Gainesville Regional Utilities Presentation to Standard & Poors - - PowerPoint PPT Presentation

Gainesville Regional Utilities

Presentation to Standard & Poor’s November 10, 2014

Overview

• Policy Updates
• 2015 Budget Driver and Business Plan
• 2015 Budget Results
• Financial Metrics
• GREC Status
• Regulatory Issues and System Updates

2

City Commission Committed to GRU Financial Strength

• City Commission has adopted rates that continue to

increase GRU’s financial strength

• Financial metrics improved significantly in FY 2014 and

will remain strong through 2021

• GREC is fully integrated in GRU operations and

financials

• GRU Management proactive in strategic long-term

planning

• GRU staff continues to increase operational efficiency
• Gainesville’s economy continues to grow

3

Policy Updates City Commission Initiatives

• Governance

– Discussions ongoing

• Investigative Review

– Main focus is the GREC RFP and resulting PPA – Navigant Consulting selected – On site November 1, 2014

• Mountain Top Removal Coal Resolution

– GRU will not buy coal mined from mountain top removal; however if price is greater than 5%, GRU will bring to City Commission

4

New Growth Opportunities Innovation Square

• Public/Private Partnership with UF
• Infinity Hall

− Dorms, offices, collaboration lounges, design and prototype space

• Announcements pending

− Four-story office building next to Innovation Hub − 135-unit luxury apartment complex along University Ave. − Proposed grocery store and hotel

• Increases tax base and creates jobs

5

Senior Leadership Position Update

• General Manager

– National search under way by Mycoff, Fry & Prouse, LLC – Advertising began first week of November – Possible GM in place by March/ April

• CFO

– To be conducted by new GM

6

FY15 Business Plan

Positioning GRU for the Future

• Maintain Financial Strength

– Manage revenues and expenses – Balance against financial metrics

• Deliver Excellent Service

– Improve trust and transparency – Evaluate future energy needs – Meet customers’ changing demands (products/ services)

• Develop Engaged and Proficient Employees

– Improve employee morale – Succession planning – Reduce recordable injuries

7

FY15 Budget Driver

• Competitive electric rates

– Set a goal to reduce anticipated FY15 1,000 kWh electric bill increase of $9.85 to $5 or less – Approved budget and rates achieved an increase of $1.35

8

Budget Highlights

Controlling and Managing Costs

Revisions to proposed FY15 Budget developed during FY14 Budget preparation:

• Reduced O&M Expenses

$10.6 million

• Reduced Fuel Expenses

$11.4 million

– Natural gas usage increased while prices decreased – Less GREC availability reduced fixed costs

• Increased Capital Spending

$31.6 million

– Added phase 2 of South Energy Center, adding new revenues to the system, approximately $20 million – Continued investment in infrastructure

• Reduction in General Fund Transfer

$ 1.2 million

– Negotiated revised methodology

9

Budget Highlights

Reducing Costs through Focused Change in Personnel Policy

Personnel Savings

• Eliminated 2% Employee Pay Increase

$800,000

• Unfunded 59 Positions

$3.7 million

– 52 regular/7 overfills – Reassessment from 2014 with strategic selection

• f which positions unfunded
• Reduction in pension costs

$2.1 million

– Modified pension plan structure

• Extended time of service for eligibility for normal retirement
• Extended time of service for COLA
• Reduced interest earnings during DROP

10

Budget Highlights

Increasing Revenue through Strategic Assessment

• Long-term Facilities/ Real Estate Planning

– Sale of Electric System Control $1.46 M Building – Sale of Surplus Union County $73,000 Property

11

Budget Highlights

Financial Strength

• General Fund Transfer

– Fixed amount from 2015 – 2019, resulting in savings to GRU and stability and predictability to both GRU and General Government – Resulted in an FY15 reduction from proposed budget of $1.2 million

• Connect Free (CF) Program on hold

– $475,000 of CF balance moved to Water RSF

• Multi-family Water Rate Added

– Better reflects cost to serve

• Economic Development Rate Implemented

12

Financial Strength

Increasing Revenue by Optimizing System Capacity

Wholesale Sales

• Alachua

– Ten Year Contract with reopener after five years – Discussions have begun though reopening period will not be reached until November 2015

• Winter Park

– Contract begins January 1, 2015 – FY 15 projected revenue of $495,000 – 10 MW firm capacity and energy

13

Financial Strength

Increasing Revenues from Community Growth

• South Energy Center Expansion

– Serves UF Health Cancer Hospital

• 600-800 new, permanent jobs
• $420 million project to UF Health

– Providing power, standby power, steam, chilled water, medical gas infrastructure – GRU will add equipment to serve the increased electrical and thermal demand (amending contract to add hot water) – $28.5 million cost

• University of Florida opportunity

– Steam contract with Duke Energy is expiring

14

Financial Strength

Potential Improvements from Approved FY15 Budget

• Duke Energy Crystal River 3 Nuclear Plant

Settlement

− Approximately $10 million revenue to GRU − Payment pending ownership transfer approval by Nuclear Regulatory Commission (NRC) − Approval anticipated by end of CY 2015

• Overfunded Disability Pension Plan

− Estimated one time cash return to the system of $2.9 - $3.2 million

15

General Fund Transfer 2015-2019

Reducing GRU’s Transfer to the City of Gainesville

2013 FY14 Projection 2015 2016 2017 2018 2019 Base GFT $ 36,542,425 $ 37,090,561 $ 37,646,920 $ 38,211,623 $ 38,784,798 Less: GREC Property Tax1 $ (1,400,000) $ (1,400,000) $ (1,400,000) $ (1,400,000) $ (1,400,000) Net GFT $ 35,142,425 $ 35,690,561 $ 36,246,920 $ 36,811,623 $ 37,384,798 One time Reduction in 2015 $ (250,000) GFT $ 36,656,458 $ 37,180,675 $ 35,392,425 $ 35,690,561 $ 36,246,920 $ 36,811,623 $ 37,384,798 GRU Projected Revenues $ 355,963,786 $ 393,968,801 $ 413,534,074 $ 429,277,552 $ 446,025,654 $ 454,584,078 $ 462,158,475 Net GFT as % of Revenues 10.3% 9.4% 8.6% 8.3% 8.1% 8.2% 8.1%

1Reduction in GFT equal to actual City of Gainesville property tax revenue from GREC plant each year; $1.4M is example figure only

16

Residential Electric Customer 1,000 kWh Bill Change

Note: Base Rate Revenue Increases represent an increase on the total base rate revenue requirement, and does not translate directly into an

• verall bill increase due to the different tiers and fuel component.

December 2013 Presentation

Percentage Base Rate Revenue Increase Percentage Fuel Adjustment Increase Total Bill Increase

2014

• 5.60%

39.00% 10.60% Approved 2015

• 1.65%

17.00% 7.00% Projected 2016 2.75% 3.60% 2.50% 2017 2.75% 1.20% 1.80% 2018 2.75% 0.00% 1.30% 2019 2.75% 0.00% 1.10% 2020 2.75% 0.00% 1.10%

Approved FY15 Budget

Percentage Base Rate Revenue Increase Percentage Fuel Adjustment Increase Total Bill Increase

2015

• 8.50%

13.04% 0.97% Approved 2016 3.50% 3.85% 3.70% Projected 2017 3.00% 2.47% 2.70% 2018 0.00% 1.20% 0.70% 2019 0.00% 1.19% 0.70% 2020 0.00% 0.00% 0.00%

17

Total Residential Bill Projected Change

Based on 1,000 kWh electricity, 25 therms natural gas, 7,000 gallons water and 7,000 gallons wastewater.

December 2013 Presentation

2014 2015 2016 2017 2018 2019 2020 Electric $13.48 $9.85 $3.75 $2.75 $2.00 $1.75 $1.75 Gas $0.20 $0.36 $0.87 $1.23 $0.67 $0.65 $0.98 Water $2.45 $0.55 $0.85 $1.10 $1.05 $1.40 $1.50 Wastewater $0.80 $2.25 $2.20 $2.25 $1.90 $1.80 $2.20 Total $16.93 $13.01 $7.67 $7.33 $5.62 $5.60 $6.43

Approved FY15 Budget

2014 2015 2016 2017 2018 2019 2020 Electric $13.48 $1.35 $5.30 $3.90 $2.00 $2.00 $2.00 Gas $0.20 $2.36 $0.99 $2.38 $0.74 $0.49 $0.99 Water $2.45 $0.50 $0.80 $0.00 $0.00 $0.00 $0.00 Wastewater $0.80 $1.95 $2.35 $2.35 $0.00 $0.00 $0.00 Total $16.93 $6.16 $9.44 $8.63 $2.74 $2.49 $2.99 18

FINANCIAL METRICS

19

Debt vs. Equity: Funding Capital

Continuing to Fund Capital Expenditures with Internally Generated Funds

20

Debt Service Coverage

Continuing to Improve Coverage Ratios

21

Fixed Charge Coverage

Improving Historical Ratios

22

HISTORICAL PROJECTED

System Reserves (Unrestricted)

Providing Flexibility to Address Uncertainty

Additionally, System has Commercial Paper Capacity of $48 million available 23

Financial Risk Management

Developing Cash Liquidity Targets

24

Financial Risk Management

Strong Liquidity Position Exceeding Cash Liquidity Targets

25

Financial Risk Management

Continued Equity Funding of Capital Program

26

Capital Improvement Program Sources and Uses

Dollars in Thousands 2014 2015 2016 2017 2018 2019 2020 2021 Total Cash Balance October 1, $ 44,656 $ 38,510 $ 35,549 $ 1,021 $ 32,308 $ 17,395 $ 586 $ 24,031 Source of Funds: Bond Financing $ 6,120 $ 51,612 $ - $ 51,867 $ - $ - $ 48,093 $ - $ 157,692 UPIF $ 55,454 $ 50,910 $ 44,747 $ 50,963 $ 50,898 $ 50,877 $ 49,878 $ 49,836 $ 403,563 Interest Earnings $ 382 $ 717 $ 54 $ 265 $ 542 $ 52 $ 76 $ 52 $ 2,140 Total Sources $ 61,956 $ 103,239 $ 44,801 $ 103,095 $ 51,440 $ 50,929 $ 98,047 $ 49,888 $ 563,395 Use of Funds: Construction Projects: Electric $ 30,206 $ 58,857 $ 44,437 $ 33,489 $ 31,671 $ 34,525 $ 29,179 $ 35,700 $ 298,064 Gas $ 1,419 $ 6,163 $ 5,856 $ 5,913 $ 5,850 $ 5,735 $ 5,687 $ 5,983 $ 42,606 Water $ 10,370 $ 9,741 $ 9,864 $ 10,360 $ 9,496 $ 9,191 $ 10,108 $ 10,098 $ 79,228 Wastewater $ 21,006 $ 22,726 $ 12,755 $ 13,443 $ 12,974 $ 12,770 $ 22,062 $ 15,245 $ 132,981 GRUCom $ 4,861 $ 6,690 $ 6,418 $ 6,569 $ 6,361 $ 5,516 $ 5,680 $ 6,292 $ 48,387 Total Construction $ 67,862 $ 104,176 $ 79,329 $ 69,774 $ 66,353 $ 67,738 $ 72,716 $ 73,317 $ 601,265 Issuance Costs $ 120 $ 1,012 $ - $ 1,017 $ - $ - $ 943 $ - $ 3,092 Total Uses $ 67,982 $ 105,188 $ 79,329 $ 70,791 $ 66,353 $ 67,738 $ 73,659 $ 73,317 $ 604,357 Cash Balance September 30, $ 38,510 $ 35,549 $ 1,021 $ 32,308 $ 17,395 $ 586 $ 24,031 $ 601

Planned Transaction Structure

• $43 million for capital projects in electric,

gas water and wastewater systems as approved in budget

• Tax-exempt, fixed rate debt
• Advanced refunding currently plans for:
• GRU also anticipates issuing

approximately $7 million in Commercial Paper later in December for GRUCom

27

Refunded Bonds Refunding Transaction Statistics Series Type Refunded Par Maturity Call date Refunding Par Present value savings % PV Savings 2005A Serial 12,435,000 10/1/2029 10/1/2015 11,061,032 1,514,155 12.2% 2005A Serial 350,000 10/1/2030 10/1/2015 312,661 40,554 11.6% 2005A Serial 345,000 10/1/2036 10/1/2015 316,422 26,803 7.8% 13,130,000 11,690,115 1,581,511 12.0%

Event Date

Brief S&P 10-Nov Receive ratings 26-Nov City Commission Approval 4-Dec Pricing* 11-Dec Closing* 18-Dec

* Subject to market conditions

Planned schedule

28

10 20 30 40 50 60 70

Debt Service ($mm) Bond Year Ending 2005 Series A 2005 Series B 2005 Series C 2006 Series A 2007 Series A 2008 Series A - Taxable 2008 Series B 2008 Tax-Exempt CP (Hedged) 2008 Tax-Exempt CP (Unhedged) 2009 Series A - Taxable 2009 Series B - BAB 2010 Series A - (Taxable) 2010 Series B - (Build America Bonds) 2010 Series C - (Tax Exempt) 2012 Series A 2012 Series B Includes Commercial Paper and Net of Build America Bonds Subsidy (Assumed 35%)

Debt Management

Current Debt Service Structure

29

Debt Management

Principal Balance Declines Steadily

• Roughly 24% of presently outstanding principal amortizes in next 10 years

(2015-2024), with another 39% amortizing in the following 10 years (2025-2034)

100,000,000 200,000,000 300,000,000 400,000,000 500,000,000 600,000,000 700,000,000 800,000,000 900,000,000 1,000,000,000

Declining Principal Balance

Total Outstanding Principal

BABs 31% Taxable Fixed 10% Tax- Exempt Fixed 12% Daily Variable 16% Weekly Variable 25% Tax-Exempt CP 6%

Overall Debt Structure

(as of 11/2014)

30

Debt Management

Low-Cost Fixed & Prudent Variable

• GRU’s overall debt structure remains rooted in a majority of fixed

rate bonds

31

Fixed 51% Synthetic Fixed 31% Synthetic Variable 3% Variable 15%

Net Fixed and Variable

(as of 11/2014)

• Fixed and synthetically fixed debt account for 82% of total debt
• Unhedged variable rate debt is less than invested balances – no net

exposure Limited swap basis risk

– $345 million of swaps with SIFMA/LIBOR basis – 12-year average life – Performed and performing ahead of budget

Debt Management

Low-Cost Fixed & Prudent Variable

Debt Management

GRU Has Strong Counterparties and Very Favorable Bank Lines

32

SWAP Agreements Series Through GRU Pays GRU Receives Counterparty 2005 Series B 10/1/2021 Floating SIFMA Fixed 77.14% of 1 Mo Libor Goldman 2005 Series C 10/1/2026 Fixed 3.20% Floating 60.36% of 10Y LIBOR JP Morgan 2006 Series A 10/1/2026 Fixed 3.22% Floating 68% of 10Y LIBOR less 0.365% Goldman 2007 Series A 10/1/2036 Fixed 3.94% Floating SIFMA Goldman 2008 Series B 10/1/2038 Fixed 4.23% Floating SIFMA JP Morgan 2008 Taxable CP (Hedged) 10/1/2017 Fixed 4.10% Floating SIFMA Bank of America Liquidity Facilities Series Series Type Facility Term Date Fee Remarketing Agent Par (000) Comments 2005 B Taxable Swapped to VR (SIFMA) 24,485 No liquidity required 2005 C Daily VRDO Union 12/21/2015 40.0 bps JP Morgan 28,265 SBPA 2006 A Daily VRDO Union 12/21/2015 40.0 bps Goldman 18,410 SBPA 2007 A Weekly VRDO State Street 3/1/2018 39.0 bps JP Morgan 137,875 SBPA 2008 B Weekly VRDO BMO 7/7/2017 27.5 bps Goldman 90,000 SBPA 2008 CP (Tax-Exempt - Hedged) Tax-Exempt CP BLB 11/30/2015 16.0 bps Goldman 22,000 LOC 2008 CP (Tax-Exempt - Unhedged Tax-Exempt CP BLB 11/30/2015 16.0 bps Goldman 40,000 LOC 2012 B* Daily VRDO JP Morgan 12/31/2014 50.0 bps JP Morgan 100,470 SBPA Taxable Commercial Paper Taxable CP State Street 8/28/2017 33.0 bps Goldman 25,000 LOC

*Renewal / replacement discussions ongoing

Liquidity Provider Credit Ratings

By the end of the year, GRU will have renewed or replaced the credit facilities associated with the 2007As, 2008Bs, 2012Bs as well as the Taxable CP at competitive fees with strong counterparties.

Counterparty Short Term (Moody's/S&P/Fi tch) Long Term (Moody's/S&P/Fi tch) Bank of Montreal P-1/A-1/F1+ Aa3/A+/AA- Bayerische Landesbank P-2/NR/F1+ A3/NR/A+ JP Morgan P-1/A-1/F1+ Aa3/A+/A+ State Street P-1/A-1+/F1+ Aa3/AA-/AA- SMBC P1/A1/F1 Aa3/A+/A- Union Bank P1/A1/F1 A2/A+/A Bank of New York Mellon P-1/A-1+/F1+ Aa2/AA-/AA- Suntrust P-2/A-2/F2 A3/BBB+/BBB+

REGULATORY AND SYSTEM UPDATES

33

GREC Update

34

• GREC

– Successfully integrated into generation mix/dispatch – First ten months of operation reflect an availability factor of 88.9% – Audit of administration of contract to be done as cooperative effort between Fuels Management and City Auditor’s office

Nuclear 4.8% Coal 36.5% Nat Gas 40.5% Oil 0.0% Landfill Gas 1.5% Solar 1.0% Biomass 2.0% Market 13.7%

FY 2013

Coal 55.2% Nat Gas 8.5% Landfill Gas 1.3% Solar 1.3% Biomass 30.4% Market 3.3%

FY 2015

Percent of MWhs for Net Energy for Load

Regulatory Update - Electric

Proactively Monitoring and Planning for Regulation

• April 2015 Mercury Air Toxin Standards (MATS)

– Deerhaven 2 (DH2) has demonstrated ability to meet the standards

• Clean Power Plan (CPP)

– Potential Impacts to GRU

• Evaluating impacts to DH2’s Useful Life
• Increased Production Cost
• Accelerate Solar

– Impacts Mitigated by GREC – GRU joining in industry responses to EPA

• Florida Municipal Electric Association (FMEA)
• Florida Electric Power Coordinating Group (FCG)

35

System Growth

• UF Discussions

– Operation of UF’s generation – Full Requirements electric service – Uninterruptible renewable power – Chilled water and steam optimization

• South Energy Center Expansion

– Phase 2 of Shands Cancer Hospital underway

• Estimated to add 800 well-paying jobs

– SEC expansion scheduled for completion in 2017 to support Phase 2 of hospital – Capital costs included in approved 2015/2016 budget

36

Wholesale Sales Optimizing System Capacity

• Alachua

– Ten Year Contract with reopener after five years – Discussions have begun though reopening period will not be reached until November 2015

• Winter Park

– Contract begins January 1, 2015 – 10 MW firm capacity and energy – Opted out of additional capacity

37

Regulatory Update - Water/Wastewater

Proactively Monitoring and Planning for Regulation

• Water System’s Consumptive Use Permit

renewed for 20 years

• Paynes Prairie

– Nutrient Reduction Project Complete in CY 2015

• Biosolids

– Dewatering will provide additional reuse options

38

City Commission Committed to GRU Financial Strength

• City Commission has adopted rates that continue to

increase GRU’s financial strength

• Financial metrics improved significantly in FY 2014 and

will remain strong through 2021

• GREC is fully integrated in GRU operations and financials
• GRU Management proactive in strategic long-term

planning

• GRU staff continues to increase operational efficiency
• Gainesville’s economy continues to grow

39

SUPPLEMENTAL INFORMATION

40

The Management Team has Extensive GRU and Utility Experience

Customers City Commission Ed Braddy Interim General Manager Kathy Viehe Interim Legal Interim Chief Interim Customer Water & Services Financial Officer Support Services Wastewater Systems and Information Technology Ron Herget Shayla McNeill David Richardson Bill Shepherd Energy Energy Interim Community Delivery Supply Relations and GRUCom David Beaulieu John Stanton Yvette Carter

41

Sales History and 2015 Forecast

42

500,000 1,000,000 1,500,000 2,000,000 2,500,000

Electric Sales (MWh)

5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000

Natural Gas Sales (Therms)

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000

Water Sales (Thousand Gallons)

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000

Wastewater Billings (Thousand Gallons)

A Highly Rated Diverse System with a Stable Customer Base

43

Historical Forecast FY2014 Base Rate Revenue Base Rate Revenue Customer Number of Sales Revenues Percent of Growth Rate Growth Rate Category Customers ($000)a Total Revenue FY2005-FY2014 FY2015 - FY2024c Total Electric 93,719 $128,444 59.0% 4.2% 0.93% Natural Gas 33,465 $12,978 6.0% 3.7% 0.38% Water 69,847 $29,804 13.7% 8.9% 0.82% Wastewater 63,001 $35,178 16.1% 8.1% 0.86% GRUComb 7,075 b $11,438 5.3% 3.3% 7.17% TOTAL $217,841 100.0%

• a. Excludes Fuel Adjustments and Embedded Fuel Costs
• b. Includes Telecomm, Internet, Tower Space Leasing & Trunking Radio Services
• c. GRUCom Revenue Forecast Horizon spans FY2015-FY2021

RATE COMPARES

44

Residential Electric

1,000 kWh October 2014

45

Residential Natural Gas

25 Therms October 2014

46

Residential Water

7 kGal October 2014

47

Residential Wastewater

7 kGal October 2014

48

Residential Basket of Services

October 2014

1,000 kWh of Electricity, 25 Therms of Gas, 7 kGal of Water, & 7 kGal of Wastewater

49

GSN Electric

1,500 kWh October 2014

50

GSD Electric

30,000 kWh – 75 kW October 2014

51

LP Electric

430,000 kWh – 1,000 kW October 2014

52

Commercial Natural Gas

300 Therms October 2014

53

Commercial Water

30 kGal October 2014

54

Commercial Wastewater

30 kGal October 2014

55