Transcript No Slide Title

Department
of
Public Utilities
Presentation of Study Results
August 2006
1
Report Components
• Driving factors behind the report
• Results of the Rate Study
2
CHESAPEAKE CITY COUNCIL GOALS
REVIEW
January 18, 2003
Primary responsibility
• Rehabilitate water and sewer lines
• Secure additional water sources to insure an abundant supply for City residents
Unstated support responsibility
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Support established neighborhoods by keeping housing and infrastructure up-to-date
Strengthen emergency planning and facilities
Redevelop areas of the City to generate wealth
Maintain good financial management policies and strategies
Protect water resources
Create and implement economic development strategies that insure prosperity
3
The Utility Department operates as an
Enterprise Fund
• It must be self-supporting through its rates and fees
• Operating costs are paid via User Fees
• Capital costs are funded on - pay as you go basis
- or bonds
• Capital costs are paid through a combination of both user fees and
connection fees
• It receives no subsidy from the General Fund (i.e. taxes)
• Bond Coverage Ratio (BCR) required by our Master Bond
Resolution to be 1.0 or greater
4
Issue Overview
• Bond coverage
• Operating costs increased at a much greater rate
than CPI
• EPA/DEQ regional consent order
• CIB Needs
• Unserved Areas
5
Bond Coverage Ratio
Revenues
• BCR =
Expenses
• Required by our Master Bond Resolution to be 1.0
or greater
• BCR may be greater depending on type of
financing
6
Average Annual Increase by Expense Category
Average Annual Increase
By Expense Drivers (FY2001-2006)
7.0%
6.1%
6.0%
5.2%
5.0%
4.4%
Avg. % Increase--2001 to 2006
4.1%
3.8%
4.0%
3.0%
2.0%
1.0%
0.0%
Total Personnel
Water Purchases
Chemicals
Electricity
Debt Service
Other O&M
-1.0%
-1.1%
-2.0%
7
Expense Category
Water Distribution Plan
8
Operating costs-Raw Water Purchases
• The 2001 Rate Study for the current rates estimated
the cost to be $0.60 per 1,000 gallons (Lake Gaston
raw water)
• Actual cost of water is $1.05 per 1,000 gallons
(Norfolk raw water)
• $1.2M – $1.5M more per year
9
Operating Costs-Treated Water Purchases
FY 2001 –FY2005
• Consumer Price Index from 2001 to 2005 +10%
• Portsmouth Unit Price
+15%
• Norfolk Unit Price
+28%
Through FY06 and FY07
Portsmouth’s rate will have increased another +9%
Norfolk’s rate will have increased another
+12%
10
Impact of Purchased Water
(Using current Rates)
Norfolk Water
Portsmouth Water
Purchased
Sold
(per CCF) (per CCF)
$3.47*
$3.225*
$3.79*
$3.225*
Net Loss
(per CCF)
($0.25)
($0.57)
*at current water rate
11
Unit Purchase Price vs Unit Sales Price
Unit Purchase
Price vs. Unit Sales Price
6.00
5.00
$ per 1000 gallons
4.00
Portsmouth
Norfolk
Chesapeake
3.00
2.00
1.00
0.00
12
FY97-98
FY98-99
FY99-00
FY00-01
FY01-02
FY02-03
FY03-04
FY04-05
FY05-06
FY06-07
Other Operating Cost Increases
(Consumer Price Index from 2001 to 2005 increased 10%)
During this past Fiscal Year
Copper tubing (hourly quotes)
Sewer main materials
Water Main materials
+276% to +505%
+218% to 361%
+147% to 218%
13
How Did Public Utilities Mitigate the
Increases ?
• Controlled discretionary spending
• Controlled CIB projects in spite of needs
• Reduced CIB funds for system renewals (routine
annual maintenance)
• Optimized service areas
14
Operating Expense Breakdown
Operating Expense Breakdown
Personnel
Water Purchases
24.80%
30.96%
O&M
Controllable
4.95%
14.36%
O & M Non-Controllable
24.94%
Debt
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Personnel
O&M-Controllable
O&M-Non-Controllable
Debt
Water Purchases
Does Growth Help?
• Increased operating costs (meter reading,
billing, customer service, maintenance, repairs)
• Flat Sales
• Does not help as much as one might assume
16
Actual Revenue vs Actual Growth
(FY02-06)
• Water/Sewer Account Growth +1.62% per FY
• Average amount of water people consumed only
increased by +0.24% per FY
• Previous rate study estimated 2% growth in both
categories
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EPA/DEQ
• This is an unfunded mandate on region.
• Required by both the State and Federal Governments
• Sanitary Sewer Evaluation Survey (SSES)
• Potential fiscal impact of the SSES is unknown at this time.
• Proposal contains an approximation of the eventual EPA/DEQ impact
• Norfolk (SSES $2.8M; CIB 2002-2004 $13.5M; CIB 2004-2008
$39.4M plus EPA mandated rate increase)
18
CIB Needs
Current plan reflects a 5-year $66M CIB to address Infrastructure issues
per the Council’s goals
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Membrane Replacement
Vehicle replacement
Water System Renewal (routine O&M)
Sewer System Renewal (routine O&M)
Pump Station & Wet Well Upgrade (routine O&M)
Customer Service/Billing software
System Optimization
Storm Hardening
Storage Tank Renovation
Northwest River Water Treatment Plant Cover Replacement
800 MHz Digital Radio System
Waterline Upgrades (replacement)
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Force Main Upgrades (replacement)
Sewer Line Upgrades (replacement)
Water Reliability (New Installations)
30" NWR Raw Water Main
Raw Water Transmission Main
Greenbrier Tank (New Installations)
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Unserved Areas
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79 Sewer Projects totaling $74.7M (2005 Dollars)
44 Water projects $20.4M (2005 Dollars)
This Financial Plan provides $27.0M for Unserved Areas
Best estimate indicates that 10 areas might be served
List prioritized by Chesapeake Department of Health
New Cost Participation Policy
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Unserved Sewer Areas
Identified in 2005 Study
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Unserved Water Areas
Identified in 2005 Study
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Proposed Ten Unserved Areas
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Sewer
Water
Willow Lakes
$2.4M
$0.9M
Albemarle Acres
$5.3M
$2.6M
Manning Ct/Vico
$1.7M
$0.3M
Etheridge Manor (Sect.1)
$1.1M
Battlewood Meadows
$4.6M
Bridgewood
$0.8M
$0.3M
Old Mill Rd
$3.4M
Cedar
$1.7M
Shipyard Rd
$1.2M
$0.3M
Waters Rd.
$0.4M
(Listed in priority per Chesapeake Health Department)
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Summary
• Operating costs have increased at a higher rate than
expected
• We have exhausted all options to mitigate the
increases
• The EPA/DEQ mandate is imminent/mandatory
• The bond coverage ratio will be impossible to meet
without fiscal help.
• An Unserved Areas program is introduced
24
RATE STUDY
Utility Revenue Sources
 Connection fees
Growth rate dependent
 User Fees
Usage dependent
1. Consumption charge per 750 gallons (CCF)
2. Minimum charge per month
25
Basic assumptions used in study:
 Coverage ratios for debt must be met as required by bond covenants
 Conservative account growth rates over time ( 1.5%, 1.0%…)
 Used a more representative inflation rate for operating costs and water
purchase costs
 Debt service for Unserved Areas included – 30 year bonds at 6%
 Rates based on a combined utility of water and sewer
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Recommendations
27
Recommendation for Connection
Fees
Adopt connection fee increases (Includes both water and
sewer connection fees) effective January 1, 2007:
Example: 5/8” meter
Current
Proposed
Amount of Increase
Percent Increase
City-Funded
$4,950
$6,627
$1,677
34%
Developer-Funded
$4,050
$6,399
$2,349
58%
Other Connection Fees increase with meter size
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of Connection Fees
Comparison ofComparison
Connection
Fees (5/8” meter)
5/8" meter
15,000
12,230
10,000
9,090
6,399
8,000
8,070
6,627
5,834
4,950
5,000
4,050
3,241
1,940
650
900
P-mouth
Norfolk
Newport
News
Va Beach
(2)
Chspke
Current
(1)
Chspke
Current
(2)
Chesterfie
ld
Chspke
Ppd (1)
Chspke
Ppd (2)
Isle of
Wight
Henrico
Suffolk
(2)
Suffolk
Ppd
Total
650
900
1,940
3,241
4,050
4,950
5,834
6,399
6,627
8,000
8,070
9,090
12,230
Sewer
150
250
1,250
1,513
1,620
1,980
1,465
2,702
3,519
4,000
5,175
3,540
5,740
Water
500
650
690
1,728
2,430
2,970
4,369
3,697
3,108
4,000
2,895
5,550
6,490
(1) Dev.
Installed
(2) City
Installed
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Recommendation for User Fees (Phase 1 of 3)
User Fees effective January 1, 2007
Water
Sewer
Combined
$3.225
$3.578
$ .350
11%
$0.725
$1.789
$1.060
147%
$3.950
$5.367
$1.417
36%
$15.50
$16.50
$ 1.00
6%
$5.95
$6.95
$1.00
17%
$21.45
$23.45
$ 2.00
9%
Consumption Charge (per 750 gals)
Current
Proposed
Amount of Increase
Percent Increase
Minimum Charge (per Month)
Current
Proposed
Amount of Increase
Percent Increase
30
January 1, 2007 (FY2007)
Current Average Monthly Residential Bill
$45.15
Proposed Average Monthly Residential Bill
$55.65
% of Change
23.3%
Water usage by the average household in a month
31
FY2007 Rate Increase Factors
FY 2007 Rate Increase Factors
Unserved
Other
Electricity
Personnel
$0.67
$1.07
$0.21
$0.56
Chemicals
$1.11
$6.88
Water Purchases
32
Total Personnel
Water Purchases
Chemicals
Electricity
All Others
Unserved
Average Monthy Bill for Water & Sewer
Average Monthly
Bill for Water & Sewer
Average Monthly Residential Bill
Average Monthly Residential Bill
$60
$50
$40
$30
$49.29
$52.17
$55.36
$55.65
$45.15
$45.60
$45.89
(Current)
7/1/2006
7/1/2006
7/1/2006
7/1/2006
7/1/2006
(Eff. 01/01/07)
Portsmouth
Va.Beach
Suffolk
Henrico
Norfolk
Chesapeake
$40.41
$20
$36.65
$10
$7/1/2006
Chesterfield
7/1/2006
Newport News Chesapeake
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Recommendation for User Fees (Phase 2 of 3)
User Fees effective July 1, 2008
Water
Sewer
Combined
$3.578
$3.878
$ .300
8%
$1.789
$2.554
$ .77
43%
$5.367
$6.432
$1.065
20%
$16.50
$17.50
$ 1.00
6%
$6.95
$7.95
$1.00
14%
$23.45
$25.45
$ 2.00
9%
Consumption Charge (per 750 gals)
Current
Proposed
Amount of Increase
Percent Increase
Minimum Charge (per Month)
Current
Proposed
Amount of Increase
Percent Increase
34
July 1, 2008 (FY2009)
Current Average Monthly Residential Bill
$55.65
Proposed Average Monthly Residential Bill
$64.04
% of Change
15.1%
Water usage by the average household in a month
35
FY 2009 Rate Increase Factors
FY2009 Rate Increase by Factor
Unserved
0.79
EPA
1.28
0.21
Other
6.11
CIB
Needs
36
CIB Needs
Operations Incr
EPA Projects
Unserved Areas
Recommendation for User Fees (Phase 3 of 3)
User Fees effective July 1, 2010
Water
Sewer
Combined
$3.878
$4.178
$ .300
8%
$2.554
$3.971
$1.42
55%
$6.432
$8.149
$1.717
27%
$17.50
$18.50
$ 1.00
6%
$7.95
$8.95
$1.00
13%
$25.45
$27.45
$ 2.00
8%
Consumption Charge (per 750 gals)
Current
Proposed
Amount of Increase
Percent Increase
Minimum Charge (per Month)
Current
Proposed
Amount of Increase
Percent Increase
37
July 1, 2010 (FY2011)
Current Average Monthly Residential Bill
$64.04
Proposed Average Monthly Residential Bill
$76.34
% of Change
19.2%
Water usage by the average household in a month
38
FY2011 Rate Increase Factors
FY 2011 Rate Increase Factors
Unserved
EPA
Personnel
$0.79
$1.22
$0.42
$3.88
Water
Purchases
$4.67
CIB
Needs
$0.03
Other
Total Personel
Water Purchases
Chemicals
$1.05
$0.23
Electricity
Electricity
Chemicals
All Others
CIB Needs
EPA Projects
Unserved Areas
39
What’s Next . . . . . ?
August 8, 2006 – Conduct a work session for City Council
September 12, 2006 – Conduct a public hearing and request
council action
November 1, 2006 – Implement revised rates
Discussion