AGENDA TITLE:
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Adopt a Resolution Declaring Intention to Reimburse Expenditures from the Proceeds of Obligations to be Issued by the City and Directing Certain Actions (FIN)
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MEETING DATE:
November 20, 2024
PREPARED BY:
Andrew Keys, Assistant City Manager
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RECOMMENDED ACTION:
Adopt a Resolution Declaring Intention to Reimburse Expenditures from the Proceeds of Obligations to be Issued by the City and Directing Certain Actions
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BACKGROUND INFORMATION:
The City will need to increase the capacity of the electric utility infrastructure to meet future growth demands. This resolution will provide the Lodi Electric Utility (LEU) the flexibility to reimburse capital expenditures from future debt issuance and facilitate necessary infrastructure improvements. The Lodi Electric Utility (LEU) currently operates a 60kV sub-transmission systems designed decades ago with the intent of serving forecasted electrical loads in the City based on then current historical growth and industry standards. Recent rapid growth in the community, state and federally mandated electrification requirements for vehicles and homes significantly impacted forecasted energy consumption and future infrastructure needs.
As a result, LEU forecasts additional load of 64 megawatts to be online by 2045 based on the need for vehicle electrification alone. This amounts to a 45 percent increase in the peak energy consumption for the City based on 2022 historical system peak data. Growth is anticipated primarily to the south, but also to the west and east of the current City limits. The current system is near limits and without more capacity to bring in power and to move power around more efficiently, LEU will be challenged to achieve City growth demands and electrification goals.
Two large projects are required to meet the forecasted load growth. First is the expansion of the existing 60kV system including two additional 60kV lines south of the existing Industrial Substation, proceeding west along the southern most boundary of any new annexed areas and eventually turning north to tie into LEU’s future Westgate Substation site. Two new distribution substations, each of which will have two 35MVA distribution transformers, will be added along this route that will provide service capacity for the south and west sides of the City. This project will primarily benefit new development but will also serve existing development, improving efficiency, reliability and allowing for some measure of load growth in advance of the 230kV project’s completion. The 60kV expansion project will need to be completed in advance of the buildout of new developments.
The City’s existing 60kV system is a sub-transmission system. Currently, the only option for power to enter City limits is through sub-transmission system. Pacific Gas & Electric (PG&E) is currently developing the Northern San Joaquin 230kV Transmission Project (230kV Project). The 230kV Project will allow the City to import additional power. Without the completion of the 230kV project, incoming capacity available from PG&E will not be sufficient to service forecasted load growth in the City. Completion of this project will substantially increase the City’s ability to meet load growth on existing development required by mandated electrification goals as well as serve load growth from new development.
The City proposes to issue tax exempt debt to finance the construction of the 60kV Project and the 230kV Project (collectively, the Projects) and to use a portion of the debt proceeds to reimburse expenditures made for the Projects prior to debt issuance. The current supply chain requires down payments be placed on equipment necessary to complete the Projects. LEU anticipates placing down payments by end of 2024 or 1st quarter 2025. Tax exempt debt is subject to regulation by the Internal Revenue Service. United States Income Tax Regulation section 1.250-2 provides generally that proceeds of tax-exempt debt are not deemed to be expended when such proceeds are used for reimbursement of expenditures made prior to the date of issuance of such debt unless certain procedures are followed, one of which is a requirement that (with certain exceptions), prior to the payment of any such expenditure, the issuer declares an intention to reimburse such expenditure. This resolution declares the intention to reimburse the expenditures and allows any eligible expenditures from now to debt issuance to be reimbursed by the anticipated tax-exempt financing.
The resolution before Council provides flexibility for LEU to receive reimbursement to its capital funds from eventual debt issuance for any expenditures incurred from 60 days prior to adoption of the resolution, or September 21, 2024. The resolution does not obligate the City to any future debt issuance nor does it require that the City reimburse specific expenditures from any potential debt issuance. The purpose of the resolution is to provide maximum flexibility so that during future discussions on project financing, City staff can present all options to City Council for potential financing. A maximum not to exceed value for debt issuance is a required component of this resolution. Given financing and project construction is anticipated to occur over a number of years, the amount is set conservatively at $120,000,000.
STRATEGIC VISION:
5E. Infrastructure: Proactive infrastructure development for Sphere of influence & growth areas.
FISCAL IMPACT:
There is no immediate fiscal impact from adopting the resolution. The resolution provides flexibility so that during future financing discussions, the City has options to ensure the most efficient outcome for ratepayers.
FUNDING AVAILABLE:
LEU anticipates no negative impact to rate payers from this financing. Currently LEU pays both a 60kV low voltage Transmission Access Charge (TAC) and a 230-kV high voltage TAC charge to receive power. When the 230kV project is complete, the low voltage TAC charge will no longer be required. The debt service from bonds is anticipated to be less than the current low voltage TAC. In addition, due to phasing out of low voltage TAC’s system wide, those costs are rapidly increasing. It is likely LEU realizes ongoing savings from completion of the Projects.
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Jeff Berkheimer
Lodi Electric Utility Director
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Scott R. Carney
City Manager