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HomeMy WebLinkAboutStaff Report 13878City of Palo Alto (ID # 13878) Utilities Advisory Commission Staff Report Meeting Date: 2/2/2022 City of Palo Alto Page 1 Title: Informational Update on Utilities' Quarterly Financial Report for Q4 of Fiscal Year 2021 From: Director of Utilities Lead Department: Utilities Recommendation This report is for information only. No action is required. Executive Summary Attached are the Q4 Fiscal Year (FY) 2021 financial results for the City’s electric, gas, wastewater, water, and fiber utilities (Attachment A). This report on the utility financial positions is released when the City closes its accounting books for the quarter, which occurs after income and expenses are reconciled. Items of special interest in this report are summarized below: Electric Utility Sales were higher than projected, though lower than pre-pandemic sales levels. Expenses were higher than projected due to poor hydroelectric conditions. Electric Reserves were barely within guideline ranges at year end FY 2021, so a planned $1 million repayment to the Electric Special Projects fund was deferred. Gas Utility Sales were lower than projected in the FY 2021 Financial Plan, and expenses for the year were significantly lower. The Gas Operations Reserve was near the target level at the end of FY 2021. In addition, $2.3 million was moved to a Cap and Trade reserve to separate it from the Operations Reserves. The Gas Utility CIP Re-appropriation and Commitment Reserves totaled $7.1 million at the end of Q4 FY 2021. Water Utility Water Operations Reserves were above the guideline range at year end FY 2021. Sales and revenue were higher than projected in the FY 2021 Financial Plan. Transfers from the Operations Reserve to other reserves to fund CIP projects are expected to reduce the Operations Reserve to within the guideline range by the end of FY 2023. Staff: Eric Wong City of Palo Alto Page 2 Wastewater Collection Utility Wastewater revenues were 7.6% lower than projected in the FY 2021 Financial Plan due to the effects of the pandemic. Expenses were lower due to deferred CIP spending and lower than forecasted treatment costs. The Wastewater Collection Operations Reserve was within the guideline range at the beginning and end of FY 2021. Fiber Optic Utility Fiber revenues were $1.4 million lower than projected in the FY 2021 budget. The Fiber Network Rebuild CIP project has been placed on hold pending results of the engineering designs by Magellan. The Fiber Optic Utility Rate Stabilization Reserve was $33.3 million at the end of FY 2021. Attachments: • Attachment A: Utilities Financial Report FY21-Q4 Utilities Quarterly Financial Update Fourth Quarter of Fiscal Year 2021 February 2022 Quarterly Update for Fourth Quarter of FY 2021 February 2022 i Utilities Quarterly Update Table of Contents Utility Financial Summary ...................................................................................................... 2 Electric Utility Overview ................................................................................................................................ 2 Gas Utility Overview...................................................................................................................................... 2 Wastewater Collection Utility Overview ....................................................................................................... 3 Fiber Optic Utility Overview .......................................................................................................................... 4 Residential Bill Comparisons ......................................................................................................................... 6 List of Tables Table 1: Utilities Financials, FY 2021 Actuals ................................................................................................ 5 Table 2: Operations Reserves, FY 2021 ($,000) ............................................................................................ 5 Table 3: Residential Electric Bill Comparison ($/month) .............................................................................. 6 Table 4: Residential Natural Gas Bill Comparison ($/month) ....................................................................... 6 Table 5: Residential Water Bill Comparison ($/month) ................................................................................ 6 Table 6: Residential Wastewater Collection (Sewer) Bill Comparison ($/month) ........................................ 6 Table 7: Median Residential Overall Bill Comparison ($/month) ................................................................. 7 Table 8: FY 2021 Q4 Utility Fund Reserve Report (‘000) ............................................................................... 8 Quarterly Update for Fourth Quarter of FY 2021 February 2022 2 Utility Financial Summary This section describes the unaudited actual financial results for FY 2021 for all Utilities funds. The Council- adopted long-term Financial Plans for the Electric, Gas, and Water Funds and the Financial Plan for the Wastewater Collection Fund for FY 2021 – FY 2022 during the budget review process. Electric Utility Overview Sales for the Electric Utility in FY 2021 were 6.2% higher than forecasted in the FY 2021 Financial Plan, which had been revised steeply downward in anticipation of deeper COVID impacts. Sales revenues were higher by $4.9 million, or 3.9%. The difference between unit sales and revenues lies in Covid-related customer class shifts, with residential now forming a larger share of sales than before. Other revenues were lower than projected by $3.3 million, with the main factors being lower than projected interest income and service connection fees. Overall expenses were about $10 million, or 6.1% higher than forecasted in the FY 2021 Financial Plan. This was mainly due to increases in electric supply purchase costs resulting from both higher sales but poorer hydro conditions. The Electric Operations Reserves were within guideline ranges at the end of FY 2021, but only $3.9 million above minimum. Because of this, and with Council approval via the FY 2022 Financial Plan, staff deferred the projected $1 million repayment of a 2018 short term $10 million loan from the Electric Special Projects (ESP) reserve ($5 million outstanding). Staff had also chosen to move $4 million to the Hydro Stabilization Reserve in preparation for continued dry conditions continuing into FY 2022 and beyond. In accordance with prior staff and Council- approved direction, staff also moved $6.9 million and $1.2 million to the Low Carbon Fuel Standard and Cap and Trade Reserves, respectively. The Electric Utility CIP Reappropriation and Commitment Reserves totaled a projected $12.5 million at the end of Q4 FY 2021. Gas Utility Overview Sales for the Gas Utility in FY 2021 were 6.7% lower than originally forecast in the FY 2021 Financial Plan. These lower sales translated to about $400k in lower distribution revenues. While there were about $375k in lower commodity purchase costs, mainly related to transportation, these costs as well as the rest of the commodity components are mostly passed through directly on customer bills, and variations from budget do not have dramatic reserve effects. Other revenues were $171k lower than projected in the FY 2021 plan. On the expense side, costs beyond purchases were $1.8 million lower, primarily the result of lower than projected transfers out, rent, and general operations and maintenance expenses. The Gas Operations Reserve was near the target level at the end of FY 2021. In addition, staff moved $2.3 million to a Cap and Trade reserve to separate it from the Operations Reserves. This was done as these funds are restricted in purpose for carbon reduction efforts per AB 32. The Gas Utility CIP Re-appropriation and Commitment Reserves totaled $7.1 million at the end of Q4 FY 2021. Water Utility Overview Quarterly Update for Fourth Quarter of FY 2021 February 2022 3 Water sales volume in FY 2021 was 9.6% higher than forecasted in the FY 2021 Financial Plan. Sales revenue was correspondingly 9.1% higher than forecasted in the FY 2021 Financial Plan. This is in part because the water sales decreases forecasted in the FY 2021 Financial Plan and related economic impacts, which were made in light of the COVID-19 pandemic, did not materialize and because of continued dry weather conditions. However, overall FY 2021 revenue was only 3.9% higher than projected in the FY 2021 Financial Plan due to lower interest income and other revenue. Water purchase costs were 4.5% higher than forecasted due to the higher water sales relative to forecasted levels. Water purchase costs were not as high as expected based on sales volumes. This results from a meter calibration and measurement issue with SFPUC’s turnout meters. The issue was resolved as of November 2020. Operating expenses other than water purchases and CIP were 5% higher than forecasted as salary and benefit costs rose faster than anticipated. However, overall expenses were 2.2% lower than forecasted due to lower CIP costs in FY 2021. The Water Operations Reserve was above the reserve guideline levels at the beginning of FY 2021 and Table 2 below illustrates the reserve remaining above the maximum at year end FY 2021. Council approved up to an $8 million transfer from the Operations Reserve to the CIP Reserve in FY 2021 to fund ongoing CIP work. However, a transfer of $4.98 million was completed to bring the CIP Reserve to the maximum guideline level. Capital funding needs were lower than anticipated in FY 2021 as ongoing work continued into FY 2022 on a reservoir replacement. Council approved an additional $13.24 million in transfers from the Operations Reserve to the CIP Reserve in FY 2022 to fund ongoing main replacements (WMR 28 is planned in FY 2022), as well as one-time seismic reservoir upgrades (one upgrade is ongoing and a second is planned for FY 2023). These transfers together with expected revenues and expenses are projected to bring the Operations Reserve to approximately target levels by the end of FY 2023. The need for further transfers will be re-evaluated at the end of FY 2022 when the year-end reserve balances are known. Approximately $10 million in projects budgeted in FY 2021 or earlier were re-appropriated or encumbered to FY 2022, the largest being seismic water system upgrades, estimated at $6 million. Wastewater Collection Utility Overview Wastewater revenues for FY 2021 were 7.6% lower than forecasted in the FY 2021 Financial Forecast. This is in part due to expected reductions in non-residential sewer usage due to the impacts of the COVID-19 pandemic and also because of updated reduced projections from connection and capacity fees and interest income. Wastewater expenses were 3.4% lower than projected in the FY 2021 Financial Forecast. This was primarily because treatment costs were $1.6 million, or 14% lower than forecasted in the FY 2021 Financial Forecast even though wastewater collection operations costs such as salaries and benefits increased. The expense comparison in Table 1 includes the $2.2 million transfer from the Operations Reserve to the Capital Reserve in the actual expenses for FY 2021. The Wastewater Collection CIP Reappropriation and Commitment Reserves totaled $0.83 million at the end of FY 2021. This amount together with the CIP Reserve will be used for capital work in FY 2022 and future years. Sanitary Sewer Main Replacement 30 is planned for FY 2022 with a total cost of $4.5 million. The Wastewater Collection Operations Reserve was within the guideline range at the beginning and end of FY 2021. Quarterly Update for Fourth Quarter of FY 2021 February 2022 4 Fiber Optic Utility Overview Fiber revenues for FY 2021 were 24% or $1.4 million lower than forecasted in the FY 2021 budget. Due to impacts of the pandemic, several businesses have either closed or consolidated their offices. In addition, one of the City’s few remaining EDF-1 promotional rate customers converted to the EDF-3 rate which results in a decrease of $280,000 of annual fiber leasing revenue. Other revenues were lower than projected by $0.6 million due to lower than projected interest income and service connection fees. Fiber expenses were 17.3% or $1.0 million lower than forecast which partially offsets the revenue decrease in FY 2021. The Fiber Network Rebuild CIP project has been placed on hold pending completion of Magellan Advisors’ detailed fiber network expansion design for the City’s fiber backbone and fiber-to-the-home (FTTH). The new proposed fiber backbone will provide high capacity fiber to City departments (Utilities, Public Works, Office of Emergency Services, Transportation, Information Technology, and Community Services). The backbone will be routed through neighborhoods and business districts and serve as a springboard to FTTH. The ending FY 2021 Fiber Optic Utility Rate Stabilization Reserve is $33.3 million. In FY 2021, $2.4 million was encumbered for the Magellan contract to complete the network engineering designs for the City backbone and FTTH, community engagement, and updated FTTH business plan. Quarterly Update for Fourth Quarter of FY 2021 February 2022 5 Table 1: Utilities Financials, FY 2021 Actuals Sales Volumes Revenue $,000 Expense $,000 Net Reserve Change $,000 Electric Utility FY 2021 Financial Plan 766,625 MWh 163,139 (167,097) (3,958) FY 2021 Actuals 813,881 MWh 164,673 (177,343) (12,669) Change from Financial Plan 47,256 MWh 6.2% 1,534 0.9% (10,245) 6.1% (8,711) Gas Utility FY 2021 Financial Plan 27,411,000 Therms 39,108 (45,176) (6,068) FY 2021 Actuals 25,578,000 Therms 39,675 (43,008) (3,333) Change from Financial Plan (1,833,000 Therms) 567 2,168 2,735 (6.7%) 1.5% (4.8%) Water Utility FY 2021 Financial Plan 4,355,000 CCF 48,832 (48,270) 562 FY 2021 Actuals 4,771,000 CCF 50,728 (47,189) 3,540 Change from Financial Plan 416,000 CCF 1,896 1,081 2,978 9.6% 3.9% (2.2%) Wastewater Collection Utility FY 2021 Financial Plan N/A 22,462 (20,560) 1,902 FY 2021 Actuals N/A 20,765 (19,848) 917 Change from Financial Plan N/A (1,697) 712 (985) (7.6%) (3.4%) Fiber Optic Utility FY 2021 Financial Plan N/A 4,990 (4,345) 825 FY 2021 Actuals N/A 4,201 (2,712) 1,489 Changes from Financial Plan N/A (789) (15.8%) 1,453 (34.9%) 664 Table 2: Operations Reserves, FY 2021 ($,000) Electric Gas Water Wastewater Collection Fiber* FY 2021 Beginning 38,538 13,450 19,841 5,661 33,065 FY 2021 Changes (8,635) 1,469 932 917 278 FY 2021 Ending (Actual) 29,903 14,919 20,773 6,578 33,343 Reserve Minimum 26,970 8,000 9,400 3,900 700 Reserve Maximum 50,145 16,000 18,900 9,800 1,400 * For Fiber Optics, the Reserve is the Rate Stabilization (not the Operations) Reserve Quarterly Update for Fourth Quarter of FY 2021 February 2022 6 Residential Bill Comparisons Table 3: Residential Electric Bill Comparison ($/month) As of August 2021 Season Usage (KWh/mo) Palo Alto PG&E Santa Clara Roseville Summer (May - Oct) 300 $41.27 $80.42 $38.08 $56.58 365 (Median) 52.18 101.71 46.63 63.21 650 107.37 195.05 84.12 99.82 1200 213.89 375.18 156.48 183.61 Table 4: Residential Natural Gas Bill Comparison ($/month) As of July 2021 Season Usage (therms per month) Palo Alto Menlo Park, Redwood City, Mountain View, Los Altos, and Santa Clara (PG&E Zone X) Roseville (PG&E Zone S) Summer (June - Oct) 15 $29.20 $21.92 $23.33 18(Median) 32.86 27.66 29.16 30 55.19 50.99 52.48 45 85.85 80.14 81.64 Table 5: Residential Water Bill Comparison ($/month) As of July 2021 Usage CCF/month Palo Alto Menlo Park Redwood City Mountain View Santa Clara Hayward 4 $46.89 $50.83 $54.04 $38.80 $26.76 $39.20 (Winter median) 7 70.28 73.43 76.09 60.07 46.83 60.62 (Annual median) 9 90.42 88.49 90.79 74.25 60.21 74.90 (Summer median) 14 140.77 129.34 138.94 109.70 93.66 112.51 25 251.54 229.75 267.39 230.19 167.25 205.02 Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87% for Mountain View, 10% for Santa Clara and 100% for Hayward. Table 6: Residential Wastewater Collection (Sewer) Bill Comparison ($/month) As of July 2021 Palo Alto Menlo Park Redwood City Mountain View Los Altos Santa Clara Hayward $41.37 $104.58 $89.28 $46.40 $40.83 $44.53 $35.81 Quarterly Update for Fourth Quarter of FY 2021 February 2022 7 Table 7: Median Residential Overall Bill Comparison ($/month) As of July 2021 Utility and Usage Palo Alto Menlo Park Redwood City Mountain View Santa Clara Hayward Electricity (365 kWh/mo) $52.18 $101.71 $101.71 $101.71 $46.63 $101.71 Gas (18 th/mo) 32.86 27.66 27.66 27.66 27.66 27.66 Water (9 CCF/mo) 90.42 88.49 90.79 74.25 60.21 74.90 Wastewater 41.37 104.58 89.28 46.40 44.53 35.81 TOTAL 216.83 322.44 309.44 250.02 179.03 240.08 Quarterly Update for Fourth Quarter of FY 2021 February 2022 8 Table 8: FY 2021 Q4 Utility Fund Reserve Report (‘000)