PUD Financial Planning Starts Early

10 Year Capital Investment Plan

The Executive Team Takes a Deep Dive Into Finances

The greatest risk to a utility like Northern Wasco County PUD doesn’t come from a wildfire or a hurricane; it comes when actions fail to line up with strategic planning, says Harvey Hall.

Hall, the PUD’s Chief Financial Officer, working with the executive team, is responsible for orchestrating the comprehensive financial planning that is intended to work in support of the strategic plan authorized by the PUD Board of Directors, and make sure the financial side of the PUD doesn’t drift away from the strategic goals.

The Board is scheduled to approve the final 2018 PUD operating budget at their Dec. 19 meeting. But the planning for this year’s decision started way back in May.

Over the past couple of years, the PUD has begun doing a much deeper analysis of its financial activities.

“We’re being much more granular in the way we do things,” Harvey says.

This detailed process is in line with industry standards.

The process includes three key plans: the long­term financial plan, the annual budget, and the capital improvement plan.

Long-term Financial Plan

In the long­term financial plan, the executive team projects the full range of financial needs of the PUD over a period of 10 years. Working together, they make their best assumptions about future financial conditions based on factors such as future cost of power, anticipated power load, staffing, equipment needs, changing technology, and many others.

One major factor is the cost of power from the Bonneville Power Administration. Bonneville is scheduled to increase its power rates in October 2017, which accounts for 70 percent of operating costs. In response, the PUD will conduct another cost-of-service analysis for the coming year.

PUD’s executives knew another increase was coming at the time of their last analysis and factored that into their long­term financial plan, but didn’t know how much the BPA increase was going to be. The new analysis will provide the plan with more accurate and detailed information to drive financial planning.

Throughout the summer, the executive team continued to adjust and fine-tune the assumptions of the plan until September when it went to the Board for review.

Capital Improvement Plan

The capital improvement plan looks at what kind of investments need to be made into long­term assets of the PUD. These are paid for in three different ways.

  1. Rate­-funded: These assets are usually smaller assets such as vehicles, power poles, and equipment replacement, and are paid for directly through rates, which have been accumulated into operating reserves.
  2. Customer­-funded: These are assets that directly serve the needs of individual customers and are paid for directly by those customers. One example would be a new transformer to serve a business’ increased need for power.
  3. Borrowing­-funded: These assets are usually larger, more costly assets with longer life­spans (exceeding the borrowing term) for which the PUD borrows money through bond financing. Examples include substations and hydropower plants. These kinds of projects are usually built by outside contractors because most of the PUD’s line staff is dedicated to other capital jobs and ongoing operation and maintenance work.

Like the long­term financial plan, the capital improvement plan spans 10 years, allowing the executive team to strategically plan how to spread out major spending over time and hopefully not be taken by surprise by a capital need. Also like the long­term plan, the team is regularly updating its assumptions and trying to anticipate major needs long before they arrive.

Each year’s capital spending is approved by the PUD Board in July of the previous year.

The Annual Budget

Both the long­term financial plan and capital improvement plan play key roles in developing the annual budget. The budget looks at income and expenditures for the coming year. Income includes both retail income from power sales to local PUD customers and wholesale income from sales to utilities of power generated at the PUD’s two hydropower facilities. Spending includes operations and maintenance costs, as well as capital spending.

The PUD has started taking a deeper look into not only how, but where it spends its money, Harvey says.

The budget is now divided by department, which allows department heads to better see where they may need to adjust their spending. For example, spending more on training now can ultimately save money in personnel costs later by assuring staff members are trained to perform multiple functions.

Refining of the PUD’s budget continues through the summer, and then starting in September, the PUD Board receives a monthly update and an opportunity to provide feedback on the ongoing budget process.

The Board receives the executive team’s final budget in November, then is scheduled to review and approve the budget at their Dec. 19 regular meeting.

Throughout the year, the Board gets monthly reports comparing actual spending with the budget, so that they are kept apprised of variances as they occur.

This “waterfall” of planning and tracking processes, as Harvey describes them, is based directly on the goals and objectives of the Board’s strategic plan. They provide for increased predictability and certainty, thereby minimizing the risk of going astray.

The PUD will hold a combined budget and rates workshop on Tuesday, November 14, at 6 P.M. in the Board Room at the district offices, 2345 River Road in The Dalles.