SNOHOMISH COUNTY PUBLIC UTILITY DISTRICT BOARD OF COMMISSIONERS REGULAR MEETING Everett Headquarters Building, 2320 California Street August 13, 2019 CONVENE REGULAR MEETING – 9:00 a.m. - Commission Meeting Room 1. CEO/GENERAL MANAGER BRIEFING AND STUDY SESSION A. Updates 1. Media 2. Community Engagement 3. Other B. Debt Management Opportunities C. Snohomish County PUD and Frontier Communications Inc., Joint Pole Agreement Extension D. Regional Planning Organization (RPO) Update E. North County and Modular Data Center Update RECONVENE REGULAR MEETING - 1:30 p.m. - Commission Meeting Room 2. RECOGNITION/DECLARATIONS A. Employee of the Month for August – Ramona Marino 3. COMMENTS FROM THE PUBLIC 4. CONSENT AGENDA A. Approval of Minutes for the Regular Meeting of July 23, 2019 B. Bid Awards, Professional Services Contracts and Amendments C. Consideration of Certification/Ratification and Approval of District Checks and Vouchers 5. PUBLIC HEARING AND ACTION A. Consideration of a Resolution Declaring Surplus an Option to Purchase the Historic Zahler Property held by Public Utility District No. 1 of Snohomish County, Approving the Assignment of the Option to the Mt. Index River Sites Community Club, Inc., and Approving Amendment No. 1 to the Cost Sharing Agreement Between the District and the Mt. Index River Sites Community Club, Inc. 6. ITEMS FOR INDIVIDUAL CONSIDERATION A. Consideration of a Motion Accepting the 2nd Quarter 2019 Financial Conditions and Activities the Monitoring Report B. Consideration of a Resolution Authorizing the CEO/General Manager to Execute an Amendment of an Easement Previously Granted Between the District and the State of Washington Department of Natural Resources as Part of an Exchange of Real Property in the Sultan Basin and Williamson Creek Areas C. Consideration of a Resolution Authorizing the CEO/General Manager or His Designee to Execute a Contract with the City of Seattle, City Light Department for Provision of Third Party Operating Reserve Services as Permitted Under the District’s Transmission Contract with Bonneville Power Administration Continued → 1/251 Snohomish County PUD Commission Agenda August 13, 2019 Page 2 D. Consideration of a Resolution Authorizing the Manager, Real Estate Services, to Execute an Easement Renewal of an Easement Previously Granted by the District in Favor of the City of Everett that Allows the City to Operate, Repair, and Maintain a Recreational Trail in a Portion of the Power Line Corridor Property of the District Commonly Known as the PNT Right-of-Way Located in the City of Everett, Snohomish County, Washington 7. COMMISSION BUSINESS A. Commission Reports B. Commission Broadcast Update 8. GOVERNANCE PLANNING A. Governance Planning Calendar ADJOURNMENT The next scheduled regular meeting is August 27, 2019 Agendas can be found in their entirety on the Snohomish County Public Utility District No. 1 web page at www.snopud.com. The public is invited to attend. Parking and meeting rooms are accessible for persons with disabilities. Contact the Commission Office at 425.783.8611 for special accommodations or additional information. 2/251 BUSINESS OF THE COMMISSION Meeting Date: August 13, 2019 Agenda Item: 1 TITLE: CEO/General Manager’s Briefing and Study Session SUBMITTED FOR: Briefing and Study Session CEO/General Manager John Haarlow 8473 Department Contact Extension Date of Previous Briefing: N/A Estimated Expenditure: Presentation Planned ACTION REQUIRED: Decision Preparation Incidental Monitoring Report Policy Discussion (Information) Policy Decision Statutory SUMMARY STATEMENT: Identify the relevant Board policies and impacts: Executive Limitations, EL-9, Communications and Support to the Board – the CEO/General Manager shall...marshal for the board as many...points of view, issues and options as needed for fully informed Board choices. List Attachments: CEO/General Manager’s Briefing and Study Session attachments 3/251 Debt Management Opportunities August 13, 2019 4/251 Briefing Objectives Series 2006 Water System Bonds Retirement Water System Cash Reserve Levels Series 2009 Water System Bonds Refinancing Generation System Bond Reserve Fund Recommendations Next Steps 2 5/251 Series 2006 Water System Bonds In May 2006 the Water System issued $6,795,000 of fixed rate, tax-exempt bonds There is currently $2,575,000 of 2006 WS bonds remaining The term of these bonds ends in 2026 The weighted average interest rate on these bonds is 4.26% In 2019, the Water System will pay $109,438 in interest on the 2006 WS bonds 3 6/251 Series 2006 Water System Bonds Investment Yields vs Cost of Debt At December 2018, the Water System Operating Reserve had a balance of $9.5 million. The June 2018 balance was $9.5 million Total interest income for the Water System in 2018 was $464,000, an effective investment yield of approximately 2.36% Based on the 2018 yield, the Water System will earn approximately $60,770 on $2,575,000 in investments in 2019 As a result, interest payments (4.26%) on the 2006 Bonds exceed the interest earned on cash reserves (2.36%) by nearly $50,000 It would be financially prudent to repay the high interest rate bonds if funds are available 4 7/251 Water System Cash Reserve Levels YTD 2014 2015 2016 2017 2018 2019 Operating Reserve $ 10,150 $ 12,999 $ 9,566 $ 9,446 $ 9,520 $ 9,503 Reserve Policy Target 1,872 1,908 2,011 2,144 2,148 2,365 Additional Funds $ 8,278 $ 11,091 $ 7,555 $ 7,302 $ 7,372 $ 7,138 In 2018, the Commission approved an updated Water System Reserve Policy that establishes an Operating Reserve policy target of 90 days of operating expenses (less purchased water expenses) Given the Water System’s strong cash reserve levels, it would be prudent to use the additional operating reserve funds to repay the 2006 Series bonds. 5 8/251 Series 2009 Water System Bonds Refinancing The Water System issued $13,085,000 of fixed rate, tax‐exempt bonds in November 2009 There is currently $9,270,000 of 2009 WS bonds remaining Since they are reaching ten years outstanding, they will be eligible to refinance on December 1, 2019 Interest rates have declined and are much lower than the current average interest rate of 4.28% the Water System is paying on the 2009 bonds Refinancing these bonds could achieve approximately $898,000, or 10.3% of net present value (NPV) savings at current interest rates Sensitivity analysis: . If interest rates rise 25 basis points (bps), NPV savings would be approximately $750,000 (8.6%) . If interest rates fall 25 bps, NPV savings would be approximately $1,050,000 (12.0%) 6 9/251 Generation System Bond Reserve Fund Bond covenants require that when the District sells bonds, we set aside a portion of the proceeds in a Debt Service Reserve Fund (DSRF) The DSRF funding level is determined based on the amount of outstanding bonds and the highest annual debt service payments In December 2019, the District will be making the final large principal payment on the Series 2010A Generation System bonds. In the subsequent five years, debt service payments will be substantially lower. This will also lower the Generation System DSRF requirement, from $12 million currently to $6.3 million, a decrease of $5.7 million 7 10/251 Generation System Reserve Fund The District has the option of using this $5.7 million of “freed‐up” DSRF funds for funding eligible capital expenditures or for the payment of principal on tax-exempt debt. We recommend that the most beneficial use of the funds would be the payment of principal on the Series GS 2010A bonds at the scheduled payment in December 2019. Since the Generation System would utilize the DSRF funds to make a portion of its 2019 Series GS 2010A bond payment in 2019, it would not have to collect funds from the Electric System for that payment That will lower the Electric System’s 2019 purchase power expenses by $5.7 million, helping to offset the impact of the high priced wholesale power market purchases in the 1st quarter of 2019 8 11/251 Recommendations Use Operating Reserves to retire the 2006 Water System Bonds Water System cash reserves are very strong Operating reserve will remain well above the 90 day reserve policy Transaction will save approximately $50,000/year Issue refunding bonds to refinance the 2009 Water System Bonds Current interest rates on tax-exempt bonds are much lower than in 2009 Transaction will have a net present value savings of almost $900,000 based on current interest rates Apply the excess DSRF to the 2019 principal payment on the 2010A Generation System Bonds 9 12/251 Next Steps Retire 2006 Water Bonds Work with Bond Counsel to prepare a “call” notice Establish Escrow/Trust Agreements if necessary Refund 2009 Water Bonds August - Evaluate underwriters/select bond counsel September - Prepare a preliminary Official Statement September/October - Meet with bond rating agencies October - Obtain Commission approval to circulate the preliminary Official Statement October/November – Price bonds/Commission considers approval of the Bond Purchase Agreement Utilize DSRF funds to pay a portion of the December 1, 2019 2010A Generation System bond 10 payment 13/251 Snohomish County PUD and Frontier Communications Inc., Joint Pole Agreement Extension By: Maureen “Moe” Nave Manager, Joint Use and Permits August 13, 2019 14/251 SNOHOMISH COUNTY PUD Background • The Snohomish County PUD has been joint owners with Frontier (formerly known as GTE and Verizon) since the 1950’s. • This is a 55% PUD/45% Frontier split for pole costs and other expenses, if applicable, per our agreement • We entered into our last agreement October 1, 2009, and have had two amendments: Amendment 1 in 2013- for Frontier to take back the pole removal process that was changed in 2009 from PUD removing the poles after Frontier transferred.