REPORT TO COUNCIL
SUBJECT
Title
Action on a Resolution Making Certain Findings and Determinations and Taking Certain Actions Related to Aligning Existing Reserves of the Electric Utility With the City's Current Budget and Fiscal Policies for Utility Funds Reserves
Report
COUNCIL PILLARS
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
Reserves serve as an important resource for an organization to manage risk and be financially solvent. To cover shortfalls in operating revenues, address unforeseen operating and capital expenditures, cover day-to-day operating costs during emergency situations, maintain strong bond ratings, and ease the burden on ratepayers associated with large rate increases, the City has established certain budget and fiscal policies for the maintenance of reserves in the City funds including utilities funds. In addition, cash levels are regularly evaluated by rating agencies and investors to be used in establishing SVP's credit rating.
The City's Electric Utility, Silicon Valley Power (SVP), currently has four reserve policies currently held as cash reserves:
1) Operating Cash Policy: In August 1997, Council approved an Operating Cash Policy for the Electric Utility, including a requirement to maintain a minimum of 60 days retail revenue (approximately $34 million) and 60 days of net wholesale transactions (approximately $31 million) for a total of $65 million in cash.
2) Rate Stabilization Reserve: In January 1996, City Council adopted Resolution No. 6106 approving the establishment of a separate account in the Electric Utility of the City, known as the "Rate Stabilization Fund Reserve." This Electric Utility Rate Stabilization Fund is also included in the City's Subordinated Electric Revenue Bond Indentures dated March 1, 2011. As such, the City is obligated maintain the Electric Utility Rate Stabilization Fund so long as any City Electric Bonds remain outstanding.
3) Cost Reduction Fund: In...
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