Is this the right time to be taking on new projects?
The City of Davis has sponsored the preparation of two reports that indicate that the municipalization of electrical services is not only feasible, but there are several economic advantages to doing so. The City Council, based on the feasibly reports and to capitalize on opportunities to improve electrical services and reduce costs to residents, approved Resolution 13-169 authorizing the City Manager and the City Attorney to initiate actions necessary to provide municipal electrical utility service to Davis residents. In the past, residents within City of Davis voting precincts have indicated their strong support for publically owned electrical systems, by overwhelming voting in favor of the proposed SMUD annexation during the Measures H & I vote in 2006 and in 2010, Davis residents overwhelming voting against Proposition 16, a PG&E and investor-owned-utility sponsored effort intended to hinder, if not stop, municipalization of electrical services.
What is the impact on the Waste Water Treatment Plant?
The “Wastewater Fund” currently has an undesignated unreserved fund balance of $34,400,365, and therefore currently has sufficient funds to make a loan to the General Fund to pay the cost of implementation of Resolution 13-169. The source of funds for the Wastewater Treatment Plant construction will be from both the Wastewater Fund and financing via a Clean Water Act State Revolving Fund loan at very low interest rates. Typically, the Wastewater Fund is used for pay-as-you-go projects, such as slip-lining and pipeline replacements, and the SRF financing is used for the major plant expansions. The loan amount of $600,000 would be immediately repaid when financing for the proposed acquisition of electrical utility assets is secured. If it is decided not to acquire the electrical utility assets, then re-payment would be incremental not to exceed 10 years from the date the decision is made not to acquire the assets. The City Council will have the right to repay the loan earlier. If the loan is not repaid, it has the potential to impact later years scheduled construction of the pay-as-you-go wastewater projects’ however, the Wastewater Fund generally will have the ability to move projects forward in a timely manner regardless of the time of repayment.
What is the source of repayment?
The loan is proposed to be made from the Wastewater fund to the General Fund. As stated previously, the loan amount of $600,000 would be immediately repaid at that time financing for the proposed acquisition of electrical utility assets is secured. If it is decided not to acquire the electrical utility assets, then re-payment would be incremental not to exceed 10 years from the date the decision is made not to acquire the assets. As proposed, the loan would bear interest at a rate that is higher than the rate currently received under the Local Agency Investment Fund (“LAIF”).
What is the likelihood of a utility district coming to fruition?
The City would not be forming a “Utility District.” The City would be pursuing municipalization of the electrical services, allowed by the California State Constitution. The City is proposing to acquire the PG&E assets within the incorporated boundaries of Davis and to operate a municipally owned electric utility The consultants estimate that the process could take between 1 1/2 to 3 years The process and the benefits of the City becoming a publically owned electric utility are outlined in the feasibility report which is available on the City’s website.
What will be the future expected expenses of this project and the source of those funds?
The preliminary estimates of the Fair Market Value of the PG&E assets within the City of Davis vary from $18 million to $27 million. During future phases of the project including the anticipated due diligence of the acquisition, these estimates will be refined. The initial acquisition would be financed through a future municipal bond issue dedicated solely for this purpose. Bond debt repayment and future operation, maintenance and capital investment would be funded through electrical use rates charged to customers.