Chelan County PUD Budget Presentation. November 2, 2015

Transcription

1 Chelan County PUD 2016 Presentation November 2, 2015

2 What we will cover today Timeline Strategic Goals & Initiatives Initial Results & Highlights Human Resource Overview Next Steps No Board Action Required Today 2

3 Timeline September Business Plans Finalized Initiated Board Presentation of Business Plans (9/21) October Preliminary Review & Development Overview Presentation (10/5) November s Compiled & Presented to Board Formal Board / Public Hearings (11/2) (11/16) December Finalize Prepare Journals Request Approval (12/7) Indicates Board Meetings 3

4 Strategic Focus planning and the 2016 are built around strategic initiatives and business plans presented September 21 st Public Power Benefits placeholder for 2016 has been included specific projects pending determination and may require budget adjustments during the year The foundation of our strategic initiatives and budget is at the top of our balanced scorecard Customer-Owner Satisfaction 4

5 Strategic Goals Continuing debt reduction efforts This will lead to financial flexibility and freedom Reinvest in physical assets and people This will enhance our capacity to create value Initiate Public Power Benefit investments This will enhance the quality of life in our county 5

6 Strategic Objectives with 2016 Initiatives 1. Commit to highest level of customer satisfaction 2. Invest in creating long-term value No general electric rate actions included Establish an ongoing process for the Public Power Benefit program Advance selected public power benefit investments Complete BPON to GPON upgrade Enhance the customer experience Rocky Reach large unit repairs Rock Island modernization Initiate Rock Island relicensing effort Investigate 2-way metering capabilities Evolve asset management programs Expand conservation programs 6

7 Strategic Objectives with 2016 Initiatives 3. Protect natural resources impacted by operations Successfully meet hydro license requirements Wastewater capital improvements for compliance 4. Ensure financial stability Execute debt reduction plans Meet financial policy targets Participate in electric markets development Advance Columbia River treaty strategies 7

8 Strategic Objectives with 2016 Initiatives 5. Make continuous improvement in operations Upgrade Customer Information System (CIS) Evolve business intelligence capabilities (BI) Evolve Reliability Compliance programs Evaluate and enhance Mid-C coordination efforts 6. Enhance capability of staff Advance employee skill development programs Plan and prepare for the future through succession planning Support education and outreach efforts to enhance customer experience and workforce diversity 8

9 Strategic Objectives with 2016 Initiatives 7. Make our values the focus of relationships Implement the safety strategic plan to advance our culture of safety excellence Integrate accountability, modeling of District values and cycle of personal ownership into daily processes 9

10 Keys to Planning Creating value for our customer-owners Measure: Net revenues (our bottom line) Net revenues (million $) Forecast 2017 Forecast 2018 Forecast 2019 Forecast 2020 Total Adoption, Dec Prelim, Nov 2, Change since last year --- (9.0) (10.2) (12.6) (24.0) (55.9) $56 million forecast reduction for Total revenue consistent (market revenue down ~$20M, cost based revenue up $12M, and service & other revenues up ~$8M) Total expenses up (Rocky Reach Hydro ~$27M, Electric Distribution ~$18M, Public Power Benefit expense activity ~$10M (excludes Fiber expansion which is capital) and other various increases that are offset by the reduction in interest expense) Decreasing risks through investments in assets, compliance and customer satisfaction 10

11 Keys to Planning Creating value for our customer-owners Measure: Liquidity Total Liquidity (million $) Forecast 2017 Forecast 2018 Forecast 2019 Forecast 2020 Adoption, Dec Prelim, Nov 2, Change since last year (31.5) (28.4) Projected 2019 balance has decreased ~$28 million since last year s forecast for Bottom-Line forecast down ~$56M ( ) Capital spending down ~$36M due to applying forecast adjustment factor of 90%-2016/80% totaling ~$60M *Forecast as of Q

12 Keys to Planning Creating value for our customer-owners Measure: Debt reduction Debt Balance (million $) Forecast 2017* Forecast 2018* Forecast 2019* Forecast 2020* Adoption, Dec Prelim, Nov 2, Change since last year (27.1) --- Planned debt reduction of ~ $23 million for 2016 Planned debt reduction of ~$270 million for Projected to achieve debt ratio of less than 35% by 2018 (one year earlier than target of 2019) *Forecast as of Q

13 Combined Financials (in 000 s) Prelim 2016 Forecast 2017* Forecast 2018* Forecast 2019* Forecast 2020* Service Revenue 63,285 64,277 65,418 66,482 67,691 Net Surplus Energy Revenue 232, , , , ,431 Other Operating Revenue 23,998 25,566 26,646 27,336 28,166 Operating Expense (166,314) (173,646) (167,886) (172,359) (175,550) Depreciation & Tax Exp (55,412) (58,695) (57,537) (58,701) (61,593) Operating Income / (Loss) 98,226 91,344 84,945 71,804 52,145 Non Operating Activity (20,474) (17,643) (17,477) (14,338) (12,235) Combined Bottom-Line 77,752 73,700 67,468 57,466 39, Business Plan 75,620 74,254 69,912 60,450 50,446 *Forecast as of Q /4/

14 Keys to the 2016 Continue debt reduction strategy with a net reduction of over $23 million in 2016 Focus on deferred projects and continue with turbine & generator refurbishments Operating expenditures & staffing to be in alignment with the District s business plans Continue strategic plan Public Power Benefit investments 14

15 Combined Financial Results (in 000 s) Adopted 2015 Prelim 2016 $ Change % Change Service Revenue 62,189 63,285 1, % Net Surplus Energy Revenue 242, ,669 (9,966) (4.1%) Other Operating Revenue 21,238 23,998 2, % Operating Expense (145,966) (166,314) (20,349) 13.9% Depreciation & Tax Expense (54,059) (55,412) (1,353) 2.5% Operating Income 126,036 98,226 (27,810) (22.1%) Non Operating Activity (27,524) (20,474) 7,051 (25.6%) Bottom-Line 98,512 77,752 (20,760) (21.1%) Business Plan 75,620 11/4/

16 Service Revenue (in 000 s) Adopted 2015 Prelim 2016 Variance Residential Electric 25,975 25,835 Modest customer growth with Commercial Electric 16,718 16,927 Industrial Electric 5,763 6,211 Other Electric 1,661 1,725 Electric Service 50,117 50,698 offsetting impacts from energy conservation efforts. Potential impacts from High Density Loads (HDL) pending moratorium actions. Water Service 5,142 5,479 Modest growth / 2% rate adjust Wastewater Service Modest growth / 5% rate adjsut Fiber & Telecom 6,385 6,508 PPB System Expansion impacts Service Revenue 62,189 63, Business Plan 63,464 11/4/

17 Net Surplus Energy Revenue (in 000 s) Adopted 2015 Prelim 2016 Variance Slice Contracts 83,719 75, % / % Block/Pre Sch/Real Time 39,850 34,530 EP&T Net Wholesale 123, ,261 LT Hydro Contracts 120, , locked in at higher market prices Increased operating cost Rocky Reach large unit repairs Less: Nine Cyns & Other PP (1,496) (1,361) Consistent with 2015 Net Surplus Energy Revenue 242, , Business Plan 233,907 11/4/

18 Other Operating Revenue (in 000 s) Adopted 2015 Transmission/Wheeling 7,846 8,888 Prelim 2016 Variance Increase investments in operations/compliance Real Time Contract Fixed 4,000 4,000 Consistent with 2015 budget Real Time Contract Variable 4,000 4,000 Consistent with 2015 budget Environmental Attributes 2,482 2,482 Consistent with 2015 budget Service/Late Charges Consistent with 2015 budget Misc Other Items 2,339 4,301 Detail expectations still in review Other Operating Revenue 21,238 23, Business Plan 24,012 11/4/

19 Major O&M Cost Drivers Rocky Reach Large Unit Repairs ~$16 million (C-8 Turbine/Stator ~$15M) Public Power Benefit Investments ~$4.5 million (including 7.5 approved support positions 7 for Fiber expansion and 0.5 for education outreach) Expanded District Operations Expanded reinvestment, regulation, compliance, technology, energy management, succession planning to execute business plans Additional staffing to support business plan objectives (26.5 positions to be detailed later in presentation) 19

20 Operating Expense (in 000 s) Adopted 2015 Prelim 2016 Variance Hydro O&M 48,143 56,716 Rocky Reach large unit repairs Hydro Fish & Wildlife 15,041 17,222 Rock Island fish ladder extensions Hydro Parks & Recreation 7,109 6,792 Planned PPB investments Electric Distribution 11,933 14, PPB placeholder Electric Transmission 10,764 11,748 Operations/Compliance support Power Supply Mgmt 4,918 6,297 Energy management/conservation Water/Wastewater O&M 2,610 2,692 Consistent with 2015 Fiber Network O&M 3,783 4,467 Fiber system expansion Continued on next slide 11/4/

21 (in 000 s) Operating Expense Adopted 2015 Prelim 2016 Variance Customer Accts & Svc 4,012 3,881 Consistent with 2015 Conservation 1,565 2,597 Recognition of investments Insurance 6,027 6,045 Consistent with 2015 FERC Fees 2,090 1,706 Revised expectation down Other Admin & General 27,970 31,223 Total 145, , Business Plan 168,881 Expanded technology, safety and project support services 11/4/

22 Non-Operating Activity (in 000 s) Adopted 2015 Prelim 2016 Variance Investment Earnings 5,096 6,977 Higher cash reserves Contribution Income 5,427 4,119 Consistent with 2015 budget Interest Expense (32,081) (28,060) Debt reduction strategy Other Inc/(Exp) (5,966) (3,510)) Debt reduction strategy Total (27,524) (20,474) Business Plan (20,545) 11/4/

23 2016 Major Capital Projects Rock Island B5-B8 Refurbishment ~$12 million (Total Project ~$100M) Rock Island PH2 Governor Controls ~$3 million (Total Project ~$11M) Rocky Reach Gantry/Bridge Crane ~$6 million (Total Project ~$10M) Rocky Reach Headgates ~$2.5 million (Total Project ~$4M) 23

24 2016 Major Capital Projects BPON to GPON Upgrade ~$1.9 million (Total Project ~$5.1M) Microwave Replacement ~$1.9 million (Total Project ~$2.0M) Customer Information System ~$1.7 million (Total Project ~$3.5M) Security Infrastructure ~$1.5 million (Total Project ~$1.8M) 24

25 (in 000 s) Capital Expenditures Adopted 2015 Prelim 2016 $ Change Electric Distribution 13,611 11,386 (2,225) Electric Transmission 9,545 2,520 (7,025) Rocky Reach Hydro 9,576 10,957 1,381 Rock Island Hydro 13,822 15,040 1,218 Major Project Focus Cable replacement, system upgrades & customer work Mid-C transmission, video system & system upgrades Gantry/Bridge cranes, headgates & park upgrades B5/B6 modernization & governor controls Lake Chelan Hydro (144) Shoreline erosion Corporate/Shared Assets 6,116 12,366 6,250 Integrated Electric 53,185 52,640 (545) 11/4/2015 Continued on next slide 25 CIS upgrade, vehicles & facility improvements

26 (in 000 s) Capital Expenditures Adopted 2015 Prelim 2016 $ Change Fiber & Telecom 4,847 5, Major Project Focus PPB Fiber Expansion & complete GPON upgrade Water 487 1,532 1,045 Water main replacements Wastewater 377 1, Total Capital 58,896 60,607 1,711 Lake Wen. lagoon liner & Peshastin/Dryden upgrade Less: Contributions (5,427) (4,119) 1,308 Capital Paid By Others Regulatory Assets & Other 4,180 4, Net Capital & Reg. Assets 57,649 61, Business Plan 67,167 Conservation / Lic. Obligations 11/4/

27 New Positions Hydro Succession Planning (8 positions) Eleven of 21 Hydro Operators will be eligible for retirement by 2020 Forecasting 7 current dive team Hydro Mechanics to move out of program by 2020 Construction Project Support (7 positions) Volume of work is increasing with large reinvestment projects and increased expectations of planning, engineering, completeness of job packets and compliance 27

28 New Positions Regulation/Compliance Support (5.5 positions) New Critical Infrastructure Protection Standards (CIP versions 5 and CIP- 10), Rock Island fishway operations, documentation requirements for reliability/cip standards, training requirements for system operators and public records retention and production Technology/Cyber Security Support (3 positions) Support expanding technologies and devices, enhance cyber security and establish technical support for business intelligence strategic initiative 28

29 New Positions Energy Management/Conservation (2 positions) Respond to power purchasers needs to enhance value Adding residential advisor to meet new energy efficiency stretch goals Enhance Customer Satisfaction (1 position) 0.5 to administer the public power benefit program 0.5 to expand diversity outreach 29

30 Staffing Levels Full-Time Equivalents FTE s (1 FTE = 2080 hours) Regular FTE s Overtime FTE s Total FTE s Headcount Actual FTE s 2016 (preliminary budget) (adopted budget) (adopted budget) (adopted budget) (adopted budget) (adopted budget) (adopted budget) (contingency budget) budgets and actuals were all at or above the 2009 level FTE s differ from positions as new positions are filled throughout the year 11/4/

31 2016 Pay Increase Assumptions Non-bargaining unit pay increase forecasts indicate continued slow growth in wages Projected Pay Increases Industry Min Max Average All Industry 2.8% - 3.5% 3.1% Utility/Energy 2.4% - 3.2% 3.0% 11/4/

32 2016 Pay Increase Labor - Non-Bargaining Unit (assumptions) 2.50% Merit 0.50% Market 0.50% Promotions 0.25% One-time structural or other misc. adjustments Labor - Bargaining Unit (per collective bargaining agreement) 0.25% Effective January 1, % Effective April 1, 2016 Step increases throughout year Contract expires 3/31/17 Final non-bargaining unit pay increase decisions will be informed by actual data 11/4/

33 Employer Benefit Costs Costs (in 000's) $ Change % Change Medical Benefits 12,045 12, % Retirement PERS 6,285 7,367 1, % 401(a) 1,706 1, % Total $ 20,036 $ 22,033 $ 1, % 11/4/

34 Combined District Expenditures (in 000 s) Adopted 2015 Preliminary 2016 % Operating Expense 145, ,263 14% Tax Expense 7,423 8,098 9% Non-Operating Exp/(Inc) 32,951 24,592 (25%) Net Capital & Reg Assets 57,649 63,959 11% Total Expenditures 243, ,912 8% Net Debt Reduction * 122,583 22,550 (82%) Total Expenditures & Net Debt Reduction 366, ,462 (22%) Existing debt activity associates with prior capital expenditure budgets 11/4/

35 Strong Financial Policies Rate of Return Target > 4% Combined Cover Target>2.0x Liquidity Target > $175 M Debt Ratio Target < 50% < 35% by

36 Combined Financial Policies 2016 Preliminary Rate of Return ¹ Debt Ratio ² Combined Cover Financial Liquidity Base Case expected (50% probability) 7.1% 41.8% 2.86 $357M Target > 4% < 50% > 2.0x > $175M Base Case unusual (5% probability) 6.2% 42.0% 2.68 $347M Target > 2% < 50% > 1.25x > $175M ¹ - Associated with an expected bottom line of approximately $76 million ² - Includes the expected debt reduction of approximately $23 million 11/4/

37 Business Line Financial Policies 2016 Preliminary Rate of Return Debt Ratio Cover Liquidity Oper Exp Coverage Integrated Electric Target 7.9% 4.5% 45.2% < 50% 2.84 > 1.97x $346 M $171 M n/a Fiber & Telecom Target n/a ---% < 35% n/a $4.6 M $2 M 131% > 120% Water Target n/a 14.2% < 35% n/a $3.1 M $1.25 M 139% > 120% Wastewater Target n/a ---% < 35% n/a $2.7M $200 K 94% > 100% by /4/

38 Conclusion Fundamental perspective How can we increase value for our customer-owners? Drives long-term planning and 2016 budget Projecting substantial positive net revenue over the next 5 years Key measure of financial health Over $40 million per year through 2020 Decreasing risk of asset or compliance failure through planned investments Accomplishing all of above while decreasing debt outstanding $270 million planned reduction /4/

39 Next Steps Review Continued review and adjustments in November Discuss 2 nd Hearing November 16 Approve Requesting Board Approval on December 7th 39

40 Questions? 40

41 Appendix Additional information from prior presentation 11/4/

42 Key Assumptions Wholesale Revenue System Load Growth Business Line Service Revenues Average flows and current market price Hedge program fully implemented Unit outages impacts included Hydro fish spill consistent ~1% Electric ~2% Water ~1.5% Wastewater ~1,040 new connections-networks New rate for High Density Usage rate class 2% change in Water rates No change in Fiber rates 5% change in Wastewater rates 42

43 Key Assumptions Labor Bargaining Unit Labor Non- Bargaining Unit Long-term power contract terms & conditions Collective Bargaining Agreement includes increases of 0.25% effective 1/1 and 3.0% effective 4/1. includes estimated benefits forecasts. Estimate based on market forecast data of 3.0% for merit and market increases and 0.5% for promotions (all planned for 4/1) and 0.25% for the General Manager reserve (planned for 1/1). includes estimated benefits forecasts. Debt Reduction Charge (DRC) 3.0% Capital Recovery Charge (CRC) - 50% Credit Premium Charge (Alcoa) 1.0% Debt Admin Charge (Puget) 1.0% 43

44 Key Assumptions Capital & Operating Expenditures Driven by business plans Expenditures increase as we accelerate investments in assets, catch up on deferred maintenance & implement turbine/generator repairs/refurbishments Debt and Interest Income Net debt reduction of $23 million Interest earnings estimated just over 1% Public Power Benefit Investments Includes 2016 initial allocation and placeholder for remainder pending studies revisions will be added for any newly designated projects 44