Recommend City Council approve Riverside Public Utilities 2025 Annual Audit and Financial Report

Summary

The Riverside Public Utilities (RPU) 2025 Annual Audit and Financial Report received an unmodified (clean) opinion from independent auditors CliftonLarsonAllen LLP. A prior period restatement was necessary to correct beginning net position balances for construction in progress, accumulated depreciation, and customer deposits, primarily due to legacy accounting practices and staff turnover.

Electric Utility: The Electric Utility reported $512.6 million in total revenues (up 12.0% from prior year) and $379.1 million in operating expenses. Retail sales increased by $42.3 million (12.0%) due to approved rate adjustments and higher consumption. Production and purchased power expenses decreased by $13.1 million due to lower energy prices, but the utility recognized a $5.8 million increase in its nuclear decommissioning liability for SONGS. Its Debt Service Coverage Ratio (DSC) improved to 3.20, and it maintains strong credit ratings of AA- (Fitch) and AA- (S&P Global). Unrestricted reserves are in compliance with policy, with $152.6 million in undesignated reserves and $35.0 million available on a line of credit.

Water Utility: The Water Utility reported $110.8 million in total revenues (up 13.3% from prior year) and $76.5 million in operating expenses. Retail sales increased by $15.7 million (21.9%) due to rate adjustments and a 12.7% increase in customer consumption. Its DSC is 2.51, and it holds excellent credit ratings of AA+ (Fitch), Aa2 (Moody's), and AA+ (S&P Global). Unrestricted reserves are also in compliance, with $49.8 million in undesignated reserves and $25.0 million available on a line of credit.

Regulatory & Litigation: Both utilities face significant regulatory mandates, including state goals for 100% clean energy by 2045 for the Electric Utility and long-term water use efficiency for the Water Utility. The Water Utility is actively addressing PFAS contamination in its groundwater basins, with plans for new treatment facilities. Several lawsuits challenging water rates and the General Fund Transfer are ongoing, with one ruling finding water rates violated the California Constitution, potentially requiring a $46.2 million refund to ratepayers.

Citizen Impact

Residents benefit from stable and competitive utility rates, with RPU's electric and water rates being significantly lower than comparable regional providers. The audit confirms prudent financial management of public funds. However, ongoing litigation regarding water rates and the General Fund Transfer could lead to significant refunds for water customers or future adjustments to utility charges. The Electric Utility's efforts towards clean energy and the Water Utility's investments in PFAS treatment will impact future service reliability and environmental quality.

Confidence

high