HomeMy WebLinkAboutMinutes - May 23, 2006 SSCITY OF LODI
INFORMAL INFORMATIONAL MEETING
"SHIRTSLEEVE" SESSION
CARNEGIE FORUM, 305 WEST PINE STREET
TUESDAY, MAY 23, 2006
An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday,
May 23, 2006, commencing at 7:00 a.m.
A. ROLL CALL
Present: Council Members — Beckman, Hansen, Johnson, Mounce (arrived at 7:04 a.m.),
and Mayor Hitchcock
Absent: Council Members — None
Also Present: City Manager King, City Attorney Schwabauer, and Deputy City Clerk Perrin
B. TOPIC(S)
B-1 "Utilities quarterly update"
Electric Utility Director, George Morrow, reported that, since the last quarterly update, two
issues have changed the financial condition of the Electric Utility: revenues were lower than
anticipated and expenses were higher. In looking at the third quarter (i.e. the end of March
2006), sales revenues were down to $1.6 million and power costs were up to $1.6 million.
When staff met with the rating agencies, the projection was a $3.2 million cash balance at
year end; however, with these two negative impacts, the cash balance will be $1.7 million,
or $1.5 million less than anticipated.
In response to Council Member Hansen, Mr. Morrow stated that sales revenue projections
were less due mainly to a decrease of $1.2 million for the period of September to November
2005. The decrease may be attributable to the weather, which was cooler and not as
conducive to sales. Additionally, there was much discussion and media attention on the
condition of the Utility and the possibility of large rate increases. It is likely that residents
conserved their energy as they may have felt the City was in a critical situation. Although
conservation and efficiency are desired, it does play a factor in the financial forecast and
condition of the Utility.
In response to Council Member Beckman, Mr. Morrow confirmed that Lodi's rate structure
is designed with a lower rate for baseline usage and that energy consumed above that
baseline is charged at a higher rate. If more citizens conserve and do not progress into the
higher tier, it can have an impact on the Utility's budget.
Council Member Hansen stated that Lodi is serious about energy efficiency and it should
be factored into the projections and overall management of the Utility.
Mr. Morrow agreed that it may be necessary to adjust the per unit charges so that
customers pay more per kilowatt hour, yet their total bill would be lower.
Mayor Hitchcock stated that the City needs a larger reserve in order to manage these types
of fluctuations.
Mr. Morrow reported that there was an increase in power supply costs and in payments to
the Northern California Power Agency (NCPA). There was a $1.4 million increase to the
City in charges related to the California Independent System Operator (CAISO), which is a
regional transmission organization responsible for management of the electric grid of the
transmission system and for ensuring that those who bring transmission to the grid recover
their costs. Most of the transmission in California is investor-owned utilities who are able to
input their costs into the CAISO, which is then passed onto the users of the system.
Municipal utilities are large users of the system and pay a proportionate share of the costs.
Staff, in conjunction with NCPA, is working with CAISO in getting its cost structure more
Continued May 23, 2006
manageable, as there are additional costs anticipated in the future. NCPA's budget this
year for CAISO-related costs was $22 million; next year it will increase to over $40 million.
The CAISO has an independent board that is regulated by the Federal Energy Regulatory
Commission (FERC) in Washington DC, and it does not respond well to the users in
California.
Mayor Pro Tempore Johnson questioned how CAISO can justify these significant
increases, to which Mr. Morrow replied that there has been a substantial amount of new
transmission built in California, for which the per unit cost is quite expensive. The rate of
returns has increased as interest rates or the cost of money has gone up, and the
allowable rate of profit for investor-owned utilities has increased. Additionally, the CAISO
has assumed more functions and is broadening its reach beyond raw transmission. It is
looking at reliability in the state and, at some point, will manage power plants. Because of
these reasons, its administrative costs have increased significantly. Utilities and NCPA are
very concerned and are utilizing all regulatory forums, particularly at FERC, to address the
issue.
Council Member Hansen added that this has been a continuous battle and utilities are
caught between FERC and CAISO, as neither will take responsibility. The CAISO volunteer
board relies solely on its staff regarding input from municipal utilities.
Mr. Morrow stated that FERC prefers ISOs and tends to favor costs, goals, and plans
submitted for approval by ISOs. City staff recently met with members of FERC in
Washington DC to complain that municipal utilities are not being included in the process.
The $7 million negative net income for Electric Utility will be made up using reserves, as
well as the general operating reserves (GOR) at NCPA. With the aid of an overhead
presentation (filed), Mr. Morrow reviewed the revenue and expense projections. Projected
capital expenses and budgeted expenses are accounted for separately to track the general
operating expenses for capital items, as well as the bond revenues. The capital costs are
projected to be $1.5 million and "other" costs are $9.1 million, for a total of $10.6 million.
The GOR is the amount of money Lodi has in an NCPA account that holds the excess of
what the City is billed for on a monthly basis. It tends to increase by $75,000 to $100,000
per month. At the start of the year, the balance of the GOR was $266,000, and it increased
to $2.7 million at the end of this quarter. Much of that growth was due to a large settlement
in a Pacific Gas & Electric case, which increased the reserve by $1.8 million. Staff intends
to use most of the GOR to assist in the Utility's liquidity.
In response to Council Member Hansen, Mr. Morrow explained that NCPA submits an
estimated bill to the City on an advanced basis, the City makes the payment to NCPA, and
when the actual expenses are realized, any difference is placed into this account. NCPA's
financial advisors are looking into the amount of reserves that members keep in the GOR so
that utilities can survive fluctuations due to volatility in the power market. NCPA is not
concerned with where the reserves are housed, but that there are enough reserves on hand.
Mr. Morrow reported that the Utility has closed its open position for next year. The last
large purchase was on May 10, which resulted in a closed position of 95%. This provides a
cushion if the loads are not as high as projected or if the market declines dramatically. It is
anticipated that next year's budget will be balanced; although, it will leave little contribution
to reserves. Lodi's percentage of the CAISO costs has been built into next year's budget,
and NCPA's budget projections have decreased for next year. Staff anticipates a reduction
in power supply costs and has analyzed the sales per kilowatt hour and by customer class
to arrive at a more accurate, realistic number. The decreases in revenue will match the
decrease in power supply costs. Additionally, the capital costs will be rolled into the rates
this year to cover general capital projects that are accomplished during the normal course
of business.
2
Continued May 23, 2006
In response to Mayor Hitchcock, Mr. Morrow stated that there is $11 million remaining in
the Certificates of Participation fund, and Electric Utility anticipates using $3.5 million for
the Killelea Substation revitalization, $500,000 on other large capital projects, and
$1.5 million to be transferred this fiscal year.
In response to Council Member Hansen, Mr. Morrow reported on the status of the Resource
500 project and the Lodi combined cycle project at White Slough. C'alpine has a list of
preferred projects that it wants to divest itself of; however, it no longer wants to sell the
Resource 500 project because it is a great asset with a good operating history and
efficiency. Much of the ground work has been completed on this so that an offer can be
made should it become available. On the White Slough project, changes in the industry
have split the NCPA members. Some are in the SMUD Western Area Power
Administration sub -control area and others, including Lodi, are in the CAISO area. This
plant would be in the CAISO control area, and some members do not want to participate if
that is the case. Staff has also researched other base load type projects, such as coal
fired energy; however, California regulations make it difficult for utilities to be involved in any
type of energy that might have carbon dioxide emissions. Utilities need abase load
resource that is inexpensive to operate, because it runs thousands of hours a year. In
California, the base load plants tend to be natural gas fired plants that are combined cycle;
however, it is subject to extreme \olatility in natural gas prices. Lodi has no base load type
resource that it can run 8,760 hours a year. The Resource 500 or the project at White
Slough could fill that need, but it too would be subject to the price of gas.
In answer to Mayor Hitchcock regarding global warming, Mr. Morrow stated that power
plants accepted by the environmental community are those with Integrated Gasification
Combined Cycle technology, which burns coal directly instead of pulverizing it. The
process burns coal, turns it into a gas, and the gas is then consumed. In the conversion
process, carbon dioxide is captured, sequestered, and put into the ground in caves.
City Manager King informed Council that staff would be contacting the rating agencies to
advise them of Lodi's year end cash position. The rating agencies had previously conveyed
that Lodi's communication regarding its financial condition had not been adequate, and the
City is now taking a proactive approach. There is the possibility that it may be a good
hydroelectric year due to the abundance of water and that inexpensive power may be
available later in the year; however, staff stands behind its action to secure power and lock
up the power costs. The fiscal year 2006-07 budget will be balanced, without the use of
reserves. There will be a small cash reserve margin, but it will not be a large enough
cushion to protect against any unexpected events.
Mayor Pro Tempore Johnson questioned whether or not the City could trade or sell its
higher priced power if it ended up having an abundance, to which Mr. Morrow responded in
the negative.
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 7:56 a.m.
ATTEST:
Jennifer M. Perrin
Deputy City Clerk
Electric Utility Department
FY06 Quarterly Update
(Through April 30, 2006)
City Council Shirtsleeve Session
May 23, 2006
FY 06 Financial Results (3rd Quarter)
ming Cash 4,896,603
5,089,570
6,791,473
9,013,004
8,794,236
7,166,564
3,712,665
5,861,460
(228,280)
4,896,603 7,343,000
ig Cash 5,089,570
6,791,473
9,013,004
July -05
August -05
September -05
October -05
November -05
December -05
January -06
February -06
March -06
YTD
FY 06 Budget
Sales Revenues
5,973,851
6,768,918
5,583,919
4,487,852
4,023,380
4,147,794
4,712,082
4,317,886
4,182,704
44,198,386
60,072,000
Other Revenues
30,059
6,665
29,751
20,840
218,707
3,105
234,925
212,254
14,011
770,317
1,383,000
1 6,003,910
6,775,583
5,613,670
4,508,692
4,242,087
4,150,899
4,947,007
4,530,140
4,196,715
44,968,703
61,455,000
Total Revenues
Purchase Power
3,624,238
3,601,823
2,366,731
3,915,976
4,785,781
4,529,998
-
8,669,755
4,470,303
35,964,605
42,700,000
Non -Power Costs
818,137
877,262
901,750
834,304
831,997
1,002,568
1,028,942
779,931
801,068
7,875,959
10,521,000
4,442,375
4 479,085
3,268,481
4,750,280
5,617,778
5,532 566
1,028,942
9,449,686
5,271,371
43,840,564
53,221,000
Total Expenses
Net Revenue for Debt Service
1,561,535
2,296,498
2,345,189
(241,588)
(1,375,691)
(1,381,667)
3,918,065
(4,919,546)
(1,074,656)
1,128,139
8,234,000
Debt Service
-
-
849,305
941,575
1,79000
5,619,000
Net Revenue
1,561,535
2,296,498
2,345,189
241,588
1,375,691
2,230,972
2,976,490
4,919,546
1,074,656
662,741
2,615,000
In -lieu Transfer To General Fund
545,749
620,928
590,900
555,262
545,833
549,110
588,981
555,649
268,287
4,820,699
6,550,000
Capital Projects
134,608
234,226
123,269
162,718
222,944
98,736
91,727
170,985
104,916
1,344,129
139,000
Other changes in workingcapital
688,211
260,559
590,511
740,800
516,796
575,081
146,987
443,560
764,386
1,019,213
-
NetIncrease (Decrease)
192,967
1,701,903
2,221,531
(218,768)
(1,627,672)
(3,453,899)
2,148,795
(6,089,740)
(683,473)
(5,808,356)
(4,074,000)
ming Cash 4,896,603
5,089,570
6,791,473
9,013,004
8,794,236
7,166,564
3,712,665
5,861,460
(228,280)
4,896,603 7,343,000
ig Cash 5,089,570
6,791,473
9,013,004
8,794,236
7,166,564
3,712,665
5,861,460
(228,280)
(911,753)
(911,753) 3,269,000
GOR 7,122,372
8,899,179
11,191,919
11,072,406
9,538,133
6,137,293
8,343,033
2,317,632
1,734,027
1,734,027
FY 06 Financial Results (to date)
• Sales revenue
— -$1.6 million
• NCPA Power Costs
— +$1.6 million
• Projected year-end cash balance
— $1.7 million
— $3.2 million rating agency goal
FY 06 Financial Projections
Cash Flow
I
Sales Revenues
Other Revenues
Total Revenues
Year to Date
44,198,386
770,317
FYE 06
Projected
58,442,552
1,199,220
FY 06 Budget
60,072,000
1,383,000
44,968,703
59,641,772
61,455,000
Purchase Power
Non -Power Costs
Total Expenses
Net Revenue for Debt Service
Debt Service
Net Revenue
In -lieu Transfer To General Fund
Capital Projects
Other changes in workingcapital
35,964,605
7,875,959
44,371,207
9,114,147
42,700,000
10,521,000
43,840,564
53,485,354
53,221,000
1,128,139
1,790,880
6,156,418
5,798,837
8,234,000
5,619,000
662,741
357,581
2,615,000
4,820,699
1,344,129
1,019,213
6,050,000
1,500,000
-
6,550,000
139,000
-
Net Increase (Decrease)
(5,8081,356)
(7,192,419)
(4,074,000
Beginning Cash
EndingCash Before Adjustment
4,896,603
911,753
4,896,603
2,295,816
7,343,000
3,269,000
Adjust for GOR
Adjust for Capital Re -fund from bonds
2,500,000
1,500,000
Ending Cash
(911,753)
1,704,184
3,269,000
NCPA "GOR"
• General Operating Reserve
• Provides funding for contingencies
• GOR levels
- $266, 603 (July 1, 2005)
- $2,737,597 (April 30, 2006)
• Current GOR includes PG&E "refund"
- $1,842,940
• Will utilize GOR for FY06 liquidity
FY07 Power Purchase (May 10, 2006)
Lodi Total
Lodi HLH
Lodi LLH
MWh Amount Avg
MWh Amount Avg
MWh Amount
Avg
Dec 2006
31610
$ 304,273
$
84.30
31334
$
286,592
$85.95
275
$
171682
$ 64.25
Jan 2007
February
March
141217
12,963
141452
$1,220,622
$1,114,659
$1,244,185
$
$
$
85.86
85.99
86.09
10,643
91825
11,053
$
$
$
952,581
879,305
989,218
$89.50
$89.50
$89.50
37574
37138
37400
$
$
$
268,042
235,354
254,966
$75.00
$75.00
$75.00
April
May
June
81815
91127
81867
$ 559,973
$ 580,254
$ 566,736
$
$
$
63.52
63.57
63.91
51360
51574
51574
$
$
$
380,292
395,504
395,504
$70.95
$70.95
$70.95
31455
31553
37293
$
$
$
179,681
184,751
171,232
$52.00
$52.00
$52.00
MWH Total
72,052
$ 5,590,703
$
77.59
51,364
$ 4,278,995
$83.31
20,688
$1,311,707
$ 63.40
FY07 Net Open Position
Lodi Total
Lodi HLH
Lodi LLH
Surplus/(Deficit) I Load % of Load
Surplus/(Deficit) Load % of Load
Surplus/(Deficit) Load % of Load
July 2006
(2,742)
53,047
-5.2%
(1,218)
33,241
-3.7%
(1,524)
19,807
-7.7%
August
112
50,317
0.2%
1,020
33,577
3.0%
(908)
16,740
-5.4%
September
1,591
43,514
3.7%
1,586
27,873
5.7%
5
15,642
0.0%
October
(56)
38,032
-0.1%
726
24,153
3.0%
(782)
13,878
-5.6%
November
(2,494)
35,704
-7.0%
(2,757)
22,530
-12.2%
263
13,175
2.0%
December
(2,142)
38,981
-5.5%
(1,881)
24,104
-7.8%
(262)
14,878
-1.8%
Jan 2007
(5,081)
37,596
-13.5%
(2,873)
23,956
-12.0%
(2,208)
13,640
-16.2%
February
(3,408)
33,538
-10.2%
(1,689)
21,714
-7.8%
(1,719)
11,824
-14.5%
March
(1,774)
36,706
-4.8%
(880)
24,249
-3.6%
(894)
120457
-7.2%
April
(3,485)
35,749
-9.7%
(2,669)
22,653
-11.8%
(816)
13,096
-6.2%
May
(1,937)
40,080
-4.8%
(1,121)
25,606
-4.4%
(816)
14,474
-5.6%
June
(1,627)
43,732
-3.7%
(1,019)
29,416
1 -3.5%
(607)
14,316
-4.2%
Net Total
(23,044)
486,997
-4.7%
-12,776
313,071
-4.1 %
-10,268
173,926
-5.9%1
FY 06-07 BUDGET
• Balanced (breakeven) budget
— Little or no reserve contribution
• Updated sales/revenue forecast (lower)
• Lower power supply (NCPA) costs
Summary
• FY 06 continues to be difficult financial
year
— Reduction in expected revenues and increase
in power supply cost
• FY07 budget expected to be balanced
— Short of financial liquidity goals