Funding Transportation Infrastructure — Part 1 of 5

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Breadcrumb: 6 pw › PW---FYFP---ALL_0 › Appendix A: Infrastructure Condition › Funding Transportation Infrastructure

Appendix A: Infrastructure Condition The condition and trends in the City’s transportation infrastructure have a direct bearing on the long-term condition of the Transportation Fund and PBOT’s ability to fulfill its mission. PBOT manages different classes of assets worth over $21 billion. – we estimate a major maintenance backlog of roughly $6 billion The five most valuable elements of infrastructure are pavement (the street system), bridges and structures, streetcar system, traffic signals and streetlights, and sidewalks. Funding Transportation Infrastructure Current service level funding, including temporary funding from Portland’s local gas tax and Fixing Our Streets, is not adequate to maintain the City’s infrastructure. Table A-1 summarizes the additional funding required to improve asset conditions to meet the bureau’s target service levels ($607.5 million per year over 10 years). An estimated $466 million per year for 10 years is needed to meet PBOT's existing goal for pavement condition. This would make the streets significantly better than today and reduce PBOT’s ongoing obligation to rebuild pavement in Poor and Very Poor condition. Table A-1 Annual Additional Funding Required to Meet Target Asset Conditions (In millions) Asset Category Confidence Level Funding Required to Meet Target Condition Arterial & Collector Streets* High $213 Local Streets* High $253 Sidewalk System Low Sidewalks Low NA** Curbs Low TBD Corners Low $50.5 Bridges High $43.7 Signal Hardware Low $19 Streetlights Low $11.3 Streetcar High $4.8 Parking Operations Low $5.5 Other Transportation Assets*** Low $6.7 Total $607.5

• StreetSaver, pavement modeling system, assumes a fixed inflation rate over a 10-year period. ** Adjacent property owners are financially responsible for repairing sidewalks. *** Includes facilities, signs and pavement markings; traffic calming devices; non-bridge structures; signal components besides hardware. 12

City assets not included in the figures above include the Portland Aerial Tram and unimproved (gravel) streets. Unimproved (gravel) streets do not meet the City’s standard for maintenance (i.e., do not receive GTR expenditures), but currently consume $1M annually in FOS funded maintenance (though they constitute only 3.4% of City-owned streets). Third, the table likely understates maintenance for the City’s parking garages. Based on the most recent major maintenance forecast, the requisite capital funding for the garages may be $25-30 million or more due to inflation and asset deterioration. 13

HYDROELECTRIC POWER DIVISION CITY OF PORTLAND, OREGON FY 2025-26 PRELIMINARY FINANCIAL PLAN February 2025 Public Works Service Area Portland Water Bureau Priya Dhanapal, Deputy City Administrator Edward Campbell, Interim Director

Introduction In 1989, the City Code was amended to have the Bureau of Hydroelectric Power report directly to the Portland Water Bureau. The Bureau of Hydroelectric Power was an enterprise bureau charged with developing and then operating hydroelectric projects for the City of Portland. The Hydroelectric Power Operating Fund is the City of Portland financial fund through which the business activity for the City’s Portland Hydroelectric Project (PHP) is conducted. The Hydroelectric Power operating budget is currently budgeted as the Hydroelectric Power Division in the overall Portland Water Bureau budget submission. Hydropower Division Fund Structure There are two funds that are used to account for PHP operation. The Hydroelectric Power Operating Fund (601000) contains the operating budget which is primarily funded by revenue from the sales of power generated at PHP. The Hydroelectric Reserve Account (601001) is a sub-fund within the Operating Fund established in FY 2017-18. The sub-fund is used to supplement and stabilize operating revenues, serving as a “sunny day” fund to mitigate the impact of periods with low power production or high operating costs. The Hydroelectric Power Renewal & Replacement (R&R) Fund (618000) is a capital fund that is used to pay for repairs, refurbishment or replacement of the facilities related to PHP. Within the City’s Annual Comprehensive Financial Report (ACFR), these funds are rolled up into one fund that is referred to as the Hydroelectric Power Fund. Under the Enterprise Funds – Budget and Actual Section of the ACFR, the funds are accounted for individually. The Hydroelectric Power Funds are excluded from the Portland Water Bureau’s rate based financial structure used for the Water Division of the Portland Water Bureau budget. Revenues for the Hydroelectric Power Operating Fund The primary source of revenue for the Hydroelectric Power Operating Fund is from sales of power generated at PHP to Portland General Electric (PGE). Under the Power Purchase Agreement (PPA), PGE purchases all the power generated and PHP is responsible for all operation and maintenance of the facility. The PPA began January 1, 2018 and requires PHP to make an annual election for guaranteed power sales each September for the subsequent calendar year. PHP may elect a 70% to 90% portion of historical long term mean power sales volume. This volume is then multiplied by the contract price to determine the specified revenue for the calendar year. The contract price, based on a forward price curve, has been pre-established through 2032 as part of the PPA. The contract price is fixed for on-peak and off-peak periods each year. Additional power sales outside of the specified volume are valued at current market prices. PHP utilizes a forward pricing model that is aligned with the PPA to project power sales revenue for FY 2024-25 as follows: • Generation of power at PHP is driven by the actual amount of power produced during any given Contract Year which is dependent on the amount of precipitation falling in the Bull Run Watershed and the availability of PHP powerhouses to operate when needed and 2

within compliance of the City’s Habitat Conservation Plan for the Bull Run Reservoir system. For the purposes of Hydropower’s budgeting process, the historical average monthly power generation totals (based on 27 years of data) are adjusted by the annual election, which determines the projected specified, as-available, and deficient volumes. • The guaranteed revenues are calculated based on the projected specified volumes multiplied by the PPA contract rate. As-available and deficient revenues are projected based on projected volumes multiplied by a forward price curve as of January 2021. The forward price curve utilized is for the Mid-Columbia hub and is the most proximal major electricity hub to PHP. The forward curve projects prices for the next 10 years with year 11 inflated by 3 percent. FY 2025-26 power sales revenues are projected to total $5.2 million. Power sales revenues are projected to increase over the five-year period to an average of $5.6 million annually as the contract price increases. Another source of revenue for this fund is from an Interagency Agreement with the Water Division for work that Hydropower Division staff performs on Water Division owned facilities. Expenses for the Hydroelectric Power Operating Fund The Hydroelectric Power projected total expenses for FY 2025-26 total $3.5 million. The operating budget includes: • Personal Services – two full time staff members plus some part time staff • External Services – operating expenses including maintenance and non-capitalizable repairs. This includes $1.6 million for an operations and maintenance agreement, $0.3 million for a transmission line maintenance contract, and $0.2 million for a scheduling contract. • Internal Services – Interagency Agreements or Cash Transfers with other City entities • Cash Transfers – transfers from the Hydroelectric Power Operating Fund to the R&R Fund as power sales revenues permit. The Hydroelectric Reserve Account (HRA) The HRA was funded in FY 2017-18 with $2.4 million transfer from R&R Fund balance after reconciliation of the prior PPA but have since been drawn down to cover for years with power sales shortfall. This sub-fund is a “sunny day” account which is be drawn on to cover operating expenses as needed throughout the life of the PPA. As additional net revenue from power sales is generated, contributions will be made to the HRA to reach a balance equal to approximately one year of operating expenses. See Figure 1 for projected HRA transfers beginning in FY 2026-27. 3

Figure 1 Hydroelectric Reserve Account Projection (in thousands) FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 $0 $0 $2,000 $4,000 $4,000 Beginning Balance $0 $2,000 $2,000 $0 $0 Transfers (From)/To HRA $0 $2,000 $4,000 $4,000 $4,000 Ending Balance FERC Relicensing PHP is currently operating under a FERC license that will expire in 2029. PHP will need to complete a relicensing process to be able to continue to operate its facilities. The formal relicensing process takes five years and would need to commence by February 2024. Notice of Intent and a Pre-Application Document was filed with FERC in December 2023 to initiate relicensing. Based on preliminary work on the FERC relicensing process, the costs for a FERC relicensing along with pre-application work could be as much as $8 million, excluding staffing costs associated with this work. The cost will continue to be refined through the relicensing process. A consultant was retained in 2024 to assist with developing the appropriate cost allocation between PHP and Water Bureau since the operation of the hydropower facilities relates to water delivery. The conclusion of the consultant study was the 50% cost sharing between Water and PHP is appropriate. The PHP portion is anticipated to be funded by PCEF in the amount of 1.2 million per year for five years. Hydroelectric Power Renewal and Replacement Fund Hydroelectric Power Renewal & Replacement Fund (R&R) balance was $2.5 million after reconciliation from the previous PPA. In FY 2017-18, $2.4 million of this balance was transferred to the HRA, leaving $0.1 million in the R&R Fund. The R&R Fund will continue to be utilized for capital expenses for replacement of major equipment and necessary improvements to the project to maintain Federal and State licenses. The Hydroelectric Power Division will need to re-establish the R&R Fund and will transfer funds from the Hydroelectric Power Operating Fund to the R&R Fund as power sales revenues increase and after the HRA maintains a minimum balance equal to one year of operating expenses. This five-year plan includes transfers to the R&R Fund based on the projected power sales net revenues. See Figure 2 for projected R&R Fund transfers beginning in FY 2028-29. 4

Figure 2 Hydroelectric Power R&R Fund Projection (in thousands) FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 $111 $111 $111 $111 $2,111 Beginning Balance $0 $0 $0 $2,000 $2,000 Transfers (From)/To R&R $111 $111 $111 $2,111 $4,111 Ending Balance Based on current energy market conditions, power revenues from the PPA are projected to exceed operating expenses throughout the remaining term of the PPA. As a result, PHP is projecting contributions to the HRA beginning in FY 2026-27 and to R&R beginning FY 2028-29. See Figure 3 for the net cash flows of this five-year plan, including R&R transfers. Figure 3 Hydroelectric Power Operating Fund Summary (in thousands) FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 Beginning Balance $1,000 $2,907 $2,876 $2,834 $2,937 Revenues Power Sales 5,225 5,373 5,462 5,698 6,033 Other Revenues 200 200 200 200 200 Total Revenues 5,425 5,573 5,662 5,898 6,233 Expenses Personal Services 520 533 557 571 597 External Material & Services 2,563 2,627 2,693 2,760 2,829 Internal Material & Services 254 260 266 272 279 Other Expenses 181 184 188 191 198 Total Expenses 3,519 3,604 3,704 3,795 3,904 Net Cash Flow 1,907 1,969 1,958 2,104 2,329 Transfer From/(To) HRA or R&R - (2,000) (2,000) (2,000) (2,000) Ending Balance 2,907 2,876 2,834 2,937 3,267 Note: Totals may not foot due to rounding. 5

Projected Hydroelectric Power Fund Balances This five-year plan projects consistent operating profits as the PPA contract price increases relative to the initial years of the agreement. Operating & Maintenance costs are continuing to increase, but at a slower rate than power sales increases. 6

FY 2025-26 Five-Year Preliminary Financial Plan February 2025 Public Works Service Area Portland Water Bureau Priya Dhanapal, Deputy City Administrator Edward Campbell, Director

T ABLE OF C ONTENTS EXECUTIVE SUMMARY ................................................................................................................... 1 Introduction ................................................................................................................................... 1 Budget Development .................................................................................................................. 2 Proposed FY 2025-26 Water Rates............................................................................................. 2 Basic Utility Rates Comparison.................................................................................................... 3 Water Bill Comparability .............................................................................................................. 4 FINANCIAL PLAN............................................................................................................................. 5 Issues and Updates ...................................................................................................................... 5 Wholesale Agreements...........................................................................................................................5 Major Capital Projects .............................................................................................................................5 Federal Energy Regulatory Commission (FERC) Relicensing.............................................................7 Five-Year Retail Rate Increases .................................................................................................... 7 Forecast Retail Water Demand ................................................................................................... 8 Contingencies/Reserves .............................................................................................................. 9 Fund Balance............................................................................................................................................9 Rate Stabilization Account ................................................................................................................... 10 Non-Cash Accounts .............................................................................................................................. 11 Outstanding Indebtedness/Debt Service ................................................................................ 11 Water Bill Affordability ............................................................................................................... 13 Financial Assistance.............................................................................................................................. 13 Affordability Strategies ........................................................................................................................ 14 Performance Management........................................................................................................ 15 Budget Programs ....................................................................................................................... 15 Operation & Maintenance (O&M) Plan .................................................................................... 18 Capital Improvement Program (CIP) ........................................................................................ 18 Capital Asset Management ................................................................................................................. 21 Capital Plan ................................................................................................................................. 21 Studies and O&M Embedded in the CIP ........................................................................................... 24 APPENDIX ...................................................................................................................................... 25

FY 2025-26 Preliminary Financial Plan E XECUTIVE S UMMARY I NTRODUCTION The Portland Water Bureau (PWB) is the largest domestic water supplier in Oregon. Nearly one million people, almost one-quarter of the state’s population, are served from the Bull Run/Columbia South Shore system. On average, over the last five fiscal years, the Bureau has delivered about 91 million gallons a day (MGD) to its customers. Over the last five years, the Bureau has peak day delivery in excess of 142 MGD and has the capacity to deliver over 200 MGD. The Bureau delivered a total of approximately 30.5 billion gallons of water to its customers in fiscal year (FY) 2023-24. Approximately 60 percent of water delivered by the Bureau serves retail customers in the city. The remaining 40 percent is provided on a wholesale contract basis to 19 cities, special districts, and private water company customers surrounding Portland. The Bureau’s overall mission, vision, and values include a financial objective to “Use money wisely. The Bureau works to control costs while maintaining high standards. The Bureau invests to make the water system stronger, more flexible, and better prepared for challenges ahead.” The Five-Year Preliminary Financial Plan supports this value by: • Providing sufficient annual funding of operations, maintenance, and capital programs approved by City Council. • Providing rates and charges to customers that are based on generally accepted cost-of- service principles unless otherwise directed by City Council. • Striving for a natural optimal balance among financial health, operational effectiveness, infrastructure condition, effective management, rate affordability, and maintaining a skilled and experienced workforce. • Optimizing capital financing strategies, today and into the future. • Ensuring the maintenance of appropriate and adequate cash balances (operating fund, construction fund, sinking fund, and rate stabilization account) consistent with City policies, bond covenants, and industry standards. 1

FY 2025-26 Preliminary Financial Plan • Advancing equity by creating the conditions for community members and employees to have access to the resources and opportunities they need to thrive, so their identities do not predict outcomes. B UDGET D EVELOPMENT In October 2024, Mayor Ted Wheeler’s FY 2025-26 Budget Guidance directed the Portland Water Bureau and the Bureau of Environmental Services to present rate increases that lead to a combined increase of no more than 5.94 percent above the FY 2024-25 rates. The combined rate increase aligns to a 5 percent lower rate of increase than previously forecasted. Under his direction, future year rate increases should not be adjusted above the rate increases currently projected through the 5-year forecast. As directed by Mayor Ted Wheeler, the Bureau has developed a budget with a water retail rate increase of 7.7 percent a 5 percent reduction from the previously forecasted 8.1 percent retail rate increase for FY 2025-26. The Bureau has presented its budget proposal to the Portland Utility Board (PUB), an 11-member community oversight body whose purpose is to advise City Council and bureau leadership on budgetary and policy matters related to the two utility bureaus, Portland Water Bureau and Bureau of Environmental Services. PUB has reviewed FY 2025-26 Mayor Ted Wheeler’s Budget Guidance and will continuously assist and provide valuable input into the Water Bureau’s refinement of program offers and performance measures. PUB will be reviewing the Water Bureau’s budget and rates and making recommendations to City Council through budget work sessions. P ROPOSED FY 2025-26 W ATER R ATES As directed, the Bureau is proposing a 7.7 percent retail rate increase for FY 2025-26. The FY 2024-25 Five-Year Financial Plan estimated an average effective retail water rate increase of 8.1 percent for FY 2025-26. Inflation over the last several years has been significant and well beyond the escalation factor included in previous forecasts, particularly in construction costs. As a result, the Bureau and the City are experiencing cost increases exceeding the levels anticipated in prior forecasts. Budget reductions are necessary to limit the rate increase to 7.7 percent for FY 2025- 26. The proposed average effective retail water rate increase of 7.7 percent would increase the typical monthly residential customer’s water cost from $60.66 to $65.33, an increase of $4.67 per month. 2

FY 2025-26 Preliminary Financial Plan A typical residential customer uses about 500 cubic feet (ccf) or 3,740 gallons of water each month. The retail volume rate will increase from $7.559 to $8.141 per ccf, approximately 1.1 cents per gallon. The base charge (the fixed charge on the bill) for quarterly meter read customers will increase from $22.86 to $24.62 per month. The base charge for monthly meter read customers will increase from $68.59 to $73.87 per month. Figure 1 shows sample cost increases. F IGURE 1 – M ONTHLY B ILL C HANGE Monthly Bill Categories FY 2024-25 FY 2025-26 Change 5 ccf Tier 2 Low-Income Residential Monthly $12.13 $13.07 $0.94 Cost (80% discount) 5 ccf Tier 1 Low-Income Residential Monthly $30.35 $32.67 $2.32 Cost (50% discount) 5 ccf Typical Residential Monthly Cost $60.66 $65.33 $4.67 100 ccf Medium Commercial Monthly Cost $824.49 $887.97 $63.48 20,000 ccf Large Commercial Monthly Cost $151,248.59 $162,893.87 $11,645.28 B ASIC U TILITY R ATES C OMPARISON Water service provided to Portland residents currently accounts for 12 percent of a typical residential customer’s total basic utility-only bills per month as shown in Figure 2. F IGURE 2 – C URREN T A VERAGE B ASIC U TILITY -O NLY S ERVICES Basic Utility Services Typical Monthly Charges % of Total Electricity (900 kilowhatt) $185.48 36% Sewer and Stormwater $91.80 18% Natural Gas (53 therms) $88.92 18% Water (5 ccf) $60.66 12% Solid Waste and Recycling $42.00 8% Telephone $39.36 8% Total $508.21 100% Water service is also typically less expensive than the cost of less essential, but commonly incurred services, such as broadcast/satellite cable service, mobile telephone service, or internet service. 3

FY 2025-26 Preliminary Financial Plan W ATER B ILL C OMPARABILITY Figure 3 compares a typical residential customer monthly water bill in Portland to other local and national water utilities. A typical PWB customer currently pays $60.66 for 5 ccf. Comparisons are based on what other water utilities define to be a typical or average water monthly water bill. 1 F IGURE 3 – R ESIDE NTIAL M ONTHLY W ATER B ILLS Tualatin Valley Water District $96.49 West Slope Water District $82.02 San Francisco, CA $76.55 Beaverton, City of $69.29 Bellevue, WA $68.85 Sacramento, CA (unmetered for residential) $66.95 Lake Oswego, City of $64.22 Clackamas River Water $65.24 Portland, OR (Requested) $65.33 Tigard, City of $61.69 Honolulu, HI $59.56 Portland, OR (Current) $60.66 Gresham, City of $55.52 Atlanta, GA $50.77 Hillsboro, OR $50.34 Tacoma, WA (winter) $46.98 Seattle, WA (winter) $46.67 Kansas City, MO $44.82 Washington, DC $44.56 Tualatin, City of $47.28 Cincinnati, OH $37.22 Bend, OR $38.14 Vancouver, WA $35.89 Rockwood Water District $36.60 Milwaukie, City of $35.87 Olympia, WA $33.45 Cleveland, OH $30.39 Raleigh Water District $29.68 1 Calculations are based on rates in effect as of November 2024. Portland Current rates are effective July 1, 2024 through June 30, 2025. Water providers are selected based on providing both Water and Sewer/Stormwater services, similar to the City. 4

Parent: Appendix A: Infrastructure Condition · PDF: pp. 1405-1418