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HomeMy WebLinkAboutMinutes - October 10, 2006 SSCITY OF LODI INFORMAL INFORMATIONAL MEETING "SHIRTSLEEVE" SESSION CARNEGIE FORUM, 305 WEST PINE STREET TUESDAY, OCTOBER 10, 2006 An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday, October 10, 2006, commencing at 7:02 a.m. A. ROLL CALL Present: Council Members – Beckman (left at 7:30 p.m.), Johnson, Mounce, and Mayor Hitchcock Absent: Council Members – Hansen Also Present: City Manager King, Deputy City Attorney Magdich (arrived at 7:05 a.m.), and Interim City Clerk Perrin B. TOPIC(S) B-1 "Utilities quarterly update" With the aid of a PowerPoint presentation (filed), Public Works Director Prima presented an overview of the water and wastewater utilities. He pointed out that in both utilities the same staff members perform activities and charge their time to where the work was performed; therefore, the water account is slightly over budget with a corresponding decrease in the wastewater budget. The production account for water is mainly he cost of running the wells. Staff makes an estimate as to how much water it will produce and how much the citizens will use. The total operating expense in water was 93% of the budget amount for fiscal year 2005-06. Mr. Prima provided the following update on PCE/TCE remediation: oo Work is commencing on a number of plumes, including the Busy Bee plume. oo The Central Plume has settled, the City is operating the Guild equipment behind its store, and installed an additional well to do dual phase extraction. Once the tests are complete, the design will be finalized on the Central Plume remediation and source area, which will be underway early next year. Mayor Pro Tempore Johnson suggested that inserts be included with the utility bills announcing that work has started on the clean-up efforts. oo The South Central Western Plume is currently in settlement discussions and there is better data available on where the plume is. oo The Southern Plume has settled in concept, and the City will be taking over the responsibility, similar to the Central Plume. oo The Northern Plume is in active settlement negotiations. Completed projects in the water utility include: Water Main Replacement Project Number 2 on Stockton Street near Vine Street; two water main projects—one on Olive Street, the other on Lockeford Street; improvements to standby capacity in the water wells to phase out the dated generators—six total have been updated; Lower Sacramento Road south as part of the street widening project—installed mains for new development; and Harney Lane curve project—installed underground facilities for new development. On the wastewater side, the treatment plant came in under budget due to the fact that the tertiary plant operated more than anticipated. The wastewater utility has little control on regulatory issues, and this year an unanticipated $5,000 was required by the State for the sanitary sewer overflow program and new permit for the wastewater collection system, which is the first of many expenses in the overall program. Mayor Hitchcock questioned whether the Department accomplished everything it set out to do, to which Mr. Prima stated that, with the exception of the capital budgets, generally everything budgeted for was completed. Continued October 10, 2006 Mr. Prima stated that the wastewater operating account is at 93%; however, the capital budget was under due primarily to Phase 3 of the White Slough project not being completed. The City obtained a $5 million Certificate of Participation (COP) in 2003 and a $25 million COP in 2004. The plan included an additional $20 million financing in 2006-07; however, it appears that amount could be reduced because it may be unnecessary to build a treatment wetland and acquire additional land. The cost of the secondary improvements will be slightly higher than anticipated, but the two balanced out will still be under the projected cost for financing; therefore, the rates in place for the White Slough improvements will be sufficient for the next round of work. In response to Mayor Hitchcock, Mr. Prima listed the following projects that were not completed in the wastewater utility: 00 Land acquisition at White Slough—budgeted $3.5 million, spent zero; 00 Phase 3 design work—budgeted $1.6 million, spent $500,000; oo 2004 improvements—budgeted $2.9 million, spent $1.3 million; oo Additional money was budgeted for the Harney Lane curve that was not spent; and oo $600,000 for PCE/TCE that was not spent. Mayor Hitchcock pointed out that the cost for land will not decrease in the future. Mr. Prima stated that the long-term future of land disposal is unknown. Staff has looked at land around White Slough and each one has issues. The farm land to the west does not have development potential and the depth of the groundwater is a concern. The land to the north could potentially be available; however, it too has groundwater issues. Land to the south will be developed and is not an option. Land to the east is a possibility, but until the issue of managing groundwater is resolved, staff is not ready to move forward. In addition, the cannery is an important player in the long-term plan. As the next round of financing is discussed, consideration should be given to whether or not to include the cost of land acquisition; however, at this point, he could not make a recommendation on how much should be purchased, if any. In answer to Mayor Hitchcock, Mr. Prima stated there is approximately $12 million remaining in the 2004 COP. He did not believe the need to purchase land was imminent; however, he did believe the pipeline rehabilitation between Lodi and the plant was forthcoming. Further discussion ensued regarding the initial reasons behind the need for additional land and the current uncertainty. Mr. Prima reported on the following capital projects in the wastewater utility: 2004 improvements; the phase redesign work at $500,000, for which the plans and specifications will come before Council at the end of this year or early January; and the Lower Sacramento Road south to Harney Lane curve wastewater infrastructure. NOTE: Council Member Beckman left the meeting at 7:30 a.m. Mr. Prima presented a blue sheet (filed) with a summary of the water and wastewater revenue. The PCE/TCE rate increase raised $430,000 in the last fiscal year, which should double in the first six months of this fiscal year due to the most recent increase. The concern, however, is Measure H on the November ballot, which could potentially roll back the rate and result in a refund of $1.4 million. Revenues in wastewater were slightly over budget. He pointed out that the Central Plume was broken out due to the fact that it is a trust account containing settlement monies and the City contribution. There was a decrease due to PCE/TCE litigations being funded, as well as maintaining the capital program. Wastewater had a large cash balance at the beginning of the year due to the COP, which is starting to be drawn down. Electric Utility Director Morrow reported that the bottom line for electric utility is an unrestricted cash balance of $3.6 million, which is improved from the original target of $3.2 million. Sales revenue is down $1 million from the projection that was done at the beginning of the calendar year. Other revenues and non -power costs are both up, which 2 Continued October 10, 2006 includes capital. Debt service increased slightly and the transfer to the general fund is down $500,000. Working capital was reduced at the beginning of the year from $7.3 million to $3.6 million. Two positive events occurred to move the utility to a better outlook: it received an additional refund of $1.7 million from Pacific Gas & Electric for transmission service charges and it sold surplus materials in the amount of $300,000. In response to Mayor Hitchcock's question regarding debt service, Mr. Morrow replied that the swap agreements have variable rates, as well as different levels of principle and interest. He pointed out that in 2008 the debt service will increase $3 million, which was intended to match the $3 million reduction in the Northern California Power Agency (NCPA) debt service. Mr. Morrow reported that the actual cost for operating expenses was $9 million, and the budget amount was $10.3 million. Labor costs were down significantly from what was budgeted. The beginning cash balance for fiscal year 2006 was $12.4 million, of which $1.7 million was used for operating/capital expenses of the utility. The current balance is $10.3 million, some of which will be spent on the Killelea Substation rehabilitation and the installation of the 60kV west side line, which will leave an ending cash balance of $6.5 million. The sales breakdown for the last fiscal year shows one third of sales to residential, a third to small commercial, and another third to larger commercial/industrial. The figures reflect a year and a half of the rate increase, which decreased the industrial rate; however, that will increase this year. The balance of the NCPA general operating reserve is $3.1 million, which includes a refund of $1.8 million received last August. The sales revenue forecast show revenues increasing slightly; however, power costs will also increase in fiscal year 2007, which will result in a break even on a $67 million budget. Over 60% of the cost structure is power supply, and the figures show a decline going forward. Fiscal year 2007 is projected to have a healthy cash balance; however, it will not be built up. He pointed out that the $3 million spike in debt service in fiscal year 2008 will decrease the net income and cash balance. Staff will be looking to address this issue during the 2008 budget discussions and will come forward with recommendations. The trend going forward indicates that expenses will exceed costs. In response to Mayor Hitchcock, Mr. Morrow agreed this is due to the increase in cost of power and the spike in debt service, as well as the rates remaining the same. If nothing changes during the next budget cycle, there will need to be discussion regarding rates. In response to Mayor Pro Tempore Johnson, Mr. Morrow clarified that sales are projected to increase nominally each year. With the exception of the balloon debt payment in 2008 and a smaller spike in 2011, Mr. Morrow was not aware of any other aberrations. Mr. Morrow demonstrated the forward market price projections. He stated that NCPA made some optimistic forecasts of power costs in its budget, which Lodi adopted into its budget, and staff found that it cannot purchase power for those numbers; therefore, the purchase power costs were upgraded to reflect the actual costs. Myrna Wetzel questioned if these prices were comparable to gas prices that fluctuate with the market, to which Mr. Morrow replied in the affirmative. Mr. Morrow reported that the original projection was a $1.7 million balance at the end of the year; however, it ended at $3.6 million. Currently, the utility is well hedged for fiscal year 2007 and is locked going forward. Mr. Morrow demonstrated the fluctuation and volatility of the energy market and purchasing power on the short and long-term markets. At the October 18 Council meeting, staff will seek authority to purchase energy for fiscal year 2008, as the current authorization ended at fiscal year 2007. Continued October 10, 2006 Mayor Hitchcock questioned if the projections included the Roseville insurance policy, to which Mr. Morrow replied in the negative as that decision has not been solidified. Should it be successful, it could be a significant positive change for Lodi. Mayor Pro Tempore Johnson asked if there was adequate staffing to study the trends, to which Mr. Morrow stated that Lodi hired and paid for that expertise at NCPA. He believed it was more efficient and economic to have that aggregate strength in one central location. Each member agency receives weekly reports on the energy market, and NCPA has economists to make recommendations. Mr. Morrow stated that he has been very impressed with NCPA, but he believed that every agency should still closely monitor the situation, and he continually shares information with the risk oversight committee. NCPA is looking to formalize a new buying program that would go out five years versus one year, to which Mr. Johnson questioned if the City could participate in such a program considering its financial condition. Mr. Morrow believed it would be manageable and that the line of credit could be used as a my to secure future purchases. The program would rely on the credit of NPCA and the members as a whole, which would be a benefit to Lodi. Council Member Mounce expressed concern regarding the comment made earlier about NCPA's projection on the cost of power, particularly if Lodi is relying on the information, and further questioned who was on the oversight committee. Mr. Morrow explained that NCPA looks at two different cost structures going forward: one is the market cost view, which is a global, stable pricing scheme, and the market cost curve, which is the price at which one could buy power today. Not all of the members understood the difference between the two different models. The risk oversight committee consists of the City Manager, Deputy City Manager, City Attorney, and the Electric Utility Director. Mr. King stated that the Department has been short two key management positions since 2003-04, one of which was recently filled and the other recruitment currently underway. Mr. King stated that the City was utilizing the consultant firm of McDonald Partners, which was very competent, but it only had a narrow view as it was not aware of how much was in reserves and what the rates were. He believed it was beneficial to have internal knowledge to understand the complete picture. Staff intends to bring forward a reserve policy during the 2007-08 budget process and will continue the practice of bringing to Council authorization to purchase power. Currently, the City is limited to a 12 -month forward purchase with NCPA, with the exception of single -member purchase agreements; however, Lodi's weakened financial condition and credit rating would have a negative affect on this type of purchase. It would be more beneficial to purchase power as a group and use a collective credit rating. In response to Council Member Mounce, Mr. Morrow stated that staff will be returning to Council at its next meeting with an agreement for the Killelea Substation redesign technical work. Ms. Mounce stated that the neighbors are eager for this project because of the vacant house that is routinely vandalized. As part of the project, the property will be acquired and there will be significant improvement to that section of the neighborhood. Mr. King stated that he received citizen requests to view the City's unaudited year-end statements, which is not consistent with past practice, as well as the practice of cities within San Joaquin County. He reported that he made the information available on the website and stressed that the figures were unaudited. In response to Mayor Hitchcock, Mr. Krueger stated that the City is being as transparent as possible and he was comfortable with the decision. The City Attorney had opined that these reports were on the Intranet and available for request by the public. In addition, the report was clearly marked that it was a preliminary report, subject to audit. Mayor Pro Tempore Johnson believed it was a mistake to break past practice and cause staff extra effort to publish unsubstantiated reports, to which Mayor Hitchcock concurred. 0 Continued October 10, 2006 Mr. King stated that in the future he would like to see the audits performed earlier and he intends to work with the auditors on getting an accelerated audit. 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 8:31 a.m. ATTEST: Jennifer M. Perrin Interim City Clerk