HomeMy WebLinkAbout0293.093-
~ . "
" . . . .' . .
"', ,,"
May 13, 1993
EONORAB!.E CITY COlJNCIL
Palo Alto l California
Attention: Financ~ Committee
Members of the council:
Report hi Brief
SUDG~r S 3 -94
This report summarizes the stat'.lS of Enterprise F'..md reserve
levels. The levels are related to the proposed FY 1993-94 budget
submittals and proposed rate increases. This report incorporates
the recommendations included in CMR:26J:93 regarding revisions in
reserve policies and the minimunl, rnaxiD"'uro and target levels for
each reserve. Reserves discu~scd in this report include the Rate
Stabilization Reserve (RSR) r E.7."~ergency Plant Rep!acerc.ent Reserves
(EPR}, l"';alaveras. Gas S!]ppleEental Supply (S3R) and IJandfill
Closure/Post Closure Maintenance Reserves.
,~ckq;ounc2
Table 1 of this report includE!s the following: the estimated
balance in each reserve as of ~une JO~ 1993; the funding or use of
the reserve as included in the. 1993-94 proposed budg2t; the
projected closing balance on June 30, 1994; and the minimum and
maximum targets for each reserve. It snGl,lld be noted that t.he
information used to est irna-toe the balance in each reserve as of June
30, 1993 reflects the most recent financial information available;
therefore, it is different from ."hat ~'as budgc"t.€:d for 1992-93. The
estirnated balances include actual interest earnings and r"ove!rl.ent of
funds for specific council-approved uses.
CMR~293:93
:' -,'''.
·"L".-"
" \
1
i • I
'. , :--.:If::.t-!
; ,~\:;,tj;ffi~f.' ,
"fABLE ONE Sumfhary of Seltlcred Enterprise Funds Proposed Reserve lovels
, :"; ;*-~ jL ) :~.' "'~ 1,'" ,,' I. <';~'~" '~JI~
'" Electric Fund
I
.. ~
~ Emergency Plant np,placement
'" ~
'"
SuMot.1
Water Fund
Subtotal
Ga. Fund
Subtotal
Rate Stabili2ation
Calaveras
AS 702 Reserve
Emergoncy Plant Replacement
Rate Stabilization
AS 702 ReSAtve
Emergflncy Plant Replacement
Rate Stabilization
Gas Supplemental Supply
AS 702 Reserve
Wastewster Fund
Subtotal
Emergency Plant Replacemem
Rate Stabilization
AB 702 Reserve
W.Slewa,ar Collection Sublund
Emergency Plant Replacement
Rate Stabilization
AS 702 Reserve
Subtotal
Projected
Ending
Balance
6/30/93
1,929
45,019
~3,561
440
70,949
545
1,752
140
2,437
550
9,277
3,092
158
13,077
1.134
4,714
386
6.234
322
1.900
100
2,322
1993-94
PlOposed
Budget
69
(603)
(2,411)
o
(3,1451
42
1,840
o
1,882
44
:1,5:17)
o
o
(1,4931
74
2,010
o
2,084
7
1.525
o
1,532
P1ojac!ed
Ending
Balance
6130194
1,99B
44,216
21,150
440
67,804
587
3,592
140
4,319
594
7,740
3,092
158
11,564
1,20B
6,724
386
8,318
329
3,425
100
3,854
Minimum
Balance
15,050
4,814
:1,576
4,240
2,635
.. ,~ .' -,,,,,"-,,.,~ '. n 1 fl ' • ~, . ~ • 'I
Maxjmum
Balance
3,014
30.099
736
9,6<9
764
7.1&2
2,308
8,480
811
5,210
~)
"
)
,
r
~ .it
" '
"
•
,
y'--
t .., .ff~·~'"""""''>"'~'!''"·l!111I1!11I11.I11'''''''' •••• '''' . , ... , "
.' TABLE ONE " ' Summary of Selected Enterprise Fund. Propol8d Reserve Layels
Projected 1993-94 Projected Minimum Maximum Ending Proposed Ending Balance Balance " Balance Budget Balance ~ 6/30/93 6/30/94 ~
,0
Wastewtlter TreatmQ"t Subfund w
,0 Emergency Plant ReplaCdmont 812 67 879 1,497 v,
Rate Stabilization 2,814 485 3,299 1,605 3,210 AB 702 Reserve 286 0 286 Subtotal 3,912 552 4.464
!J Refuse Fund
Rate Stabiliu:ltion 1,614 450 2,064 1,690 3,380 landfill Closure 1,739 1,136 2,875 Wator Resources Board 0 118 11 B AB 702 Reserve 386 0 386 Subtotal 3,739 1,704 5,443
w Storm Drainage Fund
Rare StC:lbiliu1l:ion 1,371 (1,523) (152)" 500 AB 702 Reserve 29 0 29 Subtotal 1.400 (1,523) (123)
TOTAL
Eme'gencv Plant Replacemenr 4,158 229 4,387 Rate StDbililation 63,747 437 64,164 Calaveras 2.3,561 (2.411) 21,150 Gas Supplemental Supply 3,092 0 3,092 Landfill Closure 1,739 1,136 2,875 Water Resources Board 0 118 118 AB 702 Reserve 1,53!) 0 1,539
TOTAL 97,836 1491) 97,345 ~ Although tho Storm Oreln Fund Ratti StQbihlation RassfVAs 5h<~ a negatlve b8ll1nce by the and of 199J~94, it wtll hot
have spant all of ih budgeted capital dollars until SOtnetome , 994-95, At that time, additional bond flnBnclng and a
late Increase will be needed to conlinul6 with InfrAstrllctrue Improvements.
i
I
I
I
1 ,
I
I
-
For each reserve, eit.her a revised target ba.lanc:;; and/or a. range
within which the b21]ance in each reset"ve should fall has been
pr~posed in the above referenced staff report on reserve policies.
The summary Table in the conclusion of this report shows ~hether or
not the projected 1993-94 reserve b31ances will faJ.l within the
ranges or target as proposed.
Tha Rate stabilizatinc Reserve (RSR) is proposed to replace the
Transfer Stabilization Reserve (TSR) and the Syst.gm Irnp:-ove:r.ent
Reserve (SIR) in all e~terprise funds to al1o~ for prudent
financial lon~-t,errn planning. The RSR is proposed to be used and
funded to ensure funds are available to cover short. ter~ situa
tions. ~hen expenditures exceed revenues and to plan for certain
known future occurrences that are of a ~ns-time nature O~i if of an
ongoing nature, to allow the rates to r~cp up to cover the costs.
The -:nechanisms for calcul3.ting the proposed minirnu)'!1 and :!l:a.x:irn:.lrn
balances for the RSR are detailed in CMR:2£3:93,
The Eme~gency Piant Rep~acement Reserve was established for the
Electric, water, Gas, and Wastewater Funds as set forth by the City
Charter for unplanned el"i',ergencies only. The Re.fuse a.nd storm
Dra~naga Funds have no EPR. The Charter dire~ts that EPR reserVE
balances are not to exceed 5 percent of the net book value of the
fixed assets of the fund. Council also directed that the balar.ce
of the reserve should be equal to an a~ount that covers the most
expensive item of equipment which, if lost, ." .. ould cause interrup
tion in the normal activity of that utility. As required by the
City Charter, these funds are available for use only for replace
ment or emergency repairs of daJ1"laged equipment, and such uses
require special appropriat~on by Council.
The Calavera!3 Reserve ",'"as E:stablishcd in 1983 by COlJn:::il resolution
to tund cblig~tions arising from the Ca~aver~s Hydroelectric
project. The reserve is no longer being fur:ded but is accruing the
interest allocated to its cdsh l:.alance. 'l'rJ€ reserve is used to
help alleviate rate shock and spread out rate increases that are
J:.-dquirli:!d to pay Calaveras debt service rcquirements~
The Supplemental Supply Reserve ;"'dS established in 1988 in the C3S
Fund as a t'eserve for a limited gas supply and development program.
The level of the SSR "'.'as est . .ablished at $3.Q rr,illiofl, based upon
the estimated cost of drilling su.fficiE::nt ... tells to supply approxi
mately 10 percent of the City'S gas requirements. This reserve
..... ill allow the City to develop an optirr,ur:1 supply portfolio
recognizing the balance bet~teen supply, reliability and price
considerations. In 1992, Counci I changed the reserve pol icy for
CMR:293:93 •
,
~ ,.
",
--
the SSR; and the interE>st eart1ed b)' the re~erve is no' .. ' a 110cated to
the Gas System Improvement Reserve. wi th the approval of the nm.t
Rate Stabi!iz3tion Reserve, the intarest ·.,ill :be allocated to the
RSR. No annual addition is nade to the SSR balance. No funds have
be~n u~ed from thi3 reserve to date.
Til~ Land.fill Closure/Post Clceure Maintenance Reserve ~ ... as estab
lished in 1589-90 to fund landfill closure and post-closure
maintenance costs, as mandated by State law. Under the c~rrent
Council guidelines, the reserve 'Will be built until 1999-2000 .., .. hen
the balance is projected to be $7.2 million. This reserve was
established to k~ep Palo Al to in con;plic~lrIce with State-mandated
closure reserve requirements. Finance staff is currently pursuing
actions that may allow the funding for this reserve to be handl~d
in a difCer.;nt manner4 Pending this, the reserve is funded in
1993-94 under existing guidelines. If adj~stments in the funding
mechanism are regu ired, staff will return to Coune i1 with a.
recommendation.
This analysis does !'lot ccver certair, other reserves: Encumbrance~
and Reappropriations, Underground Loan, Conservation Loan, and Debt
Service4 ~~ile those reserves a~e important parts of each fund's
operations, they are already committed for a specific purpose.
Analysis
Electric FUIJ.9.
The Electric Fund P.$R is projected to exceed the maxi:r1'l.lm balance at
the close of fiscal y~ar 1992-93 and, .",ithout the rate increase
originally projected for 1993-94 I 1t,'ill still E:xce.ed the maximum
balance at the end of fiscal year 1993-94. To address this, staff
l'1.as proposed a rebate (CMR:264:93). The: ar:-.:::unt of the rebate is
cur!"ent 11' proj ected to be $18.0 rni 11 ion, Thi:5 ancmnt ray inc!"ease
as a result of recent action by Western Area Power Adrdnistration.
Staff anticipates funds from the Western legal settlement to be
approximately $9 to $10 million. The additional power cost savings
has not been factored into the proposed 1993-94 budget. or the
projected reserve bala~ce. The rebate could grow in magnitude to
be apprc.')dmately $18 f.'lillion to $23 million, irlcluding the Western
adjustment. with the rebate, the reserves in the Electric Fund
-will remain within the ne'/II'ly proposed target levels.
The Calaveras Reserve is proposed to 1:e dra'lO.'n dO''''n by $2 . .;, million,
as defined by council-approved policy.
eMR: 293: 93 5
;.,
-
T,fater Fund
With the end of the drought, the rate increase originally antici
pated for 1993-94 in the Water Fund is no longer reguired. In
addition, recent action Py the San Francisco W~tez-Dcpa:-tment has
led staff to propose a 7 perce~t retail r~te decrease for 1993-~4
{CMR.214:9'). Final action on this matter by SF~D ~ill not occur
until June of this year; and depending on tne action th~t is taken,
it may be necessary to adjust the proposed rate decrease. With a
significant portior.. of the rate decrease passed along to the
customers .. the balance in the Hater fund RSR is not projected t:. be
within the minlrn1..lr:; range as established by the ne ..... reserve policy.
However, proje.::tions indicate that the Hater Fund RSR should be
slightly above the rninirntim target by 1994-95.
Gas Fllnd
The rese:rves in the Gas Fund rer:lain strong. No rate increase is
requested in 1993-9~. The re.serves are proposed 1:'".0 be drawn down
in 1993-94. With this~ the balance iT! the. Gas. Fund RSR at the ~nd
of 1993-94 is projected to be slightly above the zna.ximl.lm balance
based on the ne~, prcposed reserve policy. It is anticipat€d that
the projected surplus at the close of 1993-94 \,Jill be used to
offset the need for tuture. rate incre-ases. If the balance at the
close of 1992-93 is above the maximum target, as currently
projected, staff ",'ill notify Council and provide "l recommendation.
No adjustment in the Supplemental Supply Reserve is requested~
Wastewater FU.D.Q
The Waste .... ·ater lund reserves as a ...... hole. are ..within the ne·.¥ proposed
limits tor the Rate Stabilization Re.serve. Tn!':' Wastewater reS-2rves
consist of both Tre.atment and Collection. T~e balance in the Rate
Stabilization Resc::-ve of the 1'reatment sub fund continues to
increase due to the interest ea~ned on the reserve. The projected
closing balan.r::::e. or) June 30, 1994 is slightly a!Jove the maxir:l.l . .HTl
target as propo~ed in the new reserve policy.
A rate increase of 9~9 percent has been proposed for the Wa5tewa~e~
collection Subfund far 199)-94. This wi 11 help fund the Rat:e
stabilization Reser-\'e r iI', anticipation of the start of capital
construction for tt,e planned infrastru,:t'.lre prog:ram in 1994,-95. An
additional rate increase ~il1 probably be required in 1994-95 for
the infrastructure program/ but it ~ill be of a lesser magnitude
than it ... ·ould be "'i thout a rate increase in 1993 -94 4 With the rate
increase, the balance in the RSE is projected to be within the net,.!
targets proposed in C~R:263:93.
CMR:293:93 6
L
" 1
.-
-
--
.. -.-
--:,;,.-; :'"~:.'. ~ty~;i~J ____ -
A 3D percent rate increase has been proposed for the Ref~se Fund in
1993-94. This is discussed in CMR:275:93.
The projected balance at tr,c c!Gse of 1993-94 in the Refuse Fund
RSR 'Will be lo!ithin the !"lew reserve po1ici le ..... els. It should be
noted that the pr';ljected funding of the Refuse RSR has been revised
down'Jard from the funding that TWas shown in the 1993-94 City
Manager's Proposed Budget. Bin rental rates are no~' propo,'5ed to
stay flat and not be adjusted by the 3G percent rate increase. An
Exhibi t B change to the revenues idll be requested. This proposal
.ill keep thO~2 bin rental .:;harges competitive, and ""ill more
fairl:f charge customers for the costs of renting bir.s versus the
costs incurred in refuse collection services.
In addition to the Rate Stabilization Res-arve, funding of $1.1
million is included in the propos~d Refuse Fund budget to continue
to fund the Lcndfill Closure Re~e=vc, as discussed earlier/ as ~ell
as $118, DOD for a r.e'",' .reserve required by the W(~ter Resources
Board. The state Water Resources Control Boar-d (Sh'RCB) haE
required the establishment of a ne'",' reserve to sho .... financial
responsiblr for potential disch,1rges fron the landfi 11 into the San
Francisco Bay. Under SWRCB guidelines, funding of '$118,000 is
required in 19;3-94.
Storm Drainage
The Storm Drainage Fund System ImpraveTLlent Reserve Fund 'Was
originally targeted at $0.5 .million, to be built OJp over tir.1e.
Staff is proposing tha-t: the same policjt be appli!?'d to the proposed
Rate stabilization Reserve. The projected ending balance of the
RSR at the close of 1992-93 is $1.25 million. For 1993-94 i the
projected ending reserve balance is r:egative ($152,000), The
capital improvemer.t pro",)l'!cts iil the St.crTl1 Drainage FU:1o are funded
using bond proceeds. The bond sale .. ·as sized to reflect cash flor.,'
needs rather than aCCollnting balances. The negative f',md balance
assumes all budgeted capital expe~ditures are spent by year end.
However, not all capital expenditures will be spent by the close of
1993-94. No rate increase will be required ~ntil 1994-95.
Conc:lusi,on
.As sU!!1D1arized in the table be 10"" , the \-.'.Jter Fund l"eSerVes .. d 11 fall
below the proposed ranges. The Electric, Gas and Waste.'/ater
Treatment RSR levels are proje:cted to be above the recommended
ranges. In the Electric Fund a rebate has bee~ proposed to reduce
the reserve balance. Staf!:" .... 'ill return to Council \toIith discussions
of the RSR balances in the Gas and v.,'aste' ... ·ater Treatment Funds if
the actual balances eKceed the targets.
CMR:29J:93 7
-...... l'!"".-·--'-'---·~
-,
"'"!Ill ..
smW.:.A.RY T.~BLE
PROJECTED 1993-94. RESERVE BALANCES
WITHIN RECOMMENDED RANGE
F!!liQ
Electri:, •
Water
Gas
wastewater
Treatment
collection
Refuse
Storm Drainage
RSR
High
Low
High
Yes
High
Yes
Yes
La,",
EPR
ies
Yes
Yes
Yes
Yes
Yes
Yes (Calaveras)
Yes (SSR)
:{es (Landfill
Closure}
Yes (Water Resources
Board)
'* A rebate of the surplus in the reserve ha;: been proposed in
CMR:264:93. With t.he reb~te: the reserve level in the Electric
RSR should be within the ne~ proposed target levels.
Respectfully submitted,
J1c1! 1,-vJi H{/Vl·,,,,,,,I171/j'"'r
VIRGINIA HARRINGTON
Senior Financial Analyst
-~;d~,C~
I nance Di1tor
~~~.~
fT.:" ty Manager
I'
Related Staff Reports: CMR:26J:93
CMR:293:93
C~!R:264;93
CMR:274:93
CMR:275:93
8
.. ---'''',
-.'