HomeMy WebLinkAboutAgenda Report - November 16, 2022 C-18itCITY o f AGENDA ITEM COO
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CALIFORNIA
COUNCIL COMMUNICATION
AGENDA TITLE:
Adopt Resolution Approving Revised Lodi Electric Utility Reserve Policy
MEETING DATE:
November 16, 2022
PREPARED BY:
Electric Utility Director
RECOMMENDED ACTION: Adopt a resolution approving revised Lodi Electric Utility (LEU) Reserve Policy.
BACKGROUND INFORMATION: The LEU Reserve Policy requires an assessment of the targets identified with a
report to the City Council every three years. The last review was completed in
March 2021. A formal review by the Council is not required until 2024.
Since 2011, the formula for establishing the LEU Reserve Policy has remained unchanged. The actual dollar amounts
have been reviewed and updated each year by the Risk Oversight Committee (ROC) in accordance with the approved
annual budget. The approved formula for those targets as well as the specific target for Fiscal Year 2022/23 are as
follows:
Gurrent LEU Reserve Polic _
Fund Designation Basis FY 2023
Operating Reserve. 90 days cash on hand $ 220261,410
Capital Reserve Largest distributions stem contingency $ 1,000,000 _
NCPA General Operating Identified by NCPA plus allowance for
Reserve unanticipated studies_ $ 3,588,920
Total Target $ 26,850,330
While a formal review of the LEU Reserve Policy is not required until 2024, LEU staff are recommending a revision to
better align with current trends in the energy markets, specifically as it relates to the acquisition of electrical equipment.
Currently, the LEU Reserve Policy includes a Capital Reserve component which is intended to set aside funds in the
event of a catastrophic failure of a substation transformer. However, with supply chain challenges and increasing lead
times to procure and receive equipment like transformers, staff are proposing to remove the Capital Reserve component
from the LEU Reserve Policy and instead move forward to purchase a spare transformer to ensure equipment is available
and on hand should a catastrophic failure occur. In addition, with a number of material price increases experienced
across the board in terms of electrical equipment, a $1 million reserve is not sufficient to procure a substation transformer
as current estimates are closer to $2 million.
Should Council authorize this change to the LEU Reserve Policy, staff will move forward to complete a design
specification and complete the bid process in accordance with City purchasing requirements.
APPROVED: cr [Nov 2, 2022 14:04 POT)
Stephen Schwabauer, City Manager
Adopt Resolution Approving Revised Lodl Electric Utility Reserve Policy
November 16, 2022
Page 2
With this proposed change, the revised LEU Reserve Policy would be as follows:
Proposed LEU Reserve Polic
u Desi nation Basis FY 202
Operating Reserve 90 days cash on hand $ 22,261,410
NCPA General Operating Identified by NCPA plus allowance for
Reserve unanticipated studies $ 3,588,920
Total Target _ _ S; 25,850,330
P#ease note the actual amounts listed are reflective of Fiscal Year 2023. While the amounts will change annually based
on each year's budget and approved by the ROC, the formula will remain the same until such time as Council approves
future revisions,
As of October 31, 2022, LEU had total unrestricted cash reserves of approximately $37.8 million, including General
Operating Reserves held at Northern California Power Agency. Based on the proposed formula, LEU is meeting over 140
percent of the proposed reserve target. By the end of Fiscal Year 2023, LEU is projected to meet over 120 percent of the
proposed target. It is important to note that LEU funds its capital improvement and maintenance activities with cash
reserves and has over $20 million programmed for such efforts over the next 5 years as identified in the City's 5 -Year
Capital Improvement Plan.
The ROC received a report and recommended approval of the proposed, revised LEU Reserve Policy at its October 27,
2022 meeting. At this same meeting, the ROC also approved the Fiscal Year 2022123 reserve target amount of
$25,850,330.
FISCAL IMPACT: The funding needed to meet the revised Policy will be evaluated each year as part of
LEU's annual review and update of its financial forecast.
FUNDING AVAILABLE: Not applicable.
Andrew Keys
Andrew Keys
Deputy City Manager/Internal Services Director
Jeff Berkheimer
Electric Utility Director
Signature: Ql r xv�obj
Email: akeys@lodi.gov
RESOLUTION NO 2022-283
A RESOLUTION OF THE LODI CITY COUNCIL
APPROVING REVISED LODI ELECTRIC UTILITY RESERVE POLICY
WHEREAS, the Lodi Electric Utility (LEU) Reserve Policy requires an assessment of the
targets identified with a report to the City Council every three years and the last review was
completed in March 2021; and
WHEREAS, since 2011, the formula for establishing the LEU Reserve Policy has
remained unchanged and the actual dollar amounts have been reviewed and updated each year
by the Risk Oversight Committee (ROC) in accordance with the approved annual budget; and
WHEREAS, the approved formula for those targets, as well as the specific target for Fiscal
Year 2022/23, are as follows:
Fund Designation
Basis
FY 2023
Operating Reserve
90 days cash on hand
$ 22,261,410
Capital Reserve
NCPA General Operating
Reserve
Largest distribution system
contingency
Identified by NCPA plus
allowance for unanticipated
studies
$ 1,000,000
$ 3,588,920
Total Target
$ 26,850,330
WHEREAS, while a formal review of the LEU Reserve Policy is not required until 2024,
LEU staff are recommending a revision to better align with current trends in the energy markets,
specifically as it relates to the acquisition of electrical equipment; and
WHEREAS, currently, the LEU Reserve Policy includes a Capital Reserve component
which is intended to set aside funds in the event of a catastrophic failure of a substation
transformer; and
WHEREAS, with supply chain challenges and increasing lead times to procure and
receive equipment like transformers, staff are proposing to remove the Capital Reserve
component from the LEU Reserve Policy and instead move forward to purchase a spare
transformer to ensure equipment is available and on hand should a catastrophic failure occur;
and
WHEREAS, at its October 27, 2022 meeting, the ROC recommended approval of a
revised LEU Reserve Policy as noted below and approved the Fiscal Year 2022/23 reserve target
amount of $25,850,330.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby approve
the revised LEU Reserve Policy formula as follows with the annual dollar targets to be updated
by the ROC each year:
Fund Designation Basis FY 2023
Operating Reserve 90 days cash on hand $ 22,261,410
NCPA General Operating Identified by NCPA plus
Reserve allowance for unanticipated $ 3,588,920
studies
Total Target $25,850,330
Dated: November 16, 2022
I hereby certify that Resolution No. 2022-283 was passed and adopted by the City Council
of the City of Lodi in a regular meeting held on November 16, 2022, by the following vote:
AYES: COUNCIL MEMBERS — Hothi, Khan, Kuehne, Nakanishi, and
Mayor Chandler
NOES- COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS — None
ABSTAIN: COUNCIL MEMBERS — None
OLIVIA NASHED
City Clerk
2022-283