City officials are trumpeting praises for the Lodi Electric Utility, which they say has taken steps to regain financial health.
Rates are lower than other utilities, reserves are coming back up, long-term power needs have been met and officials hope to receive a new credit score to reflect the progress.
A survey by the Northern California Power Agency shows that Lodi's electric rates are on average 10 percent lower than Pacific Gas and Electric, which had three rate increases since Lodi's last rate hike, Utility Director George Morrow said.
City Manager Blair King and Morrow recently met in San Francisco with analysts from rating agencies Fitch Ratings and Standard and Poor's. They were hoping to increase the utility's credit rating.
Last year Fitch dropped the rating from BBB-plus to BBB-minus. Standard and Poor's gave the utility a negative credit outlook. A low credit rating can affect the price the utility pays for power and the cost can be passed on to ratepayers.
"Fitch dropped us two rating points and had their foot in the small of our back ready to push us off the cliff," King said. "We're in better financial shape now than where we were before Fitch downgraded us. We've done an awful lot and we needed to communicate what we've done."
King said the meetings with the rating agencies were positive, though he does not know how they will respond.
"I'm not going to predict at all where they are going to be," he said. "They didn't need to ask any pointed questions this time. What I would hope for is perhaps the negative credit outlook that both Fitch and Standard and Poor's have could be removed."
Fitch Ratings is reviewing the city's presentation but would not say if a change in rating was imminent, according to Hiran Cantu, a Fitch analyst who deals with Lodi.
• March 7, 2007, invested $1.9 million in a new power plant to lock in long term power needs.
• Feb. 7, 2007, reduced transfer to General Fund from 12 percent to formula-generated level of about 10 percent.
• Feb. 7, 2007, charged new development outside current city limits with paying for new transmission lines.
• Feb. 7, 2007, decided to sell land appraised at $2.5 million to add to reserves.
• Feb. 5, 2007, contracted for three year's worth of baseload power, covering the city until new power plant comes online.
• Jan. 18, 2007, created a reserve policy, which set reserve target of $12.9 million.
- News-Sentinel staff
"We take new developments into consideration to keep ratings current," Cantu said.
Morrow will present the utility's quarterly update to the City Council Wednesday, which will include some of the elements presented to the rating agencies such as steps the utility has taken to bolster reserves while keeping rates lower than PG&E.
"Things are moving forward for the utility," Morrow said.
The city paid $760,000 less for power than budgeted in the first half of the fiscal year ending Dec. 31. Other utility costs were down by $1.1 million.
"It looks like we are going to be positive to the tune of a couple of million dollars," Morrow said. "The market was a little better than what was projected. It could turn on us in the second half of the year."
Morrow said a low snow pack in the Sierra Nevada could cause the price of hydro-electric power to rise in the spring.
The city established a reserve policy for the utility and reduced the amount of money it takes from the utility. The policy sets the utility's target reserve level at $12.9 million. The utility currently has less than $4 million in reserve. The payment in lieu of tax transfer from the utility to the city's General Fund was reduced from a flat 12 percent to a formula-generated level of about 10 percent, or $6.8 million.
The utility also took steps to lock in its future power needs. In the past, the utility had large open power positions, which it filled by risky spot market speculation. The utility bought 25 megawatts of baseload power for three years. In 2010, when the contract expires, officials hope a new power plant, which Lodi has invested $1.9 million dollars in, will come online, providing the city with 30 megawatts of baseload power.
Councilman Larry Hansen said Morrow has done a good job of turning the utility around.
"George is doing an excellent job," Hansen said. "Our reserves are building back up. We are absolutely turning this thing around. Compared to where we were one year ago, we have really worked hard to get the utility back to where it should be."