Title
Introduction of the Incorporated County Of Los Alamos Code Ordinance No. 02-302, An Ordinance Amending Chapter 40, Article II, Division 2, Sections, 40-63, 40-65, And 40-67 To Clarify The Transfer Of Operating Profits From The County Department Of Public Utilities To The General Fund And To Clarify The Appropriate Procurement Code For The Department
Recommended Action
I introduce, without prejudice, Incorporated County Of Los Alamos Code Ordinance No. 02-302, An Ordinance Amending Chapter 40, Article II, Division 2, Sections, 40-63, 40-65, And 40-67 To Clarify The Transfer Of Operating Profits From The County Department Of Public Utilities To The General Fund And To Clarify The Appropriate Procurement Code For The Department, and ask staff to assure that it is published as provided in the County Charter.
County Manager's Recommendation
The County Manager recommends that Council introduce this Code Ordinance.
Body
Note that this item is an introduction of Code Ordinance 02-302 relating to clarifying the transfer of profits from the Department of Public Utilities (DPU) to the General Fund. This Ordinance is part of an overall proposal, so the discussion that follows addresses all items to provide a complete picture. In addition to the proposed changes discussed below, this Ordinance clarifies, in Section 40-67, that the County Procurement Code is the appropriate procurement code for the DPU, rather than the State code. The County has its own procurement code under its home rule powers.
At the March 19, 2019 County Council meeting the "Transfer of Revenues from Electric and Gas Funds to the General Fund" was discussed and approved. Because this annual process is driven by County Charter, Ordinance and Resolution, this item was passed for 2019. However, Council had ongoing questions regarding this practice and agreed to consider options and alternatives for future years.
Staff from the County Attorney's office, the Department of Public Utilities (DPU), the County Manager's office, the Finance Division and Council Leadership discussed, collaborated and developed a new proposed path forward for managing these transfers differently in the future. An initial draft proposal was shared with the Utility Board Chair, the Joint Council / BPU policy subcommittee, and the entire Board of Public Utilities (BPU). On January 7, 2020, Council discussed the draft proposals and provided feedback which has been incorporated into this final proposed ordinance.
Overview and Summary of Proposal
The primary drivers of the proposed changes are to:
1. Assure consistency with word and Intent of Charter (get "back to basics"), this includes:
a. Being sure that LAC Charter, Sections, 504,506, and 509 are being met;
b. Specifically, assure that items 1-5 of Section 509 are being met and that both near-term and long-term utility infrastructure requirements and expenses are being planned and budgeted appropriately.
i. In the past, mechanisms and timing for gas and electric purchase did result in potential yearly profits (or losses) but these mechanisms have been replaced with more real-time purchasing approaches.
c. Specifically, for Section 509 item 4, appropriately set franchise fees that would normally be assessed against privately owned gas and electric utilities.
i. These are currently set at 2% and changes to this have not been considered in over 25 years.
ii. Franchisee fees will be proposed at 3%, to be more consistent with comparable communities.
2. Improve transparency (to the DPU, BPU, County Council, and the public) regarding how the County informs, understands, and presents data regarding options and decisions regarding rates, reserves, infrastructure maintenance and replacement, and capital investment.
3. Facilitate performing "what if" option analysis for DPU for rates, reserves, infrastructure maintenance and replacement, and capital investment to clearly elucidate trade-offs for different approaches.
This focus has led to a proposal that includes four documents:
1. Code Ordinance 02-302, the ordinance being introduced with this agenda item, which:
a. More clearly states the financial review process to reflect how it is actually being performed and aligns it with the other changes to the ordinance. (reword Section 40-63 (b))
b. Moves and clarifies the requirement for the annual 5% profit transfer. (Deletes Section 40-63 (c)(11) and adds new Section 40-63 (c)(12) )
c. Creates in Section 40-63 (c)(12) an option for 3 years that enables the Council to redirect the profit transfers within the DPU for purposes as specified by the Council, such as accelerating investment in utility infrastructure.
d. Changes the definition of the Schedule of Funds to include data regarding reserve balances. (Update Section 40-65)
e. Clarifies that expenditures and obligations must be created in accordance with the County's procurement code. (Section 40-67)
2. A draft Resolution Repealing Incorporated County of Los Alamos Council Resolution 97-07, A Resolution Establishing a Methodology for Computing Electric and Gas Operating Profits for Transfer to the County General Fund
a. This draft resolution repeals the 1997 methodology for managing a 5% transfer to the County's General Fund.
3. A draft Resolution to Update the Franchise Fee for the Incorporated County of Los Alamos, Department of Public Utilities Pursuant to Charter Section 506
a. This draft resolution proposes updating the franchise fee from 2% to 3% based on current comparison with other communities in New Mexico.
4. A draft updated version of LAC County Council ' s Financial Policies. Key proposed changes include:
a. Deletion of the paragraph concerning "Utility Profit Transfers to the General Fund."
b. Addition of a section entitled "Utilities Budget" which documents that a Schedule of Funds (as required in LAC Charter, Sections 506, and 509 and County Code Chapter 40) is prepared as part of the budget development and approval process and includes 10-year projections of rates, revenues, funding reserves, and the capital project program plan.
c. Clarification that Council will review and approve the DPU utility reserve policy in accordance with the County Code Section 40-45.
Alternatives
Council could choose not to introduce the ordinance.
Fiscal and Staff Impact/Planned Item
The calculated profit transfer for FY 2020 based upon FY 2019 audited results is $829,633. If this ordinance is introduced and then approved, this amount would be available for Council to redirect as described above. Similar amounts would then also be available the following 2 fiscal years. There is minimal staff impact.
Attachments
A - Incorporated County of Los Alamos Code Ordinance No 02-302
B - Incorporated County of Los Alamos Draft Resolution No 19-29
C - Incorporated County of Los Alamos Draft Resolution No 19-30
D - Draft Updates to LAC County Council Financial Policies
E - Draft Format of Schedule of Funds and Budget Projections
F - Incorporated County of Los Alamos Resolution 97-07
G - Existing Charter and Code Excerpt