Electric Fund Overview
DESCRIPTION
The Electric Fund is a proprietary business fund that accounts for the activity of the Electric Utility. All charges for services, rate revenues and expenditures are accounted for in this Fund. An overview of revenues and expenditures are included below. This overview also identifies and explains revisions to the initial 2024 budget proposed last year and shows a 4 year table of changes in net position with estimated cash flows for the period from 2020 through 2024.
Electric Revenue Sources
Electric Fund revenues are estimated based on data provided by the rate consultant as part of a rate study as well as historic revenue trend analysis performed by the City's Finance and Utilities departments. The factors that most influence rate revenue at this time are consumption, which was increasing at the rate of approximately 2% to 3% per year through 2021 but has dropped 2% to 4% in 2022 and 2023. The reduction of consumption YTD in 2023 is primarily attributable to the cooler temperatures during the spring and first half of the summer. Estimated total revenue from all sources in the Electric Fund is projected to be $31.3 million for 2024. All changes to the revenue forecast from the initial proposed 2024 budget are explained in sections below. The table shows the revenue from the various revenue sources from 2022 through 2024.
Electric Revenue - Major Source Descriptions
Electric Sales
Residential sales continue to be the largest component of revenue with anticipated sales of approximately $18.7 million in 2024. Commercial sales are expected to approximate $7.9 million for 2024.
New Service
Developers pay the electric utility to extend distribution lines into new subdivisions. Tgese main line extensions are estimated to be $100,000 in 2024. The home builder pays a fee to connect the service line to the distribution system. These new service installations are estimated to be $100,000 in 2024. The estimated revenue from both of these new service fees is projected to be approximately $200,000 in 2024.
System Development Charges
The City collects a system development charge from new customers to fund growth related to electric utility capital improvement projects. The City expects to collect system development charges of approximately $15 thousand in 2024.
Miscellaneous Revenues
Miscellaneous revenues in the Electric Fund include various fees, rents on buildings owned by the fund and other items approximating $2 million in 2024, primarily consisting of a $1.975 million payment from Guzman Energy.
Other Financing Sources
It is appropriate to finance through the issuance of debt, capital improvements that are needed to sustain existing service and needed to serve growth. Financed improvements are paid for by existing and future customers that benefit from those improvements. The electric utility did borrow money for improvements in 2019 through a joint utility bond with the water utility. Additional borrowing is not planned for 2024 and therefore, no loan proceeds are projected.
The suggested Revenue revisions to the 2024 initial proposed budget for the Electric Fund are as follows:
Expense Overview
The following table shows the analysis of expenditures in the Electric Fund from 2022-2024 including 2022 actual results, 2023 amended budget, year to date results through June, 2024 initial proposed budget, suggested 2024 revisions and the revised proposed 2024 budget request. Although capital expenditures are not treated as an actual expense for financial statement purposes, they are budgeted. This is typical of an enterprise fund. The Electric Fund's capital expenditures for 2024 will approximate $944 thousand. Total expenditures will approximate $31.4 million.
The suggested Expense revisions to the 2024 initial proposed budget for the Electric Fund are as follows:
The suggested Expense revisions to the 2024 initial proposed budget for the Electric Fund are as follows (continued):
Electric Fund expenses by Department from 2022 through 2024 are indicated in the table below:
Electric Fund Net Position
Budgets are completed on a cash basis, similar to a check book, which we call the budgetary basis. All government fund budgets are prepared in this manner. Funds reporting governmental activities are then reported for financial statement purposes on a modified cash basis, in accordance with Generally Accepted Accounting Principles (GAAP). Current assets less current liabilities are reported as fund balance, which approximates cash available for appropriation.
Utilities, however, are reported as proprietary funds on a full accrual basis, as if they were an independent business. The utilities report all of their assets and liabilities and the net is called net position. Net position reflects the investments in capital infrastructure less depreciation and long-term debt payments.
In the table below, actual and forecasted revenue and actual and budgeted expenditures for the 5 year period are shown on a budgetary basis and then adjusted for net position on a GAAP basis. The table indicates that continued capital infrastructure investments in this utility fund are not sustainable given the forecasted revenue and inflationary impacted future costs. As indicated, cash reserves continue to decrease over the 5 years even though net position remains fairly stable.
