Title
Review and Discussion of Upcoming Major Financial Issues for the Department of Public Utilities
Body
During the Council's budget process, several questions arose regarding the Utility Department's proposed budget that initiated discussions on a variety of topics, including sunset clauses in rate ordinances, planning for capital expenditures, appropriate fund balances, upcoming rate increases, general policy guidance/oversight, and communications between Council and BPU. In order to address these issues, a $25,000 placeholder was approved within the County budget to facilitate an independent review of these issues and the provision of any suggested remedies, however these funds do not become available until July 1. With the anticipated introduction of two rate related ordinances during the month of June, it was decided that holding a joint meeting between the members of Council and BPU would be appropriate at this time.
Although the range of topics that may be discussed during this joint meeting is broad, there is some specific information provided within this packet that is related to certain issues that have been previously discussed. The first such topic is that of a sunset clause for the gas rate ordinance. On November 5, 2013 Council adopted a gas rate ordinance that included a pass-through cost of gas adjustment factor. In discussions between the Utilities Board and the Council leading up to this decision, Council expressed uneasiness with the new rate model and requested that the DPU present an annual report on the effects of the rate, and also include a sunset clause in the ordinance whereby the rate would expire three years from its adoption. When the three year sunset was coming up, the Board considered the pass through gas cost factor and recommended a renewal of the existing gas rate structure. The new ordinance contained a decrease in the fixed cost portion of the rate to begin to draw down the large reserves that had been necessary when no pass-through mechanism was in place. This new rate ordinance did not include either the annual reporting requirement nor a sunset clause. At the Council rate ordinance hearing on September 27, 2016, some councilors expressed concern that the sunset was no longer there and requested the Board of Public Utilities consider submitting a new rate ordinance including a sunset clause. The Board intends to submit a new gas rate ordinance in the fall of 2017, further decreasing the fixed cost portion of the rate. Discussion between the Board and Council is desireable before deciding whether or not a sunset provision or other factors are included in that proposed action.
As a suggestion for use of the previously mentioned $25,000 placeholder, a "strategic financial assessment" would look at the financial position of the Utility Department from the perspective of asset management. It would assess our current financial situation and identify alternatives for moving forward in a way that protects and improves the utility assets for the long term. Specific components of an assessment might include:
* Volume projections for usage based on industry expectations
* Options for ways to optimize revenues and manage customer relationships through rate strategies
* Assessment of current operating expenditures and opportunities to reduce expenses through alternative management approaches or new ways of delivering services
* Recommendations and options for appropriate infrastructure replacement plan that properly supports the systems and service delivery; while minimizing impact on rates and reserves
* Recommendations and options for reserve strategy given current situation
* Options for funding strategies for major infrastructure replacements like Waste Water Treatment Plan
This assessment would potentially include a series of joint work sessions held by BPU, DPU, Council and other County staff.
Alternatives
As this agenda item is advertised as a "discussion", it is possible that other suggested actions be introduced as part of the evening's discussion yet the exact nature of such other proposed actions is unknown.
Fiscal and Staff Impact
Since no action is anticipated, there is no planned nor unplanned expense as a result of this agenda item.
Attachments
A - Current Gas Rate Ordinance (adopted September 27, 2016)
B - Prior Gas Rate Ordinance (adopted October 29, 2013)