WATER AND
POWER
Update:
2023 Financial Reserves
Policy
City Council
April 25, 2023
Purpose of the Financial Reserves Policy
• Set overall reserve levels that are reasonable and
prudent:
Based on days cash on hand (DCOH)
DCOH: number of days operating expenditures
utility can cover with its existing cash position
2 Finding the Right Balance
3 Rates
%
Reserves
$$
Methodology
4 Financial
reserves
Peer
comparison
Risks
Rating
agency
Two Levels of Reserves
• Recommended – level to
target in the five-year forecast
• Minimum – level needed to
operate in the short-term
5 Sales
variability
Aging
infrastructures
Technology
innovations:
storage,
hydrogen
Increasing
regulatory
risks
Inflation
and supply
chain
Increasing
energy
prices and
volatility
Changes since 2017 – Electric Utility
6 Electric Fund Reserves - Summary
7 Recommended
Range Minimum
Electric Fund
Reserves (DCOH) 160 to 240 105
Electric Fund Reserves - Changes
8 Reserves 2017 Policy
$ or (DCOH)
2023 Policy
(DCOH)
Minimum $ 42.8M or 94 105
Recommended $73.0M or 160 160-240
Electric Fund Reserves - Benchmark
9 Reserves 2023 policy
(DCOH)
Minimum 105
Recommended 160-240
(1)S&P U.S. retail electric and gas utilities revised criteria and medians - May 8, 2020 (2)Moody’s Public Power medians - March 2022
(3)Fitch U.S. Public Power peer review - June 2022
Rating agencies Median
S&P “AA” (1) 280
Moody’s “Aa” (2) 243
Fitch ”AA”(3) 264
Comparisons to Other Local Utilities
10 215 249 287 349
530
769
0 100
200
300
400
500
600
700
800
900
AA-/Aa3 AA-/Aa3 NA/Aa2 AA-/NA A+/Aa3 AA/NA
BWP Anaheim LADWP Riverside GWP Pasadena
Electric Days Cash Comparison FYE 2021
S&P/Moody’s
Electric Reserves Funding
11 Days cash on hand
216 212 174 183 140 145 186 146 120 134 168
0.0% 0.0% 1.0% 0.0% 1.24%
2X
6.0% 8.5% 8.0% 8.0% 8.0% 7.0%
0 50
100
150
200
250
300
FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 Recommended Reserves in DCOH Minimum
Electric Reserves Funding in $
12 $ in millions$80 $84
$70 $71
$59 $66
$94 $78
$64
$76
$97
0.0% 0.0% 1.0% 0.0% 1.24%
2X 6.0% 8.5% 8.0% 8.0% 8.0% 7.0%
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 Recommended reserve Reserves in $ % Rate increase Minimum reserve Changes since 2017 - Water Utility
13 Decreasing
sales driven
by drought
Aging
infrastructures
Technology:
Alternative
water
supplies
Inflation
and supply
chain
MWD rate
increases
Water Fund Reserves - Summary
14 Recommended
Range Minimum
Water Fund Reserves
(DCOH) 200 to 300 120
Water Fund Reserves - Changes
15 Reserves 2017 policy
$ or (DCOH)
2023 policy
(DCOH)
Minimum $ 9.4M or 122 120
Recommended $17.8M or 232 200-300
Water Fund Reserves - Benchmark
16 (1)U.S. Municipal Water and Sewer Sector medians - February 2022 (2)Moody’s U.S. Water and Sewer medians - May 2021
(3)Fitch U.S. Water and Sewer peer review - June 2021
Reserves 2023 policy
(DCOH)
Minimum 120
Recommended 200-300
Rating Agencies Median
S&P “AAA” (1) 640
Moody’s “Aaa” (2) 512
Fitch ”AAA”(3) 677
Comparison to Other Local Utilities
17 143
188
288 292 298
331
0 50
100
150
200
250
300
350
Burbank AAA/AAA Glendale AA-/AA- Anaheim AA+/AA+ Riverside AA+/AA+ LADWP AA2/NA Pasadena AA+/AA+ Water Days Cash Comparison FYE 2021
S&P/ Fitch
Water Reserves Funding
18 Days cash on hand
178 204 143 197 188
238 172
122
147 147 212
3.40% 4.90% 4.90% 0.00
% 1.96
%3X
9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
0 50
100
150
200
250
300
350
400
450
FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 Recommended Days cash on hand Minimum Rate incr S&P median AAA 650
Water Reserve Funding in $
19 $ in millions
$13.1 $13.8 $10.6 $14.4 $13.7
$18.3 $16.2
$11.7 $14.4 $15.7
$23.7
3.40% 4.90% 4.90% 0.00% 1.96%
3X 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28 Recommended reserve Reserves % Rate increase Minimum reserve Use of Reserves in the Past:
20 Phase-in rate increases
Strategic water purchase
Pay off debt early for interest savings
Decreased sales during pandemic and drought
Unexpected repairs and maintenance
Inflation and supply chain post-pandemic
PAYGO capital
Evilia Waloejo
Financial Planning and Risk Manager
[email protected]
(818) 238-3739
21 Contact