HomeMy WebLinkAboutResolution No. UB- 10-C58RESOLUTION NO. 10-058
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF AZUSA, CALIFORNIA, SETTING CERTAIN
RESERVE POLICIES FOR THE ELECTRIC UTILITY
ENTERPRISE FUND.
WHEREAS, the Utility Board approved a proposal by Utility Financial Solutions to
perform a study to determine, among other things, a prudent and appropriate level of cash
reserves for the City's Electric Utility; and
WHEREAS, Utility Financial Services completed its study in June 2010 and recommends
that the City of Azusa establish a minimum cash reserve using attached formula in Exhibit A;
and
WHEREAS, Utilities Department staff have reviewed the recommended reserve policy
formula and consider it to be reasonable at setting a minimum reserve for the Electric Utility; and
WHEREAS, the proposed Electric Utility reserve policy formula results in a minimum
reserve for the Electric fund of $12.6 million for FY 2010-11; and
WHEREAS, the estimated existing cash reserve level is about $11.1 million, which is
below the minimum reserve target; and
WHEREAS, the Utility Board has taken corrective action to address the existing financial
condition by (1) adopting a 9.3% rate increase effective December 1, 2009, and (2) adopting a
new Power Cost Adjustment mechanism effective July 1, 2010; and
WHEREAS, the forecasted cost for purchase power is expected to be lower in FY 2010-
11 than in prior Fiscal Years; and
WHEREAS, said corrective rate adjustment actions combined with lower purchased
power costs are expected to prevent further reductions in existing cash reserves.
NOW, THEREFORE, THE AZUSA UTILITY BOARD OF THE CITY OF AZUSA DOES
HEREBY RESOLVE AS FOLLOWS:
SECTION 1. That Exhibit A is adopted as the Electric Utility's reserve policy formula
for the Electric Fund.
SECTION 2. The City Clerk shall certify to the adoption of this Resolution.
PASSED, APPROVED AND ADOPTED THIS 27th day of September, 2010.
oseph R. Rocha, Mayor
Vera Mendoza, City-Clerke��
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss.
CITY OF AZUSA )
I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Utility Board/City
Council of the City of Azusa at a regular meeting of the Azusa Light & Water Utility Board on
the 27th day of September, 2010.
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
GONZALES, CARRILLO, HANKS, ROCHA
NONE
MACIAS
Vera Mendoza, City Clerk
��
EXHIBIT A
ELECTRIC UTILITY'S RESERVE POLICY FOR FY 2010-11
Minimum Cash Reserve Target
The following bases and percentages shall be used to formulate the Electric Utility's reserve on fiscal year
basis:
ELECTRIC FUND RESERVE FORMULA / FY 2010-11 AMOUNTS
Description of Base -
Percent
of Base
FY 2010-11
Base
FY 2010-11
Reserve
Operations and Maintenance Budget including Power Supply
Costs 25%
$39,469,954
$9,867,489
Historic Rate Base or System Assets
3%
46,448,227
1,393,447
Debt Service Reserve
100%
973,151
973,151
Fiscal Year Capital Improvement Program Budget
15%
372,200
55,830
Five Year Capital Improvement Program Budget
15%
1,861,000
279,150
TOTAL Minimum Reserve Target:
100%
N/A
$12,569,066
Estimated Current Reserve Level
The Statement of Net Assets shall be used as a baseline to measure and forecast reserves. The sum of
"Cash and Investments" and "Cash held for rate stabilization" on Statement of Net Assets shall be
considered as constituting cash reserves. Net changes in cash flow shall be used to forecast reserve levels
for periods following the last Comprehensive Annual Financial Report (CAFR).
FY 2008-09 (CAFR)
Cash and Investments 5,228,770
Cash held for Rate Stabilization 9,316,625
Total: 14,545,395
FY 2009-10
Estimated Net Change in Cash Flow: (3,444,214)
FY 2010-11
Estimated Beginning Fiscal Year Cash Reserve: 11,101,181
Reporting Trigger
If a Reserve Deficiency exists that is 10% below the minimum Reserve Target, Azusa Light & Water staff
shall formulate a report to the Utility Board and list corrective actions. Percent below Minimum Reserve
Target shall be calculated using following formula:
EBFYCR / RT — 1 = PT
Where:
EBFYCR is equal to the Estimated Beginning Fiscal Year Cash Reserve as calculated using Estimated
Current Reserve Level as noted above.
RT is Reserve Target using Minimum Cash Reserve Target formula noted above.
PT means Percent Trigger.
Trigger Test
$11,101,181 / $12,569,066— 1 = -11.67%
Above test triggers reporting requirement since
Estimated Current Reserve Level is more than -10% below Reserve Target.
Corrective Actions
Since the current cash reserve is estimated to be more that 10 percent below the Minimum Reserve Target
for FY 2010-11, the following actions shall be considered as corrective measures:
1. The 9.3% rate increase effective December 1, 2009;
2. Power Cost Adjustment mechanism effective July 1, 2010;
3. Purchased power costs are expected to be lower in FY 2010-11 than in FY 2009-10;
4. Staff shall monitor cash flow on quarterly basis and recommend any changes in base rates or
expenditures in order to meet the minimum reserve target by fiscal year end, June 30, 2011.