AGENDA TITLE:
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Adopt a Resolution Reviewing and Maintaining the Current Lodi Electric Utility Reserve Policy (EU)
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MEETING DATE:
December 3, 2025
PREPARED BY:
Melissa Price, Assistant Electric Utility Director
recommendation
RECOMMENDED ACTION:
Adopt a resolution reviewing and maintaining the current Lodi Electric Utility (LEU) Reserve Policy.
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BACKGROUND INFORMATION:
The LEU Reserve Policy requires an assessment of the targets identified with a report to the City Council every three years. The last review was completed November 2022.
From 2011, the formula for establishing the LEU Reserve Policy remained unchanged until 2022 when City Council authorized removal of the Capital Reserve component and instead authorized LEU staff to purchase a spare substation transformer to ensure equipment is available and on hand should a catastrophic failure occur. This change was implemented to mitigate risk associated with potential supply chain challenges, procurement lead times and material price escalation.
November 2025 marks the three-year deadline to review the existing LEU Reserve Policy. The current Reserve Policy includes both an operating days cash requirement as well as a General Operating Reserve requirement identified by the Northern California Power Agency (NCPA) as part of the annual power supply budget planning process. This component addresses recommended reserve funds specific to LEU’s generation entitlement shares in various power plants, including self-insured retention and insurance deductibles and includes recommendations related to replacement power purchase costs associated with dry water year conditions and reduced hydroelectric generation.
While the individual components and formula are approved by City Council, the actual dollar amounts are reviewed and approved each year by the Risk Oversight Committee (ROC) in accordance with the approved annual budget. The approved formula for those targets as well as the specific target for Fiscal Year 2025/26 are as follows:
|
Fund Designation |
Basis |
FY 2025/26 |
|
Operating Reserve |
90 days cash on hand |
$ 22,906,600 |
|
NCPA General Operating Reserve |
Identified by NCPA |
$ 6,813,000 |
|
Total Target |
|
$ 29,719,600 |
LEU currently has total cash reserves of approximately $41 million and is meeting 138 percent of the current reserve policy target. LEU financial reserves are strong and stable and no projected base rate increases are anticipated until 2030 based on current assumptions. Rating agencies, including S&P and Moody’s, have both completed reviews of LEU’s financial position within the past year and have issued comparable ratings of A and A2 respectively, with stable outlooks - ratings that fall at upper medium investment grade levels which positions LEU well for its future anticipated borrowing associated with the 230 kV Project.
The ROC received a report on the LEU Reserve Policy at its November 4, 2025 meeting and recommended that the formula for calculating the reserve target be maintained as represented above.
STRATEGIC VISION:
3A. Fiscal Health: Promote City's transparency & fiscal fluency.
FISCAL IMPACT:
Funding needed to meet the LEU Reserve Policy is evaluated each year as part of LEU’s annual review and update of its financial forecast included as part of the annual budget process.
FUNDING AVAILABLE:
Not Applicable.