AGENDA TITLE:
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Receive the Third and Fourth Quarter Fiscal Year 2023/24 Water, Wastewater and Electric Utility Department Financial Reports (FIN)
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MEETING DATE:
November 20, 2024
PREPARED BY:
Andrew Keys, Assistant City Manager
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RECOMMENDED ACTION:
Receive utility financial reports for the third and fourth 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 included in this report, highlight activities and progress for each utility. Overall, the three utilities maintain a strong financial position, operated within budget constraints and remain well positioned to continue maintenance and operations efforts into Fiscal Year 2024/25.
Electric Utility Financial Highlights
• REVENUE ended the fiscal year at 97 percent of budget.
ü Sales revenue was 93 percent of budget. Sales revenue includes both base rate and Energy Cost Adjustment (ECA) revenue. ECA revenue came in less than forecasted due to lower than anticipated power supply costs - a result of favorable hydrological conditions.
ü Other revenue, including development impact fees, ended the year at 150 percent of budget due primarily to timing associated with reimbursement of expenses received from DWR for the natural gas power plant as well as increased auction proceeds from the consignment of freely allocated Greenhouse Gas allowances due to increasing clearing prices.
• EXPENSES ended the year at 87 percent of budget.
ü Non-power operating expenses ended the year at 84 percent of budget, primarily attributed to substation personnel vacancies during the fiscal year.
ü Power supply costs ended the year at 91 percent of budget.
ü Capital outlay expenses ended the year at 64 percent of budget. Unspent funds which will roll to Fiscal Year 2025 are primarily associated with DWR’s natural gas power plant, substation upgrade and capacity projects, as well as delays associated with long lead times on vehicles/equipment.
• RESERVES as of June 30, 2024 totaled approximately $36.9 million or 131 percent of the Council approved reserve target. These reserves are used to fund pay-as-you-go capital improvement and system maintenance projects and to maintain both Council approved operating reserve levels and meet debt service covenants for reserves.
• CAPITAL IMPROVEMENT PROJECTS includes over $20 million for capital improvement efforts. The projects listed are included in the City’s current Capital Improvement Program included in the adopted budget. The majority of capital improvement work in Fiscal Year 2024 focused on the purchase of a spare substation transformer, system maintenance, capacity upgrades, substation modernization and upgrades, and work to support DWR’s natural gas power plant project.
• 5-YEAR FINANCIAL FORECAST indicates sufficient reserves through 2029 based on various assumptions. This includes revenue from a recently approved two-year rate adjustment approved by the City Council.
Wastewater Utility Highlights
• REVENUE is stable and ended the fiscal year at 104 percent of budget.
ü Wastewater sales for fiscal year ended on target at 101 percent of budget.
ü Other revenue is tracking over budget due to interest earning which are not budgeted for.
• EXPENSES in total ended the fiscal year well below the budget at 51 percent.
ü Operating expenses for the fiscal year ended slightly over budget at 102 percent, mainly due to an increase in staff time in wastewater versus water activities.
ü Capital expenses for the fiscal year were below budget at 25 percent. Included in the capital budget is over $14 million for the White Slough electrical building that begin construction in FY 2024 and will continue through FY 2025. Also included in the budget is $2.9 million for the aeration diffuser replacement, $2.6 million for the solids handling projects that also will continue through FY 2025.
• RESERVES as of June 30, 2024 totaled $29.7 million which is 407 percent of the 180 days cash target recommended in the Water/Wastewater Rate study adopted by City Council on January 17, 2024. These reserves are used to fund pay-as-you-go capital improvement projects planned over the next several fiscal years. The City’s Budget and Fiscal Policies set a minimum reserve target of 25% of operating expenses or a 90 days cash target. The reserves are at 813% of this level.
• CAPITAL IMPROVEMENT PROJECTS include $41 million in planned projects over the next 5 years. The major projects include construction of the electrical building, solids handling, aeration diffuser replacement, Lodi Lake storm pump, White Slough irrigation improvements, pump replacements, primary treatment rehab and the storm drain trash handling systems to comply with state regulations. The projects listed are all in the fiscal year 25-29 Capital Improvement Program that was included in the adopted budget.
• 5-YEAR FINANCIAL FORECAST indicates a decline in reserves through fiscal year 2029, however, the reserve balance does not fall below the 180-day reserve target.
Water Utility Highlights
• REVENUE is stable and ended the fiscal year at 110 percent of budget.
ü Water sales are on target and ended the fiscal year at 100 percent of budget.
ü Other revenue is tracking over budget due to interest earnings which are not budgeted for.
• EXPENSES in total ended the fiscal year well below the budget at 66 percent.
ü Operating expenses are on target and ended the fiscal year slightly lower than budget at 94 percent.
ü Capital expenses ended the fiscal year well below budget at 15 percent. Included in the capital budget is $2.1 million for the multi-family Water Meter Project and $500,000 for the Surface Water Treatment Facility generator which will both be bid and awarded in FY 2025. Other projects awarded and will continue through FY 2025 are $900,000 for Well GAC replacement and almost $1 million for water well rehab.
• RESERVES as of June 30, 2024 totaled $16.8 million which is 297 percent of the 180 days cash target recommended in the Water/Wastewater Rate study adopted by City Council on January 17, 2024.These reserves are used to fund pay-as-you-go capital improvement projects. The City’s Budget and Fiscal Policies set a minimum reserve target of 25% of operating expenses or a 90 days cash target. The reserves are at 594% of this level.
• CAPITAL IMPROVEMENT PROJECTS include almost $14 million in planned projects over the next five years. The major projects include water well rehab, Surface Water Treatment Facility membrane replacement and transmission line expansion. The projects listed are all in the fiscal year 25-29 Capital Improvement Program that was included in the adopted budget
• 5-YEAR FINANCIAL FORECAST indicates an increase in reserves through FY 2029 with the anticipation of a $25 million Surface Water Treatment Facility capacity expansion project in FY 2030.
STRATEGIC VISION:
3C. Fiscal Health: Ensure elected leaders & staff retain focus on fiscal priorities.
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 ACFR.
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Scott R. Carney
City Manager