The URL can be used to link to this page

Home My WebLink AboutReso 96-218 - Adopting Council Policy Nos. 1405 - Debt Reduction Fund and 1406-Modification of teh Existing Power Adj �rX ^ T • • (' i RESOLUTION NO. 96- Z/� A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING ADOPTING COUNCIL POLICY NOS. 1405-DEBT REDUCTION FUND AND 1406-MODIFICATION OF THE EXISTING POWER COST ADJUSTMENT. 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 formalize the following policies which it approved in concept at its meeting of November 19, 1996: (1) Establishment of a rate reduction fund to deposit revenue from a variety of services that will be used for debt reduction until such time as the City Council determines that the fund is no longer needed; and (2) Creation of a written policy for the power cost adjustment to provide that 100 percent of Revenue Adjustment Clause refunds from the Western Area Power Administration is placed in the Fund to offset any revenue shortfalls from the cancellation of the contract by Western, thereby reducing as much as possible any pressure from the cancellation of the contract to increase electric rates; IT IS THEREFORE RESOLVED that the City Council adopts Council Policies 1405 and 1406 entitled Debt Reduction Fund and Modification of the Existing Power Cost Adjustment respectively, to be incorporated in the Council Policy Manual. A copy of each policy is attached and made a part hereof. I HEREBY CERTIFY that the foregoing resolution was introduced, read and adopted at a regular meeting of the City Council on the 3rd day of December, 1996, by the following vote: AYES: COUNCIL MEMBERS: P. Anderson, R. Anderson, Kehoe, Murray and McGeorge NOES: COUNCIL MEMBERS: None ABSENT: COUNCIL MEMBERS: None ABSTAIN: COUNCIL MEMBERS: None , ,� � DAVID . ' cGEO , M or � � � � Attest: Form Ap ved: � /G-'" ,��'�?��!-^-�'4 'v�-- � Connie Strohmayer, Cit lerk , W. Leonard Wing e,..,City.Attorney.. ....... ... ..... �, , ,: . , , . ,... ... ... ... _. ... ... .. :.�,��>.\ =��,��,�� ,'1�(�`� �V�.,�v�c�\ ��\�� ". Rescinded by Resolution 02-98 . '�,� , �� 1�� _.�?��:' i q�-C.7s � � � �' ^ ' � • �- C/TY OF REDDING, CALIFORNIA � Council Policy SUBJECT Resolution Policy Effective Number Number Date Page DEBT REDUCTION FUND 1405 1 BACKGROUND The City Council provides financial oversight and fiscal management for the City of the 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 debt reduction fund to accumulate a pool of funds to facilitate the early payoff of Electric Utility debt. PURPOSE It is the purpose of this policy to establish a debt reduction fund (DRF) and to enable the flow of new funds into the DRF to reduce debt service impacts on future electric rates and to enhance Redding's ability to provide competitive electric rates. POLICY 1. There is hereby established a debt reduction 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, principally, 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 Department to create a debt reduction fund within the Electric Utility fund. 2. Revenue identified by this policy shall be deposited into the DRF unless otherwise directed by the City Council. :...:-.. _......, :.......:::::: .. .... ... ...., ., -. F-0091 -7/93 S , � • CITY OF REDD /VG, CALIFORN/A � Council Policy SUBJECT Resolution Policy Effective Number Number Date Page DEBT REDUCTION FUND 1405 Z 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 payments to be made from the DRF to reduce debt or lower customer rates. 5. The monthly financial report for the Electric Utility shall include a DRF monthly statement reporting all DRF activity, including beginning balance, receipts and expenditures, and ending balance. 6. City of Redding utility bills shall report as a special line item all charges 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 until the City Council determines that the fund is no longer needed. TG:kb Council1259.96 F-0091 •7/93 '' . • ^ • � CI TY OF REDD G, CANFORNIA � Council Policy SUBJECT Resolution Policy Effective Number Number Date Page MODIFICATION OF THE EXISTING 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 (R.F.) 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 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. F-0091 •7/93 .t f � � a � . CITY OF REDDIrVG, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page MODIFICATION OF THE EXISTING POWER COST ADJUSTMENT 14 0 6 2 2. The Finance Department 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 debt reduction fund 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 fund balance. TG:kb Council\258.96 F-0091 -7l93