03-29-2016 BPU RPT 05 - Laserfiche WebLink

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W A T E R E N E R G Y L I F F V" 69& RIVERSIDE PUBLIC UTILITIES P U B L I C U T I L I T I E S Board Memorandum BOARD OF PUBLIC UTILITIES DATE: MARCH 29, 2016 ITEM NO: 5 File ID — 16 -0899 — Discussion SUBJECT: APPROVAL OF REIMBURSEMENT RESOLUTION FOR ELECTRIC UTILITY CAPITAL PROJECTS ISSUE: The item for Board of Public Utilities consideration is approval of the Electric Utility Reimbursement Resolution to provide the use of future bond proceeds instead of operating funds for capital financing requirements for the Electric Utility's Five -Year Capital Improvement Program ( "CIP "). RECOMMENDATION: That the Board of Public Utilities recommend that the City Council adopt the Electric Utility Reimbursement Resolution to provide the future option of using bond funds instead of operating funds for capital financing requirements with the understanding that reserve funds will be used for capital needs in the interim period. BACKGROUND: A reimbursement resolution is required to authorize the reimbursement of cash reserves that are spent on capital expenditures prior to a bond issuance. Internal Revenue Service regulations require that the City issue a formal declaration of reasonable intention (i.e., reimbursement resolution) to reimburse capital expenditures made up to 60 days prior to the adoption of the resolution through the time bonds are issued with the proceeds from the future borrowing. The Electric Utility requires capital improvement projects to maintain system reliability, serve new residential and commercial developments and refurbish the electric system. Because these capital improvements are long -term in nature, they are primarily funded through bonds. The basic philosophy of using bonded indebtedness for capital projects is that repayment of the bond is made over the life of the project (usually 20 to 30 years). Historically, 80% to 85% of Electric CIP has been funded by bonds and typically, the Electric Utility has issued bonds every two to four years to fund its Board and City Council approved Five -Year CIP. The last bond issuance for new construction proceeds was done in December 2010 for $140.4 million. The proceeds of this issuance will be depleted by the end of April 2016. Normally, the Electric Utility will plan and arrange for the next bond issuance prior to the depletion of its existing issuance or shortly thereafter. If planned for shortly thereafter, a reimbursement resolution should be approved in order to provide flexibility to reimburse any capital paid for from cash reserves with future bond proceeds. The utility has utilized a reimbursement resolution in the past, in conjunction with the 2008 bond issuance in the amount of $209.7 million. With the depletion of current bond proceeds by the end of April, cash reserves will need to be used for capital needs for the remainder of fiscal year Fiscal Year (FY) 2015/16 estimated at approximately $10 million and the proposed two -year CIP budget for FY 2016/17 and 2017 totaling $73.7 million, of which