Okay you're on. It is nine o'clock and it's Monday November 9th 2020. We have a virtual
forum so we'll begin the meeting of the Public Utilities Board for the City of Denton. The
first item is the consent agenda. Does any board member wish to pull an item? I do. Okay
Russ? I'd like to pull item C as in China. Okay and Billy I saw your hand up. A is an
apple. Any other board members wishing to pull? All right and do we have a motion to
approve items B, D, E, F, and G? So moved. This is Charlie. Do we have a second? Looks
like Ed is seconding. Is that correct Ed? Yes it is. Thank you. And all in favor say
aye. Aye. Opposed? That carries. Item A. Let's do that one first. I'd just like an explanation
is all. I don't understand why they were rejected honestly. So Billy this is Tony. We have Jerry
coming up here with DME but I can tell you that part of the reason we're rejecting that
is that you know with the decision to not construct that facility on that property we
were required by state law to give the previous owner an opportunity to repurchase that and
so we didn't want to move forward with demolishing those buildings and potentially impacting the
value of that property. If after six months you know the previous owner decides not to
purchase the property then we'll go ahead and move forward with rebidding that and coming
back and demolishing those structures and then having discussion with the PUB and with
the council on what to do with the property. Okay so Jerry's on here. I don't know if Jerry
has anything else to add. You're on mute. I saw you shake your head. Pretty much covers
it. Thank you. Okay well there's no more questions that I move approval. All in favor say aye.
Aye. Item C as in China. Yes my question on this item C and item D were both for Schweitzer
instrumentation and my question on C is I think this is only for fabrication of the
steel cabinets in which items on the and C on excuse me on D are going to be installed.
Is that correct? That is correct. Okay are all of the four bids that you received for
item C will they accept the Schweitzer electrical components? Since they're custom built to
that that they'll build them to the Schweitzer components? Okay so if they will all accept
that in looking at this the lowest price was what was recommended $230,000 for building
these steel cabinets in Mexico. The lowest price American fabrication was $7,000 more
than that. So instead of $230,000 we would spend $237,000 to get them made in the USA
correct? Yes sir. In my opinion we should support American workers and the difference
between $230,000 and $237,000 is three percent approximately and in the overall scheme of
things I think it's it's worthwhile to pay a little bit more to support American workers
in fabricating these cabinets. So I would recommend we rethink that recommendation and
I would recommend we go with an American source there. You're basically your number two guy
on the on the list. Yes sir I mean we chose the the least expensive option. I understand
I understand that and if it was my money personally I would spend the extra $7,000 if I was looking
to spend that much money anyway. $237,000 as opposed to $230,000. I think it's worth
a small premium to support American workers. That's that's my opinion. Thank you. And
I'm going to look at Larry to see if Larry can you know is able to weigh in on this for
us but I will tell you I think the the the state statute does you know prohibit the city
doing business with certain countries I don't think Mexico is one of them there's also reciprocity
at times between states that that you can use when you're doing bids. In this particular
case I don't believe unless Larry knows any different that that we would be you know I
think we would be prohibited to award this to anyone else other than the lowest responsive
and qualified bidder and so I don't think I mean well I appreciate your your comments.
I'm not sure that from a state law perspective there's anything that we can do here other
than to award to to to the lowest qualified bidder or to reject all bids and then go back
out or re-bid it. Thank you for that Tony because I was going to ask the same question
Larry is that that's correct. I agree and if it if it's pleasure of the PUB to have
us look at different alternatives on how to acquire purchases and different things y'all
want to consider in what's going out for bid we can we can consider that and if we it if
you want us to come back and discuss that more detail we can do that as well. The matter
this one went out I mean it doesn't allow us to the PUB to do anything other than what
Tony just suggested. Well and one quick correction that David just brought to my attention so
this was done as an RFP so it wasn't done as the low bid meets qualifications but again
I think in this particular case at this point really the only thing you can do is to reject
all the proposals and then start again although you won't necessarily be able to put in a
requirement that they have to be manufactured in in the U.S. Now I'll tell you there are
some federal grants that do require by America but in this particular case there there's
that this is not a grant and so those things would just not be allowed. So was price the
only consideration on the RFP? No there was other there was other other components I don't
have those in front of me. So we do have we do have Christine Taylor on on the phone she
can address that if you'd like. Yes the other the other categories considered for this RFP
were the price total cost which was 50 percent of the evaluation project delivery was 15
percent compliance with the specifications was 25 percent and then probable performance
of the grant as well. Yeah I didn't catch that I'm glad you pointed that out. I think
those other factors one of them wasn't by part of by America maybe that's a philosophy
that the council needs to take up and we could suggest that. Yes I think I think without
a policy like that in place we kind of have to go with the current rules. Correct I agree
with you Karen. And I agree with Billy that that might be something council could consider.
I'd like us to add that if we could if you guys are willing. To add that as a recommendation
Billy. Yes. Okay purchasing can definitely look into that as a future requirement or
a category that can score additional points for evaluation. We all say at the same time.
All right any further discussion. Have a motion to approve item C. So moved. Do we have a
second. Second. Thank you Ed. All in favor say aye. Aye. Opposed. Opposed. I guess I'm
curious because I yeah just want to raise to make sure it's it's point out I think that
way we know it has to be approved if they want to purchase it under his current form.
And Susan just to clarify so Charlie did you abstain on that vote. I didn't hear you say.
I was thinking I was on mute so I just waved to the I will go down as I. Okay so 14 okay.
I'm an I. Karen's an I. Charlie's an I. Ed's an I. And Billy and Russard no. Correct that's
correct. Okay. For two. All right. Thank you. Next item is consider approval of the October
26 2020 minutes. Are there any changes or corrections. Okay do we have a motion to approve the minutes.
So moved. Thank you. And a second. Second. All in favor say aye. Aye. Motion carries.
Item B. Consider recommending adoption of an ordinance city of debt in Texas authorizing
the expenditure of funds for the payment of wholesale transmission charges in the total
amount of seven million one hundred and eighty one thousand thirty nine dollars and seventy
three cents and providing an effective date. Good morning chair. P.B. members Nick Benson
assistant director of finance let me get the presentation pulled up really quick. All right.
So a couple of slides to review the transmission charges for didn't municipal electric each
year through the approval process we do bring this forward to the public utility board and
city council. What this does is authorizes us to pay other transmission service providers
for DME share of transmission assets. And says that this item is for approximately seven
point two million. Listed in this chart are the entities of the service providers that
will be making these payments to on a monthly basis. So the first one you can see cross
Texas transmission of four hundred thousand. Moving down the row you can see encore NTU
for one point two and then total seven point two million. So we want to do is give you
a little bit of history of payments that have been made in the past. We broke it into two
different categories those from zero to fifty thousand and then those fifty thousand and
over. It is important to note anything between zero and fifty thousand or under fifty thousand
is approved by staff. These do not come forward to the public utility board or city council
for approval. Some of these you can see your wood county electric cooperative for fifteen
hundred dollars for example and you see Grayson calling electric cooperative for seventy two
hundred. So last fiscal year nineteen twenty we paid about twenty seven thousand seven
hundred dollars in those transmission payments to entities below fifty thousand. What we
wanted to show you was really what was the amount we paid over fifty thousand to each
one of these entities that are in front of you today. So you see cross Texas transmission
of three hundred seventy thousand and you can see encore for a million eighty thousand
and then moving down you can see the total of six point five million. So we're a little
bit under that seven million dollar threshold that we are seeking your approval for today
but these were the actuals for nineteen twenty. With that I will take any questions you have.
I have a question on the can you go put the slide back up you had right before the question
slide. Hang on just a second. Oh okay. Yeah. That one the the entities in the right column
how many of those are investor owned entities. Do you know. No sir I don't know that. I'm
Terry Terry or naughty is present today that may can address that question but you don't
have that on the top of my head. I recognize Texas municipal public municipal power agency
that's a four owned by four cities and then the lower Colorado River Authority that's
also somewhat of a public thing. I'm not familiar with the other companies listed. I believe
that Texas TNPA and lower Colorado are probably the only local governments if you will the
other ones should be investor owned utilities. Okay. That was my only question. Okay. Yes
go ahead. This is I'm just curious as to with something like if in the future if the city
had more distributed energy resources like solar its own solar or battery storage would
that reduce these expenses. Let me Terry now he's going to come up and address that question
and Mr. Salf hang on just a second. Thanks. Morning QB Terry Nolte assistant general manager
DME. Yes the installation of small distributed generation such as rooftop solar does reduce
our total transmission cost because it lowers our it's called the four coincident peak exposures.
These charges are based upon the four hourly coincident peaks on each year. So it's calculated
actually one year in arrears. So to the extent that more solar rooftop would be on our percentage
of total demand for the total ERCOT system would drop. Okay. Thanks very much. Did anybody
else have a question. All right. We have a motion to approve item B. So we approve Russell
move change me to second. Okay. All in favor say aye. Aye. Opposed. Okay. Next item is
consider recommending the adoption of an ordinance of the city of Denton a Texas home real municipal
corporation authorizing the city manager or his designee to execute a contract with rush
truck centers of Texas LP through the buy board cooperative purchasing network contract
number 601 dash 19 for the purchase of Peterbilt trucks for the various city departments providing
for the expenditure funds therefore in providing effective dates in the five year not to exceed
amount of 20 million dollars morning chair members of the board Terry cater fleet superintendent
if the presentation pulls up here momentarily figure out how to do that.
There we go. This contract is for the purchase of Peterbilt trucks through rush truck centers.
Just a little background on rush truck. If you're not familiar there are the authorized
distributor of new Peterbilt products for the state of Texas. They've been around since
1965. They have a large presence in Texas as you can imagine with 23 locations and the
near service centers to us are Irving and Fort Worth. We typically use the Irving service
center. We use them currently for repairs and warranty work. They also have a support
center called custom vehicle solutions right here in Denton next to the Peterbilt manufacturing
facility that we also can access. It's a very nearby facility. They've been in business
since 2011 and they're just a support system for both the plant and rush truck centers
and a little bit about Peterbilt motors. Most of you probably know more about the history
of this company than I do. They opened their plant here in Denton in 1980 brought their
headquarters in in 1993. They currently have more than 1500 employees and they produce
about 100 and they have the capacity to produce about 130 trucks per day and you can see the
total production this year. A little bit about the city's Peterbilt inventory. We currently
run about 125 Peterbilt trucks of various models and makes with various vocational bodies
on them and you can see Solid Waste is one of the largest users of the Peterbilt truck
product. We use them in all lines of their operation from front load trucks to automated
side loads to rear loaders to roll offs and commercial side loads as well. So all different
locations there. You can see the public works department uses a number of their trucks.
These are primarily going to be dump trucks on the bodies on these trucks as well as the
water department and we have a few miscellaneous other applications water trucks and some specialty
items as well. A little bit on the purchase history. This is from 2016 to 2020. We you
could say we average about 13 trucks a year. We had a really low year in 2016. If you took
that out the average is going to be up around 14. This year for 2021 is not in this chart
but I think it is in the AIS. We're planning on purchasing 16 trucks that are all capable
of being put on a Peterbilt chassis if we so desired to do that. The average annual
spend here is right around three million dollars over the past. I think this year we're looking
at about 3.7 for the 16 trucks that we have planned. 14 of those are fleet replacements
and two of those are fleet additions for this current year. Just want to put a slide in
here to show you a little bit about Peterbilt's future of trucks and they are working on some
electric models. They have them under development right now. They are in limited production
and they have three different models, a 220, a 520, and a 567. The 520 pictured here is
the workhorse for a refuse fleet primarily and it has an 80 mile range. Of course the
advantage is reduced maintenance cost and zero emissions but there are a lot of factors
to consider and fleet is considering this whenever we have a truck up for replacement.
Is there an application that fits the operational need of the department? How reliable is that
application? Has it been tested? And of course cost is another factor. We know these trucks
are going to be expensive at first and I think one of the reasons for limited production
as production schedules increase the price will go down on these trucks and currently
I'm working with a Peterbilt plant to partnership with them on getting one of these 520s in
service here in Denton if we can work out an agreement where we wouldn't have to purchase
100% of the price of that truck. I think it would be a win-win for the plant as well as
fleet in the city. So they would give us a test. Of course these trucks have been vetted.
They've been run extensively out on the west coast. Of course they have a little different
operation out there and that's why we want to make sure that they would work for any
of our applications before we just jumped in and purchased them.
The benefits of the contract as with anything when you standardized you're reducing your
part stocking. It's just more efficient. Training is more efficient. Diagnostic software and
specialty tools and the procurement savings are reduced staff time. We get faster delivery
from planning to delivery when we have a contract already in place. Current buy board contract
has already been bid at 601-19 and that is for the base model trucks on all of these
applications. I'd be happy to try to answer any questions you might have.
Terry I assume that the actual when it comes down to replacing each individual vehicle
you would go through the same index calculation that you used in the past on whether something
is needs to be replaced. Makes sense to be replaced. Is that right?
That's true and that's why it's really hard to predict the future. I use the history of
our truck replacements. It's hard to predict the future because we do that each and every
replacement to make sure that it really needs to be replaced and then look at the application
and see what does it need to be replaced with.
I assume the 80 mile capacity for one of these trucks compared to the 200 mile capacity.
I assume the bigger the truck the shorter the range. Is that right?
That's part of it. I think the other is the application the vocational body that's attached
to that truck. In this case we're looking at a 66,000 pound refuse truck that's going
to consume power starting to stop at a greater rate than some of the other applications.
Ed I think you got your hand up.
Yeah I was just curious if there was an opportunity here to add to the city's hybrid fleet. I
don't know if Peterbilt's still building their hybrids but if they were if that were a consideration.
Well I did check into that sir. They currently are not producing any hybrid trucks. I think
their focus has been on all electric. We did run some of their hybrids in the past. Now
they do have some outside companies that are making an add-on system to convert a Peterbilt
truck or any other manufacturer to a hybrid drive system but we haven't really looked
into what those we are looking into it but I haven't gotten any information on what that
system consists of and how much it actually improves the operation of the truck.
Thank you. Other questions? All right do we have a motion to approve? Move for approval.
Second. Okay we'll give that one to Karen. All in favor say aye. Aye. Closed. All right
thank you Terry. Thank you very much. All right management reports. So management reports
we do have a couple of memos that went out to you from our solid waste department. Brian
Borner is here if you have any questions regarding the relocation or the status of the relocation
of the North Lake Recycling Center and also regarding outside waste haulers. So if there
are any questions regarding those Brian is here and can can respond to you. Go ahead
Ed. Yeah first of all thank you for the response regarding 90 percent of the city's serviced
have curbside recycling or recycling collection sites. My question is which cities comprise
the 10 percent that don't have those services and who are the haulers who are bringing in
those cities garbage to the land? I do not have that information at my fingertips right
now but I can provide that at later date. What I can tell you is that those are communities
that are very isolated very small in the fringes of the North Texas and DFW areas. One that
does come to mind is the city of Bridgeport. It does not have a curbside or centralized
recycling program. Okay I'd appreciate the information thank you. Thank you. Okay if
no other questions on on the memos I want to go through the future agenda items. They
have one correction on here for the the utility budgets and rate discussions. I know the council
did redo their schedule and so so that we can keep things pretty much in line with that
we're going to push that budget discussion rate discussion to to January and and that
way we can as soon as we get have that presentation with POB we can get in front of the council
so that'll be the only change on that and then we did have a couple of items for you
on the new business action matrix. We're gonna you know as you're asking questions and making
requests we're gonna make sure we get these on here as quickly as we can but there we
do have three items on here and we still have them for TDB but but we did add them mostly
related to the solid waste. So and then one of the item that I that I have for you is
a follow-up I'll turn it over to Larry we do want to provide some clarification on recusals
on consent agenda items. There was a follow-up from the last meeting so I'll just turn over
to Larry he can explain kind of what that process is for you. As the members know in
the past when we would meet in person you'd you'd fill out a form when you're recusing
from a vote and we'd like to we need to get back to doing that in a virtual setting and
so we're gonna be establishing a procedure to do that by email so if when you review
the agenda ahead of the meeting if you would let Kim know which you're gonna what what
items you're gonna be recusing from or abstaining from that we could document that and I'll
give you the language to be able to put the email on that. Thank you. Susan that wraps
up unless there's any other questions on management update. Okay that brings us to concluding
items does any board member wish to have something added to a future agenda item or maybe the
discussion or that we had earlier about the buy America. Okay yeah I agree that makes
sense. That's that's something I think the council should take a serious look at. Anything
else all right let's move into work session receive a report and hold a discussion and
give staff direction regarding the implementation of a hundred million utility system extendable
commercial paper program. Good morning everyone David Gaines assistant city manager let me
pull the presentation up. So this this presentation is gonna it will discuss the possible extended
commercial paper program to help man as a tool to help manage our utilities capital
program. The presentation is fairly detailed so I'll try to get through it as quick as
I can but I will say we have our financial advisors in our bond council on the line so
if there are any specific questions as we go through this I think we're in good hands
to answer those. So I'll start off here and then start to describe what this program is
and how it could be a tool for us as we manage our capital program. The history of our commercial
paper program really goes back to the beginning of this fiscal year or this calendar year
and follow up to our to the bond program that was passed by the voters last November. The
obviously as you all know are the bond the bond election November approved the largest
bond program in the city's history and so as part of that as we looked at how can we
manage the the debt issuance and in conjunction with that program and really try to manage
the tax rate implications and everything associated we we went to council and council ultimately
approved a commercial paper program which I'll go through in detail of what it is but
intended to issue debt in accordance with cash flow as opposed to issuing debt so that
we have funds available for contracts as we as we move forward with the bond program.
By doing that it's really allowed us to flatten out the tax rate increases and not sit on
unused bond funds so that's where that's that's the history of how we've used the programs
thus far on the general government side and so as it's been successful and as we've seen
how it's implemented we step back and to really see how it would make a lot of sense to do
the same thing on the utility side so that we could again help manage our cash flow our
debt issuance on the utility side try to avoid any rate increases sooner than necessary and
match our debt issuance with our commercial paper with our capital program so as I go
through the presentation that's really the backdrop to why we looked at this tool for
the utility system so again there's that that background on when council initially approved
in April the program from the general government side for the bond program.
So you know I mentioned the debt schedules and how and how this this tool ends up helping
and really it comes down to the appropriation authority state law requires that before we
enter into any contract we have to have the money available for that contract so without
it without without this program that we're putting forward today we would have to issue
all those funds up front again before we could enter into any contract this is the tool that
allows us to match it more with cash flow you know we have that potential to build up
balances on beyond unused funds and it could lead to accelerated rate increases so I want
to draw out exactly what that could look like with a with a potential example coming up
here in a few years obviously one of our largest projects on the utility side the largest project
over the next five to ten years would be our water the water treatment plant so as we look
at that let's say this is again this is our traditional example how we would handle things
right now with all the tools that we currently have in place let's say we have to issue our
initial debt for that large project in FY 27 we would issue the entire we would take
out that for the entire 85 million for that project in the in the first year again with
some assumptions for just for ease of example for all those contracts that we would have
to enter into that project obviously is going to last multiple years so we would be taking
out all those funds in the first year while knowing that we're not going to spend all
those funds on a cash flow basis over three years so as I get more into the tool here
in the next couple of slides that's really is intended to match that so we don't have
to take out that entire 85 million in this example and sit on multiple tens of millions
of dollars for a number of years that aren't necessary at the time so now I'll get into
what is commercial paper and how can this be a tool for us commercial paper short-term
notes with a maximum maturity of 270 days it's obviously opposed to the long-term debt
that we normally issue commercial paper is typically used as interim financing with the
proceeds used for the same types of capital projects so this would really be tied to our
utility capital program you see that there in a third bullet any project that we would
use commercial paper for would be authorized in our capital program through the budget
annual budget process.
The commercial program is revolving and that means that we can appropriate or issue the
notes to repay or reappropriate up to an authorized maximum of the program which that's a hundred
million hundred million dollars in the program that we're putting forward so that would be
the max that we could use commercial paper for or use for appropriation purposes.
So we have a chart here in a moment that will help lay this out but if we were going to
take out a 270-day commercial paper program in the traditional sense we would have that
short-term financing for 270 days and then at the end of that 270 days we would even
pay it off for cash we would refinance it with long-term bonds or we would roll it over
to another short-term vehicle that it's important to lay out exactly how commercial paper works
if we were going to issue the the funds themselves but I think this last point is is the most
important for how we plan on actually using the commercial paper contracts approved using
appropriation authority provided by commercial paper will obligate your council to issue
debt so we don't plan our plan is not to actually issue the commercial paper issue this short-term
financing for projects as we lay out our capital plan our plan is to use the appropriation
authority that comes with commercial paper so that we can issue long-term debt in association
with associated with the cash flow and again I have we have a couple of table the charts
and in the next few slides that hopefully will help articulate that better and obviously
can answer any questions as we move forward so what are the benefits of this commercial
paper program of this short-term financing you have immediate access to funds within
one and one to two days you you get that appropriation authority without actually having to issue
notes again that is our our goal with this program as we move forward it is commercial
paper is one of the lowest short-term interest programs with you have some of the lowest
short-term interest rates of other short-term financing vehicles you avoid that negative
interest carry associated with long-term bonds as those years go out and the debt issuance
can more closely align with project timelines again just re-emphasizing the whole goal of
this is to tie our debt our debt financing with our cash flow so let's lay out an example
of how we would use commercial paper we obviously looked at an example previously of in our
current program we would have to issue the entire eighty five million dollars for the
water treatment plant in FY27 despite the fact that we wouldn't spend all those funds
in the first year so this is an example of how we could use the appropriation authority
that comes with commercial paper again without actually issuing the commercial paper we get
the appropriation authority to line that to line up our debt issuance issuance with cash
flow so in this example in FY27 instead of issuing 85 million for all those contracts
we just issued 15 million in FY27 based on the cash flow we would expect in that fiscal
year FY28 we would issue 50 million based on cash flow expected in FY28 and then FY29
issued 20 million for the cash flow expected in that fiscal year again not even issuing
the short-term notes as we talked forward to the previous slides but it's using the
appropriation authority that comes with commercial paper so what does that look like and what
is the goal of this and there's these tables are very basic and there's a number of assumptions
in them but just for for clarity want to show what this means as far as debt service debt
service goes so if you look at our the top table there this just lays out what we saw
what we saw in our two examples the first one would be we issue that entire 85 million
in FY27 and you can see over three years we're issuing 85 million in the second row we're
issuing 85 million over three years but again we're spreading that out over the three fiscal
years to align with cash flow on the bottom table this is just showing our increase in
debt service and just for this example we're assuming we have the same interest rates over
three years that would not be in reality what would happen obviously but i think it just
helps to add as much clarity as we can it's what the benefits of this program are so in
our traditional issuance we would have by issuing all that 85 up front our debt service
associated with that would be roughly six million dollars so we would increase in six
million dollars in our debt service payments in FY27 wouldn't see an increase in FY28 and
29 obviously that six million would just carry forward in those future years over three years
our total would increase six million dollars in debt service payments by using commercial
paper we're just able to spread that increase out so what you see on that second row on
the bottom table are just the increases in debt service obviously they carry forward
but we're able to level out those increases over those first three years where by FY30
we're in the same spot again this is just assuming interest rates stay flat in the same
spot with our debt service increase but we're able to level that out now if we saw this
all the way out to the end of the debt 20 to 30 years depending on the term at the end
we would have those additional payments on the last couple of years because of the way
we're doing this but it allows it to align more closely with cash flow quick question
before we leave that page that last page explain to me on the issuance you show the six point
nine million in year one zero in year two zero in year three zero in year four can you
this is probably a rookie question but what is it that causes the debt service to be zero
after we've entered issued 85 million in debt yeah that that that table was intended just
to show the increase so in FY27 we have an increase of six million and FY28 it would
just carry forward that six million would be there in those in those out years but for
that table I was just trying to show what the year-over-year increase would be to show
that in after three years you're going to be in the same spot you're going to have increased
six million in total in both scenarios so that table wasn't it you could there's a way
you could show that table as a six million over in each year because that six million
is going to carry forward but the purpose of that you're showing the increase each year
and yeah yeah thank you no problem any other questions at this point all right we'll proceed
so what is the issuance process for commercial paper well you start with determining the
cash flow needs obviously and that's going to be aligned with our commercial with our
capital program and then we contact our commercial paper dealer in advance to talk to what is
the size what is the link that we need for the program and then once all once our notes
are sold then we wire the paying agent this is all if we were to actually issue the commercial
paper which again is not our intent with the program but it the ability to issue the the
notes is what allows us to use it for appropriation authority you would then wire the paying agent
the paying agent then wires the money to the city account city of account so when the notes
mature after this is again on this is a traditional commercial paper program I'm going to show
a variant of this in the next couple of slides you get to the end of your you take out these
short-term notes for whatever amount at the end of the 270 days you either roll the roll
it over to another short-term commercial paper or you issue the long-term debt to pay that
pay that amount off just as you would with our regular capital program and it would you
know talk a little bit more about some other options with that as well so now I'm going
to go into the variant which of that which is what we're proposing right now and it's
called extendable commercial paper this is what city council approved for the bond program
commercial paper that we mentioned earlier and a little bit different and you can see
it here with our timeline what extendable commercial paper does is allows us to not
have to have additional liquidity associated with with the regular commercial paper program
so in the commercial paper program we have to have a liquidity function for the 200 if
we're actually going to take the funds out for those 270 days in that program we would
have to go to a bank get a letter of credit get a direct note or some other hybrid liquidity
and pay cost so that we have someone backing us up as we go into it extendable commercial
paper we do not have to have to have have to have that same liquidity liquidity facility
and essentially we're backing it with our own cash flow so the way that this works is
a little structured a little bit differently where if we were again this is all under the
assumption that we would actually take these notes out which is not our plan but we want
to be as transparent as possible what this program is if we're going to take it in the
extendable commercial paper program we were to take out those notes we would have an initial
rate for 90 days once if we had not either rolled that roll those funds over or paid
them back with long-term debt after 90 days there would be a reset rate which would increase
that initial rate slightly or to some extent for the remaining 180 days to hit the 270
day period so we prefer this option in this extendable commercial paper program because
of so we don't have that essentially we don't have to have that additional liquidity facility
we don't have to have that letter of credit from a bank as an example to back up any of
those funds that we take out so okay in this option after really once you hit that 90 days
you wouldn't want to hit the reset rate so it really just shortens your time scale to
90 days from the 270 days in a regular commercial paper program as we would approach if we were
going to issue take off the notes as we were approached as 90 days that's when we would
either issue long-term debt to pay them back use cash flow use it some other make or roll
forward with another program at that time so I think once we get through a couple more
slides we can answer any any default questions on this and again we have our financial advisors
and bond counsel available so I know this is a lot of information that we're that we're
putting out right now so just kind of step back what are the benefits drawbacks and considerations
of of this external commercial paper program that we're putting forward extendable versus
commercial paper program it's the same benefits as a commercial paper program we talked about
earlier before cash flow for appropriation purposes but you don't have to have that additional
cost for liquidity support we have more financial flexibility and then the program can be in
place for up to 20 years the the drawbacks the the program itself is relatively new there
are a number of cities that have done it we already we obviously did it earlier this year
but there aren't the buyer base isn't that large just a few dealers that are in the market
and you can see those listed there we've already actually already moved forward with a dealer
on this program and the ratings the tax exemptor ratings can the rates themselves on an ECP
on extendable commercial paper can be slightly higher than on commercial paper but you also
don't have that additional cost for the liquidity facility so weighing those together really
think the benefits outweigh the drawbacks there the bar market access can be access
access can be a key credit driver free CP you know we obviously go through our ratings
process we're already in the process of going through ratings for this program in advance
of any action that we would take and and they need to have the comfort that we can essentially
have the comfort that as we hit that 90 days or whatever term that we're able to go out
to the market and and issue the long-term debt to finance which obviously is not not
a concern right now from anyone so what is the timeline for the the utilities extendable
commercial labor program what this month we were selecting the dealer the pay paying agent
for the program and then sending out our draft draft documents to our working group presenting
that was last month in November we are presenting this to the to the pub and then December ultimately
have pub and city council approve approve the program itself so we bring this back as
an action item for pub for recommendation for approval and then take it forward to city
council in December and go through our rating ratings process ultimately looking to close
on the program in January 2021. So staff does recommend to move forward with this program
and just to kind of wrap it up with so I know there's a lot of information here with some
of the bullet points this really a tool for us to to tie our our capital programs to cash
flow our intent going in and I can't really see any situations especially on the utility
side where we'd actually issue the notes really becomes a tool for us for appropriation purposes
but the way that we're able to get the appropriation authority is by having the program in place
so that we could access those funds on a very short timeline just one or two days if the
need need arise so at this point I'll take the presentation down I'm here for any questions
and we have a number of resources for questions as well and I hope this was as clear and concise
as it could be thank you okay I have several questions I'm certainly no financial expert
this is kind of out of my comfort zone here but I know a little bit about math and if
I think I saw in your presentation that in order to have a hundred million dollar authority
we would pay city of Denton would pay a five point which means five percent which is five
million dollar premium is that true no we wouldn't pay a five million dollar premium
but let me allow see if more of our financial advisors have any input on that question this
is Mara Alexander with Hilltop securities there's not a premium associated with the
program there's an upfront cost of issuance just transaction costs to set up the program
yes and I'm not sure where the five million dollars coming from well this one of the slides
said a three point to five point uh cost associated with the basis point okay which means what
translate that for the lay people yeah jump so that slide is really talking about with
the we were talking about the difference between the extendable commercial paper and commercial
paper yes bendable commercial paper the interest rate that you're going to pay yes just slightly
higher than the interest rate you would pay with commercial paper so um so basis point
kind of one point oh five versus one point oh eight something like that they all on the
interest rate that you would pay so it's just kind of that decimal point okay so ten thousand
ten thousand to fifty thousand on one hundred million would be the difference in additional
rate okay I see I got it one other thing I think I think I heard you say that authorizing
this avoids the requirement for having the ability to repay the borrowed money is that
true you you would have it doesn't avoid you know you know the one of the appealing things
about this setup is you don't have to prove that you can repay the note is that right
based on your revenue based on your income right so um so you do have to repay it um
so I think I think the benefit is a little bit different in what I was trying to articulate
was when you enter into a contract you're going to enter into a contract that's 20 million
dollars right now we have to have 20 million dollars in the bank sitting there to say we're
going to enter into this contract what this tool allows us to do is to enter into that
contract without having 20 million in the bank because we have this tool that we can
access that money very quickly so that's the difference is this tool gives us it gives
us the appropriation authority to enter in the contract despite us not actually having
issued the debt up front for the entirety of that 20 million so in that example say
we're going to enter into a 20 million dollar contract but we're only going to spend 10
million this fiscal year we would just issue 10 million this year knowing we're going to
issue another 10 million next year to line up more closely with cash flows if that answers
your question okay and I think I saw I forget which slide it was uh four or five big banks
that basically would fund this activity on short notice correct well we would enter into
the we would enter into the program with them immediately at the onset of the program and
then they would be with us throughout um throughout the time period but yeah I really wanted to
just point out there's only it's a just a small market right now um but what we have
no issue um we had we had plenty of interest in the program itself so so so for us to clarify
that so there's only I think four banks that David has identified that are actually in
this market but if a if if the pub and the council approve this we will enter into an
agreement with one of those banks and then and then it would be ready for us to pull
the trigger if we need to issue it directly with that bank not with the other three would
be with one specific bank right right and then if for some reason Denton is unable to
pay for the uh these notes uh I think you said somewhere that you would turn around
we could then could turn around and issue another bond to pay for the previous loan
is that right yeah if we have I mean if we were gonna um if we ever were gonna actually
issue the notes our intent all along would be especially with the because we'd be doing
these large capital projects for this would be to issue long-term 20 year 30 year uh debt
to pay that back just as we would plan for and I'll cat or any of our capital programs
so that would definitely be there that's how we would ultimately pay back anything that
we took out on this kind of short-term tool um this function for commercial paper yeah
like a lot of credit right and that's really where the extended whole piece comes in is
we're backing it ourselves instead of going out and getting a line of credit separately
we're just saying we can back this ourselves can we go back to the timeline um used I think
you said in December you're going to be asking for approval we are and um you know as I had
this up I didn't and it is coming back to pb as well for um a recommendation so we'll
have an action item for pb I don't know that we had that on this bullet point in but it
appears as though the council's going to make a decision December 7th pub doesn't have a
meeting until the 14th right so we go back and look at the calendar and and adjust it
appropriately so that it comes back for sure thank you for pointing that out okay one other
question yep the uh the slide that you showed that show the reset rate after the initial
90 days is the reset rate determined by the loaner exclusively but yeah the market conditions
um really drive it be right it would be in the agreement have it could go up it was we're
not going to know exactly how much could go up after you hit that 90 days but um I think
there was a cap on how much can go up obviously I think more and Adam could jump in and provide
more but there's a cap on how much can go up but it can go up within a range and we wouldn't
have any control over how much it could increase yeah it's based on an index plus a spread and
just keep in mind that the idea is that at the end of the 90 days that if you had commercial
paper outstanding that you would actually roll it generally which means you would issue
a new note to pay off the old note or you would have long-term debt you know ready to
take it out so this this penalty rate that you're asking about is sort of in the worst
case scenario where the market's not functioning and you're forced into that extendable period
we're at that penalty rate so that's the circumstance under which that would come into
play and it's based off of an index plus a spread it's meant to be a penalty rate to be clear
well russ and also to as the as david mentioned I mean our our intent would be to only use this
for appropriation purposes so those scenarios would only happen if in fact it was actually
issued again we just want to be clear that that we could be in a situation where we
could issue the cp and therefore all those things would apply but ideally
we would only use it for appropriation purposes only
right I would just add that the commercial paper program has to look and smell like it can totally
function and pass muster or it doesn't serve the purpose that you're the appropriation purpose
that you're after so as you think about why are we talking about all the details of this if
we're never going to really issue the notes it's how the program has to function in order to allow
you to use it for appropriation authority yeah I'm surprised we haven't we didn't already have this
I honestly didn't realize that we didn't already have this off this option and it's just an option
too you don't have to use it it's just uh I really I see the way the budget sometimes at the end of
the month your bills are higher than you expected and you've got to grab some money pretty quick or
the less you've got payment problems and we don't want to have payment problems we're a payer what
we owe yeah I think Billy that's really been more of the um um the the amount of debt that the city
has has maintained on an annual basis um and I think as the city continues to grow and and we
continue to see more reliance on on bonding um that this is why this is now more than ever certainly
in the 20 years that I've been here why it makes sense today to to go ahead and have it in place
you're right a lot of entities have have a commercial program we've made those commitments
obviously and we need to honor them if the city I think moves forward in the future wants to consider
changing the way we pay for improvements that's a different conversation but this is the commitment
that we've made with these bonds we've got to make sure everything's paid so yeah I just didn't
understand I didn't realize we didn't have a commercial program I'm taking it you're in
support of it Billy I'm I'm in support of moving forward with this I am yes it's a good tool just
one more tool doesn't mean we're going to issue it to just one more tool that's right I have a
couple of questions before we move out of this um there's a lot of expertise on this phone call in
terms of the presenter and the backers what are the potential misuses and what do we need to make
sure we put in place at this point to avoid this extendable commercial paper from being
misused in the future if we put it in place
sure and I think obviously Lori could could jump in from other aspects I would just say from the
city's purpose obviously by going through this program and being able to issue issue funds on
such a short basis what what's incumbent on us as staff is to have a good process and procedures
and we have we have our our debt policy which is this is addressed this program is addressed in our
debt policy but make sure we have policy and procedures that if if we ever were in a situation
where this was issued it was reported back to council and to pub but prior in following any
any assurance so there's communication throughout so that's part of our internal procedures now
but I think as we go as we update our debt policy to have that even more formal of how that process
laid out because by going through this you know having the ability to issue funds so quickly
we do not want to miss any any of the transparency that we have and how we issue that obviously as
we move forward so I think that's just the biggest thing out there when you enter a program like this
as opposed to the normal process we have with our long-term debt so this will require council
approval prior to issuance no so once once the program notification after issuance and notification
right yeah and then my second question is uh in terms of the current interest rates I know we've
talked about five to eight basis points over commercial paper what are those rates running
these days approximately here I'll ask if Laura wants to talk to the market right now
yeah they're dependent on the term so we know 30 day piece of paper versus a 90 day piece of paper
but I think there are probably less than 20 basis points right now so 0.2 percent okay
that's what I expected the answer to be I just didn't know if we were talking about 20 or 40 or 60
and we're talking about basically a quarter million dollars to put this in place
yeah those are those are the the initial cost and we have that laid out you're right the 250,000
but that would just be the upfront we wouldn't that wouldn't be a continual annual cost moving
forward that's really just to stop the program up front would we have any continuing expenses
once we put this in place there are some slight costs I believe it was I think it was it was less
than 50,000 maybe 20 just it was just really kind of the cost to work with our work with
bond council financial advisors because each year we do have to come back with just a parameters
ordinance to for the extendable piece of the commercial paper program but not not significant
cost on an annual basis okay thank you I tend to be in favor of putting the process there are the
procedure in place okay other questions Karen your feelings um I I would just totally trust
Billy on this one I mean he's got the most experience with money there's several of us
here that spend too much money that's for sure yeah after after hearing the explanation I'm in
favor of it I think would be prudent for the city of Denton to put a sign off process in place where
at least two people in responsible positions have to look at each use of this and sign off on it
and then make some periodic reporting to the council on what happened absolutely Ed your
feelings yes I'm in favor of implementation and accountability as as pointed out
transparency and accountability it's always really important yeah all right have what you need yep
thank you very much thank you all right then we will be adjourning into a closed meeting
and the closed meeting is a deliberation regarding certain public power utilities
competitive matters under a Texas government code 551.086 consultation with attorneys under
Texas government code 551.071 so um then we were just adjourned totally correct Tony because I
was just confused all right yes ma'am we just uh just give us a couple minutes here to make sure
that we have um anybody that needs to not be on here that's on a call to go ahead and jump off
okay so if you want to just take a about two minute break um then we can get back together
All right, okay.