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City of Tacoma Public Utility Board

Friday, November 8, 2019 Environmental Services Building (West Room)

9850 64th St W, University Place WA 98467

Budget/Financing for 2021/2022 biennium – topic agenda

Estimated time Topic

11:00 – 12:00 Public Process

Recap of last year

Discussion on what went well, areas for improvement

Draft 2020 calendar

1:00 – 2:00 Finance

Financial plans

Scenarios

Revenue/load forecast

2:00 – 3:00 Budget

Value initiatives & budget efficiencies

Current variance reporting

Preview of items for upcoming biennium

3:15 – 4:00 Rates

Trends, observations and policy considerations

Reserves

Public Utility Board Special Meeting

Handouts: Budget/Financing for 2021/2022 Biennium

November 8, 2019

11:00-4:15

Tacoma Water Long Range Financial Plan Summary

Water Projected Rate Adjustments

Scenario 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Base Case:Current Demand Forecast

2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 3.0% 3.0% 3.5% 3.5%

Wholesale Revenue Growth

2.5% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.5% 2.5% 2.5% 2.5% 2.0% 2.0%

Loss of Large Customer

2.5% 2.5% 4.0% 4.0% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.5% 3.5% 3.5%

High Case CIP 2.5% 2.5% 2.5% 2.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.5% 3.5%

Finance

Tacoma Power Long Range Financial Plan Summary

Power Projected Rate Increases

Scenario 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Base Case:Average Water Conditions

2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Critical Water in 2021

2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Loss of Large Customer

2.0% 2.0% 2.0% 2.0% 2.0% 3.0% 4.0% 2.0% 3.0% 2.0% 2.0%

Lower Wholesale Prices

2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Adverse Water in 2021 & 2022

2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Aa Target DSCR (2.0x) Debt Service Coverage Ratio

Debt Service Coverage Ratio

Target = 2.0x

0

50

100

150

200

250

300

350

Days LiquidityAa Target Liquidity (180 Days)

Target = 180 Days

Liquidity Projections

Future Projected Debt Service

$M

$30M

$60M

20

19

20

21

20

23

20

25

20

27

20

29

20

31

20

33

20

35

20

37

20

39

20

41

20

43

20

45

20

47

20

49

20

51

20

53

20

55

2010 2010C 2013A 2013B 2017 2021 2023 2026

Finance

Tacoma Rail 0% Loans Summary

Finance

Long Term Investments to Deliver Value

• Asset Management Budget PMO

• Alignment with our vision and strategic objectives

• Identification of uncertainty and risks

• Consistent and systematic framework

• Integrated and informed decision making

• Identification of efficiencies in business processes

Budget

Efficiencies – Revenue/Financial

Operations StreamliningResourcing Technology

Efficiencies

Revenue/Financial

Active Debt

Management

Revenue Innovations

Budget

Rates

Power Utility Ratemaking - Basic Principles

Rates are set to recover costs

Costs largely fixed

Today, the price of electricity based on amount consumed (not fixed)

Customers are generally grouped into classes based on similar cost profiles

Size

Usage Patterns

Costs are allocated to classes based on their share of the system costs

Generally deemed equitable (“user pays” principle)

Effort to minimize subsidies within and across classes

Why is this an issue now?

Declining retail use

Changing industry landscape

Rates

Tacoma Power Residential Class Ratemaking Considerations

Fixed Cost Recovery

• Sales figures are declining, which means fixed cost recovery drives rate increases• 66% of costs are fixed• 18% of revenues are fixed

Policy Issues

• Today, higher-usage customers pay more than their share of the utility’s fixed costs

• Individual customer bill impacts, especially low-income bill impacts, are a key concern

• Rate design changes impact policy objectives, such as the promotion of:

• energy efficiency,

• electric vehicle, and

• solar energy adoption

Usage-related variable

costs

Usage Charge

($/kWh)

Capacity costs (allocation of fixed system

costs)

Customer Charge

($/month)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cost Revenue

Residential

Customer-related fixed costs

System-capacity-related fixed costs

Rates

Load Factor Measures the Efficiency of a Load

How do you use 10 kWh?

1 kW per hour for 10

hours

10 kW for 1 hour

Average Usage

compared to Usage at

Peak Consumption

High-load-factor customers use most of their capacity at all time.

Low-load-factor customers have excess capacity for much of the time.

Rates

• G class is broad and diverse. There is no “typical” G customer, yet there is one rate for all of them

• Some G class customers are bigger than some HVG customers. Size may be a better class distinction than voltage

• Customers with a higher load factor (average usage ÷ maximum usage) are less costly to serve and so should arguably pay a lower average rate

• Fixed cost recovery is also an issue for this class

Usage-related variable

costs

Usage Charge

($/kWh)

Production Capacity

Transmission Capacity

Capacity Charge ($/kW)

Distribution Capacity

Distribution Fixed

Customer Charge ($/month)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cost Revenue

Nonresidential

Customer-related fixed

System-capacity-related fixed costs

Tacoma Power Nonresidential Ratemaking Considerations