12-13-2011 CC RPT 32 - Laserfiche WebLink

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City Council Memorandum TO: HONORABLE MAYOR AND CITY COUNCILDATE: December 13, 2011 FROM: PUBLIC UTILITIES DEPARTMENT ITEM NO: WARDS: ALL SUBJECT: REGULATORY ACCOUNTING FOR UNEXPECTED TRANSACTIONS NOT IN CURRENT RATE STRUCTURES ISSUE: That the Finance Committee consider approval of the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification 980 (ASC 980) “Regulated Operations” as an accounting methodology to be used for specific accounting transactions. RECOMMENDATIONS: That the City Council: 1. Approve the application of ASC 980 for transactions discussed in the report; and 2. Adopt a resolution authorizing the application of ASC 980. BOARD RECOMMENDATION: On August 19, 2011, the Board of Public Utilities unanimously approved this item. COMMITTEE RECOMMENDATION: On November 16, 2011, the Finance Committee, with Chair Hart, Vice Chair Davis and Member Gardner present, unanimously approved and recommended that the City Council approve this item. BACKGROUND: As authorized in the City Charter, the Board of Public Utilities (Board) establishes, and the City Council (Council) approves, electric and water rates. Utility rates are designed to recover the costs of providing services. The City has covenanted in bond resolutions that the City will charge retail rates sufficient to recover costs and maintain certain debt service coverage ratios (DSCR) to provide assurance to bondholders that future rates will be sufficient to make principal and interest payments. Unexpected significant costs or revenue reductions can impact the DSCR. Violating its DSCR can result in an Event of Default under the Master Resolution, and will impact the utilities’ credit rating, market access, and/or amount of interest the Utility pays on its outstanding bonds.