HomeMy WebLinkAboutMemo - Mail Packet - 9/18/2018 - Memorandum From Lance Smith Re: Utility Rate Adjustments In Proposed 2019-20 BudgetsUtilities
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Fort Collins, CO 80522
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M E M O R A N D U M
DATE: September 11, 2018
TO: Mayor Troxell and Councilmembers
FROM: Lance Smith, Utilities Strategic Finance Director
THROUGH: Darin Atteberry, City Manager
Jeff Mihelich, Deputy City Manager
Kevin R. Gertig, Utilities Executive Director
RE: Utility Rate Adjustments in Proposed 2019-20 Budgets
Summary: A question was raised at the September 4, 2018 Leadership Planning Team meeting
as to what constitutes the rate increases being proposed in the City Manager’s Recommended
Biennial Budget. The budget includes a 5.0% rate increase in 2019 and another 5.0% increase in
2020 for electric service along with a 2.0% increase in each year for stormwater services.
The electric rate increase consists of 1.5% needed to offset the increase in wholesale energy
prices and 3.5% needed to increase operating revenues sufficient to offset operating expenses so
that reductions in reserves stop and funds can be set aside for future capital improvements. The
ten year rate forecast recognizes the increased cost of operations along with investments in
environmental initiatives and system infrastructure renewal. The 3.5% increases in 2019 and
2020 that generate additional revenue that remains within the distribution utility of the City will
result in positive operating income being generated for this Enterprise. Because Reserves have
been drawn down, it is necessary to implement these increases over the next two years rather
than smoothing them out over a longer period.
The stormwater increase is intended to raise operating revenues modestly to increase the debt
capacity of the Enterprise in anticipation of significant debt being needed to meet future capital
improvements necessary to complete the initial buildout of the stormwater infrastructure.
Similar, modest adjustments of less than 3% may be necessary over the coming decade
depending on the timing and scale of the necessary capital investments.
Rate Strategy Overview: The rate strategy that was developed as part of the Strategic Financial
Plan in 2016 provides for objective rate adjustments based on financial metrics. This strategy is
included in the stochastic financial modeling for the plan and serves as the basis of the rate
projections presented to Council since 2016.
DocuSign Envelope ID: 5D84DA54-2CF5-40FC-A083-C7ACD82754DF
The following criteria objectively determine when, why and how much rates should be adjusted
to maintain the financial health of each utility:
1. Adjust electric rates sufficient to meet Platte River Power Authority wholesale rate adjustments.
2. If the previous 3 years have averaged negative operating income, raise rates next year to the
lessor of 5% or the level sufficient to have offset the average operating loss.
3. If debt coverage is less than 2.0, increase rates the lessor of 5% and a level sufficient to raise the
debt coverage ratio to 2.1 the next year.
4. If the Available Reserve fund balance is projected to be negative at the end of any year, increase
rates the lessor of 5% and an amount sufficient to increase reserves to the minimum required
reserve.
5. Add up all of the previous criteria driven rate adjustments and take the lessor of 5% and the sum
as the recommended rate adjustment.
Rate Trend: Below are charts for these two utilities showing the adjustments to rates that have
been done since 2007 along with the forecasted rate adjustments being proposed in this budget.
The table below each chart shows the rate adjustments that are anticipated to be necessary over
the next 10 years to provide adequate revenues to maintain the financial health as determined by
the bond rating agencies criteria for assessing new debt issuances.
0%
2%
4%
6%
8%
10%
12%
14%
16%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% Rate Increase
Electric Monthly Rates
Purchased Power
Distribution System
Energy Services
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Rate Increase 3.5% 1.8% 5.0% 4.9% 2-3% 0-2% 0-2% 1-3% 1-3% 0-2% 0-3% 0-3%
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.
DocuSign Envelope ID: 5D84DA54-2CF5-40FC-A083-C7ACD82754DF
0%
2%
4%
6%
8%
10%
12%
14%
16%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% Rate Increase
504 Stormwater Fund Rate Changes
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Rate Increase 5% 0% 0% 0-3% 0-3% 0-3% 0-3% 0-3% 0-3% 0-3% 0-3% 0-3%
Debt Issuance $35-40M $35-40M $25-30M $25-30M
*$272M of capital work is expected to be needed between 2019 and 2039.
DocuSign Envelope ID: 5D84DA54-2CF5-40FC-A083-C7ACD82754DF