AGENDA TITLE:
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First and Second Quarters Fiscal Year 2023/24 Water, Wastewater and Electric Utility Department Financial Reports (EU & PW)
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MEETING DATE:
February 21, 2024
PREPARED BY:
Public Works and Electric Utility Departments
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RECOMMENDED ACTION:
Receive utility financial reports for the first and second quarters of Fiscal Year 2023/24.
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BACKGROUND INFORMATION:
In accordance with the Lodi Municipal Code, quarterly financial reports are to be prepared for the Water, Wastewater, and Electric Utilities. Quarterly update presentations have been included in this report and a highlight of activities and progress is outlined below for each utility.
Electric Utility Financial Highlights
• REVENUE is stable tracking at 54 percent of budget.
ü Energy sales are tracking at 53 percent of budget. Typically, energy sales tend to track higher during the early, warmer months of the fiscal year (i.e., July-September). While overall revenue is stable, there has been a slight reduction in energy consumption as compared to the prior year due to the mild weather when compared to last year.
ü Impact fee revenue receipts are higher than anticipated and staff have reflected this trend as part of the proposed midyear adjustments.
• EXPENSES are tracking at 41 percent of budget halfway through the year.
ü Non-power operating expenses are tracking at 39 percent of budget.
ü Power supply costs are tracking at 42 percent of budget. As noted above, power supply costs are lower than anticipated due to both lower energy consumption as well as market energy costs starting to come down, when compared to recent prior years. Staff have reflected these changes as part of the proposed midyear adjustments.
ü Capital outlay expenses are tracking at 25 percent of budget. Approximately $3.2 million of the capital budget includes work by Electric Utility staff on the State of California Natural Gas Power Plant, all costs for which will be reimbursed. While most vehicle and equipment purchases have been submitted to vendors, due to long lead times, approximately $1.3 million in actual expenses may not be realized for these budgeted expenses until later this fiscal year or early next fiscal year. Finally, $2 million of the capital budget includes the purchase of a spare substation transformer; while this purchase has been made, the expense will not post until the utility receives the final equipment.
• RESERVES, as of December 31, 2023, totaled approximately $44.3 million. These reserves are used to fund pay-as-you-go capital improvement and system maintenance projects, as well as provide funding, when needed, for business-related areas of risk such as market power volatility and the cost of replacement power during dry year conditions for which costs cannot reasonably be forecasted and budgeted.
• CAPITAL IMPROVEMENT PROJECTS include nearly $24 million over 5 years for capital improvement efforts. The projects listed are included in the City’s current Capital Improvement Program and included in the adopted budget.
• 5-YEAR FINANCIAL FORECAST indicates sufficient reserves through Fiscal Year 2028, based on current forecasted assumptions.
Wastewater Utility Highlights
• REVENUE is stable, tracking at 49 percent of budget.
ü Wastewater sales are tracking at 49 percent of budget.
ü Development Impact Mitigation Fees fell below, at 37 percent of projected budget. This is due to the timing of fee payments and development activity.
ü Other revenue is tracking high due to interest earnings not being budgeted for.
• EXPENSES as a total ended the quarter well below the budget, at 22 percent of budget.
ü Operating expenses tracking at 53 percent of budget.
ü Capital expenses were below budget at 5 percent. Included in the capital budget is $12.7 million for the White Slough electrical building, which was awarded in the fourth quarter of last fiscal year. The majority of this expense will occur over this and next fiscal year. Since we adopt a 5-year capital improvement program, many projects do not start or occur expense in the projected fiscal year, therefore each fiscal year many of the project budgets will roll to the following year. There was $23.2 million in project budgets that rolled from last fiscal year to this fiscal year. For this reason, the capital expenses will most often seem to track well below the projected budget. Currently, there is approximately $17M in capital project funding that has been encumbered.
• RESERVES, as of December 31, 2023, totaled $16.8 million which is 210 percent of the 180 days cash target. These reserves are used to fund pay-as-you-go capital improvement projects planned over the next several fiscal years.
• CAPITAL IMPROVEMENT PROJECTS include over $25 million in planned projects over the next 5 years. The major projects include main replacement projects, construction of the electrical building, fan press replacement, aeration diffuser replacement, UV design/replacement, primary treatment rehab and the storm drain trash handling systems to comply with state regulations. The majority of the projects listed are all in the fiscal year 20-25 Capital Improvement Program that was included in the adopted budget.
5-YEAR FINANCIAL FORECAST indicates a decline in reserves through fiscal year 2029. Forecasts are based on the newly adopted Proposition 218 rate plan.
Water Utility Highlights
• REVENUE is stable and tracking at 56 percent of budget.
ü Water sales are tracking at 55 percent of budget.
ü Development Impact Mitigation Fees are tracking slightly above projected levels at 55 percent of budget.
ü Other revenue is tracking high due to interest earnings not being budgeted for.
• EXPENSES as a total ended the quarter well below the budget at 21 percent.
ü Operating expenses are tracking slightly lower than budget at 40 percent.
ü Capital expenses are well below budget at 5 percent. Included in the capital budget is 3 million for the Water Meter Project Multi-Family Phase that has yet to be bid and almost $1 million for on call water well rehab that was awarded in the fourth quarter but no expense in the prior fiscal year. Since we adopt a 5-year capital improvement program, many projects do not start or occur expense in the projected fiscal year, therefore each fiscal year many of the project budgets will roll to the following year. There was $6 million in project budgets that rolled from last fiscal year to this fiscal year. For this reason, the capital expenses will most often seem to track well below the projected budget. Currently, there is approximately $1M in capital project funding that has been encumbered.
• RESERVES, as of December 31, 2023, totaled $14.1 million, which is 296 percent of the 180 days cash target. These reserves are used to fund pay-as-you-go capital improvement projects.
ü CAPITAL IMPROVEMENT PROJECTS include over $16 million in planned projects over the next five years. The major projects include multi-family phase of the meter program, membrane replacement, transmission line expansion and generator at the Surface Water Treatment Facility. The projects listed are all in the fiscal year 20-25 Capital Improvement Program that was included in the adopted budget.
• 5-YEAR FINANCIAL FORECAST indicates an increase in reserves through fiscal year 2028, with the anticipation of a $25 million Surface Water Treatment Facility expansion in fiscal year 30. Forecasts are based on the newly adopted Proposition 218 rate plan.
STRATEGIC VISION:
3A. Fiscal Health: Promote City's transparency & fiscal fluency.
FISCAL IMPACT:
There is no fiscal impact from the preparation of this report.
FUNDING AVAILABLE:
Adequate funding is available in the Fiscal Year 2023/24 budget, as amended by Council action from time to time, for the items in this report. All data is presented as current as of the date(s) obtained from the City’s financial reporting system. Final year-end audited data will be provided in the City’s Annual Comprehensive Financial Report (ACFR).
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Melissa Munoz
Accounting Manager
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Jeff Berkheimer
Electric Utility Director
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Charles E. Swimley
Public Works Director
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Andrew C. Keys
Interim City Manager