01-14-2019 BPU RPT 17 - Laserfiche WebLink

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W A T E R E N E R G Y T I F F RIVERSIDE PUBLIC UTILITIES id& Board Memorandum P U B L I C U T I L I T I E S BOARD OF PUBLIC UTILITIES DATE: JANUARY 14, 2019 ITEM NO: 17 SUBJECT: SUBORDINATE LINE OF CREDIT AGREEMENT TO SUPPORT THE ELECTRIC AND WATER UTILITIES ISSUE: Adopt resolutions to enter into a Subordinate Line of Credit for the Electric and Water Utilities in an aggregate amount not -to -exceed $60 million. The Subordinate Line of Credit was identified as part of the approved Electric and Water Utility Five -Year Rate Plan as a tool to manage the rate increases by enabling the Electric and Water Utilities to reduce cash levels while maintaining compliance with the Riverside Public Utilities Cash Reserve Policy and supporting strong bond ratings. RECOMMENDATIONS: That the Board of Public Utilities recommend that the City Council: Conduct a public hearing to consider the issuance of one or more promissory notes on the subordinate line of credit in an aggregate principal amount not -to -exceed $60 million; 2. Adopt a resolution to enter into a Subordinate Line of Credit with U.S. Bank National Association for the Electric Utility; 3. Adopt a resolution to enter into a Subordinate Line of Credit with U.S. Bank National Association for the Water Utility; 4. Approve the City's Financing Team, as described herein; and 5. Authorize the City Manager, or his designee, to execute all documents related to this transaction. BACKGROUND: On May 22, 2018, the City Council approved the Electric and Water Utility Five -Year Rate Plan for Riverside Public Utilities (RPU). One component of the rate plan designed to keep the rate increases as low as possible was the use of a Subordinate Line of Credit. A Subordinate Line of Credit is a low-cost financial tool available to entities with strong credit ratings that provides flexibility and operating liquidity similar to cash reserves if there is an emergency need. RPU does not intend to draw upon the Subordinate Line of Credit, however, the Subordinate Line of Credit allows RPU to reduce the rate impact to customers by enabling RPU to spend cash reserves on capital projects while the Subordinate Line of Credit is used, in lieu of cash, to meet the overall liquidity and reserve levels necessary to maintain RPU's strong bond ratings. Based on a review of the Electric Utility and Water Utility financial plans, it was determined that the Electric Utility need is approximately $35 million and the Water Utility need is approximately $25 million to ensure compliance with the RPU's City Council approved Cash Reserve Policy.