HomeMy WebLinkAboutMinutes - November 22, 2005 SSCITY OF LODI
INFORMAL INFORMATIONAL MEETING
"SHIRTSLEEVE" SESSION
CARNEGIE FORUM, 305 WEST PINE STREET
TUESDAY, NOVEMBER 22, 2005
An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday,
November 22, 2005, commencing at 7:02 a.m.
A. ROLL CALL
Present: Council Members — Hansen, Hitchcock, Johnson, and Mayor Beckman
Absent: Council Members — Mounce
Also Present: City Manager King, City Attorney Schwabauer, and Deputy City Clerk Perrin
B. TOPIC(S)
B-1 "Utilities Quarterly Update"
Finance Director Krueger briefly reviewed the financial condition of the three utilities, i.e.
electric, water, and wastewater, for the period of 2003 to 2005 (filed).
In response to Council Member Hansen, Mr. Krueger explained that the larger the ratio
number, the better. The ratio is the relationship between the current assets (i.e. resources
that can be used within a short period of time) and current liabilities. Mr. Krueger stated
that the City does not have a goal or objective in terms of what the ratio should be.
City Manager King reminded Council that Mr. Krueger previously presented a comparison of
ratios from a random selection of Northern California Power Agency members, and Lodi
Electric was the furthest behind. A standard of comparison is only meaningful if there is a
standard against which to measure, such as a risk management policy where the City
would assess its risk and aid in the condition of the Utility.
Mr. Krueger added that there needs to be a regular review and comparison of how the City
is doing on a plan basis against the actual results of performance. For example, if the
strategy is to buy energy on the spot market because of the volatility and price, a higher
current ratio would be necessary to effectuate that policy. On the other hand, if the risk
policy establishes longer-term purchases, there is less of a need for a high current ratio.
There are three factors that go into basic analysis of financial condition: quality, quantity of
the service being provided, and the price at which it is being provided. The derivative of this
analysis is that, if the City is paying more for energy than what it is charging the
customers, the factor results in the current ratio going down over time. When the City
borrows money, the objective should be that it use the proceeds to either buy assets that
afford it the opportunity to provide more (or better quality) service or to provide services at
less of a cost. The bottom line ratio is the debt to equity ratio, and a higher ratio indicates
that a lot of money was borrowed without the return.
Mayor Pro Tempore Hitchcock questioned why the water fund debt went from $25 million in
2004 to $5 million in 2005, to which Mr. Krueger responded that when the case with
Lehman Brothers was settled, it reduced the outstanding debt, thereby improving the debt
equity ratio in the water fund. The increase from 2003 to 2004 in the wastewater fund was
for a large debt issuance done at the end of 2004.
City Manager King stated that quarterly reports are common among electric utilities and he
pointed to the Palo Alto report in the Council's packet (filed) as one example. There is an
extensive process that utilities go through, which involves Council and staff.
Council Member Hansen expressed his opinion that he would like to see more of a graphic
presentation to demonstrate at a glance what the standard and the measurements are,
after which the numbers could be analyzed in more detail.
Continued November 22, 2005
Mayor Pro Tempore Hitchcock countered that she is more interested in seeing the
numbers, as it better shows the entire picture. Additionally, she would like to see a longer
period of comparison, not just three years.
Manager of Electric Services, Mel Grandi, stated that staff is exploring methods of reporting
and is continuing to work on the risk policy. Additionally, staff is developing a five-year
capital improvement spending plan; most, if not all, of which will come from bond proceeds.
During the development of this plan, attention will be gi\,en to major projects that are
valuable and that generate revenue or additional reliability to the City on a long-term basis.
Because of the geyser unit going off-line, the City has a net open position for the month of
December. Currently, the cash value is approximately $1.2 million through the end of June.
The City's target is a 95% level, and it is in good condition at 93%. The net open position
for 2006-07 has not been purchased. Staff is researching various alternatives for generation
resources and pricing opportunities and will return to Council with options in the next few
months. Risk management plans in other utilities have typically taken two to three years to
fully develop.
Mayor Pro Tempore Hitchcock cautioned that the risk management plan not be so
technical that it is difficult to understand and she hoped that once it is prepared staff would
give a detailed presentation that would thoroughly explain the plan.
City Manager King stated that there are some straightforward elements of a risk
management plan, such as not vesting the authority to make power purchase decisions
with one individual, describing a check and balance system, and not putting at risk any
money beyond the ability of the utility to absorb a loss. Some risk management plans
establish proportion percentages rn how much power to buy on the open market versus
ownership capacity and some create an internal risk management committee, which
reviews, independent of the Council, the financial condition of the utility.
Council Member Johnson questioned what the City's goal is to adequately control its
exposure and to leverage the benefits between now and the time it takes to create a
comprehensive risk management plan. He suggested that plans from other cities be used
in helping to design Lodi's plan.
Public Works Director Prima reported that the 2004-05 wastewater operating budget was $4
million and it came in at $3.6 million. With the exception of sanitary system maintenance,
which was very close, all accounts were under budget. The capital side is different in that it
accounted for PCE/TCE for the first time in the amount of $800,000. It has been an issue
for the last few years of trying to fund the PCE/TCE battle without accounting for it in the
budget. The budget ultimately came in at $1.9 million, which was managed by offsetting on
the capital side and deferring projects. The water operating budget was $4 million and it
came in at approximately $3.4 million. With the exception of distribution system
maintenance, which was slightly over budget, everything was quite a bit below. On the
capital side, more money was spent on PCE/TCE than was budgeted, which was due
mainly to legal expenses.
There are currently seven vacancies in the water and wastewater utilities:
0o Water/Wastewater Superintendent, which may be filled next June.
0o Water Conservation (Dordinator, which has been vacant for quite a few years. The
work is spread among other staff, as well as using part-time assistance, to keep the
program functioning.
0o Senior Plant & Equipment Mechanic, which may change to a supervisor position in
order to flatten the organization.
0o Two plant operators and a maintenance worker at the wastewater plant, which has
been a challenge to the department as operators in the wastewater industry are getting
more difficult to find and keep.
00 Management Analyst, which was budgeted for four years on a contract basis. It is
anticipated that this position will eventually be converted into full-time.
W
Continued November 22, 2005
Other water and wastewater needs include:
00 Engineering positions budgeted in water and wastewater that typically work at City Hall
are working at the Municipal Service Center with the operations staff.
00 Environmental compliance is an area that will receive more pressure from the state in
the way of educational programs.
0o State certifications are constantly increasing and staff expects to see additional
requirements for sewer workers and collection system maintenance workers.
00 Regional water supply activities.
C. COMMENTS BY THE PUBLIC ON NON -AGENDA ITEMS
None.
D. ADJOURNMENT
No action was taken by the City Council. The meeting was adjourned at 7:55 a.m.
ATTEST:
Jennifer M. Perrin
Deputy City Clerk
City of Lodi - City Haul
221 W. Pine Street
Lodi, CA 95240
Phone: (209) 333-6700
Fax: (209) 333-6807
OF 4
O
v
Cs �P
TO: Honorable Members of the City Council
THROUGH: Blair King, City Manager
FROM: Jim Krueger, Finance Director
DATE: November 15, 2005
SUBJECT: Financial Ratios for Utility Funds
Attached is a brief financial analysis of the City's three Utility Funds. This same
type of analysis will be included in the future Quarterly reviews of these funds.
These ratios are not exhaustive and there will be other analyses included in the
future evaluations you will receive.
The most recent three fiscal years ending June 30, 2003, 2004 and 2005 are
included for your review. The analysis relates to only Balance Sheet accounts
only and includes Asset, Liability and Equity ratios. Other relevant ratios
including income related information will be included in future Quarterly reviews.
Total Assets 106,569,576 24,102,825 39,111,371
Total Liabilities 58,716-669 27.529.144 10.503.566
Net Assets 17,782,907 -3,426,319 28,607,605
Net Assets /Assets 0,17 -0.14 0,73
Debt/Equity 4.99 -8.03 0.37
Source: City of Lodi Comprehensive Annual Financial Reports
Unaudited
_ 2005
ric Water Wastewater
4,896,603 4,300,091 564,922
24,986,681 5,312,046 19,635,948
3,70-tA54 2.299.948 2,757,
21,281,030 2,512,998 16,547,982
6.74 1.90 7.04
106,864,572
24,664,084
2003
1
1
2004
46.433.364
8I,z66LOz2
Electric
Water
Wastewater
Electric
Water
Wastewater
Cash
771,568
292,301
769,770
6,347,087
1,442,231
4,568,925
Current Assets
33,516,295
5,646,176
3,258,822
34,030,202
2,470,279
32.383,623
Current Liablititles
6-31Z.Wa
3.003-547
923.228
11.656:2592,265.525
4,568,869
Net Current Assets
27,168,773
2,842,629
2,335,594
22,373,943
201,754
27,814,754
Current Ratio
5.28
1.95
3.53
2.92
1.09
7.09
Total Assets 106,569,576 24,102,825 39,111,371
Total Liabilities 58,716-669 27.529.144 10.503.566
Net Assets 17,782,907 -3,426,319 28,607,605
Net Assets /Assets 0,17 -0.14 0,73
Debt/Equity 4.99 -8.03 0.37
Source: City of Lodi Comprehensive Annual Financial Reports
Unaudited
_ 2005
ric Water Wastewater
4,896,603 4,300,091 564,922
24,986,681 5,312,046 19,635,948
3,70-tA54 2.299.948 2,757,
21,281,030 2,512,998 16,547,982
6.74 1.90 7.04
106,864,572
24,664,084
79,549,872
94,560,612
91.170.428
95.817.806
46.433.364
8I,z66LOz2
15,694,144
-1,153,722
33,116,508
13,274,590
0.15
-0.05
0.42
0.14
5.81
•22.38
1.40
6.12
25,530,897 75,4$3,733
1.912.327 43.571_502
20,618,570 31,892,231
0.81 0.42
0.24 1.37
4
AGENDA ITEM B-01
CITY OF LODI
COUNCIL COMMUNICATION
im
AGENDA TITLE: Receive financial data on Electric Utility operations (EUD)
MEETING DATE: November 22, 2005
PREPARED BY: Interim Electric Utility
RECOMMENDED ACTION: No Council action is required. Data is being provided for
informational purposes only.
BACKGROUND INFORMATION: On October 18, 2005 a presentation was made to the city council
entitled "Update on Electric Utilities Financial position, Market Cost
Adjustment and Recent Power Purchases". A copy of that
presentation is attached. The purpose of that presentation was to bring the Council up to date on the
financial results leading up to fiscal year 2006 and to provide a brief snapshot of finances post 2006. As
part of that presentation, staff explained that the Electric Department had established a plan to address
the immediate financial problems affecting the utility which consisted of 1) stabilizing purchased power
costs, 2) correcting revenue/expense imbalances through the application of a Market Cost Adjustment
and 3) Implementing a long term rate structure and financial plan.
Issue: The long term financial plan includes a risk management program. Key elements of that plan
include:
oo Identification of standardized reports that will be provided to the city council that are necessary to
ensure oversight of the electric utility;
oo Identification of the frequency, method and individual responsible for preparation and
transmission of the standardized reports;
oo Establishment of procurement policies:
o Recommended amounts of energy to procure on an advance basis versus the spot market
o Recommended amounts of energy to procure through contract versus ownership
o Recommended term lengths for procurement contracts, and
o Authorization limits, checks and balances associated with procurement authorizations
oo Recommendations for implementing the risk management program.
Until the long-term financial plan can be completed, and the specific reporting elements identified, staff is
presenting the following reports for council review:
oo Electric Utility Proforma for fiscal years 2003 through 2011;
oo A summary of the net open position for the electric utility through the balance of fiscal year 2006;
(this report will be provided at the Tuesday morning Shirtsleeve Session)
oo A summary of the net open position for the electric utility for fiscal year 2007; and
oo A summary of revenues collected from the base rates and market cost adjustment by month, as
required pursuant to the Market Cost Adjustment Ordinance reporting requirements
(this report will be provided at the Tuesday morning Shirtsleeve Session)
APPROVED:
Blair King, City Manager
Receive financial data on Electric Utility operations (EUD)
November 22, 2005
Page 2 of 2
These reports are being provided in order to establish a culture of providing quarterly oversight reports to
the City Council and to conform to the spirit of a risk management program, which includes regular
reporting of results.
FISCAL IMPACT: There is no fiscal impact associated with this quarterly reporting.
FUNDING: Not Applicable
David Dockham
Interim Electric Utility Director
DD/Ist
Attachments
cc: City Attorney
Finance Director