HomeMy WebLinkAboutAgenda - Mail Packet - 11/21/2017 - Council Finance & Audit Committee Agenda - November 20, 2017Finance Administration
215 N. Mason
2nd Floor
PO Box 580
Fort Collins, CO 80522
970.221.6788
970.221.6782 - fax
fcgov.com
AGENDA
Council Finance & Audit Committee
November 20, 2017
10:00 am - noon
CIC Room - City Hall
Approval of Minutes from the October 16th Council Finance meeting.
1. KFCG Renewal Discussion 20 minutes G. Sawyer
2. Utility L&P and Water CIP & LTFP Review 60 minutes L. Smith
3. BBRSA Agreement 20 minutes M. Beckstead
4. Audit Response Follow-up 20 minutes T. Storin
Council Finance Committee & URA Finance Committee
Agenda Planning Calendar 2017
RVSD 11/13/17 mnb
Nov 20
KFCG Renewal Discussion 20 min G. Sawyer
Utility L&P and Water CIP & LTFP Review 60 min L. Smith
BBRSA Agreement 20 min M. Beckstead
Audit Response Follow-Up 20 min T. Storin
URA
Dec 15
Harmony MAX Station Park-N-Ride 20 min S. Lorson
Lane Rental Fee 20 min L. Kadrich
Soccer Stadium Proposal 20 min J. Birks
URA N College URA Strategy 30 min J. Birks
Whitewater Park 20 min P. Rowe
Jan 8th
Vine/Lemay – Financing Alternatives 20 min C. Crager
M. Beckstead
Oak Ridge Fee Waiver Request 20 min S. Beck-Ferkiss
URA
Feb 12th
City Fund Implementation 30 min M. Beckstead
Utility LTFP Review – 4 Utilities 60 min L. Smith
URA
Future Council Finance Committee Topics:
County IGA – URA TIF Evaluation Process
Phase II Fee Discussions – Development Review Fees & Wet Utilities
Future URA Committee Topics:
Annual URA District Updates – Anticipate memo format
Finance Administration
215 N. Mason
2nd Floor
PO Box 580
Fort Collins, CO 80522
970.221.6788
970.221.6782 - fax
fcgov.com
Finance Committee Minutes
10/16/17
10:00 am - noon
CIC Room - City Hall
Council Attendees: Mayor Wade Troxell, Ross Cunniff, Ken Summers
Staff: Darin Atteberry, Mike Beckstead, Jeff Mihelich, Travis Storin, John Voss, John Duval,
Andres Gavaldon, Laurie Kadrich, Josh Birks, Mark Jackson, Chad Crager, Brad Buckman,
Lawrence Pollack, Jo Cech, Dean Klingner, Sue Beck-Ferkiss, Rachel Springob, Bob Adams
Others: Kevin Jones (Chamber of Commerce), Dale Adamy (Citizen)
Meeting called to order at 10:02 am
Ken Summers moved to approve the Minutes for the September 18P
th
P Council Finance Committee Meeting. Ross
Cunniff seconded the motion.
Agenda Review; URA North College strategy topic scheduled for the December CFC meeting. The CAG is looking
for some engagement / discussion. Josh Birks will reach out to Neil to understand their expectations
A. I25 / Prospect Funding & CDOT IGA
Mark Jackson, Planning, Development & Transportation Deputy Director
Laurie Kadrich, Planning, Development & Transportation Director
Josh Birks, Economic Health Director
Chad Crager, Infrastructure Services Director
Brad Buckman
Travis Storin
SUBJECT FOR DISCUSSION Prospect/I-25 Interchange Funding Partnership
EXECUTIVE SUMMARY
City of Fort Collins Staff is working with Colorado Department of Transportation (CDOT), Town of
Timnath, and property owners/developers adjacent to the interchange of Interstate 25 (I-25) and
Prospect Road to develop a funding partnership allowing CDOT to improve the interchange. This
interchange is a key gateway entrance into Fort Collins and the Town of Timnath. It connects to a
primary arterial route into and out of the community. Improving the interchange will help alleviate
congestion and improve safety. The I-25/Prospect interchange is old and aging infrastructure not
designed to handle the urban level of traffic currently experienced.
2
There are significant financial benefits to partnering on the interchange at this time for all parties
involved. CDOT agrees to pay for $12 million (half of the base cost) of the interchange. Timnath, Fort
Collins and private interests will pay the balance of $19 million. City of Fort Collins’ share of the $19
million is approximately $8.1 million. Total cost of the improved interchange is estimated at $31
million. There is a potential savings of $7 million in improvement costs if the project can be included in
the efficiencies of the overall I-25 corridor project.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
CDOT wishes to enter into an Intergovernmental Agreement (IGA) with the City of Fort Collins stating
our intent to partner for $19 million of the total interchange improvements, with repayment to occur
over a three-year period. In the event staff is unable to complete final agreements with property
owners and Town of Timnath is Council comfortable with entering into the IGA without final
agreements yet in place?
BACKGROUND/DISCUSSION
The Colorado Department of Transportation will begin construction of the North I-25 Improvements
Project in early 2018. CDOT has agreed to include improvements to the I-25 interchange at Prospect in
the overall corridor project, if local funds are brought in partnership. Including the interchange
improvements in the overall corridor project saves taxpayers, municipalities and stakeholders an
estimated $7 million as opposed to improving the interchange as a stand-alone project. Including the
interchange in the overall corridor project also accelerates the schedule for improving the interchange
by five to ten years.
Staff is developing a fair share cost sharing agreement with Town of Timnath based on long range
(2040) travel model analysis showing relative impacts from Fort Collins, Timnath and regional
background traffic. Fort Collins assumes a fair share for Timnath is in the range of $2.85 million to $3.0
million. Timnath is requesting a lesser contribution. Timnath’s total contribution amount, as well as
repayment terms, are under negotiation. The interchange is in an area of influence with Town of
Timnath and may be eligible for potential revenue sharing agreements with Fort Collins (similar to that
with Town of Windsor at SH-392 interchange).
The anticipated Intergovernmental Agreement (IGA) outlining cost share and repayment
method/schedule may take the form of a stand-alone agreement, or may be an amendment to a
current IGA with Timnath.
Staff is also working to develop a funding agreement with private property interests adjacent to the
interchange which includes the following items:
• Relative cost share for the City of Fort Collins and private property owners is estimated at $8.1M
• Repayment timing and methodology
• Property owners are requesting use of metro districts, and negotiable mill levy up to 80 mils
• The City is requesting a mixture of repayment mechanisms to ensure revenue stream and minimize
risk
• The City has agreed in principal to:
3
o Offset developer share with any right of way contribution made by property owners
o Contribute approximately $1.4 million in Transportation Capital Expansion Fees (TCEF)
towards the interchange
o Assign a development review liaison to interchange area projects similar to other recent
large-scale developments.
Colorado Department of Transportation (CDOT) requests an IGA with the City of Fort Collins prior to
commencement of construction (anticipated March 2018) stating the City’s commitment to provide
one half ($12M) plus $7M additional urban design costs of the interchange improvement costs. Funds
to CDOT total $19 million. The City will subsequently enter into repayment agreements with Town of
Timnath and interchange property owners (see above) to capture their share of costs. The City will pay
CDOT the total owed over a three-year period (2018-2021).
Staff intends to bring Resolutions authorizing the City to enter into IGA with CDOT, IGA with Town of
Timnath, and Memorandum of Understanding (MOU) outlining property owner repayment agreements
to Council for their consideration at the December 19 regular session.
FINANCIAL IMPACTS
Total project cost is estimated to be $31 million. Of this, $24 million is considered base design while $7
million makes up urban design elements. CDOT will share in 50% of the base design portion, or $12
million. The remaining $19 million will be split across the City, property owners, and Timnath at 43%,
43%, and 15%, respectively. Timnath’s share is based on traffic studies with the City and property
owners splitting the remaining costs.
Partners Share Allocation
Total FC Property Timnath
Overpass Cost $ 19.00 $ 8.075 $ 8.0750 $ 2.85
% Share Cost 43% 43% 15%
Less ROW Value 1.00
TCEF 0.70 0.70
Debt Obligation $ 16.60 $ 7.375 $ 6.375 $ 2.85
% Share
Payments 44% 38% 17%
The City proposes to finance the cost of this project through Certificates of Participation (COPs). The
principal borrowed is the balance of the $19 million costs after accounting for right of way (ROW)
contributions and Transportation Capital Expansion Fees (TCEF). The net amount currently projected is
$16.6 million but will depend on final negotiations and ROW contributions. The City would be
responsible for debt service in full and then separately collect from Timnath and the property owners
under the aforementioned repayment agreement.
4
NEXT STEPS
There are several key steps in place to move the I-25/Prospect Interchange partnership agreements
forward:
• Staff continues to meet regularly with both Town of Timnath and private property owners
• Staff is in regular communication with CDOT as to construction schedule and IGA deadline
• Council will discuss Metro District policy changes in October and November
Staff is scheduled to bring CDOT IGA, Timnath IGA, and private property repay agreements to
Council on December 19
Discussion / Next Steps;
Mike Beckstead; bids went out and came back in high - once we get firm number from CDOT that will
be our number.
Mike Beckstead; Do we modify Metro District Policy due to the residential component? This will be
discussed at the work session. CDOT is looking for the city to sign an IGA in support of $19M – high
probability that all details may not be fully sorted out yet. If we want to move forward – we may need
your ok to move forward without all details.
Mark Jackson; push is coming from CDOT - on schedule for Council in December. CDOT has
experienced a delay in their bid process.
Mayor Troxell; NE corner was down zoned - if it was up zoned again would that have any long-term
implications?
Mike Beckstead: we are currently having discussions around this issue - is there something that needs
to change on the urban estates / storage units / zoning front.
Josh Birks; NE corner is owned by the White Brothers - zoning has been in place for some time -
request for rezoning was in 2008 - 2009 timeframe - was not approved by Council -they wanted to
change a big portion from Industrial to Retail.
Josh Birks; reviewing growth scenarios - net takeaway is that the pace of development is an uncertainty
in this project and has a significant impact on the speed the city gets reimbursed for the property
owner obligation it will carry.
Travis Storin; staff modeled out two alternatives;
Alternative 1; more traditional - standalone COP financing option that we have done in recent
years - we included the Police Training Facility - New Debt Service of $1.7M that General Fund
would take on - Net new debt service of $1.2 - 1.3M that the General Fund is not budgeted for
Alternative 2; more complex option – play to free up cash flow -the Police HQ would be used as
collateral - refinance that asset and bundle it with two projects we are talking about here today
5
frees up $800K - trade off – Police debt is at an attractive rate currently through 2026-
refinance would be a bit higher rate - all would under a COP.
Mike Beckstead; Vine / Lemay will be coming to Council Finance next month
Ross Cunniff; Have we done the cost sharing analysis - how much of that is FoCo traffic / new
development / other development for Vine Lemay?
Darin Atteberry; Chad Crager is well prepared for that - there is a tolling possibility being discussed
background growth / future development. He will be prepared to talk about that.
Mike Beckstead; CDOT is looking for commitment – Plan is to bring an IGA in December with Timnath
and property owners.
Darin Atteberry; ongoing conversation regarding annexation / high school site – Timnath has expressed
interest in PSD undoing and adding the high school - there is significant guidance as it relates to the
boundary and PSD properties – we will be talking about that with Council – other annexation
conversations regarding Mulberry and I25. Timnath has been a good / very positive partner in this
conversation – they want a data driven formula and the ability to pay over time -sales tax measure
coming to the voters.
Laurie Kadrich; I agree - their traffic engineer has a different opinion of what their fair share may be
compared to what work we have done so far.
Ken Summers; Do those projections take into account traffic projections 5/10/15/20 years out?
Mark Jackson; we used NPO long range models of 2040 - land use plan - data -background traffic
pressures
Mayor Troxell; zoning of NE corner - is there any discussion to up zone it?
Laurie Kadrich; we just broached that subject with property owners in our last meeting – similar to car
dealership situation we dealt with -our concern is that we will still have good employment
opportunities there -industry more to an employment zone - having good paying jobs on that corner
but maybe not the same as was visualized several years ago - has been zoned industrial for a long time
- request to rezone previously did not work – those corners and that type of land use has changed –
issue of Urban Estate next to industrial – is industrial the right employment mix with that corner?
ACTION ITEM:
Ross Cunniff; uncomfortable with projected debt load - not excited about the place this puts us in. If
you had to prioritize these three things – how would that look? Not comfortable with going forward
without the Police HQ refinance. We don’t really want to dedicate that much of the General Fund to
this debt service at this time $7M – Prioritization discussion would be helpful cash flow benefits
6
Mayor Troxell; Mike presented at one point the headroom we have in debt – is that appropriate to
look at in relation to Ross question? debt goes up – what does that leave for capacity?
Mike Beckstead; how much debt could we take on without impacting our credit rating? $75m added
debt per year - not including revenue bonds and utilities without putting our credit rating at risk.
Affordability was not part of that analysis.
Ken Summers; How do you see the trade-off between options 1 and #2 in relation to debt service? -
Do we have adequate cash flow?
Mike Beckstead; back to Ross’ comment re: prioritization $2M of added debt service will need to be
looked at in terms of how we use our available revenue. If we grow by 3% - 60% of added sales tax
ends up in GF which often times goes to fund salary increases for staff and benefit cost increases -
fairly significant evaluation and prioritization will need to be done - if we elect to take on $2M of
additional GF debt service - will clearly be a prioritization that will have to happen.
Mike Beckstead: Direction is to stay the course – our hope is to come back in December with a
complete IGA
B. Housing Affordability Task Force - Policy Recommendation - Capital Fund
Sue Beck-Ferkiss
Dean Klingner
EXECUTIVE SUMMARY
The voters approved an Affordable Housing Capital Fund (AHCF) as part of the Community Capital
Improvement Program (CCIP) to be used for the capital costs of one or more affordable housing
community. Over ten years the fund will accumulate $4 million. Staff is offering suggested strategies
for the use of this fund for Council Finance Committee direction and feedback.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
1. Which Strategies do you support?
• Fee Waiver backfill
• Land Bank Program
• Direct subsidy
• Social innovation grant
• Affordable Housing Demonstration Project
2. Is there feedback on the fee waiver backfill strategy?
BACKGROUND
In 2015, the voters approved the Affordable Housing Capital Fund (AHCF) as part of the dedicated sales
tax initiative for City capital projects. The approved language states:
7
This project will fund capital costs of development or rehabilitation of one or more public or private
housing projects designated specifically for low-income individuals or families.
The AHCF funds accumulate over time according to the following schedule:
2016 $200,000
2017-2018 $250,000
2019-2020 $400,000
2021-2015 $500,000
The current fund balance is $450,000. It will accumulate a total of $4 million over 10 years.
Staff was asked to look at the best way to use this fund to incentivize one or more affordable housing
projects. This task was given to the Internal Housing Task Force (Task Force) which is a multi -
departmental group with representatives from over 10 City departments including: City Manager’s
Office, Communications and Public Involvement Office, Economic Health Office, Environmental
Services, Engineering, Finance, Planning, Social Sustainability, Utilities - Community Engagement,
Utilities – Finance, and Utilities – Water. Other departments expertise is also tapped as needed. While
this group has many deliverables, options for the best use of the AHCF is the current focus of their
work. This group was created in recognition of the importance of the issue of affordable housing to our
community and the fact that many City departments are involved in this type of development.
In analyzing the approved language, staff focused on the capital costs purpose and the low-income
target population. We looked at trying to maximize the productions of units while at the same time
leaving flexibility to respond to future opportunities that present while also striving for innovation.
That said, $4 million does not really go far in the production of affordable housing units that often cost
more than $200,000 per unit to construct and not much less to rehabilitate units for preservation. With
that in mind, the AHCF must be seen as a leveraging tool and something to add to the way the City is
already supporting affordable housing projects.
To further illustrate that point, here are examples of recent projects total development costs:
Community Total cost Units City investment Source of investment
Redtail $12.5 M 60 $1.68M CDBG/HOME
$1,085,856
AHF (City)
$229,416
Fee Waivers
$288,000
Legacy $14.7 M 60 $717,000 CDBG/HOME $688,261
AHF (City)$28,890
Horsetooth $26.5 M 96 $2.25 M+ HOME $1.1M
AHF (City) $1.1M
Fee Waivers pending
$360,136
8
Discounted land 20%
Oakridge
Crossing
$22 M 110 PAB allocation State allocation
Community Development Block Grants (CDBG) and HOME funding is federal funding from the federal
department of Housing and Urban Development. The Affordable
Housing Fund (AHF) is City general funds. Waivers are typically reimbursed with general funds too. The
Private Activity Bond support is assigning tax free debt capacity and not actual funding.
Recent rehabilitation projects have had similar big budgets. An example of a large acquisition and
rehab project is the Village on Shields. Total cost for this was $64 million for 285 units. The City
provided $3.14 million using CDBG, HOME and the AHF for this project. A small rehabilitation project
was the Village on Matuka. To renovate 20 units, it costs $1.1 million of which the City invested
$380,000 of CDBG.
Fee waivers are an incentive provided by City code at the discretion of City Council. Currently they are
only available to the Housing Authority for the production of units targeting households with income of
no more than 30% area median income (AMI) which is currently about $16,150 for a single person or
$24,600 for a family of 4. However, the City is considering expanding the eligibility of this incentive to
all developers of units for this income. That would require additional City resources because the City’s
custom is to reimburse City departments for capital expansion fees that are waived. This has typically
come from General Fund Reserves. An expansion of this incentive may require additional funding
sources. Staff is recommending that this expansion be applied only to developments who have not yet
received their certificate of occupancy to ensure we are using the incentives to bring on new units and
not reimburse developers for units that have already been delivered.
The last 4 projects that received waivers and backfill of CEFs were:
1. In 2011, $509,896 was backfilled for CARE Housing’s Provincetowne
2. In 2014, $288,000 was backfilled for Redtail Ponds
3. In 2017, $100,708 was backfilled for Village at Redwood
4. Pending request for $308,907 to backfill for Village at Horsetooth.
In considering the best use of the AHCF, the Task Force considered many things including:
• Immediacy – How quickly do we want to use these funds?
• Number of investments – One project or multiple?
• Flexibility – How do we respond to funding or innovation opportunities?
• Metrics for success – Just more units or innovation factor?
• Target population – The Lowest wage earners or more of the housing spectrum?
In addition to regular monthly meetings, the Task Force conducted two focused sessions on the best
use of the AHCF. We also convened a developer’s focus group to get industry input early in the process
9
and to test our ideas. The following strategies are a result of this work to date. We looked at existing
programs as ways to deploy these funds quickly, and also propose some ideas for new programs that
may take some time to develop. Lastly, since the funds come in over time, strategies requiring more
money may have to wait until more funds accumulate.
Staff recommendations are preliminary as direction is sought from Council. Staff recommends using
the AHCF for capital expansion fee backfills in combination with General Fund Reserves until a BFO
offer is funded for fee waiver backfills. Staff would like to reserve some portion of the AHCF to respond
to future opportunities.
Discussion / Next Steps;
Ken Summers; I am comfortable considering e just utilized funds for backfill for fee waivers
Backfill of fee waivers – backfilling ahead of income coming in from Affordable Housing Fund ($450K)
$4M comes in over 10 years – we need to keep alternatives in mind - not let those go by the wayside -
every project is going to have those requests – give us available funds to address those
Ross Cunniff; I agree with Ken Summers - stay the course on this - innovation always comes with risk –
not a negative – tried and true in early years of capital expansion tax - the dollar amounts are
relatively low - Like 1-10 leverage magnifier - we don’t have other ideas flushed out to meet that kind
of benchmark - Using it in this targeted way makes sense – support the idea of expanding applications
beyond just Housing Catalyst - meet requirements as they apply
Land Bank was a possible option - yellow flag - I expect in the next 5 years we will be forced to be more
innovative on how we address – we aren’t there yet
Mayor Troxell; supportive of comments made – continue down this pat
Mike Beckstead; As we move into BFO next spring – conversation we had about a BFO offer -setting up
a tiered system - we talked to Sue about getting in front of what is coming - see if we can get 30
months in advance – understand what is coming – use that for BFO offer - that is the kind of dialog on
how we operationalize this policy – as a blend of available funding – we are out in front of it – having
dialog
Sue Beck-Ferkiss; we are moving forward November 7P
th
P with the eligibility of fee waivers - 30% units
only for projects that are not completed - time standard - they don’t yet have their certificate of
occupancy
Ross Cunniff; yes, unfunded backlog
C. Village on Horsetooth Fee Waiver Request
Sue Beck-Ferkiss
EXECUTIVE SUMMARY
10
The Fort Collins Housing Authority, doing business as Housing Catalyst (HC), has requested that certain
development and capital improvement expansion fees be waived for qualifying units at the Village on
Horsetooth. In March 2013, City Council limited the types of projects for which fee waivers may be
requested and made these waivers discretionary. Eligible projects are those constructed for homeless
or disabled persons, or for households whose income falls at or below 30% of the area median income
of all City residents. HC is requesting fee waivers in the amount of $360,136 for the 43 qualifying units
at the Village on Horsetooth.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
1. Does the Council Finance Committee (CFC) support granting the fee waiver request?
2. If so, does the CFC support a waiver of fees and backfilling or waiver without a backfill?
3. If CFC desires the Capital Expansion Fees to be backfilled, should this funding come from the
General Fund or the Affordable Housing Capital Fund or from both?
BACKGROUND/DISCUSSION
HC is seeking the waiver of certain development and capital improvement expansion fees for the
Village on Horsetooth affordable housing project as allowed by City Code, the Land Use Code, and an
Intergovernmental Agreement between the City of Fort Collins and the Fort Collins Housing Authority
dated July 3, 2013. The Village on Horsetooth will deliver 96 units, of which 43 will be targeted to
households making no more than 30% of the area median income (AMI). The request from HC is
attached as attachment 1.
The Affordable Housing Board supports this waiver request. The City’s waiver policy has greatly limited
the types of projects that qualify for waivers. This policy recognizes that households earning no more
than 30% AMI cannot afford market rate housing in our City at this time. The average rent is currently
over $1,200 a month. A one-person household at 30% AMI would need to pay 89% of their income to
pay the average rent. A four-person household would need to pay 59% of their income to afford the
average market rate. Ideally, renters would never pay more than 30% of their income on housing.
Developers need public subsidy to produce housing that this demographic can afford. Staff also
supports granting this waiver request.
We pulled the forecast back and things are coming in consistent with the forecast.
Discussion / Next Steps;
Updated Waiver Request presented;
11
Ross Cunniff; two thumbs up
Ken Summers; occupation chart is very interesting - the waiver request is a good program and I am
supportive
Mayor Troxell; two thumbs up
Bring back as an appropriation to Council on November 7P
th
P. Work session scheduled on November20th
D. Financial Management Policy Updates - Budget, Investment, Fund Balances, PAB
John Voss
EXECUTIVE SUMMARY: Once a year a portion of Financial Policies are reviewed and updated is
needed. Staff is committed to reviewing each policy no less than every 3 years. Policies up for review
are Revenue, Fund Balance Minimums and Investment Policies. Additionally, the General Financial
Policy staff is recommending changes with the addition of a new section and topic, Using Private
Activity Bonds.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
1. Does Council Finance Committee support the changes as recommended?
2. Does Council Finance Committee recommend presenting the proposed policy changes to City
Council?
BACKGROUND/DISCUSSION
12
Revenue Policy 1 has a handful of minor language changes as the addition of two topics. One adds to
the Budget Control System 1.5 a new subsection C. Order of Funding when Multiple Funding Sources
Available. The language reflects a long-standing practice and clarification for when exceptions are
allowed. The other addition is section 1.7 Contingency Planning for Unanticipated Revenue
Shortfalls. This is meant to capture recent discussions with the City Council and the Executive Lead
Team about responses to follow in the event of unanticipated revenue shortfalls.
General Policy 3 covers numerous topics that do not warrant their own standalone policy. Updates
section 3.3 Fund Organization to reflect current active funds. Section 3.4 D. Recreation Fund Fee Policy
to reflect current practices. Most significantly a new section is proposed, 3.6 Using State Allocation of
Private Activity Bonds. Because of increased interest by the private sector, it was agreed that a policy is
needed to provide a structured framework for the use of Private Activity Bonds.
Fund Balance Minimums 5 has two minor recommended changes. One lowers the minimum available
working capital in the Golf from 25% to 12.5%. The second change is to the Self Insurance Fund;
instead of measuring against Available Working Capital the standard will use Available Unrestricted Net
Position.
Discussion / Next Steps;
ACTION ITEM: Darin Atteberry; Does that square with golf industry standards in terms of reserve
policies?
Mike Beckstead will check to see if there is an industry standard
Darin Atteberry; how our various key processes fit together - the two-year calendar begins with Council
election / Council retreat / Council goal setting / Strategic Planning / BFO - easy to read graphic
representation of how this fits together - this was not clearly defined 5 years ago
Mike Beckstead; management practice vs process - how do we make BFO better?
Always operational things we change - the Calendar was one of those operational tools
- we could put the chart in the policy
Mike Beckstead; 15 strategic policies - there is a short 6-7 page write up of that key process – operating
key processes that are used by everyone across the city.
ACTION ITEM:
Darin Atteberry; Requested that Staff send the chart out to the Council Finance Committee under
separate cover at a different time. Include a few thought provoking questions and we will discuss it
further.
Travis Storin; Policy 8 Investment Policy - 4 objectives in place now - We received a request to add a 5P
th
P
objective regarding Social Responsibility - Terms are rather broad - how to administer this –
tremendous breadth of social issues we are facing - No easy way to do this
13
Pool of AA- pool has diminished considerably - 27 that we can select from now - one could find
something objectionable about each. Staff is not recommending adding a 5P
th
P objective at this time.
Ken Summers: I am not in favor of adding a 5P
th
P objective. We did this at the state level but it was on a
much more specific level. You get into trouble with nebulous statements - leaving that up to individual
interpretation of what that might be.
Ross Cunniff: I agree with Ken on the Social Responsibility objective - I don’t want to direct any further
work from staff until we have had a broader conversation with Council. A documented sustainability
plan of some sort would mean a broader Council discussion that would justify more staff work not
ready to say go forward.
Mayor Troxell; I am right there as well - As we discuss it further we might think of it in a broader
context - how we approach things as a city with our triple bottom line (TPL).
Ken Summers: I don’t think it is worth it - we are doing good – let’s stay the course - Staff is well aware
of our priorities and I am good with that.
Mayor Troxell; Coke and Walmart are transforming their processes and practices to be more
sustainable. Coke trying to be net zero in their water use. Walmart with sustainability in their supply
chain. Leading corporate citizens are environmentally dialed in and pushing best practices as it relates
to sustainability.
Mike Beckstead; we will bring these 4 forward at some future time for Council endorsement /
adoption.
E. Budgeting for Outcomes (BFO) Revenue Allocation Methodology
Lawrence Pollack, Budget Director
EXECUTIVE SUMMARY
The City’s budgeting process is called Budgeting for Outcomes (BFO) which includes the forecasting of
the various revenue sources and the allocation of those revenues to the City’s seven key strategic
Outcomes to fund prioritized budget requests. The methodology used to allocate that revenue is the
focus of this agenda item.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Does the Council Finance Committee understand the BFO Revenue Allocation Methodology?
BACKGROUND/DISCUSSION
Revenue and available reserves are forecasted for each budget cycle at the beginning of our BFO
process. Individual revenue line items are rolled into ‘Funding Sources’ which are allocated across the
14
City’s Outcomes. Offers submitted to each Outcome are prioritized from 1 to N and then funded by
those funding sources until the available revenue runs out for any given funding source.
Most funding sources are restricted in some way based on the type of revenue or in which funds the
funding source resides. For instance, Light & Power Utility revenue is restricted to programs and
services that benefit the City’s electric rate payers.
There are a few funding sources like General Fund Ongoing Revenue, that can be used for nearly any
purpose, which are initially allocated to Outcomes based on the following methodology in priority
order:
1. Financial and legal obligations (e.g. debt services and insurance payments)
2. Cover expenses associated with ongoing programs and services
3. Specific targeted areas determined by the Budget Lead Team (aka the ‘BLT’ which is comprised
of the City Manager and the executive team)
4. Remaining funding sources are then allocated based on a ratio of the Ongoing Offers within
each Outcome
The initial allocations are used by the BFO Teams in making their recommendations to the BLT about
which Offers in their Outcome should be funded. The BLT reviews all Offers across all Outcomes along
with the information provided by each BFO Teams to create the City Manager’s Recommended Budget.
Those recommendations will often require shifting of revenue between Outcomes. City Council can
also modify the allocations as necessary to finalize their Biennial Budget.
Discussion / Next Steps;
Lawrence Pollack This year was a case in point - contingency planning - November KFCG ballot question
– we look at the priority order – what was the lowest priority item - we have to be conscious of funding
source – reserved or one time would not help on going. We use that prioritization.
Darrin Atteberry: Budget for me is a promise document. If there is a mid-course correction needed -
we will go to the prioritization. Strategy Maps are a great tool as we now know if progress is being
made on all offers on a quarterly basis. We didn’t use to have real accountability. If we change course
we will report to Council.
Ross Cunniff; good - I like the transparency
Mayor Troxell; this process continues to gets better and better – the depth of the input reflects the
outcomes we desire - conscious effort to look at how do we maintain our outcomes in the context of
less funding.
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Ginny sawyer, Blaine Dunn
Date: November 20, 2017
SUBJECT FOR DISCUSSION KFCG Sunset
EXECUTIVE SUMMARY
The Keep Fort Collins Great (KFCG) .85% dedicated tax will expire December 31, 2020. Well in
advance of this date, staff is developing a community outreach plan to engage residents in a
conversation on desired level of service and potential funding options while targeting a potential
ballot measure in November 2018.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Does Council Finance support the proposed plan and timeline?
What financial information and narrative is most critical to Council Finance?
BACKGROUND/DISCUSSION
In 2008-2009 the City was experiencing significant revenue shortfalls. In response, a major
initiative was launched to engage the public regarding elimination of services and identification
of new revenue. That engagement process focused on:
House in Order- services and personnel that had been cut and other efficiencies
Appropriate Role in the Economy- City-driven economic health activities
Resourcing Our Future- Immediate needs and options to get there
The end-result of these efforts and dialogues was the passage of KFCG. By vote, these dollars
support the following operations:
The City Utilizes KFCG dollars to fund numerous programs and basic services. Approximately
50 positions, more than half of which are in Police Services, are currently funded by KFCG
revenues. Loss of KFCG funding through the sunset would have a significant impact on the
level of service the City is able to provide.
Staff is proposing a community conversation beyond a “renewal” of KFCG and instead focusing
on desired programs and services and clarification on what the “base rate” (2.25%) should
cover and what a dedicated tax might cover.
33% Street Maintenance and Repair
16% Other Transportation Needs
17% Police Services
11% Parks and Recreation
11% Other Community Priorities
12% Poudre Fire Authority
Items to consider in this outreach effort include:
Is the current base rate at the right level?
Is the recent increase in assessed values and property tax part of this equation?
Can we achieve community goals without increasing, and possibly decreasing, overall
tax burden?
Are additional fees part of the conversation?
Attachments:
Public Engagement Plan
Timeline
PUBLIC ENGAGEMENT PLAN
PROJECT TITLE: RESOURCING FORT COLLINS
OVERALL PUBLIC INVOLVEMENT LEVEL: COLLABORATE
BOTTOM LINE QUESTION:
What level of service is desired by Fort Collins residents and what are the funding options to support that
level of service?
KEY STAKEHOLDERS:
• Residents
• Boards and Commissions
• Downtown Business Association
• Downtown Development Authority
• Chamber of Commerce
• Limited-English proficiency
• Homeless and low-income families
TIMELINE: January -August 2018
UPhase 1:U Inform/Involve
Timeframe: January-March 2018
Key Messages:
Education of what current level of resources provides and at what price
Overview and analysis of City revenue/expenses
o Base rate, which hasn’t been increased since the 80’s, hasn’t kept up with the rate of
community growth
o Dedicated taxes have covered the base rate gaps in core services
o House in order: Price of government, budgeting at 98% of staffing, utilizing underspend,
streamlined budget process, strategy maps, 2018 cuts (street maintenance)
Tools and Techniques:
Community Survey
Strategic Planning Outreach Feedback
Website
OurCity Platform
State of the City
Graphs/Charts (General Fund & KFCG allocations, Sales tax rate comparisons, price of
government chart)
FAQs
Public meetings
Boards and Commissions
Targeted outreach
UPHASE 2:U Involve/Collaborate
Timeframe: April-June 2018
Key Messages:
Seek questions regarding desired level of service, price of service, future funding of service
o Is the City providing the right services?
o What, if any, services should be funded from dedicated tax renewal?
o What, if any, services should not be funded from dedicated tax renewal?
o Is the base tax rate appropriate or should it be adjusted?
Impacts that “doing nothing” will have on the community
o Community commitments (365 Transit)
Test options for how we fill the gap
o Cut more services; if so, which ones?
o Add new revenue; if so, what type and amount?
Tools and Techniques:
BFO Outreach
Website/surveying (Our City)
Q & A Documents/FAQs
Public meetings/Interactive Polling
Community Issue Forum
Boards and Commissions
Targeted outreach
Telephone Town Hall
City at a Glance
City News
Possible videos/bulletin boards
Social Media/Spotlights
UPHASE 3:U Inform/Involve
Timeframe: July-August 2018
Key Messages: These messages will be developed at a later date. They will be focused on potential
ballot language if that is direction the project goes.
Tools and Techniques:
Website/surveying
Q & A Documents/FAQs
Public meetings/Interactive Polling
Community Issue Forum
Boards and Commissions
Targeted outreach
Any video resources/bulletin boards
City News
Social Media/Spotlights
Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Test w/ City Works Alumni
Launch OurCity page
Council finance conversations/options
Council referral quiet period Nov. 5 Election
Recommended Budget Due/Council work sessions/hearings
KFCG Renewal Process Timeline
Build Public Engagement Plan/Darin's approval
Financial Analysis & scenario building
Community Outreach Council Work Sessions
BFO/Outreach
WORK SESSION
AGENDA ITEM SUMMARY TEMPLATE
Staff: Lance Smith, Utilities Strategic Financial Director
SUBJECT FOR DISCUSSION – Utilities 2017 Capital Improvement Plans and Strategic Financial Plan
Update for the Light & Power and Water Utilities
UEXECUTIVE SUMMARY
The purpose of this agenda item is to provide the Council Finance Committee with an overview of the
planning processes underway within Fort Collins Utilities. This agenda item will focus on the Light &
Power and Water Enterprise Funds with a second agenda item in February 2018 discussing the
Wastewater and Stormwater Enterprise Funds. The 2017 Capital Improvement Plans (CIPs) and the
2017 Strategic Financial Plans as well as the processes behind them are outlined. The resulting
investment projections set the basis for beginning the 2019-20 Budgeting For Outcomes (BFO) cycle.
UGENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
1. Does the Council Finance Committee support the Utilities Strategic Financial Plan assumptions
ahead of the 2019-20 BFO cycle?
2. How would the Council Finance Committee support including the need to issue debt in the Water
Enterprise Fund as part of the 2019-20 BFO cycle?
UBACKGROUND/DISCUSSION
The financial health of each utility Enterprise Fund depends on active management of ongoing operating
and maintenance expenses as well as planning for large capital expenditures. In some years it is
expected that the capital investment alone may exceed the annual operating revenues for each Fund
even before considering operating expenses. Thus the capital investment required to maintain the
current levels of service provided by each of the four utility services to the community requires a long
planning horizon and consistent reevaluation and prioritization. Additionally the expected operating and
maintenance expenses must be forecasted and managed so that the financial sustainability of each utility
is ensured while continuing to provide the levels of service expected without large rate increases being
necessary in any given year.
U10 Year Capital Improvement Plans
The capital improvement planning process begins with periodically developing and updating Operational
Master Plans for each utility. These plans assess current infrastructure for needs and risks and review
expected growth and regulatory requirements. The Master Plans generate a list of recommended capital
projects over the planning horizon which are then included in the Capital Improvement Plans. The Utility
Asset Management program has developed a rigorous process to prioritize necessary capital investments
that has been in place since 2014. This prioritized list includes the associated annual capital investment
which becomes an input into the long term Strategic Financial Plan. The financial position of each utility
is also reviewed in this step with the output being a recommended path forward which may involve rate
adjustments and future debt issuances in order to achieve the operational objectives and needs of each
utility.
Light & Power CIP
The 10 year CIP for the Light & Power Fund consists of projects needed to provide adequate substation
and distribution capacity to developing areas of the City, anticipated annexations including the Mulberry
Corridor, operational technology improvements and system renewal of existing substations and
underground distribution assets.
The Mulberry Annexation is expected to cost this utility $15M in asset acquisition and integration costs
over several years with some of the preliminary work potentially starting as soon as 2020 ahead of the
Assess Operational
Needs / Risks
Determine Optimal
Solutions &
Mitigations
Identify Anticipated
Capital Projects Over
Planning Horizon
Establish Capital
Project Prioritization
Criteria
Determine Relative
Weighting of Criteria
Prioritize Projects with
Criteria
Review Financial
Position of Each Utility
Determine Capital
Investment
Capacities
Recommend
Financial Strategy to
Achieve Operational
Objectives
Master
Planning
Capital
Improvement
Planning
Strategic
Financial
Planning
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Light & Power Fund Capital Improvement Plan
New Capacity Fiber Optics Improvements
Substation Improvements Operational Technology
Distribution System Improvements Annexations
Service Area - wide Historical Ave Capital 2007-16
Ave Capital Investment 2017-26 Previous CIP Estimated 2017-2026 Capital Investment
annexation itself to minimize acquisition costs. Two new substations will also be required in 2022 and
2023. Other annexations will require capital investment without offsetting development fees as well.
The 2017 CIP for Light & Power includes a significant increase in identified capital work over the 2016
CIP. The 2016 CIP identified $89M as being needed to meet the capital investments needed over the
next decade. The 2017 CIP includes $188M of capital investments. This is due primarily to increased
construction costs for the installation of duct banks because of the required horizontal drilling associated
with such installations in developed areas. It also includes providing services to newly annexed and
anticipated to be annexed areas of the City that are not economically supported from within this
Enterprise Fund. The previous CIP did not include any system renewal investments either as it was
based strictly on an assessment done by an outside consultant to identify what will be required to serve
new growth and grossly underestimated the cost of such based on recent completed capacity projects.
Water CIP
The 10 year CIP for the Water Fund includes the construction of the Halligan Reservoir in 2019-20, an
additional treated water storage facility in 2022 and significant renewal costs for the Poudre Pipeline in
the Poudre Canyon potentially starting in 2019. Based on the Water Quality Lab Master Plan in 2017 a
new combined water and wastewater testing laboratory is included here at a total cost of $20M. It also
includes significant investment in the distribution system throughout the City as the renewal rate for the
distribution assets is increased. Significant investment has been made in the Water Treatment Facility
since its expansion in 1999 allowing for more attention to be given to the source of supply and distribution
systems over the coming decade.
UStrategic Financial Plan
Operating Revenue and Operating Income Forecasts
Each utility collects operating revenues through monthly charges to its ratepayers. These revenues are
used to operate and maintain each utility as well as for making capital investments in system renewal and
improvements. Because operating expenses are expected to be recovered through monthly operating
revenues it is first necessary to determine what the expected operating and maintenance (O&M) costs will
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Water Fund Capital Improvement Plan
Prior Appropriations Environmental Services Water Distribution
Service Area - wide Water Production Water Resources
Ave. Capital Investment 2017-26 Historical Ave Capital 2007-16
be for each utility. The Strategic Financial Plan includes a section on O&M for each utility including a
forecast of how much O&M can grow annually while meeting the expected capital investments.
Light & Power O&M expenses have increased at an unsustainable rate over the past decade. This will
need to be addressed through active management. The rate and debt issuance forecasts in the plan
assume that O&M will increase at a rate close to the rate of inflation.
By limiting O&M to a more modest rate of growth it is expected that the L&P Fund will generate positive
operating income which will be available for capital investments. This will limit the amount of debt
issuance that is necessary over the coming decade. The colored areas represent a 95% confidence
band around the expected operating income.
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
Annual Operating Expenses
Light & Power Fund Operating Expenses (2007-2026)
Operating Expenses
(2.43% per yr)
Assuming Historical Trend
(5.34% per yr)
($8,000,000)
($6,000,000)
($4,000,000)
($2,000,000)
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
Annual Operating Income
Light & Power Operating Income (2007-2026)
Water O&M has grown at a more modest rate and is forecasted to continue to increase at a rate close to
the rate of inflation.
The Water Fund has consistently generated positive operating income over the past decade. With the
increased capital investment increasing the depreciation expense along with the anticipated growth in
O&M expenses, the amount of operating income is expected to decrease over the coming decade.
Modest rate adjustments (less than 3%) may be prudent to maintain positive operating income rather than
letting it erode over this timeframe although the financial models objective, metric driven rate criteria
wouldn’t require such until 2028.
Operating Revenues Available for Capital Investment
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Annual Operating Expenses
Water Fund Operating Expenses (2007-2026)
Operating Expense
(2.45% per year)
Assuming Historical Trend
(2.88% per yr)
($15,000,000)
($10,000,000)
($5,000,000)
$0
$5,000,000
$10,000,000
$15,000,000
Annual Operating Income
Water Fund Operating Income (2007-2026)
The chart below looks at the 2015 and 2016 realized operating revenues for the Light & Power and Water
Enterprise Funds and highlights the amount of operating revenue that was available for such capital
investments. There was a significant increase in the amount spent on Energy Services and community
renewables in 2016 followed by another significant increase in 2017. These increases continue to put
significant rate pressure on this Fund. This is discussed further in the Strategic Financial Plan. With so
little operating revenue available to address the capital needs of the Light & Power assets, it will be
necessary to increase retail electric rates in the near term to provide capital for these investments along
with the anticipated electric capacity fee revenues (which is a non-operating revenue source).
The asterisk denotes that for the electric utility the portion of the operating revenue that is necessary to
pay for the purchased power expenses from Platte River and the portion of the Payments In-Lieu of
Taxes (PILOTs) associated with this expense have been removed to show how the remaining portion of
the operating revenues available to Utilities was allocated. This represents 76% of the total operating
revenues collected from electric customers, or $94.6M of the $125.1M total operating revenue. Platte
River allocates those revenues across many of the same categories separately.
Is Growth Paying Its Own Way?
Given the forecasted shortfall for capital investment it is reasonable to ask if growth is paying for itself.
Each Enterprise Fund assesses plant investment fees (PIFs) based on the actual cost of connecting new
customers including the amount of system capacity being allocated to those customers. The
determination of what is included in and how the PIFs are calculated is through a cost of service model
similar to the cost of service models that are updated every two years for existing ratepayers. The PIF
model utilized by the three wet utilities was last reviewed by an outside entity in 2009 and is based on
industry best principles. In 2016 a consultant was contracted to review and modify as necessary the
existing Light & Power PIF model. Light & Power PIFs are more referred to in Code as the Electric
Capacity Fees. This model was adopted by Council and implemented in October of 2017. The intention
of all of the utilities’ PIF models is that growth is paying its own way.
It is important, however, to recognize that capacity is normally built ahead of the new development
requiring such capacity. This is done to both ensure that adequate capacity exists so as to not be a
barrier to economic growth and because capacity is usually added in larger amounts than a single new
customer may need so as to realize the economies of scale for such large capital investments. For
example, the Water Treatment Facility was last expanded in 1999 to its present treatment capacity. This
33% 34%
46% 44%
19% 21%
11% 12%
9% 7% 5% 4%
7% 7% 12%
11%
16%
24%
6%
6%
5% 6%
10%
1%
21% 23%
0%
20%
40%
60%
80%
100%
2015 2016 2015 2016
Actual Actual Actual Actual
2015/16 Expenses as % of Operating Revenues Operating Revenues
Available for Capital
PILOTs
Energy Services /
Community
Renewables
Debt Service
capacity is expected to be sufficient to serve all customers even through buildout of the water utility’s
service territory. That expansion was paid for through existing cash reserves, the portion of operating
revenues available for capital investment and revenue bonds. As new customers are connected to the
water system the PIFs assessed to those customers will recover the amounts paid by existing customers
for the portion of that capital investment now being allocated to the new customers.
Rate Adjustment and Debt Issuance Forecasts
L&P Rate and Debt Forecasts
Based on the significantly higher CIP and the assumption that O&M expense growth is limited to the rate
of inflation over the coming decade, it is expected that there will need to be two significant rate
adjustments in 2019 and 2020 followed by a debt issuance in 2023.
The issuance of debt for electric distribution infrastructure in 2023 will allow for the issuance of all debt
prior to support the broadband initiative. It is expected that the increased operating revenue from the
broadband initiative by 2023 will increase the debt capacity of this Fund and cover the debt service
expense associated with the debt issued for the initiative.
Water Rate and Debt Forecasts
With the two significant rate increases in 2017 and 2018 along with the operating budget cuts that were
included in the 2017-18 BFO cycle, minimal rate increases are forecasted for the coming decade however
it will be necessary to issue debt in 2018 to fund some near term capital work and then again in 2022.
These issuances are timed with the retirement of existing debt so that the annual debt service expense
will remain at or below the current levels over the coming decade.
UConclusion
As shown there will be a need for considerable capital investment in each of the utility services in the
coming decade. This is not unexpected given the growth of our community and the high levels of service
required to support its economic development and sustainability. The low utility rates and high level of
customer satisfaction are the results of City Leadership, both past and present, showing tremendous
foresight and commitment to these municipal services and to the planning, operational and customer
focused efforts of City staff. This update to the Council Finance Committee is intended to maintain this
tradition through a long term Utilities Strategic Financial Plan ahead of the 2019-20 Budgeting For
Outcomes process.
UAttachments
Attachment 1 - 2017 Strategic Financial Plan for Light & Power and Water Enterprise Funds
Attachment 2 – Powerpoint presentation
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 3.5% 1.8% 5.0% 4.9% 2-3% 0-2% 0-2% 1-3% 1-3% 0-2%
Debt Issuance $M $20.0
$165M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations.
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 5% 5% 0-1% 0-1% 0-1% 0-2% 0-2% 1-3% 1-3% 1-3%
Debt Issuance $M $5-8 $21-25
$168M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations
1
Utilities Strategic Financial Plan & Recommendations
Lance Smith, Utilities Strategic Finance Director
11-20-17
Purpose and Direction Sought
Objective:
• Provide an update on the Capital Improvement Plans and Strategic Financial
Plan for the Light & Power and Water Enterprise Funds
• Recommend strategic path forward to meet 10 year operational and financial
objectives ahead of the 2019-20 Budget cycle
Direction Sought:
• Does the Council Finance Committee support the Utilities Strategic Financial
Plan assumptions ahead of the 2019-20 BFO cycle?
• How would the Council Finance Committee support including the need to issue
debt in the Water Enterprise Fund as part of the 2019-20 BFO cycle?
2
Utilities Planning Process
3
Assess Operational
Needs / Risks
Determine Optimal
Solutions &
Mitigations
Identify Anticipated
Capital Projects
Over Planning
Horizon
Establish Capital
Project Prioritization
Criteria
Determine Relative
Weighting of Criteria
Prioritize Projects
with Criteria
Review Financial
Position of Each
Utility
Determine Capital
Investment
Capacities
Recommend
Financial Strategy to
Achieve
Operational
Objectives
Master
Planning
Capital
Improvement
Planning (CIP)
Strategic
Financial
Planning
Objectives
Utilities Strategic Financial Plan
Objectives
• Maintain adequate reserve balances such that:
• Meet Minimum Reserves Policy
• Reserves and revenues adequate to cover near term capital
requirements
• Maintain current credit ratings for each Enterprise Fund and the City
• Avoid rate spikes by limiting rate increases to no more than 5%
annually
4
5
Light & Power Enterprise Fund
Light & Power Fund CIP
6
2016 Operating Revenue not used for Purchased Power expense was $36M
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Light & Power Fund Capital Improvement Plan
New Capacity Fiber Optics Improvements
Substation Improvements Operational Technology
Distribution System Improvements Annexations
Service Area - wide Historical Ave Capital 2007-16
Ave Capital Investment 2017-26 Previous CIP Estimated 2017-2026 Capital Investment
Light & Power Operating Income
7
($20,000,000)
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Light & Power Fund Operating Income (2007-2026)
OPERATING INCOME
Total Operating Revenue
Total Operating Expenses
Light & Power Financial Health Forecast
8
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0% Rate Increase
($5,000,000)
($2,500,000)
$0
$2,500,000
$5,000,000
$7,500,000
$10,000,000
$12,500,000
$15,000,000 Operating Income
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Available Fund Balance
$0
$10,000,000
$20,000,000
$30,000,000
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Outstanding Debt
Assumptions:
1. AnnualRate increases limited to 5%.
2. Debt issued no more often than once every 3 years.
Light & Power Rate Pressures
9
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
Annual Operating Expenses
Light & Power Fund Operating Expenses (2007-2026)
Operating Expenses
(2.43% per yr)
Assuming Historical Trend
(5.34% per yr)
Light & Power Rate Pressures
10
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Fort Collins Loveland Longmont Colorado Springs
Renewable and Energy Service Expenses as a % of
2016 Distirbution O&M
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Light & Power Renewable and Energy Efficiency Initiatives (2007-2016)
Purchase Power - Community Renewables
(54% annual increase since 2010)
Energy Services
(17% annual increase since 2007)
Light & Power Rate & Debt Forecasts
11
• Near term electric capital needs met through rate increases in 2019 and 2020
• Operating Income becomes positive and Available Reserves healthy
• No debt issuance is necessary for electric infrastructure until 2023
• Near term debt capacity is available for broadband initiative
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 3.5% 1.8% 5.0% 4.9% 2-3% 0-2% 0-2% 1-3% 1-3% 0-2%
Debt Issuance $M $20.0
$165M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations.
12
Water Enterprise Fund
Water Fund CIP
13
2016 Operating Revenue was $29.7M
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Water Fund Capital Improvement Plan
Prior Appropriations Environmental Services Water Distribution
Service Area - wide Water Production Water Resources
Ave. Capital Investment 2017-26 Historical Ave Capital 2007-16
Water Fund Operating Income
14
($5,000,000)
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Water Fund Operating Income (2007 - 2026)
OPERATING INCOME
Total Operating Revenue
Total Operating Expenses
Water Fund Financial Health Forecast
15
($1,000,000)
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000 Operating Income
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Outstanding Debt
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Available Fund Balance
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0% Rate Increase
Water Rate & Debt Forecasts
16
• Near term capital needs are met with debt issuance for 2019-20
BFO cycle
• Very modest rate increases are expected to maintain positive
operating income
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 5% 5% 0-1% 0-1% 0-1% 0-2% 0-2% 1-3% 1-3% 1-3%
Debt Issuance $M $5-8 $21-25
$168M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations
Direction Sought
Direction Sought:
• Does the Council Finance Committee support the Utilities Strategic Financial
Plan assumptions ahead of the 2019-20 BFO cycle?
• How would the Council Finance Committee support including the need to issue
debt in the Water Enterprise Fund as part of the 2019-20 BFO cycle?
17
18
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
1 of 61
2017 10-Year Strategic Financial Plan
City of Fort Collins Utilities
UTILITIES
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
2 of 61
Table of Contents
28T501 - Light & Power Enterprise Fund28T ................................................................................................ 3
28TExecutive Summary – Light & Power28T ........................................................................................... 3
28TFinancial Analysis28T .............................................................................................................................. 9
28TRevenue Analysis – Light & Power28T ........................................................................................... 9
28TExpenditure Analysis – Light & Power28T .................................................................................... 13
28TOperating Income Analysis – Light & Power28T ....................................................................... 20
28TCapital Expenditure Analysis – Light & Power28T .................................................................... 22
28TDebt Analysis – Light & Power28T ................................................................................................. 25
28TReserve Analysis – Light & Power28T ........................................................................................... 27
28TRate Analysis – Light & Power28T ................................................................................................. 28
28TFinancial Risk Assessment – Light & Power28T............................................................................... 31
28T502 - Water Enterprise Fund28T ............................................................................................................. 33
28TExecutive Summary - Water28T ........................................................................................................ 33
28TFinancial Analysis28T ............................................................................................................................ 39
28TRevenue Analysis - Water28T ......................................................................................................... 39
28TExpenditure Analysis - Water28T ................................................................................................... 43
28TOperating Income Analysis - Water28T ...................................................................................... 48
28TCapital Expenditure Analysis - Water28T.................................................................................... 50
28T2017-18 Budget - Water28T ............................................................................................................ 52
28TDebt Analysis - Water28T ................................................................................................................ 54
28TReserve Analysis - Water28T ........................................................................................................... 56
28TRate Analysis - Water28T ................................................................................................................. 57
28TFinancial Risk Assessment - Water28T .............................................................................................. 59
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
3 of 61
501 - Light & Power Enterprise Fund
Executive Summary – Light & Power
The operating income for this Fund has been negative for 8 of the last 10 years. This was
initially an intentional effort to draw down Reserves but because of continued negative
operating income a rate increase was approved by City Council for 2017 as part of the
solution to address this ongoing shortfall. Given the limited growth available in operating
income through modest rate adjustments it will be necessary to tightly manage operating
expenses so as to limit their growth significantly over the next decade. Together these will
allow for the operational income to become positive in the near future and allow all currently
identified capital improvements to be made without issuing more debt before 2022.
Incremental capital investment is anticipated to be necessary for system renewal which is
expected to require issuance of $20M debt in 2023.
($20,000,000)
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Light & Power Fund Operating Income (2007-2016)
OPERATING INCOME
Total Operating Revenue
Total Operating Expenses
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
4 of 61
Light & Power revenues consist of monthly charges for services, development fees and other
minor fees (dark fiber leases, warehouse fees, etc.) and miscellaneous revenues (interest, asset
auctions, etc.). Approximately 65% of these revenues are passed directly through to Platte
River for generation and transmission charges and another 6% is transferred to the General
Fund as a payment in lieu of taxes. The remaining 29% of revenues consists of operating
revenue (22%) and non-operating revenue (7%) which is available to the Light & Power
Enterprise Fund for operational and capital expenses although, as a standing practice, non-
operating revenue should not be relied upon for operational expenses. Energy conservation
and renewable energy program expenses also need to be covered in the remaining 29%.
Because the portion of revenues and expenses associated with the generation and
transmission of the electricity through the PRPA system is not within the control of Fort Collins
Utilities these revenues and costs are considered to be offset without impacting the financial
health and resiliency of the distribution electric utility except in limiting the potential annual
rate adjustments.
Light & Power operating expenses are shown below in the categories consistent with the
monthly financial operating report. The two expense categories which are made to Platte
River Power Authority (PRPA) are not included so as to provide some relative scale for the
expenses that remain within the municipality. These categories are each discussed in the
operating expense section below. The direct operational costs are shown in purple,
community renewable and energy efficiency expenses in shades of green and the
administrative expenses in shades of grey. The payment in lieu of taxes is shown in yellow.
Depreciation is a non-budgetary expense. Total operating expenses have grown at an
$28,892,267
$8,953,335
$7,080,150
$89,100,574
$0
$25,000,000
$50,000,000
$75,000,000
$100,000,000
$125,000,000
$150,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Light & Power Fund Revenues (2007 - 2026)
Operating Revenues for Distribution Operations
Non-operating Revenues
PILOTs
Purchased Power "Pass Thru"
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
5 of 61
annual rate of 5.3% over the past decade. Without depreciation and PRPA expenses
considered, operating expenses have grown at an annual rate of 7.7% over the past decade.
This rate of annual growth is unsustainable and is assumed to be tightly managed in the
analysis and forecasts below.
Light & Power non-operating expenses are shown below. Non-operating expenses represent a
significant portion of the total expenses once PRPA’s expense is removed. Capital projects
represent specifically budgeted capital investments. System additions represent general
capital investments. It will be necessary to diligently plan for the growth on capital expenses
as well over the coming decade particularly in the first 5 years.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Light & Power Fund Operating Expenses (2007-2016)
less PRPA Expenses
Depreciation PILOTs
Purchase Power - Community Renewables Energy Services
Other Payments & Transfers Admin Services - General Fund
Admin Services - CS&A L&P Operations
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% Total Expenses
Light & Power Fund Non-Operating Expenses (2007-2016)
Capital Projects
System Additions
Debt Service
% Total Expenses
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
6 of 61
The current 10 Year CIP anticipates significantly more capital investment over the coming
decade than was seen in the previous decade. This increase is largely driven by new
capacity needs and the higher costs associated with directional boring to install such
capacity and anticipated annexations which require significant capital investment with no
associated development fee revenue.
The results of the financial modeling which applies the same objective strategies for raising
rates and issuing debt as the other utilities are presented below and discussed in more depth
in the relevant sections below.
Two consecutive 5.0% rate increases will be necessary in the 2019-20 budget cycle with more
modest rate increases being requested in the following years. It is not possible to smooth out
these two rate increase though as the capital spend needed in 2019-24 to meet capacity
constraints, service area wide projects and distribution system improvements will require
adequate revenues to be done and there will not be adequate reserves available to offset
the revenue shortfall otherwise.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Light & Power Fund Capital Improvement Plan
New Capacity Fiber Optics Improvements
Substation Improvements Operational Technology
Distribution System Improvements Annexations
Service Area - wide Historical Ave Capital 2007-16
Ave Capital Investment 2017-26 Previous CIP Estimated 2017-2026 Capital Investment
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
7 of 61
Operating income is expected to turn positive beginning in 2019 with the proposed rate
increases before drifting down slightly after 2021 as ongoing wholesale energy increases will
be partially absorbed in the following years.
The available fund balance is expected to increase modestly as operating income becomes
positive through the necessary rate adjustments and operating expenses are limited in their
year over year growth. This increased Available Reserve balance will allow for more system
renewal investments to be made without significant rate increases in the future.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Rate Increase
($5,000,000)
($2,500,000)
$0
$2,500,000
$5,000,000
$7,500,000
$10,000,000
$12,500,000
$15,000,000
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Operating Income
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
8 of 61
Below is a graph showing the increase in outstanding debt with new debt issuances being
required in 2022 or 2023. By not issuing debt for electric infrastructure until 2023, the Net
Pledged Revenues of this Enterprise Fund will be adequate as revenues will be realized from
the broadband initiative before then.
The table below summarizes the expected rate increases and debt issuances over the coming
decade.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Available Fund Balance
$0
$10,000,000
$20,000,000
$30,000,000
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Outstanding Debt
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 3.5% 1.8% 5.0% 4.9% 2-3% 0-2% 0-2% 1-3% 1-3% 0-2%
Debt Issuance $M $20.0
$165M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations.
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
9 of 61
In order to achieve the operational objectives of this utility while standing up the broadband
line of business it will be necessary to generate positive operating income beginning in the
2019-20 budget cycle which will require 5.0% rate increases in both years along with
aggressive management of operating expenses. Through subsequent modest rate
adjustments and debt issuances, it is expected that the capital investments in the
infrastructure that have been identified can be made with the utility remaining in a financially
healthy position throughout the coming decade. Mitigation strategies should be developed
for the most significant financial risks identified in the risk assessment below.
Financial Analysis
Revenue Analysis – Light & Power
Operating revenues for this fund have grown substantially over the previous decade from
$82M in 2007 to $125M in 2016 while the amount of energy consumed by the community has
remained essentially flat over the same period. Overall growth has just outpaced energy
conservation efforts resulting in reduced energy use per customer but an overall 0.7% annual
increase in total energy consumed. Thus, the significant growth in operating revenues is
attributable primarily to rate increases that have occurred since 2006 and not growth in
consumption. This is consistent with industry trends as conservation, energy efficiency and
distributed generation have offset population and demand growth.
The table below shows the annual revenues by major categories for the past 5 years.
Residential revenues have been growing more slowly than commercial and industrial revenues
over the last 5 years although 2016 showed a larger growth in residential revenues than
commercial revenues. (The data here is not adjusted for weather so as to accurately
represent the revenues received.)
0
1,500,000,000
3,000,000,000
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Sales (kWh)
Sales ($)
Light & Power Fund Operating Revenues (2007-2016)
Energy Sold (kWh) Residential Commercial Industrial
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
10 of 61
The table also shows that the non-lapsing revenues over this same period have come mostly
from development fees but do include revenue from the SmartGrid Investment Grant
associated with the deployment of the advanced metering infrastructure beginning in 2012. A
debt issuance of $16.5M was completed in 2010 as part of that infrastructure project, as well.
No more grant revenues are expected in the foreseeable future. Electric development fees
peaked in 2014 although strong growth returned in 2016. The volatility of development fees is
much greater than that of operating revenues requiring caution before relying on
development fee revenues for necessary capital improvements or forecasting revenues.
Looking at revenues on an annual percent change basis shows a longer term trend of 3-5%
annual growth since 2007 (without the grant revenue in 2010) with 2016 showing 6.63% growth
in revenues (see table below). Development fees accounted for $2M of the $8.5M increase in
revenues in 2016 while the 3.2% retail rate increase accounted for most of the rest. Again,
revenue growth is being driven by rate increases and those rates for monthly charges have
increased well above the rate of inflation (0-2%) over each time horizon. This trend is not
sustainable suggesting a more modest revenue growth should be planned for over the next
decade than the 4.28% annual growth seen over the last decade.
FUND:
501 - L&P Enterprise Fund
Year 2007 2012 2013 2014 2015 2016
Annual Demand (KWH in Millions) 1,484,986,657 1,508,734,757 1,500,215,061 1,475,103,134 1,519,377,396 1,547,458,755
Annual Rate Increase 0.00% 8.30% 4.33% 2.00% 1.90% 3.20%
Residential Elec Services $ 31,327,135 $ 42,568,738 $ 45,438,245 $ 44,005,676 $ 44,318,116 $ 47,200,924
Commercial Elec Services $ 26,849,951 $ 35,122,990 $ 36,512,545 $ 36,939,501 $ 39,063,732 $ 40,124,454
Industrial Charges for Services $ 18,746,178 $ 24,319,329 $ 25,953,824 $ 26,393,821 $ 27,041,360 $ 30,273,435
Green Energy Program $ 352,182 $ 474,671 $ 354,883 $ 314,025 $ 381,995 $ 394,028
PILOTs $ 4,636,733 $ 6,148,751 $ 6,498,191 $ 6,462,310 $ 6,644,988 $ 7,080,150
Operating Revenue $ 81,912,180 $ 108,634,479 $ 114,757,689 $ 114,115,333 $ 117,450,191 $ 125,072,991
Development Fees/PIFs/Contributions $ 2,677,647 $ 2,699,057 $ 5,063,377 $ 7,557,046 $ 4,435,452 $ 6,363,132
Other Misc $ 4,483,993 $ 2,341,982 $ 867,748 $ 2,306,476 $ 2,512,467 $ 2,538,337
Debt Issuances and Grant Revenues $ - $ 6,034,436 $ 8,575,083 $ 1,975,031 $ 1,296,471 $ 51,866
Non-Operating Revenue $ 7,161,640 $ 11,075,474 $ 14,506,208 $ 11,838,553 $ 8,244,390 $ 8,953,334
Total Revenues $ 89,073,820 $ 119,709,954 $ 129,263,897 $ 125,953,885 $ 125,694,581 $ 134,026,325
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
11 of 61
The reasons this trend is not sustainable include some evidence of rate fatigue due to annual
rate increases, the City approaching build out particularly for commercial development, and
the community’s environmental objectives of reducing greenhouse gas emissions and energy
consumption. In particular, the City’s Climate Action Plan will put downward pressure on
operating revenue over the next decade by decreasing the amount of energy being
consumed by the community and upward pressure on operating expenses, and hence rates,
as more renewable energy is added to the wholesale portfolio. Additionally, the adoption of
a time of use rate structure for residential customers is expected to add to this downward
pressure on operating revenues at least as a one-time reduction of about 1%. Distributed
renewable generation resources will put downward pressure on operating income over the
next decade and upward pressure on operating expenses by increasing the amount of
energy being purchased from within the community at retail rates, as well.
Looking out over the next ten years through the long term financial model, revenues are
expected to continue trending upward though as residential development continues and
modest rate adjustments are necessary for Platte River to meet the Clean Power Plan
FUND:
501 - L&P Enterprise Fund
Year
10 Yr
Annualized
Trend
5 Yr
Annualized
Trend
3 Yr
Annualized
Trend
1 Yr
Annualized
Trend
Annual Demand (KWH in Millions) 0.70% 0.71% 1.04% 1.85%
Annual Rate Increase 3.84% 5.24% 3.82% 3.20%
Residential Elec Services 4.44% 3.48% 1.28% 6.50%
Commercial Elec Services 4.23% 4.48% 3.19% 2.72%
Industrial Charges for Services 5.15% 7.06% 5.27% 11.95%
Green Energy Program 3.42% -3.82% 3.55% 3.15%
PILOTs 4.54% 4.64% 2.90% 6.55%
Operating Revenue 4.54% 4.65% 2.91% 6.49%
Development Fees/PIFs/Contributions 3.67% 25.31% 7.91% 43.46%
Other Misc -3.00% -0.72% 43.02% 1.03%
Debt Issuances and Grant Revenues
Non-Operating Revenue -0.98% -14.86% 8.60%
Total Revenues 4.28% 4.21% 1.21% 6.63%
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
12 of 61
objectives and the distribution system is renewed. This is shown in the graph below which
forecasts an annual growth of 3.16% in future operating revenue (solid green line) rather than
the 4.82% seen since 2007 (dotted line). The green area shows the range of revenues
considered in the stochastic analysis for the long term financial model.
Non-operating revenues are expected to remain within the range seen over the past decade
with modest inflation offsetting the impacts of redevelopment becoming more common
requiring less development fees than “green field” development and investment policies
remain conservative. The uncertainty over the next decade appears large due to the
volatility of the development fees. Any unanticipated grant revenue would positively impact
the financial health of the utility and as such is not modelled here. Again, the green area
shows the range of revenues considered in the long term financial model.
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
Annual Operating Revenue
Light & Power Fund Operating Revenues (2007 - 2026)
Operating Revenue
(3.16% per yr)
Assuming Historical Trend
(4.82% per yr)
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
Annual Non-operating Revenue
Light & Power Fund Non-operating Revenues (2007 - 2026)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
13 of 61
Expenditure Analysis – Light & Power
Operating expenses in the Light & Power Fund have grown well above the rate of inflation
over the past decade. The most critical factor in the financial health of this Fund is to manage
operational expenses to grow no more than 2.5% annually. The additional system renewal
investments should help with this but significant attention will need to be given to operational
expenses within each Business Unit.
The table below shows operating and non-operating expenses by the major categories shown
on the Monthly Financial Operating Report (MOR).
Purchased Power – Tariff 1 - Increased purchase power costs are offset directly by increased
operating revenues through rate increases each year. The upward trend is driven mainly by
year over year wholesale rate increases by Platte River.
FUND:
501 - L&P Enterprise Fund
Year 2007 2012 2013 2014 2015 2016
Annual Demand (KWH in Millions) 1,484,986,657 1,508,734,757 1,500,215,061 1,475,103,134 1,519,377,396 1,547,458,755
OPERATING EXPENSES
Purchase Power -Tariff 1 $ 57,116,913 $ 74,508,389 $ 78,495,175 $ 78,272,066 $ 82,164,556 $ 87,276,576
Renewables PRPA $ 1,116,001 $ 1,444,835 $ 1,823,999 $ 1,824,904 $ 1,893,255 $ 1,823,998
Community Renewables $ - $ 330,034 $ 380,861 $ 401,315 $ 1,568,142 $ 1,539,429
L&P Operations $ 6,350,380 $ 7,537,528 $ 8,138,067 $ 8,449,628 $ 9,042,578 $ 10,385,756
Energy Services $ 1,444,376 $ 3,546,448 $ 4,533,038 $ 4,849,559 $ 4,968,461 $ 5,960,263
PILOTs $ 4,636,733 $ 6,148,751 $ 6,498,191 $ 6,462,310 $ 6,645,012 $ 7,080,150
Administrative Services
Admin Services - CS&A $ 4,324,672 $ 4,272,291 $ 4,683,584 $ 5,126,811 $ 5,268,453 $ 6,500,603
Admin Services - General Fund $ 942,198 $ 1,054,862 $ 1,162,454 $ 1,197,328 $ 1,473,975 $ 1,503,455
Other Payments & Transfers $ 403,540 $ 773,734 $ 952,770 $ 357,670 $ 612,833 $ 567,587
Subtotal Admin Services $ 5,670,410 $ 6,100,887 $ 6,798,808 $ 6,681,809 $ 7,355,261 $ 8,571,645
Depreciation $ 6,462,805 $ 7,739,320 $ 8,032,824 $ 8,332,877 $ 8,646,806 $ 9,126,391
Total Operating Expenses $ 82,797,617 $ 107,356,193 $ 114,700,963 $ 115,274,466 $ 122,284,072 $ 131,764,208
Operating Expenses less Purchased Powe $ 24,564,703 $ 31,402,969 $ 34,381,789 $ 35,177,496 $ 38,226,261 $ 42,663,634
Operating Expenses less Purchased
Power & Depreciation
$ 18,101,898 $ 23,663,649 $ 26,348,965 $ 26,844,620 $ 29,579,455 $ 33,537,243
Debt Service $ - $ 1,818,215 $ 1,973,529 $ 1,967,728 $ 1,966,728 $ 1,981,334
System Addition/Replacement $ 9,454,024 $ 8,814,033 $ 8,292,788 $ 10,086,577 $ 9,809,337 $ 12,200,187
Major Capital Expenses $ 376,895 $ 14,478,288 $ 10,141,499 $ 6,034,069 $ 5,111,226 $ 10,840,436
Total Non-operating Expenses $ 9,830,918 $ 25,110,536 $ 20,407,817 $ 18,088,374 $ 16,887,291 $ 25,021,957
Total Expenses $ 92,628,535 $ 132,466,729 $ 135,108,779 $ 133,362,841 $ 139,171,363 $ 156,786,166
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
14 of 61
Renewables PRPA - A set amount of renewable energy (76,000 MWh is purchased each year
from Platte River) so any increase in this expense is due to a rate increase from Platte River.
The slight increase in 2015 was an inconsistency in how community renewables were
expensed. These costs increased 4.2% for 2017.
Community Renewables – This increase was driven primarily by the Solar Purchased Power
Program (SP3) which took advantage of a State program allowing for any renewable energy
purchased under certain conditions to count triple toward the Renewable Energy Standard.
This was accomplished through 20 year purchased power agreements at a fixed rate.
Ongoing adoption of distributed generation will continue to increase this expense through
customer rebates and similar purchased power agreements into the foreseeable future.
Community Renewables show an increased budget in 2017 which includes $0.8M in
Enhancements. These Enhancements are also in the 2018 budget although they are not
anticipated to be ongoing expenses after 2018.
L&P Operations – This is the only expense line that exceeded its budget in 2016. This
exceedance was driven by unbudgeted pay increases which are budgeted in 2017. While
other expense line items have grown at a faster rate than L&P Operations (see chart below),
this line item represents the largest and most direct expense that can be managed going
forward by Fort Collins Utilities.
Energy Services – As the chart below shows, this expense has grown considerably based on
Council direction. Further growth may be necessary to meet the CAP goals. An audit is being
done of the various programs encompassed in this line item in 2017 to assess the realized
results of each which may allow for more optimized investment. The 2017 Budget included a
1.25% rate increase for distribution operations to generate operating income. This 1.25%
increase is expected to generate $1.5M of additional operating revenue annually. However,
the 2017 budget also includes $1.6M of enhancements for Energy Services. Thus, it will not
increase operating income as intended. These enhancements are not expected to be
extended beyond the 2018 budget at this point. If they are extended, it will be necessary to
request an additional rate increase of at least 1.25% to increase operational revenues as
intended in 2017without being immediately offset by an additional operating expense.
The annual growth in these efforts has had a negative impact on the operating income of this
Fund. The annualized rate of growth has resulted in a significant imbalance between the
amounts this Fund is spending on these efforts compared to neighboring communities which is
not consistent with a competitive rates strategy.
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
15 of 61
Payments in Lieu of Taxes (PILOTs) – This is a transfer to the General Fund set at 6% of operating
revenues. As such, any increase in this expense is directly offset by higher operating revenues.
Administrative Services – Administrative Services from the Customer Service and Administration
areas increased significantly in 2017 in part due to the need to address a reserve shortfall from
a non-budgeted benefits adjustments. This expense line (Admin Services – CS&A) is another
area that provides opportunity to limit expense growth over the coming decade.
Administrative Services from the General Fund increased 23% from 2014 to 2015 and then 2%
from 2015 to 2016. These are budgeted transfers so when actual expenses for the General
Fund are below the budgeted transfers there is no adjustment to the charge to the Utility
Funds - this is a practice that may be difficult to argue is defensible as not being a transfer of
Enterprise Funds to the General Fund. For 2017 a new Administrative Services model was
developed by the Budget Office which resulted in a significant reduction (23%) in these
charges for the L&P Fund in 2017 primarily due to no longer including the transfer itself in the
calculation of the transfer amount. Other payments and transfers increased due to the
centralization of Risk Management.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Fort Collins Loveland Longmont Colorado Springs
Renewable and Energy Service Expenses as a % of
2016 Distirbution O&M
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Light & Power Renewable and Energy Efficiency Initiatives (2007-2016)
Purchase Power - Community Renewables
(54% annual increase since 2010)
Energy Services
(17% annual increase since 2007)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
16 of 61
In addition to the large annual increases in operating expense categories, the table above
also shows the significant increase in system additions and capital expenses (both are non-
operating expenses) in 2016 over 2015. This was due to increased infrastructure investment
being made in conduits and duct banks to serve anticipated load growth and to the
construction of 222 LaPorte and remodel of 700 Wood Street in 2016. The advanced metering
infrastructure project that began in 2012 is still listed as Work In Progress (WIP). As such, the
$34M investment is not being fully depreciated yet. Closing this project will allow more of this
investment to be depreciated. This will result in increased operating expense from
depreciation for the book life of that infrastructure.
Looking at the 2017 Budget compared to the 2016 actual spend provides some direction for
the near term challenge of managing operating expenses in this utility. Light & Power
Operations is highlighted due to the overspend in 2016 and the 5 year trend on these
expenses, making it a critical area of focus on cost management along with Admin Services –
CS&A. Investments continue in Community Renewables and Energy Services making the
combined 2017 budget of $8.5M almost comparable to the direct operating expense of the
Fund.
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
17 of 61
Looking at annual growth rates for expense categories over the near and long term shows
some significant annual increases for most expenses. Again, it will be crucial to the financial
health of this Fund to limit growth in every line to less than 2.5% annually in the future.
FUND:
501 - L&P Enterprise Fund
Year 2016 2016 Budget
% of Budget
Spent
2017 Budget
2017 Budget
as % of 2016
Actuals
Annual Demand (KWH in Millions) 1,547,458,755
OPERATING EXPENSES
Purchase Power -Tariff 1 $ 87,276,576 $ 88,792,000 98% $ 87,300,000 100%
Renewables PRPA $ 1,823,998 $ 1,824,000 100% $ 1,900,000 104%
Community Renewables $ 1,539,429 $ 1,896,520 81% $ 2,382,500 155%
L&P Operations $ 10,385,756 $ 9,740,407 107% $ 10,187,223 98%
Energy Services $ 5,960,263 $ 7,103,451 84% $ 6,080,264 102%
PILOTs $ 7,080,150 $ 7,254,000 98% $ 7,170,000 101%
Administrative Services
Admin Services - CS&A $ 6,500,603 $ 6,500,603 100% $ 6,705,767 103%
Admin Services - General Fund $ 1,503,455 $ 1,503,455 100% $ 1,163,489 77%
Other Payments & Transfers $ 567,587 $ 642,068 88% $ 598,759 105%
Subtotal Admin Services $ 8,571,645 $ 8,646,126 99% $ 8,468,015 99%
Depreciation $ 9,126,391
Total Operating Expenses $ 131,764,208 $ 125,256,504 105% $ 123,488,002 94%
Operating Expenses less Purchased Powe $ 42,663,634 $ 34,640,504 123% $ 34,288,002 80%
Operating Expenses less Purchased
Power & Depreciation
$ 33,537,243 $ 34,640,504 97% $ 21,718,279 65%
Debt Service $ 1,981,334 $ 2,034,602 $ 2,059,113
System Addition/Replacement $ 12,200,187 $ 15,604,986 $ 5,666,141
Major Capital Expenses $ 10,840,436 $ 70,476 $ 14,415,407
Total Non-operating Expenses $ 25,021,957 $ 17,710,064 $ 22,140,661
Total Expenses $ 156,786,166 $ 142,966,568 $ 145,628,663
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
18 of 61
The chart below shows the growth rates for the major operating expense categories and
system additions and replacements. The line graph shows that the purchased power costs
FUND:
501 - L&P Enterprise Fund
Year
10 Yr
Annualized
Trend
5 Yr
Annualized
Trend
3 Yr
Annualized
Trend
1 Yr
Annualized
Trend
Annual Demand (KWH in Millions) 0.70% 0.71% 0.23% 1.85%
OPERATING EXPENSES
Purchase Power -Tariff 1 4.64% 4.69% 3.31% 6.22%
Renewables PRPA 16.89% -0.05% 9.43% -3.66%
Community Renewables 39.28% 68.12% -1.83%
L&P Operations 7.73% 6.89% 6.26% 14.85%
Energy Services 16.32% 16.80% 11.89% 19.96%
PILOTs 4.61% 4.64% 2.62% 6.55%
Administrative Services
Admin Services - CS&A 4.50% 8.26% 7.24% 23.39%
Admin Services - General Fund 7.94% 7.98% 11.80% 2.00%
Other Payments & Transfers 4.03% 4.97% -7.48% -7.38%
Subtotal Admin Services 4.99% 7.97% 6.43% 16.54%
Depreciation 3.59% 4.05% 3.77% 5.55%
Total Operating Expenses 5.34% 5.53% 4.44% 7.75%
Operating Expenses less Purchased Powe 6.64% 7.70% 6.77% 11.61%
Operating Expenses less Purchased
Power & Depreciation
7.66% 8.84% 7.72% 13.38%
Debt Service 3.81% 2.65% 0.74%
System Addition/Replacement 6.70% 14.85% 3.63% 24.37%
Major Capital Expenses 20.11% 0.02% -29.32% 112.09%
Total Non-operating Expenses 11.92% 6.13% -12.39% 48.17%
Total Expenses 6.14% 5.63% 1.66% 12.66%
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
19 of 61
while still above the inflation rate have increased at a slower rate than any category of the
distribution utility expenses.
The chart below shows the untenable trend in operating expenses. Inflation has been less
than 2% over the past decade for comparison.
Looking out over the next ten years through the long term financial model, expenses will need
to be tightly managed so as not to exceed the rate of inflation in total. This will be particularly
challenging as most of the operating revenue goes to purchased power expenses which are
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
10 Yr Annualized Trend 5 Yr Annualized Trend 3 Yr Annualized Trend
Light & Power Fund Annualized Increase in Operating Expenses
L&P Operations
Energy Services
Admin Services - CS&A
Admin Services - General Fund
System Addition/Replacement
Purchase Power -Tariff 1
0%
2%
4%
6%
8%
10%
12%
14%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Light & Power Fund Annual % Change in Operating Expenses
L&P Operations LESS Purchased Power
Purchased Power Tariff 1
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
20 of 61
expected to grow above the rate of inflation – purchased power costs are assumed to
increase at 2.25% annually which is 0.5-1.5% above the anticipated rate of inflation of 1-2%.
The dotted black line in the chart shows the current trend on operating expenses. The solid
red line into the future assumes operating expenses other than purchased power and PILOTs
also grow at a rate of only 2.43% annually.
Operating Income Analysis – Light & Power
While operating revenues increased from $82M in 2007 to $125M in 2016, operating expenses
increased from $83M to $132M over the same period. This difference between the increases in
operating revenues and operating expenses has resulted in this utility having negative
operating income 8 of the last 10 years with 2016 being the largest operating loss over that
period at $6.0M. Only 2012 which saw an 8.3% rate increase and 2013 which saw an
additional 4.3% rate increase generated positive operating income. The graph below shows
the growing divergence between operating revenues and expenses. Given the limited
growth available in operating income it will be necessary to tightly manage operating
expenses so as to limit their growth significantly over the next decade. Constraining operating
expenses along with modest growth in operating revenues will allow this utility to generate
positive operating income which will provide the necessary capital for anticipated
infrastructure build out and renewal in the future. Again, it will be necessary to have 5.0% rate
increases in both 2019 and 2020 to realize this operating income.
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
Annual Operating Expenses
Light & Power Fund Operating Expenses (2007-2026)
Operating Expenses
(2.43% per yr)
Assuming Historical Trend
(5.34% per yr)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
21 of 61
By realizing a historically modest operating revenue growth of 3.2% over the coming decade
and most importantly limiting increases in operating expenses to no more than 2.4% in total
annually, it is expected that adequate operating income will be generated and the identified
capital work in the CIP can be fully funded without the need for additional debt to be issued
before 2023 when the broadband effort is expected to generate adequate revenue to
service that debt.
($20,000,000)
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Light & Power Fund Operating Income (2007-2026)
OPERATING INCOME
Total Operating Revenue
Total Operating Expenses
($8,000,000)
($6,000,000)
($4,000,000)
($2,000,000)
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
Annual Operating Income
Light & Power Operating Income (2007-2026)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
22 of 61
Capital Expenditure Analysis – Light & Power
The electric system is largely an underground distribution system that has been built over the
last 30-50 years. These underground assets have performed well over their useful life, allowing
the community to benefit from a very reliable electric system, but it is expected that significant
capital investment will need to be made in the coming decades to renew this aging
infrastructure. The need for asset lifecycle management strategies (from installation to
replacement) for all major electric assets will be an area of focus for Asset Management and
L&P Operations in the next few years so that the necessary investments are quantified and
adequate funding is available as needed in the future.
The current 10 Year CIP consists of $166M of identified capital investments which consists of
$103M of new capital needs for the anticipated growth in system demands over the decade
as well as $58M for system renewal investments and $5M for service area wide software
projects. Excluding the long term capital investment in the new administrative building of
$14M and the portion of the advanced metering infrastructure investment funded by grant
revenue of $16M the average annual historical capital investment has been $13.5M per year
from 2007 through 2016, or $5.3M more per year than is identified for the coming decade.
Annexations into the City limits typically result in this utility taking over service from a
neighboring utility. This requires compensating the neighboring utility for stranded assets and
sometimes for lost future revenue. Additionally, it involves reconfiguring and rebuilding the
existing infrastructure without any development fee to offset the capital investment. Thus,
annexations can be a significant expense for this utility. The Mulberry Annexation is the most
significant contributor to the Annexations category as this annexation is estimated to cost Light
& Power at least $15M to acquire and rebuild the infrastructure to meet standards. A
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Light & Power Fund Capital Improvement Plan
New Capacity Fiber Optics Improvements
Substation Improvements Operational Technology
Distribution System Improvements Annexations
Service Area - wide Historical Ave Capital 2007-16
Ave Capital Investment 2017-26 Previous CIP Estimated 2017-2026 Capital Investment
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
23 of 61
deferment of this annexation by a few years would relieve some of the potential constraints on
this fund.
2017-18 Budget – Light & Power
The 2017-18 biennial budget included a 3.45% rate increase in 2017 and a 1.8% increase in
2018 as well as a drawdown of Available Reserves from $20.0M to $6.7M for the funding of
several capital improvements. This assumes that revenues and operating expenses will be at
the budgeted level. Based on historical trend analysis it is likely that revenues will exceed
budget and operating expenses other than purchased power expenses will be under budget.
Through October 2017, revenues are $3.7M over budget and operating expenses are $0.2M
under budget. The 2017-18 budgets reflects an annualized 0.2% decrease in Current Offers
over the 2016 budget which is less than the modeled 2.0% annual growth in operating
expenses to recognize the historical underspend. Hence the relatively low underspend year to
date in 2017 compared to the budget. The 2019-20 Budget will begin at this lower level and
assume no more than a 2.4% increase in operating expenses before consideration is given to
Enhancements.
The waterfall chart below summarizes the Council adopted 2017-18 budget for this utility.
$20.0
$6.7
$126.5 $3.1
$130.5 $3.1
$6.9 $4.4
$5.0
$3.4
($10.0)
$10.0
$30.0
$50.0
$70.0
$90.0
$110.0
$130.0
$150.0
$ Millions
501 L&P 2017-18 Budget
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
24 of 61
A Budget Offer / Business Unit level history is provided below for additional consideration of
where opportunities and challenges may exist going forward.
BU 2013 Actual 2014 Actual
2015
Amended
Budget
2015 Actual
2016
Amended
Budget
2016 Actual 2017
Approved
2018
Approved
Offer: 5.1 Utilities: Light & Power - Payments and Transfers
10000000 - Payments & Transfers 15,248,470 15,090,964 17,556,273 16,188,056 17,934,728 17,660,398 17,907,664 18,493,708
Total Expenses for Offer 5.1 15,248,470 15,090,964 17,556,273 16,188,056 17,934,728 17,660,398 17,907,664 18,493,708
Offer: 5.2 Utilities: Light & Power - Operations
10100000 - Knowledge Transfer - L&P 22,059 20,882 50,000 0 50,000 49,941 10,000 10,000
12300000 - Admin & General Operations 893,624 903,406 825,225 718,989 920,196 9,949,918 896,071 915,815
12310000 - Telecommunications O&M 0 4,805 107,963 226,749 110,199 221,494 254,896 261,124
14000000 - Electric Field Services O&M 5,069,760 5,190,942 5,133,135 5,569,573 5,518,295 6,440,752 5,764,388 5,888,646
14100000 - Electric Systems Engr O&M 129,149 141,750 260,560 111,844 266,368 97,258 239,115 223,091
14200000 - Electric Standards Engr O&M 285,749 302,218 381,561 383,172 389,767 372,232 373,516 380,193
14210000 - Material Control - Standards 300,824 347,423 319,041 349,430 326,382 334,047 339,430 349,187
14230000 - Electric Meter O&M 391,212 434,042 377,057 445,442 385,657 459,427 433,449 435,701
14300000 - Elec. Systems Design Engr O&M 195,776 275,166 388,563 281,600 396,619 399,998 378,756 388,776
14310000 - Elec. Substations O&M 391,960 443,745 591,192 434,321 570,133 585,785 600,323 611,550
14320000 - Supervsiory Control Operations 480,013 406,130 598,477 467,547 610,704 363,190 557,279 567,683
Total Expenses for Offer 5.2 8,160,125 8,470,510 9,032,774 8,988,666 9,544,319 19,274,044 9,847,223 10,031,766
Offer: 5.5 Utilities: Light & Power - System Additions
15100000 - Replacement of Cable 860,908 297,538 507,247 556,108 496,500 970,929 0 0
15200000 - UG Equipment Upgrades 1,144,841 837,956 902,300 596,463 920,350 573,472 0 0
16080000 - Automated Dist & Load Control 31,087 42,318 100,000 30,439 100,000 10,630 0 0
16200000 - Streetlight Improvements 111,202 52,201 104,040 301,861 106,120 286,836 0 0
16300000 - Major Duct Banks & Circuits 578,775 1,421,514 1,310,265 2,066,024 6,168,807 4,944,662 0 0
16400000 - Meters & Related Devices 244,535 268,903 217,160 372,434 221,500 728,790 300,000 300,000
16410000 - Advanced Metering Infrastruct 57,071 106,092 0 14,126 0 4,093 100,000 100,000
16500000 - Telecommunications 69,664 29,221 60,000 8,248 60,000 2,964 60,000 60,000
16600000 - Services 214,516 360,510 67,100 296,070 68,420 311,643 0 0
16700000 - Elec System Purchases 814,446 564,237 777,750 429,775 793,300 443,889 425,000 430,000
16800000 - Subdivision Construction 2,008,826 3,229,573 1,938,140 2,528,424 1,927,580 1,354,160 1,859,000 1,859,000
16900000 - Distribution - Other L&P 15,296 93,951 518,110 38,712 518,720 47,934 500,000 500,000
17000000 - Transformer Purchases 769,096 1,133,683 1,495,575 852,403 1,255,534 860,802 0 0
19300000 - General Plant Purchases 544 64,432 135,000 10,995 123,856 289 0 0
19700000 - Capital Labor Elec Field Srv 417,797 496,001 2,442,920 521,024 2,505,800 225,652 725,292 745,298
19710000 - Capital Labor Elec System Engr 587,545 612,119 730,136 680,204 746,117 755,856 646,225 664,427
19720000 - Capital Labor Elec Standards 77,414 95,239 323,638 99,120 330,751 98,098 335,697 345,052
Total Expenses for Offer 5.5 8,003,564 9,705,488 11,629,381 9,402,428 16,343,356 11,620,699 4,951,214 5,003,777
Offer: 5.6 Utilities: Light & Power - Purchase Power
11000000 - Purchase Power 78,495,175 78,272,066 84,569,000 82,164,556 88,792,000 87,276,576 87,300,000 89,500,000
Total Expenses for Offer 5.6 78,495,175 78,272,066 84,569,000 82,164,556 88,792,000 87,276,576 87,300,000 89,500,000
Offer: 5.7 Equipment Replacement - Utilities: Light & Power - Vehicles and
Equipment
19400000 - Power Equipment & Vehicles 245,681 380,585 570,121 394,262 491,630 465,138 625,000 480,000
19410000 - Equip & Vehicle Elec System Engr 0 0 45,000 0 45,000 45,000 0 0
Total Expenses for Offer 5.7 245,681 380,585 615,121 394,262 536,630 510,138 625,000 480,000
Offer: 6.65 Utilities: Light & Power - Energy Services
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
25 of 61
Debt Analysis – Light & Power
The electric utility has historically operated without any debt. While this is a very strong
financial policy, it is one that results in cross generational subsidies as assets are bought by one
generation of the community and then effectively used by subsequent generations of the
community. This should be revisited particularly when interest rates are extremely low. It is
much more prudent to take a longer term perspective on capital improvements so as to
minimize the financing costs associated with such projects than to be subject to the financing
costs associated with immediate financing regardless of the economic climate. In 2010 the
utility issued two revenue bonds to receive a matching grant from the Department of Energy
for the AMFC program. Based on the cyclical nature of the economy, the current favorable
financing conditions may not last more than a few years before interest rates increase.
Currently the 2010 Bonds issued to finance the AMFC project are the only debts being serviced
by this utility. Given the continued favorable cost of borrowing consideration should be given
to issuing debt over raising rates for capital investments in the near future. However, the
community interest in expanding this fund to include a broadband internet service is likely to
take up all of the existing debt capacity of this fund at least until 2023.
The existing debt was reviewed by Standard and Poor’s in 2016 which affirmed its AA- bond
rating despite there being little debt history in this fund. The output from the long term
financial model was provided to the analysts for their revised bond rating.
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Light & Power Fund Annual Debt Service Expense
Amortized
2010 ELECTRIC
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
26 of 61
The debt coverage ratio for this Fund has been well above the bond covenant minimum
requirements of 1.15-1.2 as well as above the internally recommended ratio of 2.0 necessary to
be viewed as favorably as possible by the rating agencies.
The actual debt capacity for this utility Enterprise Fund is very large due to the large amount of
revenue collected which is essentially passed through to PRPA. While a simple interpretation
of Pledged Revenues could include this revenue, because it is needed to continue to meet
generation cost obligations, it is not available for debt service for any debt that may be issued
within the distribution utility. Moreover, the debt capacity of the Enterprise Fund is limited by
the outstanding debt held by PRPA as the rating agencies recognize the proportional
ownership of that debt by Fort Collins Utilities. Thus, while there is in some sense existing debt
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
27 of 61
capacity of about $100-150M, not all of which may be available to the Light & Power Fund.
Moreover, the effect of issuing such debt would be to severely limit any capital investment for
this Fund beyond that debt issuance for the next 3-5 years, at least.
Reserve Analysis – Light & Power
Financial Management Policy 5, last issued by Council July 15, 2014, specifies Fund Balance
Minimums for Enterprise Reserves. It also states that additional reserves should be set aside for
anticipated capital investments. This Plan does this in the long term financial modeling to
determine when additional capital investment should come from Available Reserves and
when it should come through rates or most directly debt issuances. While not all future capital
investments have been identified, particularly for the renewal of the aging existing
infrastructure, the amount of revenue available for the anticipated capital needs should be
sufficient in the near term to avoid setting aside additional reserves above what has already
been appropriated for anticipated capital work in 2017 and 2018. This will be reviewed ahead
of the 2019-20 Budget For Outcomes cycle which begins in March of 2018.
While the Light & Power Enterprise Fund ended 2016 with a fund balance of $36.8M after
accounting for minimum reserve requirements and prior appropriations only $6.7M was
available for new appropriations. This is less than 20% of the fund balance. The graph below
shows the trend since 2011. Available reserves should be built back up to be available for
future capital needs which will require limiting the growth of operating expenses considerably
into the future and the proposed 5.0% rate increases in 2019 and 2020.
Fund 501 L&P - Debt Capacity Table
Interest Rate: 3.0% Interest Rate: 5.0%
Debt Coverage
Ratio
Debt Capacity
(10 Yr Debt)
Debt Capacity
(15 Yr Debt)
Debt Capacity
(20 Yr Debt)
Debt Coverage
Ratio
Debt Capacity
(10 Yr Debt)
Debt Capacity
(15 Yr Debt)
Debt Capacity
(20 Yr Debt)
1.2 $98.20 $137.30 $171.30 1.2 $88.90 $119.50 $143.50
1.4 $84.20 $117.70 $146.80 1.4 $76.20 $102.40 $123.00
1.6 $73.70 $103.00 $128.50 1.6 $66.70 $89.60 $107.60
1.8 $65.50 $91.60 $114.20 1.8 $59.30 $79.70 $95.70
2.0 $58.90 $82.40 $102.80 2.0 $53.30 $71.70 $86.10
2.2 $53.60 $74.90 $93.40 2.2 $48.50 $65.20 $78.30
2.4 $49.10 $68.70 $85.60 2.4 $44.40 $59.80 $71.80
Outstanding Debt $7.0 M
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
28 of 61
In the near term operating income and projected development fees are expected to
increase the Available Reserve balance. As the larger capital investments are made in the
front years of the next decade and the outstanding debt is retired, Available Reserves will
increase. The increasing Available Reserves will be impacted by the development of more
robust system renewal strategies through the Asset Management efforts of the utility.
Rate Analysis – Light & Power
As discussed above, operating revenues have increased significantly over the past decade
driven mainly by rate increases. In 2017 a customer will pay $1.51 for the same amount of
energy that would have cost them $1.00 in 2007.
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2011 2012 2013 2014 2015 2016
$ Millions
501 - Light & Power Reserves
Fund Balances AVAILABLE Fund Balances
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Available Fund Balance
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
29 of 61
That cost increase reflects an average annual rate increase of 4.2% over the decade. The last
year there was no rate increase in electric monthly charges was 2007. Since then the rate
increases have been primarily due to increased generation and transmission costs from PRPA
(see blue bars above). Increased focus on energy conservation programs and renewable
energy sources (see green bars above) has also driven rate increases. Lastly, there have been
two rate increases due to increased costs associated with maintaining and replacing the
distribution system (see yellow bars above).
The portion of the rate increase in 2017 that was not a pass through from PRPA was 1.25% of
the overall 3.45% rate increase. Increasing operating revenues by 1.25% based on 2016
operating revenues is expected to add $1.5M in 2017 operating revenues that are available
for expenses other than purchased power expenses. This represents a 3.6% increase in
revenues available for operating expenses other than purchased power compared to the
7.7% annual growth seen on those expenses over the previous decade. Because of additional
Enhancements to the base 2017-18 Budget, all of this additional revenue will be used above
the ongoing budget and thus will not immediately impact operating income as intended. If
these enhancements are not continued forward into 2019 then this rate increase along with
managed costs will be close to providing positive operating income in 2019 and beyond.
However, in order to assure that positive operating income is generated consistently additional
rate increases for distribution operating expenses will be necessary over the coming decade
as indicated by this analysis.
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
30 of 61
Based on the 10 year wholesale rate projections from PRPA, purchased power costs are
expected to increase at a slower retail rate of 1.9% over the next 10 years under the Clean
Power Plan (CPP). If the CPP is delayed or not put into effect, then purchased power costs
should increase at an even slower rate over that period. The long term financial model
assumes the CPP continues as originally planned and that capital improvements are made as
outlined in Scenario 3 above. This results in the following ten year rate forecast:
In 2012 there were significant changes made to the wholesale purchased power rate
structure. A seasonal rate structure was adopted by PRPA and through a cost of service
analysis certain operational costs were re-allocated between the energy and demand
components of the wholesale rates. This utility has historically at City Council’s direction
passed any increase in purchased power costs immediately into the retail rate and 2012 was
no exception. In addition to the shift of wholesale purchased power costs from the demand
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase * 3.45% 1.8% 5.0% 4.9% 2-3% 0-2% 0-2% 1-3% 1-3% 0-2%
* Rate increases may change depending on what PRPA needs each year.
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
31 of 61
to energy component of the wholesale rates, City Council adopted a three tiered residential
rate that year.
The intent of the three tiered residential rate structure was to promote energy conservation.
Based on analysis done in 2013 comparing weather normalized residential use in 2011 and
2012 there was no measurable change in energy consumption. In 2014 a pilot study was
approved by the City Council to consider a 12 month time of use (TOU) rate structure. That
rate structure showed a 2.5% reduction in energy consumption compared to the tiered rate
structure suggesting that there is some energy savings that could be expected from adopting
a residential time of use rate structure potentially as soon as 2018. The 12 month pilot study
allowed staff to have confidence that adequate revenues will be generated through a time
of use rate structure. Based on Council feedback it is expected that a time of use rate
structure that may also include a tier will be adopted for all residential customers in late 2018.
The adoption of a TOU rate structure is expected to decrease long term operating revenues
by 1.0%.
Financial Risk Assessment – Light & Power
Below is a list of identified financial risks for this utility. Each risk is categorized as high, medium
or low according to both the likelihood and consequence of it being realized. Those risks
above the solid line are significant enough that risk mitigation strategies should be developed.
Further assessment of these financial risks, particularly with operational input, may change the
likelihood and consequence of each and may identify other significant financial risks. This
additional assessment will be done ahead of the 2019-20 budget cycle.
FUND:
501 - L&P Enterprise Fund
Risk ID Description Likelihood Consequence Mitigation
Recommended
LPFR1 Operating Expense Increases Medium High X
LPFR2 Energy Services / Community Renewables Medium High X
LPFR3 Asset Lifecycle Management Plans High Medium X
LPFR4 PRPA Rate Increases High Medium X
LPFR5 Municipal Broadband High Medium X
LPFR6 Distributed Energy Resources Medium Medium
LPFR7 Rate Fatigue Medium Medium
LPFR8 System Reliability High Low
LPFR9 CAP Initiatives Low Medium
LPFR10 Clean Power Plan Low Medium
LPFR11 Unidentified Capital Projects Medium Low
LPFR12 Mulberry Annexation Low Medium
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
32 of 61
1. Continuing escalation of operating expenses at a rate well above inflation would limit
capital investment and require larger rate increases than planned. Likelihood =
Medium; Consequence = High
2. The growth in annual investment in Energy Services and Community Renewables
without associated rate increases has caused operating income to become more and
more negative each year. Likelihood = Medium; Consequence = High
3. Asset Lifecycle Management Plans may identify significant capital investment is
needed in aging infrastructure to maintain current levels of service. Likelihood = High;
Consequence = Medium
4. PRPA rate increases may limit the amount of any rate increase available to finance
capital improvements to the distribution system. Likelihood = High; Consequence =
Medium
5. A new broadband utility service would require issuing significant debt from this utility –
effectively consuming almost all of the debt capacity thereby limiting the amount of
debt that may be available for L&P capital needs. Likelihood = High; Consequence =
High
6. Distributed Energy Resources may significantly reduce operating income available for
system maintenance and renewal. Likelihood = Medium; Consequence = Medium
7. Rate fatigue, even at more modest annual adjustments, could result in less capital
investment than necessary to meet growth and maintain the current levels of service.
Likelihood = Medium; Consequence = Medium
8. A real or perceived decline in distribution system reliability could accelerate system
renewal capital requirement expectations. Likelihood = Medium; Consequence = Low
9. CAP objectives and tactics may limit capital available for capital needs. Likelihood =
Low; Consequence = Medium
10. State decision on how to meet Clean Power Plan may require larger than anticipated
rate increases from PRPA. Likelihood = Low; Consequence = Medium
11. Unidentified capital investment may be necessary either due to additional capacity or
unexpected asset failures. Likelihood = Medium; Consequence = Medium
12. The Mulberry Annexation could proceed sooner than expected (2019 or 2020) resulting
in $10-20M capital expenditure sooner than anticipated which may require issuing debt
to finance. Likelihood = Medium; Consequence = Medium
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
33 of 61
502 - Water Enterprise Fund
Executive Summary - Water
The operating income for this Fund has been consistently positive (averaging $3.2M per year)
with a small increase seen in recent years up to $3.6M in 2016. Operating revenues and
expenses for this fund are heavily influenced by drought and weather conditions, and the
effectiveness of conservation programs. With significant capital investment anticipated in the
near future for water supply infrastructure it will be necessary to have modest rate increases
(<3%) after the 5.0% in the 2018 budget as well as issuance of some debt ($5-8M) in the 2018-
2019 timeframe. It may be necessary to increase rates slightly more than 3% in a few years
over the coming decade so that the operating income remains healthy and is closer to the
annual depreciation rate to allow for continued system renewal as well.
Water revenues consist of monthly operating revenues for services to wholesale, commercial
and residential customers and non-operating revenues which consist of development fees
and other miscellaneous revenues (interest, asset auctions, etc.). A 6% payment in lieu of taxes
is also included in the operating revenue which is transferred to the General Fund. As the
chart below shows, operating revenues show much more consistency than the non-operating
revenue stream.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Water Fund Operating Income (2007-2016)
OPERATING INCOME
Total Operating Revenue
Total Operating Expenses
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
34 of 61
Water operating expenses are broken down into 12 categories below. These categories are
each discussed in the expense section below. The direct costs of water treatment and
distribution are shown in shades of blue, conservation in green and the administrative costs in
grey. The payment in lieu of taxes is shown in yellow.
$15,936,561
$10,034,648
$2,089,883
$7,765,407
$1,602,448
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Water Fund Revenues (2007 - 2016)
Residential Sales Commercial Sales Wholesale & Leases Non-operating Revenues PILOTs
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Water Fund Operating Expenses (2007 - 2016)
Water Resources Water Treatment
Transmission & Distribution Water Meters O&M
Engineering Water Quality Lab
Water Conservation Other Payments & Transfers
Admin Services - General Fund Admin Services - CS&A
PILOTs Depreciation
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
35 of 61
Water non-operating expenses are shown below. Non-operating expenses can represent a
significant portion of the total annual Fund expense (see axis on right). Due to recent large
capital investment in metering and building improvements, non-operating expenses have
increased in recent years. The newer level is expected to be maintained going forward as
large capital projects are completed and increased investment is made in system renewal.
The current 10 year Capital Improvement Plan anticipates a 50% increase in annual capital
investment over the coming decade compared to the last decade. The chart below reflects
the updated CIP to be consistent with the 2017-18 Budget. It also shows the two utility wide
projects that will require funding from each utility in orange.
0%
10%
20%
30%
40%
50%
60%
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% Total Expenses
Water Fund Non-Operating Expenses (2007 - 2016)
Debt Service
Minor Capital
Major Capital Expenses
% Total Expenses
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
36 of 61
The majority of the capital investment required in 2019-2020 for Water Resources has already
been appropriated. There will need to be an additional $8-12M appropriated for the
construction of the Halligan Reservoir during this time period.
The results of the financial modeling which applies the same objective strategies for raising
rates and issuing debt as the other utilities are presented below and discussed in more depth
in the relevant sections below.
With two consecutive 5.0% rate increases included in the 2017-18 budget cycle it is
anticipated that more modest rate increases will be required in the next few years.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Water Fund Capital Improvement Plan
Prior Appropriations Environmental Services Water Distribution
Service Area - wide Water Production Water Resources
Ave. Capital Investment 2017-26 Historical Ave Capital 2007-16
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
37 of 61
Operating income is expected to trend downward but remain positive as the operating
revenues increase through modest rate adjustments, growth and redevelopment at a slower
pace than the inflation on operating expenses. If the forecast holds, or a decision is made to
increase system renewal to fully offset depreciation, slightly larger rate increases in the latter
years or consistent, modest adjustments over the decade would allow for operating income to
remain healthy and system aging to be minimized.
The available fund balance is expected to increase as the debt service expenses decrease
and operating expenses are limited in their year over year growth. The declining operating
income will be partially offset by development fees and other non-operating income.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Rate Increase
($1,000,000)
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Operating Income
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
38 of 61
Below is a graph showing the increase in outstanding debt with new debt issuances being
required in 2018-19 and again in 2023. Even with the new issuances, debt service is expected
to be $2M less per year than in 2016 beginning in 2019.
The table below summarizes the expected rate increases and debt issuances over the coming
decade.
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Available Fund Balance
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Outstanding Debt
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 5% 5% 0-1% 0-1% 0-1% 0-2% 0-2% 1-3% 1-3% 1-3%
Debt Issuance $M $5-8 $21-25
$168M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
39 of 61
Through modest rate adjustments and debt issuances and existing appropriations, it is
expected that the capital investments in the infrastructure that have been identified, including
the existing capital work for Halligan Reservoir, can be made allowing this utility to maintain its
operational objectives and remain in a financially healthy position throughout the coming
decade. Mitigation strategies should be developed for the most significant financial risks
identified in the risk assessment below.
Financial Analysis
Revenue Analysis - Water
Operating revenues for this fund have grown modestly (2.00% annually) over the previous
decade from $24.8M in 2007 to $29.6M in 2016 while the amount of water consumed by the
community has remained essentially flat over the same period (see graph below). Overall
customer growth has been offset by conservation efforts resulting in reduced water use per
customer and a slight decrease in the total water consumed. Thus, the modest growth in
operating revenues is attributable primarily to rate increases that have occurred since 2006
and modest customer growth.
The table below shows the annual revenues by major categories for the past 5 years.
Residential revenues have been flat over the last 5 years. Commercial, Industrial and other
water sales revenues have shown some growth over the same period. As there was no rate
increase in 2016, the 2016 growth in revenues reflects the year over year volatility due to
weather. (The data here is not adjusted for weather so as to accurately represent the
revenues received.)
The table also shows that the non-lapsing revenues over that same period have come mostly
from development fees which consist of both plant investment fees and cash-in-lieu of
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Annual Demand (MG)
Sales ($)
Water Fund Operating Revenues (2007-2016)
Annual Demand (millions of gallons) Residential Water Sales Com/Indl Water Sales District & Other Sales
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
40 of 61
providing water rights but do include revenue from interest on cash reserves. The negative
income under “Other Misc” is attributable to unrealized investment losses as of the end of the
year. Development fees peaked in 2014 although strong growth has continued through 2016.
The volatility of development fees is much greater than that of operating revenues thus
requiring caution before relying on development fee revenues for necessary capital
improvements or forecasting net pledged revenues. There has been some indication in 2017
that “green field” development may be slowing within the service territory of the water utility
while redevelopment continues which provides less development fee revenue. Total revenues
have only exceeded the $36.7M from 2007 twice since despite several rate increases. (A
customer will pay $1.28 in 2017 for the same amount of water that would have cost $1.00 in
2007.)
Looking at revenues on an annual percent change basis shows a longer term trend of 2-5%
annual growth in operating revenues with 2016 showing 7.1% growth (see table below).
Development fees accounted for only $0.8M of the $2.4M increase in revenues in 2016 over
2015 while increased water sales accounted for the majority. Over the past decade
operating revenues have not kept pace with rate increases due to effective conservation,
and non-operating revenues have decreased although this trend has reversed in the recent
past due to increased development fees. This trend of modest revenue growth through
modest rate increases should be sustainable over the next decade.
FUND:
502 - Water Enterprise Fund
103.00% 106.00% 104.00% 104.00% 100.00% 100.00%
Year 2007 2012 2013 2014 2015 2016
Annual Demand (millions of gallons) 9,119 9,216 7,802 7,890 8,262 8,446
Annual Rate Increase 3.00% 6.00% 4.00% 4.00% 0.00% 0.00%
Residential Water Sales $ 14,000,430 $ 16,082,637 $ 15,066,890 $ 14,601,946 $ 14,991,391 $ 15,936,561
Com/Indl Water Sales $ 7,931,374 $ 9,007,900 $ 7,951,655 $ 8,711,614 $ 9,143,390 $ 10,034,648
District Water Sales $ 757,979 $ 1,074,218 $ 1,140,384 $ 1,158,779 $ 1,142,475 $ 1,328,391
Other Water Sales $ 751,792 $ 630,551 $ 355,508 $ 848,463 $ 931,065 $ 761,492
PILOTs $ 1,378,857 $ 1,530,228 $ 1,439,385 $ 1,450,107 $ 1,496,512 $ 1,602,448
Operating Revenue $ 24,820,433 $ 28,325,535 $ 25,953,822 $ 26,770,909 $ 27,704,834 $ 29,663,540
Development Fees/PIFs/Contributions $ 7,720,138 $ 3,112,334 $ 5,099,583 $ 9,324,685 $ 6,141,400 $ 6,976,640
Interest Revenue $ 2,964,304 $ 892,943 $ 663,781 $ 861,784 $ 879,750 $ 881,615
Other Misc $ 1,153,334 $ 376,731 $ 621,727 $ 492,955 $ 281,837 $ (92,848)
Non-Operating Revenue $ 11,837,776 $ 4,382,008 $ 6,385,092 $ 10,679,424 $ 7,302,987 $ 7,765,407
Total Revenues $ 36,658,208 $ 32,707,542 $ 32,338,914 $ 37,450,333 $ 35,007,821 $ 37,428,947
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
41 of 61
The reasons this trend is sustainable include adequate planning to smooth annual rate
increases, the maturity of the tiered rate structure, continued build out and denser
redevelopment of the service area, and changes in how development satisfies the water
supply requirements beginning in 2018. In particular, the City will no longer accept most water
rights and instead require cash to be used in-lieu of ditch rights to meet the water supply
requirement. As raw water increases in scarcity throughout the Front Range the cash-in-lieu
rate will continue to increase over the coming decade allowing these non-operating revenues
to cover the increasing costs associated with firming new water for development. In 2018 the
cash-in-lieu rate will increase from $6,500 per acre foot to $17,300 per acre foot.
Looking out over the next ten years through the long term financial model, revenues are
expected to continue trending upward as redevelopment continues and modest rate
adjustments are implemented. This is shown in the graph below which forecasts an annual
growth of 1.08% in future operating revenue. This is based on the expectation that water
consumption will remain flat and rate increases will be minimal. The green area shows the
FUND:
502 - Water Enterprise Fund
Year
10 Yr
Annualized
Trend
5 Yr
Annualized
Trend
3 Yr
Annualized
Trend
1 Yr
Annualized
Trend
Annual Demand (millions of gallons) -1.12% 1.15% 2.68% 2.24%
Annual Rate Increase 2.28% 3.38% 2.65% 0.00%
Residential Water Sales 1.15% 3.03% 1.89% 6.30%
Com/Indl Water Sales 2.28% 5.79% 8.06% 9.75%
District Water Sales 4.24% 9.24% 5.22% 16.27%
Other Water Sales 1.06% 3.43% 28.91% -18.21%
PILOTs 1.80% 4.21% 3.64% 7.08%
Operating Revenue 1.67% 4.24% 4.55% 7.07%
Development Fees/PIFs/Contributions 0.62% 14.07% 11.01% 13.60%
Interest Revenue -9.10% -2.39% 9.92% 0.21%
Other Misc
Non-Operating Revenue -2.87% 8.70% 6.74% 6.33%
Total Revenues 0.52% 5.08% 4.99% 6.92%
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
42 of 61
range of revenues considered in the stochastic long term financial model. The jump in 2018
reflects the approved 5.0% rate increase.
Non-operating revenues are expected to remain within the range seen over the past decade
with re-development continuing. The uncertainty over the next decade appears large due to
the volatility of the development fees. Any unanticipated grant revenue or higher than
historical interest revenue would positively impact the financial health of the utility and as such
are not modelled here. Again, the green area and solid green line show the range of
revenues considered in the stochastic financial analysis. There is no potential for negative
revenue being realized as the unrealized investment gains or losses are based on investments
being marked to market only thus the green area does not extend into negative revenues.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
Annual Operating Revenues
Water Fund Operating Revenues (2007-2026)
Operating Revenue (1.08% per yr)
Assuming Historical Trend (2.00% per yr)
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
Annual Non-operating Revenues
Water Fund Non-operating Revenues (2007-2026)
Non-operating Revenue (0.0% per yr)
Assuming Historical Trend ( -2.87% per yr)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
43 of 61
Expenditure Analysis - Water
Expenditures in the Water Fund have seen increased annual growth over the past decade
with non-operating expenses increasing at a faster rate than operating expenses. Operating
expenses have been well managed over the past decade with an annual growth of 3.13%.
Given that operating revenues are expected to be flat due to decreasing per capita
demand, continuing this cost management will be critical to the financial health of this utility
over the coming decade.
The table below shows operating and non-operating expenses by the major categories shown
on the Monthly Financial Report for the last 5 years as well as those expenses in 2007.
Water Treatment - Increased treatment costs are driven mainly by inflation in chemicals. Most
operating expenses for the water utility are fixed so inflation in fixed costs such as wages has
also contributed to the 2.8% annualized increase over the last decade.
Transmission & Distribution – Modest growth in these expenses is also mainly driven by
increased fixed costs although these costs have shown a more recent growth in excess of
inflation.
FUND:
502 - Water Enterprise Fund
Year 2007 2012 2013 2014 2015 2016
Annual Demand (millions of gallons) 9,119 9,216 7,802 7,890 8,262 8,446
OPERATING EXPENSES
Water Treatment $ 4,160,623 $ 5,919,139 $ 5,338,401 $ 4,780,129 $ 4,873,210 $ 5,129,835
Transmission & Distribution $ 2,086,308 $ 2,228,613 $ 2,406,169 $ 2,397,914 $ 2,629,170 $ 2,698,820
Water Meters O&M $ 466,530 $ 693,244 $ 612,694 $ 601,571 $ 725,102 $ 616,245
Engineering $ 81,551 $ 101,829 $ 102,269 $ 113,002 $ 133,241 $ 422,764
Water Resources $ 1,389,636 $ 1,875,764 $ 1,750,796 $ 2,102,141 $ 2,416,051 $ 2,396,293
Water Conservation $ - $ 663,312 $ 556,896 $ 681,628 $ 720,452 $ 715,773
Water Quality Lab $ 940,117 $ 924,067 $ 933,354 $ 978,024 $ 1,071,745 $ 1,053,635
PILOTs $ 1,354,637 $ 1,530,228 $ 1,439,385 $ 1,450,107 $ 1,496,512 $ 1,602,448
Administrative Services
Admin Services - CS&A $ 2,901,642 $ 3,243,873 $ 3,208,560 $ 3,524,795 $ 2,983,212 $ 3,665,852
Admin Services - General Fund $ 912,975 $ 877,094 $ 863,391 $ 889,293 $ 879,555 $ 897,146
Other Payments & Transfers $ 281,894 $ 538,819 $ 409,384 $ 367,670 $ 369,580 $ 433,582
Subtotal Admin Services $ 4,096,511 $ 4,659,785 $ 4,481,335 $ 4,781,758 $ 4,232,347 $ 4,996,580
Depreciation $ 5,600,347 $ 5,374,854 $ 5,514,445 $ 5,816,319 $ 6,083,194 $ 6,427,100
Total Operating Expenses $ 20,176,261 $ 23,970,838 $ 23,135,744 $ 23,702,591 $ 24,381,026 $ 26,059,493
Debt Service $ 6,481,932 $ 3,584,251 $ 3,036,164 $ 3,163,753 $ 4,662,315 $ 3,345,025
Minor Capital $ 617,586 $ 1,625,391 $ 1,155,186 $ 1,472,013 $ 1,711,036 $ 951,555
Major Capital Expenses $ 3,318,667 $ 7,777,543 $ 10,582,417 $ 18,027,650 $ 11,492,967 $ 23,221,929
Total Non-operating Expenses $ 10,418,185 $ 12,987,184 $ 14,773,767 $ 22,663,416 $ 17,866,318 $ 27,518,509
Total Expenses $ 30,594,446 $ 36,958,022 $ 37,909,511 $ 46,366,007 $ 42,247,343 $ 53,578,002
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
44 of 61
Water Meters – Meter maintenance is a variable expense although a consistent meter
inspection cycle stabilizes these costs. The decrease in 2016 over 2015 is related to the
installation of the radio modules for remote reading of the meters.
Engineering – The significant recent increase in this expense is partly due to a recognition that
engineering time was not previously being allocated to the various wet utilities correctly. A
pay assessment also increased salaries significantly in 2016. Less time being spent on capital
work also contributed to this increase. These costs are expected to show modest wage
growth going forward.
Water Resources – This small department has added some staff over the past decade which
has driven the increased expense. Increased water assessment expenses to the various ditch
companies have also contributed to higher costs.
Water Conservation – Costs were not tracked separately for these efforts until 2010. Staff
increased in 2017 otherwise these costs are expected to see modest inflationary growth.
Water Quality Lab – These costs have been flat for the past decade with slight growth in 2015.
The recent trend indicates that these costs are increasing.
Payments in Lieu of Taxes (PILOTs) – This is a transfer to the General Fund set at 6% of operating
revenues. As such, any increase in this expense is directly offset by higher operating revenues.
Administrative Services – Administrative Services from within the Utilities service area are listed
as “Admin Services – CS&A” below. The increase from 2015 to 2016 was necessary to
adequately fund the CS&A reserves in 2016. For the “Admin Services – General Fund” in 2017
a new Administrative Services model was developed by the Budget Office which resulted in a
significant reduction (16%) in administrative charges for the Water Fund by the General Fund in
2017 primarily due to no longer including the transfer itself in the calculation of the transfer
amount. Other payments and Transfers increased due to the centralization of Risk
Management and are expected to show only modest inflationary growth in the future.
Debt Service – Debt service costs have decreased as no new debt has been issued since 2009.
The increase in 2015 was the result of the failure of the Michigan Ditch which resulted in a
$1.3M write-off for the impaired asset.
Major Capital Expenses – Capital investment has increased in the recent past due to several
large infrastructure replacement projects at the water treatment facility and the construction
of the new utility administrative building and remodel of the existing service center. Because
there are several large capital projects needed in the coming decade the annual capital
spend including prior appropriations is expected to be close to $20M which will require
adjusting rates and issuing debt periodically.
Looking at the 2016 actual spend compared to the 2016 budget along with the 2017 Budget
compared to the 2016 actual spend provides some more direction for the near term
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
45 of 61
challenge of managing operating expenses in this utility. Engineering is highlighted due to the
huge overspend in 2016 relative to the budget. This was the result of a change in how salaries
were being allocated across the three wet utilities and between capital and O&M. This
change was recognized in the 2017-18 budget cycle. The 5 year trends suggest several
critical areas of focus on cost management including engineering, water conservation, water
resources, transmission and distribution, and administration.
FUND:
502 - Water Enterprise Fund
Year 2016 Actuals 2016 Budget
% of
Budget
Spent
2017 Budget
2017
Budget as
% of 2016
Actuals
Annual Demand (millions of gallons) 8,446
OPERATING EXPENSES
Water Treatment $ 5,129,835 $ 5,861,316 88% $ 5,614,190 109%
Transmission & Distribution $ 2,698,820 $ 2,622,516 103% $ 2,797,123 104%
Water Meters O&M $ 616,245 $ 998,468 62% $ 767,019 124%
Engineering $ 422,764 $ 133,603 316% $ 304,413 72%
Water Resources $ 2,396,293 $ 2,259,515 106% $ 2,877,738 120%
Water Conservation $ 715,773 $ 860,201 83% $ 1,020,869 143%
Water Quality Lab $ 1,053,635 $ 1,118,367 94% $ 1,149,631 109%
PILOTs $ 1,602,448 $ 1,623,951 99% $ 1,570,000 98%
Administrative Services
Admin Services - CS&A $ 3,665,852 $ 3,665,852 100% $ 3,381,285 92%
Admin Services - General Fund $ 897,146 $ 897,146 100% $ 756,000 84%
Other Payments & Transfers $ 433,582 $ 934,674 46% $ 1,016,000 234%
Subtotal Admin Services $ 4,996,580 $ 5,497,672 91% $ 5,153,285 103%
Depreciation $ 6,427,100 $ -
Total Operating Expenses $ 26,059,493 $ 20,975,610 $ 21,254,269
Debt Service $ 3,345,025 $ 3,386,980 99% $ 2,969,349 89%
Minor Capital $ 951,555 $ 1,794,549 53% $ 2,100,464 221%
Major Capital Expenses $ 23,221,929 $ -
Total Non-operating Expenses $ 27,518,509 $ 5,181,529 $ 5,069,813
Total Expenses $ 53,578,002 $ 26,157,138 $ 26,324,083
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
46 of 61
Looking at annual growth rates for expense categories over the near and long term shows
some significant annual increases for some expense categories but overall growth in operating
expenses over the past decade has just exceeded the rate of inflation. The more recent trend
will require active management or it will be necessary to increase rates to offset this increase
in operating expenses. The 1 year trend reflects increases in 2016 over 2015 and the 2017
budget assumes this trend will be reversed by actively managing the budget at a business unit
level.
In addition to the 3.1% annualized increase in operating expenses over the last decade, the
table above also shows the significant increase in capital expenses (a non-operating expense)
in the last few years. This was due to increased investment being made to renew plant and
distribution infrastructure and to the construction of 222 LaPorte and remodeling of 700 Wood
Street in 2016. This increased capital investment will result in increased operating expense from
FUND:
502 - Water Enterprise Fund
Year
10 Yr
Annualized
Trend
5 Yr Annualized
Trend
3 Yr Annualized
Trend
1 Yr Annualized
Trend
Annual Demand (millions of gallons) -1.12% 1.15% 2.68% 2.24%
OPERATING EXPENSES
Water Treatment 2.78% 2.85% -1.32% 5.27%
Transmission & Distribution 3.16% 4.11% 3.90% 2.65%
Water Meters O&M 3.15% -0.07% 0.19% -15.01%
Engineering 18.41% 31.66% 60.49% 217.29%
Water Resources 5.70% 5.24% 11.03% -0.82%
Water Conservation 7.89% 8.73% -0.65%
Water Quality Lab 1.83% 3.57% 4.12% -1.69%
PILOTs 2.28% 4.21% 3.64% 7.08%
Administrative Services
Admin Services - CS&A 2.60% 1.55% 4.54% 22.88%
Admin Services - General Fund 0.92% 1.05% 1.29% 2.00%
Other Payments & Transfers 3.08% 25.98% 1.93% 17.32%
Subtotal Admin Services 2.31% 2.66% 3.69% 18.06%
Depreciation 2.08% 4.78% 5.24% 5.65%
Total Operating Expenses 3.13% 4.02% 4.05% 6.88%
Debt Service -7.38% -0.91% 3.28% -28.25%
Minor Capital 1.24% 9.52% -6.26% -44.39%
Major Capital Expenses 20.41% 29.24% 29.95% 102.05%
Total Non-operating Expenses 8.96% 21.15% 23.04% 54.02%
Total Expenses 5.69% 10.90% 12.22% 26.82%
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
47 of 61
depreciation for the book life of the new infrastructure and increased maintenance costs for
the new building.
The chart below shows the growth rates for the major operating expense categories. While
water conservation has seen the largest percentage increase the budget is relatively small
compared to the administrative services and the transmission and distribution and engineering
budgets. The escalating trend in the transmission and distribution and engineering expenses
as well as the increased administrative expenses are the most significant opportunities to limit
operating expenses given their recent trends and size.
The chart below shows the annual fluctuations in total operating expenses. Inflation has been
less than 2% over the past decade for comparison. The large increase in 2012 and subsequent
decrease in 2013 was driven by the High Park Fire and increased water demand. The large
increase in 2016 was driven by the increased Engineering expense (an ongoing challenge)
and the need to address the shortfall in the CS&A reserve (a one-time expense).
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Water Resources and
Treatment
Transmission & Distribution,
Meters and Engineering
Water Quality Lab Water Conservation Administrative Services
Annual Rate of Growth
Water Fund Annualized Increase in Operating Expenses
10 Yr Annualized Trend 5 Yr Annualized Trend 3 Yr Annualized Trend
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Water Fund Annual % Change in Operating Expenses
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
48 of 61
Looking out over the next ten years, expenses will need to be managed so as not to exceed
the rate of inflation. This will be particularly challenging where fixed costs have shown recent
upward trends. The dotted black line in the chart shows the current trend on operating
expenses. The solid red line into the future forecasts operating expenses grow at a rate of no
more than 2.45% annually. (The 2.88% historical trend in the graph below is from 2007 through
2016 as compared to the 3.13% historical trend from 2006 through 2016.)
Operating Income Analysis - Water
While operating revenues increased from $24.8M in 2007 to $29.6M in 2016, operating
expenses increased from $20.2M to $26.1M over the same period. This difference between the
increases in operating revenues and operating expenses has resulted in this utility having
slightly lower operating income in 2016 than in 2007. The graph below shows the steady
difference between operating revenues and expenses. Maintaining control on operating
expenses along with modest growth in operating revenues will allow this utility to continue to
generate positive operating income which will provide much of the necessary capital for
anticipated and unanticipated infrastructure renewal in the future.
Following the last capacity expansion in 1999 the Water Treatment Facility has excess
treatment capacity and is expected to even at full build out within the boundary constrained
service territory. Regional collaboration continues to be explored with the potential for some
of this excess treatment capacity to be utilized by other water providers. Such collaboration
would provide an opportunity to realize increased development and ongoing operating
revenues that are not modelled here.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Annual Operating Expenses
Water Fund Operating Expenses (2007-2026)
Operating Expense
(2.45% per year)
Assuming Historical Trend
(2.88% per yr)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
49 of 61
As discussed above, there is reason to expect the demand for water to be essentially what it
has been for the past decade over the next decade. This flat demand will limit operating
revenue growth to that which is achieved through rate increases. As this analysis assumes that
any rate increase is driven by the strategies outlined in the first chapter, flat demand results in
operating revenues growing at 1.08% annually over the next decade while operating
expenses grow at a faster rate of 2.45%. The end result being that operating income
decreases over the decade. If the forecasts are realized then it will be necessary to increase
rates in the outer years more than the 1-3% being forecasted here.
($5,000,000)
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Water Fund Operating Income (2007 - 2026)
OPERATING INCOME
Total Operating Revenue
Total Operating Expenses
($15,000,000)
($10,000,000)
($5,000,000)
$0
$5,000,000
$10,000,000
$15,000,000
Annual Operating Income
Water Fund Operating Income (2007-2026)
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
50 of 61
Capital Expenditure Analysis - Water
Below is a graph showing the capital investment over the past decade. One of the
challenges with capital investments in a utility is the relatively large percentage of annual
operating revenues required for such investments. Over the last 5 years the Fund has
increased capital investment from 30% of operating revenues to 90% of operating revenues.
This is expected to continue based on the identified future capital investments. This requires
staggering investments over the planning horizon so adequate reserves can be accumulated
resulting in large year over year swings. As shown below the long term trend of increasing
capital investment while operating revenues remain flat will require issuance of debt and
drawdown of available reserves. The increase in 2014 was to implement advanced metering
infrastructure and the increase in 2016 was to fund the new customer service building and the
remodel of the existing service center. These two capital investments will not require further
investment in the coming decade.
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 5% 5% 0-1% 0-1% 0-1% 0-2% 0-2% 1-3% 1-3% 1-3%
Debt Issuance $5-8M $21-25M
$168M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
% of Operating Revenue
Water Fund Capital Expenses (2007 - 2026)
Major Capital Expenses Minor Capital % of Operating Revenue
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
51 of 61
The current 10 year Capital Improvement Plan anticipates a 50% increase in average annual
capital investment over the coming decade compared to the last decade. Significant
capital investment is expected to be needed in the coming decade for the entire water
system from water supply projects to distribution system renewal. The current 10 Year CIP
consists of $148M of identified capital investments which consists of $34M of new capital needs
for the water supply system over the decade as well as $47M for system renewal investments,
treated water storage and onsite chlorine production at the treatment facility and $63M for
system renewal and cathodic protection of the distribution system. The Water Fund’s portion
of two Utility-wide capital projects – the billing system and the work order management system
– will require $4M during this time period as well. The chart below reflects the updated CIP to
be consistent with the 2017-18 Budget. It also shows the two utility wide projects that will
require funding from each utility in orange. (Appendix A includes the most recent prioritized
CIP for each utility fund.)
Any capital investments not contained in the Capital Improvement Plan such as the Walnut
Street Rehabilitation Project or the Poudre Pipeline Rehabilitation undermine the integrity of
the CIP process and highlight the need for additional reserves above the Reserve Policy
Minimum. Effective financial planning requires updating the CIP as projects are identified.
Unexpected capital projects could delay other previously identified capital projects,
accelerate rate increases, and draw down Available Reserves. Any of these consequences
could, in turn, undermine the bond rating agencies’ confidence in the financial management
of the Fund. Thus, an accurate and current CIP is critical to effective financial management
of the Fund.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Annual Capital Investment
Water Fund Capital Improvement Plan
Prior Appropriations Environmental Services Water Distribution
Service Area - wide Water Production Water Resources
Ave. Capital Investment 2017-26 Historical Ave Capital 2007-16
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
52 of 61
The need for asset lifecycle management strategies (from installation to replacement) for all
major assets will be an area of focus for Asset Management and Water Operations including
Water Resources, Water Treatment and Water Engineering in the next few years so that the
necessary investments are quantified and adequate funding is available as needed in the
future. As the assets are more fully evaluated and lifecycle management plans are
developed the annual system renewal investment rate could increase substantially.
2017-18 Budget - Water
The 2017-18 biennial budget included a 5.0% rate increase in both 2017 and 2018 as well as a
small drawdown of Available Reserves from $10.6M to $10.2M for the funding of several capital
improvements. This assumes that revenues and operating expenses will be at the budgeted
level in both years. Based on monthly analysis through the first half of 2017 it is likely that
revenues will exceed budget and operating expenses will be under budget in 2017. Through
July 2017, revenues are $2.2M over budget and operating expenses are $1.4M under budget.
The 2017-18 budgets reflects an annualized 0.9% decrease in Current Offers over the 2016
budget which is less than the modeled 2.45% annual growth in operating expenses to
recognize the historical underspend. The 2019-20 budget will begin at this lower level and
assume a 2.45% increase in operating expenses before consideration is given to
Enhancements.
The waterfall chart below summarizes the Council adopted 2017-18 budget for this utility.
$10.6 $10.1
$27.8
$4.6
$2.6 $29.1
$4.5 $1.6
$25.8
$4.8
$25.8
$4.4
$4.3
$5.6
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$ Millions
502 Water 2017-18 Budget
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
53 of 61
A Budget Offer / Business Unit level history is provided below for additional consideration of
where opportunities and challenges may exist going forward.
2013 Actual 2014 Actual
2015
Amended
Budget
2015 Actual
2016
Amended
Budget
2016 Actual 2017
Approved
2018
Approved
Offer: 6.1 Utilities: Water - Core Operations
227000 - Knowledge Transfer - Water - 16,626 50,000 7,004 50,000 2,885 10,000 10,000
231201 - WTF Administration 234,847 182,055 292,222 242,865 296,254 295,136 294,511 294,222
232100 - Operations-Source of Supply 355,472 277,397 431,534 360,945 437,633 366,218 421,840 429,800
232120 - Water Shed Mgmnt SOS 201,346 245,691 318,541 279,729 317,344 303,230 321,049 327,360
232130 - High Park Fire O&M 160,810 68,733 23,646 17,325 - 0 0 0
232201 - WTF Operations & Maintenance 2,830,417 3,050,749 4,181,502 3,414,384 4,330,625 3,728,458 3,850,245 3,914,690
232202 - Upper Poudre Intake 19,479 20,040 30,600 22,482 30,600 12,311 26,750 26,750
232305 - SW Pump Station 27,277 31,716 43,000 58,232 83,000 71,513 87,100 88,800
239000 - ICE O&M 299,268 285,701 362,874 355,334 365,860 334,296 438,232 433,318
243000 - Transmis & Distrib Maintenance 1,384,626 2,177,051 2,451,977 2,615,531 2,622,516 2,677,325 2,663,078 2,724,464
243100 - Metering-Operations & Maint 612,694 601,571 976,129 725,102 998,468 616,245 759,224 779,639
245000 - Water Engineering 96,277 106,794 87,024 120,457 88,672 417,752 301,270 327,368
246000 - Development Review (Wtr) 5,992 6,208 43,984 - 44,931 0 0 0
252000 - Water Quality-Operations 933,253 978,024 1,128,957 1,071,745 1,118,367 1,053,635 1,138,654 1,173,140
280000 - Water Resources 1,750,796 2,102,101 2,300,837 2,369,945 2,229,515 2,340,590 2,563,898 2,646,713
282000 - Rigden O & M - 40 30,000 46,107 30,000 55,704 63,840 63,940
Total Expenses for Offer 6.1 8,912,556 10,150,496 12,752,827 11,707,186 13,043,786 12,275,296 12,939,691 13,240,204
Offer: 6.3 Utilities: Water - Conservation
223000 - Water Conservation Programs 556,896 681,628 871,016 720,452 860,201 715,773 877,549 891,974
Total Expenses for Offer 6.3 556,896 681,628 871,016 720,452 860,201 715,773 877,549 891,974
Offer: 6.5 Capital Replacement - Utilities: Water - Water
Production Division Capital Replacement 2017-2018
5026311000 - PARENT-Water Prod Replcmt Prgm 3,422,001 3,422,001 1,591,205 3,422,001 1,581,182 0 1,000,000 1,000,000
Total Expenses for Offer 6.5 3,422,001 3,422,001 1,591,205 3,422,001 1,581,182 - 1,000,000 1,000,000
Offer: 6.6 Capital Replacement - Utilities: Water - Distribution
System Replacement - Master Plan Priority Projects
5026410000 - PARENT-Distribut'n Sys Replcmt 2,339,481 2,339,481 500,000 2,339,481 2,300,000 0 0 0
Offer: 6.7 Capital Replacement - Utilities: Water - Distribution
System Replacement - Small Capital Projects
5026410000 - PARENT-Distribut'n Sys Replcmt 0 1,900,000 1,350,000
Total Expenses for Offer 6.6 & 6.7 2,339,481 2,339,481 500,000 2,339,481 2,300,000 - 1,900,000 1,350,000
Offer: 6.8 Capital Replacement - Utilities: Water - Water Meter
Replacement
5026422000 - PARENT-Wtr Meter Replacement 30,824 30,824 800,000 30,824 800,000 0 800,000 800,000
Total Expenses for Offer 6.8 30,824 30,824 800,000 30,824 800,000 - 800,000 800,000
Offer: 6.9 Capital Replacement - Utilities: Water - Minor Capital
234100 - Source of Supply Minor Capital 2,000 180,094 125,214 92,551 54,080 40,701 40,000 41,000
234201 - WTF Minor Capital 765,765 923,795 1,559,363 1,263,083 1,032,958 532,418 847,400 890,200
244000 - Transm & Distrib Minor Capital 384,427 368,124 291,282 278,704 262,000 263,763 270,000 170,000
244100 - Metering-Minor Capital - - 40,000 25,786 40,000 24,665 115,000 0
254000 - Water Quality-Capital - - 165,492 50,911 105,511 90,008 80,000 80,000
284000 - Water Resources Minor Capital - - 300,000 - 300,000 0 500,000 500,000
Total Expenses for Offer 6.9 1,152,192 1,472,013 2,481,351 1,711,036 1,794,549 951,555 1,852,400 1,681,200
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
54 of 61
Debt Analysis - Water
As the graph below shows, the Water utility has historically carried a much larger annual debt
service expense than it is currently servicing. In 2012, Standard and Poor’s Rating Services
increased the bond rating for this utility’s revenue bonds from ‘AA+’ to ‘AAA’. The existing
debt was reviewed by Standard and Poor’s again in 2016 which affirmed its ‘AAA’ bond
rating. The output from the long term financial model was provided to the Standard and
Poor’s analysts for their revised bond rating.
The chart below shows the outstanding principal beginning in 2009 along with the anticipated
new debt issuances over the coming decade. These anticipated issuances are driven by the
Capital Improvement Plan.
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Water Fund Annual Debt Service Expense
Actuals
1997 WATER
1999 WATER
2003 WATER SUBORD
2008 WATER
Anticipated New Debt
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
55 of 61
The debt coverage ratio for this utility has consistently been well above the bond covenant
minimum requirements of 1.15-1.25 as well as above the internally recommended ratio of 2.0
which is based on the bond rating guidance provided by the rating agencies.
The potential debt capacity for this utility is considerably larger than the outstanding debt due
to the positive operating income and the additional non-operating revenue from
development fees that is also available for debt service. The anticipated need for debt
issuances in the coming decade will not approach the debt capacity of the utility as they are
expected to be $18-25M during this period. When considering the issuance of debt, the State
of Colorado has a subsidized program which will minimize the debt service cost and therefore
should be considered first before issuing any revenue bonds directly.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Outstanding Debt
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Debt Coverage Ratio
Water Fund Debt Coverage Ratio
Debt Coverage Ratio
Recommended Minimum
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
56 of 61
Reserve Analysis - Water
Financial Management Policy 5, last issued by Council July 15, 2014, specifies Fund Balance
Minimums for Enterprise Reserves. It also states that additional reserves should be set aside for
anticipated capital investments. This Plan does this by utilizing the long term financial model to
determine when additional capital investment should come from Available Reserves and
when it should come through rates or most directly debt issuances. While not all future capital
investments have been identified, particularly for the renewal of the aging water supply
infrastructure, the amount of revenue available for the anticipated capital needs should be
sufficient in the near term to avoid setting aside additional reserves above what has already
been appropriated for anticipated capital work in 2017 and 2018. This will be reviewed ahead
of the 2019-20 Budget For Outcomes cycle which begins in March of 2018.
The Water Enterprise Fund ended 2016 with a fund balance of $52.1M. After accounting for
minimum reserve requirements and prior appropriations only $8.1M was available for new
appropriations. This is 16% of the fund balance. The graph below shows the trend since 2011.
Available Reserves have decreased as capital spending has increased while the Halligan
project continues to hold much of the appropriated reserves until the permitting process is
completed.
Fund 502 Water - Debt Capacity Table
Interest Rate: 3.0% Interest Rate: 5.0%
Debt Coverage
Ratio
Debt
Capacity
(10 Yr Debt)
Debt
Capacity
(15 Yr Debt)
Debt
Coverage
Ratio
Debt
Capacity
(10 Yr Debt)
Debt
Capacity
(15 Yr Debt)
1.2 $111.2 $155.5 1.2 $100.6 $135.3
1.4 $95.3 $133.3 1.4 $86.2 $116.0
1.6 $83.4 $116.6 1.6 $75.5 $101.5
1.8 $74.1 $103.7 1.8 $67.1 $90.2
2 $66.7 $93.3 2 $60.4 $81.2
2.2 $60.6 $84.8 2.2 $54.9 $73.8
2.4 $55.6 $77.7 2.4 $50.3 $67.7
Outstanding Debt $9.5 M
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
57 of 61
In the near term operating income and projected development fees are expected to
increase the Available Reserve balance. As the larger capital investments are made
throughout the decade and the operating income diminishes, Available Reserves will stabilize.
This stabilization could be impacted by the development of more robust system renewal
strategies through the Asset Management efforts of the utility.
Rate Analysis - Water
As discussed above, operating revenues have increased over the past decade driven mainly
by rate increases. In 2017 a customer will pay $1.28 for the same amount of water that would
have cost $1.00 in 2007.
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
2011 2012 2013 2014 2015 2016
$ Millions
502 - Water Reserves
Fund Balances AVAILABLE Fund Balances
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Available Fund Balance
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
58 of 61
That cost increase reflects an average annual rate increase of 2.5% over the decade. Rate
increases have been intermittently implemented as revenue requirements have increased.
The slow growth in operating expenses has allowed for rate increases to be modest when
necessary.
The long term financial model assumes that capital improvements are made as outlined in the
CIP. This results in the following ten year rate forecast:
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
0%
2%
4%
6%
8%
10%
12%
14%
16%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Indexed to 2007
% Rate Increase
Water Fund Annual Rate Changes
Annual Rate Increase
2.48% 2.58%
1.64%
10 Yr Trend 5 Yr Trend 3 Yr Trend
Annualized Rate Increase (2007-2016)
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Rate Increase 5% 5% 0-1% 0-1% 0-1% 0-2% 0-2% 1-3% 1-3% 1-3%
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
59 of 61
Financial Risk Assessment - Water
Below is a list of identified financial risks for this utility. Each risk is categorized as high, medium
or low according to both the likelihood and consequence of it being realized. Those risks
above the solid line are significant enough that risk mitigation strategies should be developed.
1. Asset Lifecycle Management Plans may identify significant capital investment is
needed in aging infrastructure to maintain current levels of service. Likelihood = High;
Consequence = High
2. Any capital investments not contained in the Capital Improvement Plan such as the
Walnut Street Rehabilitation Project, Poudre Pipeline Rehabilitation and the Customer
Information System which undermines the integrity of the CIP process and highlight the
need for additional reserves above the Reserve Policy Minimum. Effective financial
planning requires updating the CIP as projects are identified. These projects will delay
other previously identified capital projects. Likelihood = Medium; Consequence = High
FUND:
502 - Water Fund
Risk ID Description Likelihood Consequence Mitigation
Recommended
WFR1 Asset Lifecycle Management Plans High High X
WFR2 Unidentified Capital Projects Medium High X
WFR3 Operating Expense Increases Medium Medium
WFR4 Rate Fatigue Medium Medium
WFR5 Under-utilization of Assets High Low
WFR6 Inadequate Available Reserves Low High
WFR7 Water Supply Storage Low High
WFR8 Unrealized Wholesale Revenues Medium Low
WFR9 Regional Water Collaboration Low Medium
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
60 of 61
3. Continuing escalation of operating expenses at a rate above inflation would limit
capital investment and require larger rate increases than planned. Likelihood =
Medium; Consequence = Medium
4. Rate increases in other utilities, even modest annual adjustments, may limit the amount
of any rate increase available to finance capital improvements to the water utility.
Likelihood = Medium; Consequence = Medium
5. Under-utilization of plant capacity is not efficient use of assets and is a lost revenue
opportunity. Likelihood = High; Consequence = Low
6. Reserve levels of unappropriated funds may not be sufficient to meet immediate
unanticipated capital needs due to a catastrophic failure of infrastructure. Likelihood =
Low; Consequence = High
7. Halligan permitting may increase the cost of the project substantially requiring the
issuance of more revenue bonds and delay of other capital projects. Likelihood = Low;
Consequence = High
8. Potential increased revenues from wholesale agreements may not be realized.
Likelihood = Medium; Consequence = Low
9. Regional water authority may change revenue structure / CIP / ability to adjust rates /
bond rating of debt. Likelihood = Low; Consequence = Medium
City of Fort Collins Utility 2017 10-Year Strategic Financial Plan
61 of 61
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Mike Beckstead
Date: 20 November 2017
SUBJECT FOR DISCUSSION
Boxelder Basin Regional Stormwater Authority (BBRSA) IGA
EXECUTIVE SUMMARY
Several issues were identified by the member entities of BBRSA. Two teams were formed to
analyze the issues and develop recommendations to resolve these issues. The teams have
developed recommendations that will be memorialized within a new IGA that would be signed
by the three member entities. In addition, a separate IGA with the town of Timnath, the County
and Fort Collins is also proposed that defines Timnaths share of long term asset maintenance.
The new IGA’s are planned to go to Council for adoption on December 5P
th
P.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Council Finance Committee understanding and support or modification to the proposed
recommendations and IGA’s.
BACKGROUND/DISCUSSION
ATTACHMENTS
1) Presentation
2) Draft IGA – Wellington, County & Fort Collins
3) Draft IGA – Timnath, County & Fort Collins
Boxelder Storm Water Update 1
November 20 2017
History
2
• Boxelder Authority formed in 2009
• Objectives:
1. Resolve storm water issues within multi
jurisdictional Boxelder basin
2. Wellington, Fort Collins & County
• 3 Major Projects
1. Coal Creek / Clark Reservoir
2. Larimer Weld Canal
3. East Side Detention Facility
• Revenue - $66 per residence, commercial
per impervious area, no charge to
agriculture
Issues Under Review
3
• Costs exceeded initial estimates
• Board questions on billing accuracy
• How/Who will manage long term
asset maintenance
• Appropriate sharing of future costs
• When should Authority be dissolved
Technical Fee Team
4
• Billing team has reviewed billing accuracy and prior fee audit reports.
• Fee waivers – resolved per memo from Pinnacle,
• Boundary property and Out Building property – confirmed current policy
Recommend - if outbuilding is 2k sq ft or more, treat as residential
• Agricultural – Recommend no change to current agricultural billing
• Draft Report in process
Team: Ed Cannon (Wellington), Eric Tracy (County) Mike Beckstead (FC)
Framework Team
5
Discussions focused on:
• Appropriate Member share of future costs
• Debt service
• Authority O&M
• Long Term Asset Maintenance Care
• Long term asset maintenance cost share
• Clark Reservoir
• ESDP
• Share by member / Timnath involvement
• Timing of asset transfer and Authority
dissolution
Team:
• Ed Cannon (Wellington)
• Jeff Kahn (Attorney Wellington)
• Richard Seaworth (Wellington)
• Todd Blomstrom (County)
• Eric Tracy (County)
• Jeanine Haag (Attorney County)
• Bill Ressue (Attorney County)
• Mike Beckstead (FC)
• Judy Schmidt (Attorney FC)
Note: “Member” refers to the rate payers of each member jurisdiction that pay future costs
Debt & Operations Cost
6
• Revenues between 3 parties is
largely 1/3 each over life loan
• Timnath has committed to ¼ of
ESDP construction/financing
• Timnath supportive of O&M share
• Propose – Syncronize Debt pay
down with LT Maint Reserve
All Funding for These Items comes from Authority Revenues….
No Additional Funding is Needed for These Items after the Authority is
Dissolved and Assets are Transferred
Debt & Operations Cost Debt O&M
Total Debt & Annual O&M $10,975k $110k yr + Infl
Town 25% - $2.7M 25% - $27.5K
County 25% - $2.7M 25% - $27.5K
City 25% - $2.7M 25% - $27.5K
Timnath 25% - $2.7M 25% - $27.5K
Day & Water Aug 2016 Fund Bal
Day Settlement/Water Augmentation & 2016 Year End Balance
Total Debt & Annual O&M $1,361k $489k
Town 25% - $340k 33% - 163K
County 25% - $340k 33% - 163K
City 25% - $340k 33% - 163K
Timnath 25% - $340k 0%
Long Term Asset Maintenance
7
• Assets part of a system yet
substantially independent
• Town benefits more from Clark
• Timnath supportive of sharing
maintenance cost of ESDP
• Each member should develop
an internal dedicated fund
specific to these assets to
support potential future needs
After Authority is Dissolved and Assets are Transferred,
Funding Requests Will/May Be Needed Over Time – will be Based on %
Maintenance Reserve Coal Creek ESDP
Initial Funding Maint Reserve $1M $1.2M
Member Share
Town 50% - $500K 0%
County 25% - $250K 33% - 400K
City 25% - $250K 33% - 400K
Timnath 0% 33% - 400K
Authority Revenues used to fill maintenance reserves
Agreement Details
8
• All member waive grant match reimbursement
• All fees remitted by all members by Dec 2017
• All members ratify CWCB loan modifications by Dec 2017
• Syncronize CWCB pay down with maintenance reserve build up
• Authority dissolved when loan paid down, assets and care reserve transferred
• Anticipate 2027 timeframe
• Need an annexation/revenue adjustment – Mulberry/Timnath implications
• Potential timing of member revenue vs. cost % - resolution TBD
• One member may reach thresholds sooner than others
• Pinnacle should track revenue/expenditures per agreement
• Require some degree of ongoing monitoring
• Need oversight review committee meet once/twice year
Summary Considerations
9
• Creates no new obligation for the City rate payers related to Debt, O&M,
Maintenance Reserves funded by Authority revenue.
• Long-term – establishes a % of shared cost each member will pay for Debt & O&M
expenditures
• Long-term – County takes over asset maintenance (assets and care reserve
transferred to the county when Authority is dissolved
• Long-term – County will/may ask for additional asset care funding if needed base
on the % noted in the agreement
Next Steps
10
• CFC Review Scheduled Nov 20th
• FC Council Dec 5th – IGA/Agreement Resolution Adoption & CWCB
ratification
• County & Town elected officials adoption IGA/Agreement and CWCB
ratification prior to mid December
• Town pays 2016 fees to allow Authority to make the final payment on the
Day settlement by Dec 31.
11
Back-Up
Funding
12
• Revenue
• Service Fees (Annual)
• Single Family1
-- $66
• Mobile Homes -- $49.50 to $56.10
• Apartment -- $66 per Unit
• Commercial -- $0.033 per Sq Ft of
Impervious Area
• System Development Fees (similar to PIF. One time
payment at time of development)
• Single Family1
-- $440
• Mobile Homes -- $330 to $374
• Apartment -- $440 per unit
• Commercial -- $0.22 per Sq Ft of
Impervious Area
1 Includes agricultural properties that have a residence
Issues Under Review
13
• Total Costs exceeded Conceptual Plan Estimates
• Cost Estimates were done 10 years ago
• Larger East Side Detention Facility (Timnath)
• Timnath cost participation offsets increase
• Higher real estate acquisition cost
• Wellington questions on SW fee billing accuracy
• After detailed review, no significant discrepancies
• How/Who will manage long term asset O & M costs
• Appropriate sharing of future O & M costs
• When should Authority be dissolved
• Authority must pay off CWCB loans
• Agreement on asset ownership transfers and long
term O & M costs
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Travis Storin, Accounting Director
Date: November 20, 2017
SUBJECT FOR DISCUSSION
City response to findings included in:
• Independent Auditors’ Report on 2016 Financial Statements
• Independent Auditors’ Report on Compliance for Major Federal Programs
EXECUTIVE SUMMARY
In July 2017, RSM presented the Report to the City Council. This report covered the audit of the
basic financial statements and compliance of the City of Fort Collins for year-end December 31,
2016.
The City received unqualified or “clean” opinions for both reports. Incidental to these audits,
RSM identified certain control deficiencies that they recommend we rectify prior to the 2017
audit. All deficiencies identified were of the lowest severity on a scale of one to three. A copy of
the communicated deficiencies is included as Attachment #2.
City staff has implemented process improvements throughout 2017 to respond to these two
control deficiencies. Corrective action is complete in both cases.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Staff seeks input on areas of priority or concern, other than those established in this Report to the
City Council, for matters of recordkeeping and/or the City’s internal control environment.
BACKGROUND/DISCUSSION
Every year the City is required to be audited in compliance with Government Auditing
Standards. RSM finalized both the financial statement audit and compliance report on June 19,
2017 and the firm reported the results of the audit to those charged with governance at the July
Council Finance Committee meeting.
Subsequent to the auditor’s communication, City Staff responds at CFC with its proposed plan
for addressing any findings.
ATTACHMENTS
1. 2016 Audit Response.pptx
2. RSM Control Deficiency Letter
Corrective Actions: 2016 Auditor Findings
11-20-17 Travis Storin, Accounting Director
2
Summary of 2016 Fiscal Year Audit
• Unqualified/clean opinion of Financial
Statements
• Unqualified/clean opinion on Compliance
with Major Federal Programs (Single
Audit)
• Anticipate 31st
consecutive GFOA
Certificate of Achievement for Excellence
in Financial Reporting
• Two control deficiencies identified;
corrective action is in motion and
implementation is complete
Audit Findings Terminology
3
Control
Deficiency
(2)
• Least severe finding
• The design or operation of a control does not allow management or employees to prevent, or
detect and correct misstatements during the normal course of their duties
Significant
Deficiency
(0)
• A deficiency, or combination of deficiencies, that is less severe than a material weakness yet
important enough to merit attention by those responsible for oversight of financial reporting
• Remains on our audit reports for two years and defaults City to “high risk auditee” status
Material
Weakness
(0)
• Most severe finding
• A deficiency, or combination of deficiencies, such that there is a reasonable possibility that a
material misstatement of the City’s financial statements will not be prevented, or detected
and corrected, on a timely basis
• Jeopardizes whether a “clean”, or unqualified, audit opinion is issued
4
Deficiency #1:
P-Card Cardholder Agreements
Audit Finding:
“The City has a policy that P-Card Card Holder
Agreements should be signed by the Purchasing
Card Program Administrator . . . noted cardholder
agreements that were not signed by the
Administrator. . .”
Staff Discussion:
• Staff Administrator accepted employee
signature as sufficient and issuing the card to
the employee rather than physically signing
• Deficiency corrected – cardholder agreements
to be signed by supervisor and administrator
• Downstream mitigation: supervisor review of
expenses
5
Deficiency #2: Revenue Deferrals
Audit Finding:
“. . . During our audit procedures we noted that during the beginning of 2016 the City
recognized revenue for all of the deferred inflows recorded as of December 31, 2015
but there were two amounts that payment had not been received during the current
fiscal year . . .
Staff Discussion:
• Grants Receivable not collected within 60 days of year-end are to be “deferred” on
balance sheet rather than recognized as earned revenue on the income statement
• Accounting department missed journal entries deferring two CDOT invoices
• Revised process “tags” each grant invoice with balance sheet status at the 60-day
mark
6
Capitalized Interest
“Passed adjustment” within the Utility Funds; not a control deficiency
• City adopts a non-GAAP policy; thus far deemed immaterial by auditors
Considerations
• GASB considering revision to eliminate all interest capitalization (direct expense to
P&L); exposure draft released in December 2017 for comment
• Governments that follow GASB indicate that their application is materiality-driven;
preference to City’s practice
• Limited impact to rating agency performance indicators
• Cumulative 0.2% impact (understatement) to capital assets and net position
Closing Remarks and Council Discussion
7
555 17th Street, Suite 1000
Denver, CO 80202-3910
T +1 303 298 6400
F +1 303 298 6401
www.rsmus.com
June 19, 2017
To the Honorable Mayor and
Members of the City Council and City Manager
City of Fort Collins, Colorado
In planning and performing our audit of the financial statements of the City of Fort Collins, Colorado (the
City) as of and for the year ended December 31, 2016, in accordance with auditing standards generally
accepted in the United States of America, we considered the City’s internal control over financial reporting
(internal control) as a basis for designing audit procedures that are appropriate in the circumstances for
the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing
an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion
on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A deficiency in design exists when (a) a control
necessary to meet the control objective is missing, or (b) an existing control is not properly designed so
that, even if the control operates as designed, the control objective would not be met. A deficiency in
operation exists when a properly designed control does not operate as designed or when the person
performing the control does not possess the necessary authority or competence to perform the control
effectively.
A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is
a reasonable possibility that a material misstatement of the City’s financial statements will not be
prevented, or detected and corrected, on a timely basis.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance.
Following are descriptions of other identified deficiencies in internal control that we determined did not
constitute significant deficiencies or material weaknesses:
Purchasing Program Administrator Signature for PCard Card Holder Agreements
The City has a policy that PCard Card Holder Agreements should be signed by the Purchasing Program
Administrator. During our audit procedures we noted cardholder agreements that were not signed by the
Administrator. We recommend that the City develop a process to ensure adherence to their policy.
Deferred Inflows – Capital Projects Grant
Revenue items for which cash is not received during the period of availability should be recorded as a
deferred inflow of resources. During our audit procedures we noted that during the beginning of 2016 the
City recognized revenue for all of the deferred inflows recorded as of December 31, 2015 but there were
two amounts that payment had not been received during the current fiscal year or during the period of
availability following year end. As a result these two amounts would still be deferred inflows as of
December 31, 2016. While the City does review revenue items to identify the need for deferral in their
close process, we recommend that the City also review their deferred inflows prior to recording the
revenue in the next fiscal year.
City of Fort Collins, Colorado
June 19, 2017
Page 2
This communication is intended solely for the information and use of management, City Council, others
within the City, and is not intended to be, and should not be, used by anyone other than these specified
parties.
Offer: 6.10 Utilities: Water - Payments & Transfers
220000 - Water Fund Payments/Transfers 8,947,411 9,546,118 10,634,269 10,884,896 10,633,793 10,116,358 10,090,960 10,031,241
Total Expenses for Offer 6.10 8,947,411 9,546,118 10,634,269 10,884,896 10,633,793 10,116,358 10,090,960 10,031,241
Offer: 6.11 Capital Replacement: Utilities: Water - ESD WQL
Capital Instrumentation Replacement 2017-2018
5026510000 - PARENT-Water Qual Cap Replace 0 50,000 50,000
Total Expenses for Offer 6.11 - 50,000 50,000
Water Ongoing Offers
13000000 - Energy Services 3,990,019 4,285,157 4,429,403 4,282,694 4,475,203 4,917,517 4,234,054 4,263,877
Total Expenses for Offer 6.65 3,990,019 4,285,157 4,429,403 4,282,694 4,475,203 4,917,517 4,234,054 4,263,877
Offer: 6.67 Utilities: Light & Power - Residential & Commercial Solar Rebates
11110000 - Community Renewables 372,977 283,315 1,414,156 1,211,801 896,520 799,190 500,000 500,000
Total Expenses for Offer 6.67 372,977 283,315 1,414,156 1,211,801 896,520 799,190 500,000 500,000
Offer: 6.68 Utilities: Light & Power - Renewable Energy
11100000 - Purchase Power Renewables 1,823,999 1,824,904 1,824,000 1,893,255 1,824,000 1,823,998 1,900,000 1,992,000
11110000 - Community Renewables 372,977 283,315 1,414,156 1,211,801 896,520 799,190 210,000 210,000
11120000 - Ft Collins Solar Program(FIT) 7,884 118,000 1,028,928 356,341 1,000,000 740,239 850,000 850,000
Total Expenses for Offer 6.68 2,204,860 2,226,219 4,267,084 3,461,397 3,720,520 3,363,427 2,960,000 3,052,000
Offer: 6.69 Utilities: Light & Power - Demand Response
13500000 - Demand Response 102,180 129,639 1,307,062 567,069 1,526,471 1,000,549 794,950 620,400
Total Expenses for Offer 6.69 102,180 129,639 1,307,062 567,069 1,526,471 1,000,549 794,950 620,400
Light & Power Ongoing Offers
Other Transfers
CS&A
Operations
Light & Power * Water