi-annual reviews The District's two-year operating budget for FY12 and FY13 was adopted on November 16, 2011 and reviewed on July 18, 2012 Yes T 4) Prepare ten-year Capital Improvement Plan; update annually a) The ten-year Electric Capital Improvement Plan was updated and reviewed in 2010 Yes b)The ten-year Water Capital Improvement Plan was delayed due to the State's delay of the Urban Water Plan requirements. The Water Master Plan, which includes the Capital Improvement Plan, was adopted on July 18, 2012 Yes 5) Review rate structure and levels at least once every three years a)The District completed a formal Water rate study in FY09 and reviewed the rate structure during FY12 and FY13 budget cycle Yes b)The District hired a consultant to review the Electric rate structure in FY10. No changes were recommended. The rates were again reviewed during the FY12 and FY13 budget cycle Yes 6) Review Financial Goals every year The Financial Goals were last reviewed on August 3, 2011 Yes Revenue Goals 0 1) Set operating revenues to capture entire cost to provide service plus build and maintain reserves and satisfy debt 3 coverage ratios Yes CD 2) Review connection charges each year and set them to recover all costs The Electric and Water connection fees are reviewed during the budget cycle. The last increases were adopted on February 6, 2008; no changes to connection fees have been recommended Yes 3) Review facilities fees every budget cycle and after the completion of a master plan The last Electric facilities fees increase was adopted on February 6, 2008; no changes to facilities fees have been recommended Yes The last Water facilities fees increase was adopted on April 6, 2005; Changes are recommended in 2012 and are in process Yes Page 1 of 3 Truckee Donner Public Utility District Code Title 3.01. 001 Financial Goals Achieved Debt Goals 1) Debt that is serving development (facilities fees), current customers (rates), special assessment districts (assessments), and financed by billingsurcharges 'u charges should be separately identified in the budget Yes 2) 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) $ 1790009000 Electric Debt Due in First Ten Years $ 1670007000 Percent of Debt due in the next 10 years 94% Yes .Total Water Debt $ 53,0009000 Water Debt Due in First Ten Years $ 32,0009000 Percent of Debt due in the next 10 years 60% Yes 3) No more than one half the projected annual facilities fee revenue committed to debt service FY12 projected Electric facilities fees revenue $ 1057000 FY12 Electric debt payments from facilities fees $ - %of annual FF revenue committed to debt 0% Yes FY12 projected Water facilities fees revenue $ 200,000 FY12 Water debt payments from facilities fees $ 500,000 %of annual FF revenue committed to debt 250% No 4) No more than twenty-five percent of general fund revenues committed to debt service Electric budgeted general funds revenue $ 231000,000 FY12 debt service (P & 1) paid by General Fund $ 41000,000 n %of General Fund revenue committed to debt 17% Yes :37 3 CD Water budgeted general funds revenue $ 11,000,000 FY12 debt service (P &.1) paid by General Fund _ $ 1,745,000 -L %of General Fund revenue committed to debt 16% Yes 5_ No debt more than 25 year maturity Yes 6) No debt longer than useful life of the project Yes Page 2of3 Truckee-Donner Public Utility District Code Title 3.01. 001 Financial Goals Achieved Cash Reserve Goals-Operations 1) Water general fund should have a reserve equal twice the highest month budgeted expenditure Water general fund reserve goal (twice the highest month budgeted expenditure) $ 49000,000 Total general fund &operating reserve fund balance $ 41300,000 Yes 2) Electric general fund should have a cash reserve equal to twice the highest month budgeted expenditure Electric general fund reserve goal (twice the highest month budgeted expenditure) $ 107000,000 Total general fund &operating reserve fund balance $ 590009000 No The goal is projected to be achieved in 2014 3) Electric rate stabilization fund should maintain a balance of$3,000,000 The June 30, 2012 balance in the rate stabilization fund was $2,527,000 No The goal is projected to be achieved in 2014 Capital Reserve Goals 1) 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 No The Water Capital Replacement Fund balance is $3,500,000; goal is projected to be achieved by 2014 2) There should be an Electric capital reserve fund in the amount of$11000,000. No The Electric Capital Replacement Fund balance is$12,000; goal is projected to be achieved by 2015 Debt Reserve Goals 1 There should be a reserve fund for each debt instrument in an amount required b each lender Yes 0 N Y 3 2) A reserve fund should be established and maintained to pay for vehicle and equipment purchases as needed. Long CD term financing should be used when necessary and the life of the asset purchased is greater than 15 years Yes '-+ Page 3of3 Attachment 2 FINANCIAL GOALS UPDATE Section: 3.01.01 Financial Goals 3.01.01.1 The following goals are established to promote and maintain the financial strength of the District: 3.01.01.01 Planning Goals • Review Water and Electric Master Plans at least every five years • Review ten year Finance Master Plan each year • Prepare two-year operating budget with semi-annual reviews • P Creten-year Capital Improvement Plan;,�pda#� �every two vre7 s • Review rate structure and levels at least once every#h ee--two years • Review Financial Goals every year 3.01.01.02 Revenue Goals • Set operating revenues to capture entire cost to provide service plus build and maintain reserves and satisfy debt coverage ratios • Review connection charges revery two ors and set them to recover all costs • Review facilities fees every - tj e�-isle-aA�after the completion of a master plan 3.01.01.03 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. • One-half the debt service for all long-term debt in the aggregate is due in the first ten years • No more than one half the projected annual facilities fee revenue committed to debt service • No more than twenty-five percent of general fund revenues committed to debt service • No debt more than 25 year maturity • No debt longer than useful life of the project 3.01.01.04 Cash Reserve Goals - Operations • Water general fund should have a cash reserve equal to twice the highest month budgeted expenditure (this will probably be the month in which principal and interest on debt is due) Attachment 2 • Electric general fund should have a cash reserve equal to •180CA +"w, 1. ea}one half of the annual budgeted operating expenses, excluding depreciation • Electric rate stabilization fund (aka, Electric Rate Reserve) should maintain a balance of$3,000,000 3.01.01.05 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. • There should be an electric capital reserve fund in the amount of $1,000,000 minimum. 3.01.01.06 Debt Reserve Goals • There should be a reserve fund for each debt instrument in an amount required by each lender. e A reserve fund should be established and maintained to pay for vehicle and equipment purchases as needed. Long term financing should be used when necessary and the life of the asset purchased is greater than 15 years.