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Home My WebLink About_ 9.5(e)--Electric Utility's Quarterly Report - 2nd QuarterC IT Y OF REMDINO�" AN CITY OF REDDING REPORT TO THE CITY COUNCIL MEETING DATE: March 19, 2024 FROM: Nick Zettel, Director of ITEM NO. 9.5(e) Redding Electric Utility ***APPROVED BY*** v , 6,pp4in, c , ct c , irecto of c iris tricUtiiit�'.....: 3.�(i;'?(�� (.7i pan i' ' nzettel@cityofredding.org btippin@cityofredding.org JECT: 9.5(e) --Consider Redding Electric Utility's Quarterly Financial Report and F st Activities Update. Recommendation Accept the City of Redding Electric Utility's Fiscal Year 2023-24 Second Quarter Financial Report and Industry Activities Update. Fiscal Impact There is no fiscal impact related to accepting this report. Alternative Action The City Council (Council) could choose not to accept the report and provide further direction to staff. Background/Analysis The December Financial Report (attached) shows that Redding Electric Utility (REU) performed better than what was budgeted from a Net Operating Revenues perspective for the first six months of the fiscal year. Increased revenue and System Operation and Maintenance (O&M) savings offset a Power Cost increase. Favorable Financial Results and a decline in unrestricted reserves are due to two main factors: an increase in inventory of $3.7 million in the first six months of the fiscal year and an increase of $2.8 million in encumbrances (commitments made for future expenditures). While unrestricted reserves declined by approximately $9.2 million through December, the cash reserve balance meets the Council's Financial Management Policy requirements. In addition, it aligns with REU's five-year financial plan presented to the Council during the Budget Workshop on May 4, 2023, which forecasted unrestricted reserves declining by approximately $20.2 million in Fiscal Year 2024. Report to Redding City Council March 11, 2024 Re: 9.5(e) --Electric Utility's Quarterly Report - 2nd Quarter Page 2 Revenue Billed retail revenue through December was $1,119,709 (1.68 percent) above budget primarily due to weather (warmer weather resulted in more energy usage). Total wholesale sales were $3,655,009 (39.2 percent) above budget. Overall, operating revenue was $4,067,267 (5.2 percent) above budget. Operating revenue after energy costs was only $27,919 (0.1 percent) below budget. The primary drivers for increased wholesale sales were sales into the California Independent System Operator (CAISO) and monthly natural gas sales at index as part of REU's hedging plan. Expenses Power Cost (Cost of Energy) The combined costs for generation, purchases from the Western Area Power Administration (WAPA), Big Horn Wind Project, contracts, and the spot market were $4,095,186 (10.4 percent) above budget projections. The Redding Power Plant generation cost was slightly higher than forecast due to increased load. The total cost of energy decreased by $14,534,103 (25.0 percent) year -over -year. Power Cost for the load (Power Cost less Wholesale Sales) decreased by $7,984,285 year -over -year (20.7 percent). System Operations & Maintenance (O&M) System O&M costs were $3,945,369 (14.1 percent), below projections. Key elements leading to expenditures staying below budget involve the timing of expenditures and activities deferred to future periods, resulting in unrealized savings. Debt Service and Capital Outlay Debt service payments and obligations through December totaled $7.2 million (on plan). Capital expenditures totaled $3.9 million (23.7 percent spent). The pace of capital expenditures has been delayed due to prolonged lead times for equipment procurement and ongoing supply chain challenges. Special Fund Expenditures Special Fund Expenditures include the expenditures for Public Benefit and Cap -and -Trade Programs, which totaled $1,307,988 (15.84 percent spent) through December. Electric Utility Unrestricted Cash Balance At the end of December, the unrestricted cash balance was $39.2 million, representing approximately 107 days of cash. REU's Financial Management Policy (Council Policy 1.41.4) has a minimum of 75 days of cash and a goal of 150 days of cash. Director's Contingency Fund The REU Director's Contingency Fund was not utilized through December. Report to Redding City Council March 11, 2024 Re: 9.5(e) --Electric Utility's Quarterly Report - 2nd Quarter Page 3 Environmental Review This is not a project defined under the California Environmental. Quality Act, and no further action is required. Council Priority/City Manager Goals • Budget and Financial Management — "Achieve balanced and stable 10 -year Financial Plans for all funds." c: Finance Director Attachments Attachment 1 - Notes on Financial Operating Statement Attachment 2 - Electric Utility Financial Results for Dec 2023 Attachment 3 - Electric Utility Financial Dashboard for Dec 2023 Attachment 4 - Electric Utility Unrestricted Cash Balance Dec 2023 Attachment 5 - Industry Update City of Redding Electric Utility Notes to Financial Report Notes on Financial Operating Statement Operating revenues are divided into three revenue elements: Retail Sales are sales of electricity to end-use customers; Wholesale Sales are to customers who resell electricity; Other Revenue includes the sale of services, joint -pole arrangements, interest income, and other miscellaneous revenue generated in the operations of Redding Electric Utility (REU). Operating Expenses are divided into two expense elements: Power Cost and System O&M. Cost of Energy summarizes Purchased Power costs. The primary sources of purchased power include Western Area Power Administration deliveries and long-term contracts for Wind Energy through M -S -R. Fuel expenses, purchases from the spot market, and expenses associated with participation in the California Independent System. Operator make up the remainder. The Generation and Transmission component comprises power plant variable costs (fuel) and fixed costs (all non -fuel costs), as well as all JPA costs (M -S -R and TANC), except Wind Energy. The Wholesale Sales and Power Costs budgets are based on known contracts and confirmed resources. Throughout the year, an effort is made to provide the most cost-effective energy supply for our ratepayers. This is often done by buying and selling natural gas or electricity to reduce the overall cost. This could include selling natural gas and replacing it with less expensive electricity than burning it in our power plant. It could also include selling energy we have contracted for at one trading hub and buying it at another less expensive one. It could also include maximizing the value of our gas storage facility to purchase natural gas in one month when it is less expensive and use it or sell it in another month. All these transactions benefit our customers but significantly inflate the Wholesale Sales and Cost of Energy numbers over their original budgets. This is because accounting rules require us to record these transactions at their gross revenue and expense amounts, not on the utility's net benefit. System O&M Expenses summarize costs for all other functional groups, i.e., Administration, Customer Services, Engineering, Financial Services, Line, Compliance, and Resources. Special Revenue funds, i.e., Public Benefits and Cap -and -Trade, are shown separately. Debt Service is paid twice per fiscal year, once in December and again in June. Capital Outlay includes current - year appropriations and unfinished projects approved by the Council in prior years. This financial report provides year-to-date comparisons to the current budget and the same year- to-date results for the prior year. Operating revenues are reported as billed. Costs for energy, other operating expenses, and capital outlay are recorded when paid. For this report, debt payments are spread evenly over the year, giving a more helpful picture of the financial results. Projections are based on normal weather trends and known industry activity. If actual weather conditions are above or below average for the month or unexpected industry disruption occurs, revenue and expenses will increase or decrease accordingly. REU's residential and small commercial rate structures are heavily weighted on volumetric charges ($/kWh), and abnormal weather causes more significant variances in net operating results, emphasizing the difference between the rate structure and cost structure. The recorded results are preliminary and subject to revision until the final audit is complete. Attachment 1 ELECTRIC UTILITY FINANCIAL RESULTS - DECEMBER 31, 2023 System Load (MWh) 409,809 401,086 2.2% 8,722 431,874 ey Performance Indicators Days Cash on Hand 107 Operating Revenues owe Retail Sales 69,329,709 68,210,000 1.6% 1,119,709 71,513,144 Wholesale Sales 12,985,649 9,330,640 39.2% 3,655,009 19,535,468 Miscellaneous Income' 243,094 950,545 -74.4% (707,451) 3,746,621 Total Operating Revenues 82,558,452 78,491,185 5.2% 4,067,267 94,795,232 Operating Expenses Power Cost 2,490,274 4,197,765 -40.7% (1,707,491) 3,017,597 Purchased Power 9,623,617 9,091,300 5.9% 532,317 20,631,994 Generation, Transmission and JPA (Variable) 18,500,741 17,003,750 8.8% 1,496,991 24,171,048 Generation A&G and O&M (Fixed) 15,497,714 13,431,835 15.4% 2,065,879 13,353,132 Subtotal Power Cost 43,622,071 39,526,885 10.4% 4,095,186 58,156,174 System O&M General & Administrative 2,490,274 4,197,765 -40.7% (1,707,491) 3,017,597 Interdepartmental (Incl. In -Lieu of Tax)Z 6,657,497 6,651,095 0.1% 6,402 3,123,400 Transmission & Distribution 13,339,859 15,584,140 -14.4% (2,244,281) 13,361,330 Customer & Field Services' 1,610,760 1,610,760 0.0% 4,778,178 Subtotal System O&M 24,098,391 28,043,760 -14.1% (3,945,369) 24,280,504 Total Operating Expenses $ 67,720,462 $ 67,570,645 0.2% $ 149,817 $ 82,436,678 Net Operating Revenue $ 14,837,990 $ 10,920,540 35.9% $ 3,917,450 $ 12,358,554 Total Debt Service $ 7,188,600 $ 7,200,510 0% $ (11,910) $ 7,198,775 Capital Outlay Capital Outlay (Revenue Funded) 3,898,868 16,450,800 23.7% 12,551,932 8,180,284 Capital Outlay (Bond Funded) Total Capital Outlay $ 3,898,868 $ 16,450,800 23.7% $ 12,551,932 $ 8,180,284 Special Fund Expenditures Public Benefit Programs 1,013,826 4,129,400 24.6% 3,115,574 1,286,516 Cap -and -Trade Programs 294,162 4,137,590 7.1% 3,843,427 2,309,651 Total Special Fund Expenditures $ 1,307,988 $ 8,266,990 15.8% $ 6,959,001 $ 3,596,167 Financial Results $ 2,442,533 $ (6,616,673) ' Customer Services and Field Services are removed from the Electric Department's Financial Results, and an allocation of expenses is recorded. 2 Interdepartmental Allocations are not assigned to various divisions within the Electric Department as in previous years but recorded as its own category. ELECTRIC UTILITY FINANCIAL DASHBOARD - DECEMBER 31, 2023 ELECTRIC UTILITY FINANCIAL DASHBOARD - DECEMBER 31, 2023 70.0 Sept 65.0 Nov 60.0 Jan Feb Mar Apr May Jun 55.0 50.9 50.0 41.7 39.2 30.8 45.7 48A a 45.0 43.3 40,6 39.8 36.2 35.0 32.7 32.3 48.4 40.0 35,0 30.0 25.0 20.03 p.11 ld Unrestricted Cash - 2023-24 49.4 unrestricted Cash - 2022-23 417 REU UNRESTRICTED CASH BALANCE JULY 2022 - JUNE 2024 Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun 48.8 50.9 43.8 41.7 39.2 30.8 45.7 48A 43.0 43.3 40,6 39.8 36.2 35.0 32.7 32.3 48.4 City of Redding Electric Utility Industry Activities Update —2" d Quarter FY2024 Federal Update Both parties are focused on the Presidential election, with many foreseeing limited actions on substantial legislation until after the election. Redding Electric Utility (REU) is actively engaged as a participating agency in the Bureau of Reclamation's review of the long-term operations of the Central Valley Project (CVP). The Bureau's alternatives could result in a seasonal shift in deliveries, or less water being available for hydropower generation. REU relies on CVP generation to meet carbon reduction goals and maintain affordability. As a participating agency, staff is attending meetings, providing data, and sharing information as necessary. State Legislative Update The State legislature has convened with a primary focus on the prevailing budget shortfall. Meetings have been convened between legislators and Governor Newsom's staff to delineate necessary budgetary cuts. It is anticipated that Governor Newsom will present the final budget in April or May following these deliberations. This is of particular interest to the Utility, as the Governor has begun to delay, cut, and shift the funding of climate -related programs. REU employees Nick Zettel, Electric Utility Director, and Patrick Keener, Electric Manager - Legislative, participated in the Northern California Power Agency's (NCPA) Strategic Conference held in Sacramento mid-January. Discussions were led by representatives from the Assembly and the Senate, with Senator Bradford, an esteemed advocate of Publicly -Owned Utilities (POUs), emphasizing the critical elements of affordability, reliability, and safety within the energy sector. Senator Bradford highlighted challenges posed by supply chain disruptions and prolonged approval processes for constructing transmission lines, underscoring the necessity to meet current goals before progressing. Mid -February witnessed the collaborative efforts of NCPA and the California Municipal Utilities Association (CMUA) during Capitol Day, where numerous meetings were held between NCPA and CMUA members, State legislators, and their respective staff. Representing REU at Capitol Day were Joe Bowers, Assistant Director -Resources, Patrick Keener, Electric Manager - Legislative, and Leslie Bryan, Electric Utility Analyst. In alignment with the Federal election, many anticipate that substantive legislative accomplishments may be deferred until after the election. Nonetheless, over 2,200 bills have been. introduced, approximately 167 of which are expected to impact the power industry significantly. State Reiulatory Ubdate The California Air Resources Board (CARB) is actively engaged in the informal process of updating California's Cap -and -Trade Regulation. This regulatory framework has been pivotal in the State's climate initiatives, generating roughly $30 billion in revenues dedicated to reducing carbon emissions statewide. Notably, POUs like REU utilize a portion of these funds to implement energy efficiency programs and other initiatives to reduce greenhouse gas emissions while benefitting local communities. CARB is considering a comprehensive update to the current electrical distribution utilities allocation, utilizing the latest Integrated Energy Policy Report (IEPR) demand forecast and available supply data. This approach enables adjustments to reflect a utility's load growth and changes in supply. Beyond 2030, the agency remains receptive to the program's continuation, contingent upon utility compliance with SB 100/SB 1.020 targets. This includes a goal of achieving a 90% zero -carbon retail sales target by 2035. During last month's NCPA and CMUA Capitol Day, REU collaborated with fellow POUs in discussions with CARB to emphasize the significance of allowances to communities. Utilities highlighted concerns that the loss of allowances could result in increased rate pressures, emphasizing the importance of maintaining affordability to encourage electrification. While recognizing the value of allowances to POUs, the agency insisted on updating the program to align with new legislation and ongoing stakeholder input. Utilities are currently analyzing various allocation scenarios in preparation for formal rulemaking. Ll Northern Srr r t t8 -Station Index, March 18, 2024 20 15 10 0 Oct 1 Nov'I Jars 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 sect 1 Water Year (October 1- September 0 LEGEND Blue Bar: Stomas level for date Total reservoir rapacity Green Lane: Historic level or date Capacity Hwodcal (TAF) Avgtvlark Capacity % Hast, Avg, (Click res. 3 clear. code for details) Average Price $/MWh of Energy in Northern California 0M U 350.00 3;0„0% 250,00 200,,00 ,0 vii+ 0.00 -,1 wa=4 ( 4 '. 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