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Home My WebLink About _ 4.5(b)--Consider Adoption of Reimbursement Resolution for Redding Electric Utility GI �" Y � F � � � ° � � � " � � CITY OF REDDING REPORT TO THE CITY COUNCIL MEETING DATE: August 15, 2023 FROM: Nick Zettel, Director of ITEM NO. 4.5(b) Redding Electric Utility ***APPROVED BY*** �4..ry �� w� .. s.N,.�� , � -�°�� k et e o� �rcctor�i9' e in r tric�Llt'rtity �12J2��3 �� }r ippin,Ci �� na � � �19/2423 nzettel@cityofredding.org btippin@cityofredding.org SUBJECT: 4.5(b)--Consider Adoption of Reimbursement Resolution Regarding Expenditures Related to Redding Electric Utilit 's Infrastructure Ca ital Pro'ects. Recommendation Adopt Resolution declaring the City of Redding's intention to reimburse expenditures related to Redding Electric Utility's replacement of existing general system infrastructure and design, acquisition, construction, and equipping of new infrastructure projects from the proceeds of tax- exempt debt obligations. Fiscal Impact The reimbursement resolution does not bind the City of Redding (City) to make any expenditure or incur indebtedness. Regarding the financing plan, initially, Redding Electric Utility (REI� will see a reduction in reserves until bonds are issued and reimbursement is received for incurred costs. The amount and duration of this drawdown will depend on the pace of capital project spending (both ongoing and anticipated). When the bonds are issued, reserves will be replenished, funds for future projects will be placed in a trust account, and the Electric Fund will incur additional debt service obligations. Initial estimates from the adopted Bi�nnial Budget (2023-25) indicate a bond issuance, not expected to exceed $65 million, at the beginning of FY25. This estimate may change based on market conditions, the pace of capital outlay, and the City Council's (Council) review of individual proj ects. Debt service amount and term will be presented to the Council for consideration before bond issuance. Based on current market conditions, debt service is estimated at $65,000 for every $1 million finaneed. To achieve proceeds of $65 million, debt service payments are estimated at $4.25 million per year which is incorporated within the currently approved REU five-year financial plan. Report to Redding City Council August 9,2023 Re: 4.5(b)--ConsiderAdoption of Reimbursement Resolution for Redding Electric UtilityPage 2 Alternative Action The Council could choose not to adopt the resolution and provide alternative direction to staff. REU's five-year financial and rate plan includes the subject capital projects, financing plan, and ongoing debt service. Should the Utility not proceed with rate increases or bond issuance as planned, the Utility's capital plan would be altered or suspended as necessary to ensure adequate reserves. Background/Analysis REU's five-year financial and rate p1an, as included in the City's Adopted 2023-2025 Biennial Budget, estiinates a capital outlay of approximately$65 million over the next three years, or$20- $25 million per year. To reduce ratepayer impacts and achieve affordability targets, the City proposes to issue debt obligations to finance the design, acquisition, construction, and improvement of REU Assets listed in the reimbursement resolution. Adopting the reimbursement resolution is solely to establish compliance with Section L 150-2 of Treasury Regulations, which requires the City to declare an intention to reimburse for expenditures incurred before the issuance of bonds. Adopting the resolution is necessary to preserve the option of reimbursing the City from the proceeds of tax-exempt debt for expenditures made prior to the issuance of debt. Reimbursement will be limited to $65 million, but the amount ultimately borrowed will be a fut�ure Council decision. As stated in the fiscal impact section, the reimbursement resolution does not bind the City to make any expenditure or incur indebtedness. Environmental Review Each project funded by bond proceeds will go through an environmental review, and issuing bonds or passing this reimbursement resolution has no environmental impact. Council Priority/City Manager Goals � Budget and Financial Management: "Achieve balanced and stable 10-year Financial Plans for all funds." • Public Safety — "Work to improve all aspects of public safety to help people feel secure and safe where they live, work, and play in the City of Redding." � Government of the 21st Century — `Be relevant and proactive to the opportunities and challenges of today's residents and workforce. Anticipate the future to make better decisions today." Attachments ^Resolution Five-Year Plan from Adopted Biennial Budget Capital Budget from Adopted Biennal Budget RESOLUTION NO. 2023- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING DECLARING THE OFFICIAL INTENT OF THE CITY OF REDDING TO REIMBURSE ITSELF FOR CERTAIN CAPITAL EXPENDITURES FROM THE PROCEEDS OF INDEBTEDNESS WHEREAS, the City of Redding (the "City") intends to finance the design, acquisition, construction, and/or equipping of the projects listed on Exhibit A attached hereto (collectively,the "Project"); and WHEREAS, the City expects to pay certain capital expenditures (the "Reimbursement Expendit�ures")in connection with the Project prior to the issuance of indebtedness for the purpose of financing the costs associated with the Project on a long-term basis; and WHEREAS, the City reasonably expects that debt obligations, in one or more series, in a total amount not expected to exceed $65 million, will be issued from time to time for the purpose of financing costs of the Project on a long-term basis and that certain of the proceeds of such debt obligations will be used to reimburse the City for the Reimbursement Expenditures; and WHEREAS, Section 1.150-2 of the Treasury Regulations requires the City to declare its reasonable official intent to reimburse prior expenditures for the Project with proceeds of a subsequent borrowing; NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF REDDING, AS FOLLOWS: Section l. The City Council of the City of Redding finds and determines that the foregoing recitals are true and correct. Section 2. This Resol�ution is adopted by the City Council of the City of Redding solely for purposes of establishing compliance with the requirements of Section 1.150-2 of the Treasury Regulations and does not bind the City to make any expenditure, incur any indebtedness, or proceed with the Project. Section 3. The City Council of the City of Redding hereby declares the City's official intent to use proceeds of indebtedness to reimburse the City for the Reimbursement Expenditures. Section 4. This resolution shall take effect from and after its adoption. 4153-9569-0824.2 I HEREBY CERTIFY that the foregoing resolution was introduced and adopted at a regular meeting of the City Council of the City of Redding on the 15tv day of August, 2023,by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: ABSTAIN: COUNCIL MEMBERS: MICHAEL DACQUISTO, Mayor ATTEST: FORM APPROVED: SHARLENE TIPTON, City Clerk BARRY E. DeWALT, City Attorney 4153-9569-0824.2 EXHIBIT A PROJECT LIST CAPITAL PROJECTS Power Plant Cathodic Protection Installation Power Plant Admin Building Power Plant Whiskeytown Relicensing Overhead/Underground Infrast�ructure Covered Parking/Corp Yard Fault Indicator Refresh Fast Reclosers Tl/T2/T3 Boundaries Substation Security Substation Circuit Switchers Inter-Sub Fiber Project/Phase 2 Volt/Var Optimization RMI Metering Project/Phase 2 GENERAL SYSTEM IMPROVEMENTS Land Acquisition Station Equipment & Controls Poles-Towers-Fixtures Overhead Conductors & Devices Overhead Services Underground Conduits Underground Conductors & Devices Underground Services Transformers Meters Street Lighting Interconnections New Extensions 4153-9569-0824.2 CITY OF REDDING BIENNIAL BUDGET FISCAL YEARS ENDING JUNE 30,2024 AND 2025 Five-Year FinanciaZ PZan (2023-2028) The Electric Utility's financial plan for the current year and the subsequent five years is summarized in the table below. Fiscal Years Ending�Tune 30 , FI�E-YEAR FINANCIAL PLAN 2023 2024 2025 2U26 2Q27 202$ Electric t7tiiity Fund Beginning Balance($Mil) ' $ 44.9 $ 51.0 $ 30.8 $ 69.6 $ 49.2 $ 33.3 RSte Adjustments 2.0% 4.0% 4.0% 4.0%4 , 2.0% 2.0% Itevenues($Mil) ��Retail Electric Sales 129.0 126.4 131.4 ��;137.2 lA��aS 148.6 Wholesale E�ect�ic Sa1e�'�� 26.0 153 13.5 �� .14.0 1�.9 14.1 Miscellanet�us Incc�me 8.5 8.5 8i5 8,6 8,$ 8.9 � T�ta1�� 163.5 150.2 153:4 ]59.9 �; �6b�.2 171.6 t)perating Expenses($Mil} 1'ower Supply ', 92.2 73.7 � 75.5 77.2 80.0 82.4 ;SystemAdmiuistratitin ' 22.2 26.2 �b."7 25,1 '' 25.6 26.1 Transm3ssian&Distributit�n 23.6 28.1 2'�:�; ; "2'I.9 28.4 29.0 '�� TcrCal ''� 138.0 12$.t1 129.5 �� '�1�30.2 134.0 137.5 Net Uperating��venue �� 25.5 � � 22.�� 23.9 29.7 32.2 341 'Tc�ta1 Net DeUt Seruice ' 14.4 14.4 17.9 17.9 19.9 19.9 Rev�nue Remaining after Debt Serv'ree 11.1 7.8 T 6.0 ll.8 12.3 14.2 t7ther Revenu�es&Expenses `'M�sc�ll�neous 15.7. 1.5 1.5 1.5 1.5 1.5 Bdnd Procceds 0.� 0.0 64.4 0.0 0.0 37.] �Capi�al Projec�s� �� -12.� -19.5 -23.8 -24.1 -19.9 -17.2 �In-Lieu� �� -6.2� � -7.3 -6.7 -6.8 -7.0 -7.2 ��R�lling�Stock,lV�ajor Plant Maintenance ,�Q � ��-2.5 -2.8 -2.8 -2.8 -2.9 -2.9 ' Tota1 �� -5.0 -28.0 32.8 -32.2 -28.2 113 Tncrease(llecrease}in Funds($ ' � ` 6.1 -20.2 38.8 -20.4 -15.9 25.5 E�ectrfc�Jtility�und Endin , ance� '` '�r„a� $ �� 51.0 $ 30.8 $ 69.6 $ 49.2 $ 33.3 $ 58.7 lteserues�Days of Cash " �and); �� 132 80 170 ll9 81 142 LlebtService Coverage R' � 1.63 1.42 1.24 1.56 ].52 1.62 � „ } i y� G�y��l,� r tY z r�t t�l �� t 3� t�ts�l�{� kt}tit4 atl t '}.f�`71t+t�titi£4��, i}7}t,,,ts«��T�htlkz 7��4}1 t £'�4��Y} �Jif 54�tf}}i� ,�, �'`��``��[�� ,s�„ ' ��4�� t��'. 1.85% 1.85% 1.88% 192% 1.96% 1.96% Major assumptians is�elude a��.re�urn to the Federal Reserves' long-run target inflation rate of 2%by 2026, bond- funding capital o�tla�, and excluding Power Supply, only expending approximately 90% of O&M and Personnel appropriations. Th� �ays of eash on hand are projected to be 80 days in FY24 and 170 days in FY25. These are above the required rn�.nimum level of 75 days but, in FY24, far from the goal of 150 days. In addition, tbe debt service coverage ratio is projected to be 1.42 times in FY24 and 1.24 times in FY25. For FY24 and FY25, it is below the required minimum of 1.80 times. However, the Poliey antieipates that, in practiee, there is a range of acceptable results and a balance between cash flow and reserve levels. The Utility's Affordability KPI remains well within the target range throughout the five-year period. D-l� � The table below presents the components of the revenue-funded Capital �utlay requests for FY24 and FY25 cornpared with the actual FY�2 expenditures and the adopted and amended FY23 Budget (excluding carry- aver amounts). FY 2021-22 FY 2022 23 FY 2022-23 FY 2023-24 Inci•eas e , FY 2024-25 Increas e Description Actual Ado 'ted Amended Ado ted (Decrease Ado ted Decrease) General System ` Im rouements $ 5,883,67$ $ 5;850,000 $ 6,825;000 $ 6,585,000 $ (240,000) $ b,5$5,000 ;$ - Projects,Prograrns,& Equipment and ' Fumishin s 8;584;00$ - 3,301;21d 9,865;800 6;5�4,590 17,16d,800 7,295,000 Bond Funded _ - - - - - - Tota(Capital Outlay $14,467,686 $ 5,850,000 $10,126;210 $16,450,800 $6,324,590 $23,745,800 $ 7,295,000 Most capital outlay requests are for Prajects, Programs, Equipment, and Furnishings. General 5ystem Irnpravements consist of costs that include the annual recurring expenditures far installing facilities required to provide reliable electric service ta new customers/development and maintain reliable electric service ta existing cust�mers.Electric crews and contractors install the facilities,including transformers,poles,overhead/ underground conductors,trenching,conduit,vaults,etc.'Ihis budget cycle emphasizes overhead/underground infrastructure, sub�tatian security, and RMI metering projects. As General System Improvements, Projects, and Programs are on "existing facilities of an investor and publiCly owned utilities used ta provide electric power, natural gas, sewerage, or other public utility serviCes;'these types of projects are exempt from review under the California Environmental Quality Act(CEQA) gaidelines Section 153d1. General Systern Improvernents include the continuation of REU's meter modernization effort of approximately $500,000 per year due to the age of the utility's mechanical meters. For residential meters, the program includes the replacernent of inechanical meters,an inspection of multi-unit services,and the identification of substandard services. For commercial-type services,the program includes the repla�ement of the mechanical meters,testing of the escisting digital meters,and inspection of facilities. The capital iterns for projects and programs are as followsc FY24 Overhead/Underground Infrastructu�•e $ 5,100,000 Substation Security $ 2,000,000 RMI Metering Project-Phase II $ 1,595,$00 5ubstation Circuit Switchers and Volt/VarOptimization $ $00,000 Power P1ant Renovation/`Maintenance $ 370,000 FI'25 Overhead/Underground Infrastructure $ 10,200,000 Power P1ant Renovation $ 2,750,000 RNII Metering Project-Phase II $ 1,595,800 Volt/Var Optimization $ 1,200,000 Substation Security J Coiporation Yard Upgrade $ 840,Q00 Power Plant Whiskeytawn Relicensing $ 575,000 The Utility anticipates that most of these projects, including General System Impravements, will be bond- funded. ' Gity of Redding Biennial Budget-Fiscal Years Ending,June 30,2024 and 2025 I I�epartrn�nt t�etail 146 =_ � �