HomeMy WebLinkAboutReso 97-022 - Amending City Council Policies 1405 - Debt Reduction Fund, and 1406-Modification of the Exisitng power Cost Adj, Retroactive to Dec 3, 1996 ' � �
RESOLUTION NO. 97- 2 Z
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
REDDING AMENDING COUNCIL POLICIES 1405—DEBT
REDUCTION FUND, AND 1406—MODIFICATION OF THE
EXISTING POWER COST ADJUSTMEI�T, RETROACTIVE
TO DECEMBER 3, 1996.
WHEREAS, the City Council is charged with the responsibility of establishing municipal
policies to guide the various functions of the City and, where necessary, to establish procedures by
which functions are performed; and
WHEREAS, the City Council wishes to clarify and amend Council policies 1405 and 1406,
which it approved at its meeting of December 3, 1996, as set forth in the amendments attached hereto
and made a part hereof, with said amendments retroactive to December 3, 1996;
IT IS THEREFORE RESOLVED that the City Council adopts the attached amendments to
Council policies 1405 and 1406 entitled Debt Reduction Fund and Modification of the Existing Power
Cost Adjustment respectively, retroactive to December 3, 1996.
I HEREBY CERTIFY that the foregoing resolution was introduced, read and adopted at a
regular meeting of the City Council on the 18th day of February, 1997, by the following vote:
AYES: COUNCIL MEMBERS: R. Anderson, Kehoe and McGeorge
NOES: COUNCIL MEMBERS: None
ABSENT: COUNCIL MEMBERS: P. Anderson and McGeorge
ABSTAIN: COUNCIL MEMBERS: None
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DAVID . cGE !�GE, ayor �
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Attest: Form Approved: �
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. ,/�! i/�� t:%�'`�c'L1 'z7�fe "
Connie Strohmayer, City C e k W. Leonard Wingate, ity Attorney
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�� CITY OF REDDING, CALIFORNIA
Council Policy
SUBJECT Resolution Policy Effective Page
Number Number Date
DEBT REDUCTION FUND 1405 1
BACKGROUND
The City Council provides financial oversight and fiscal management for the City of Redding
Electric Utility and has the authority to establish appropriate rates, fees, and charges to guarantee
the financial integrity of the Utility. In addition, the City Council has the responsibility and authority
to establish special-purpose funds within the Electric Utility fund to provide a means of
accumulating proceeds to finance anticipated, major, future expenditures to pay debt or to provide
rate stabilization.
In 1996, the state legislature passed AB 1890 which, among other things, will necessitate that the
City of Redding is able to lower its rates in 2001. To accomplish that, the City must be able to
reduce its total debt and its annual debt payments. As a result, during its regular meeting of
November 19, 1996, the City Council voted unanimously to establish a rate reduction account
within the rate stabilization fund to be used as the City Council may determine at its discretion in
the future.
PURPOSE
It is the purpose of this policy to establish a rate reduction account as a subaccount within the rate
stabilization fund (RRF) and to enable the flow of new funds into the RRF to reduce impacts on
future electric rates and to enhance Redding's ability to provide competitive electric rates.
POLICY
1. There is hereby established a rate reduction account as a subaccount within the rate
stabilization fund which shall be funded by any revenue collected from a specific rate
increase for electric restructuring purposes, benefits resulting from debt restructuring, cost
savings in the Electric Utility, competition transition charge, wholesales revenue
enhancements, some year-end carryovers, etc.
2. Proceeds from this fund shall be used solely for the purpose of industry restructuring,
including, without limitation, debt restructuring or repayment, unless otherwise directed by
the City Council; but in no case shall proceeds from this fund be used for non-Electric Utility
purposes.
PROCEDURE
1. The City Council directs the City's Finance Division to create a rate reduction fund within
the Electric Utility fund.
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� CITY OF REDDING, CALIFORNIA
Council Policy
SUBJECT Resolution Policy Effective Page
Number Number Date
DEBT REDUCTION FUND 1405 2
2. Revenue identified by this policy shall be deposited into the RRF unless otherwise directed
by the City Council.
3. Any interest earned on the fund shall be applied to the fund balance.
4. The City Council shall approve, in accordance with this policy, any appropriations to be
made from the RRF to reduce debt or lower customer rates.
5. The monthly financial report for the Electric Utility shall include a RRF monthly statement
reporting all RRF activity, including beginning balance, receipts and expenditures, and
ending balance.
6. City of Redding utility bills shall include as soon as practicable as a special line item all
costs relating to any rate increase initiated for debt repayment associated with restructuring
together with the total amount of debt the Utility has on the books.
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Council�259.96
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' CITY OF REDDING, CALIFORNIA
Council Policy
SUBJECT Reso�ution Policy Effective Page
MODIFICATION OF THE EXISTING Number Number Date
POWER COST ADJUSTMENT 1406 1
BACKGROUND
The power cost adjustment (PCA) was established initially on December 6, 1988, by Resolution
88-432 to provide a method of charging or crediting electric customers' monthly bills to reflect
charges or refunds to the City from the Western Area Power Administration's (Western) revenue
adjustment clause (RAC). On February 6, 1996, Council approved setting aside a portion of RAC
refunds to build up a rate stabilization fund (RSF) to cover a portion of future anticipated expenses
resulting from the cancellation of a power sales contract the City has with Western. During its
regular meeting of November 19, 1996, the City Council voted unanimously to establish a policy
to so set aside 100 percent of the Western RAC refunds.
PURPOSE
The Western contract cancellation will result in a $10.6-million revenue shortfall for the City over
the 1999-2001 time span. The Electric Utility expects to offset $7.4 million of that by selling the
power in the spot market. This leaves a $3.2-million revenue gap which will remain after the spot
market sales. Unless all of this gap is offset, the difference would have to be made up in rates or
from funds that otherwise would be used to reduce debt. It is the purpose of this policy to modify
the PCA by setting aside 100 percent of RAC refunds in order to mitigate any future rate increase.
POLICY
1. There is hereby established a policy that 100 percent of RAC refunds will be set aside in
the RSF to cover future anticipated shortfalls between what Western would have paid and
what the City can now get for this energy resulting from the cancellation of a power sales
contract the City has with Western.
2. In the event the RAC refunds set aside in the RSF exceed the amount needed to cover the
revenue gap, proceeds from this fund shall be used for the purpose of industry restructuring
or shall be rebated to customers as directed by the City Council; but in no case shall
proceeds from this fund be used for non-Electric Utility purposes.
PROCEDURE
The following procedures shall be followed to implement these policies:
1. The City Council directs the City's Electric Department to identify on invoices received from
Western the amount of any RAC refund.
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' CI1'Y OF REDDING, CALIFORNIA
Council Polic
SUBJECT Resolution Policy Effective Page
MODIFICATION OF THE EXISTING Number Number Date
POWER COST ADJUSTMENT 1406 2
2. The Finance Division shall accumulate 100 percent of RAC refunds in the existing RSF
deferred-revenue account established within the Electric Utility fund for RAC refund
purposes.
3. The City Council shall approve, in accordance with this policy, any payments to be made
from this RSF.
4. At such time as the original or any subsequent purpose for this RSF is met, as determined
by the City Council, any remaining balance in the fund shall become a part of the rate
reduction account within the RSF or shall be rebated to customers as a credit on their bills
or shall be used to offset any rate increases.
5. Any interest earned on the fund shall be applied to the account balance.
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Counci1�258.96
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