Transcript Board of Directors and Committee Meetings

Cost of Service Water Rate Study
Habib Isaac – Principal
Greg Tobler – Task Manager
May 14, 2012
Project Objectives
• Develop water rate structures that:
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–
–
–
Provide adequate revenues in short and long term
Update and incorporate CIP
Strong financial outlook for utility
Minimize revenue adjustments
• Rate Design
– Are defensible / equitable across customer classes
– Consider ability to pay / affordability
– Minimize rate shock
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Additional Considerations
Revenue
Requirements
Analysis
Revenue
Cost
of Service
Requirements
Analysis
Analysis
• Determine revenue
needed to meet
utility costs
• Project O&M,
capital, and debt
expenses
• Analyze reserves
•• Allocate
utility
Determine
revenue
costs
by to
function
needed
meet
and
customer
utility
costs
• demand
Project O&M,
• Assign
capital,revenue
and debt
required to each
expenses
class in a
• customer
Analyze reserves
proportionate
manner
Rate Design Analysis
• Develop rate
structure for each
customer class to
collect appropriate
level of revenues
• Achieve equity and
policy objectives
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Holistic Approach to Rate Design
• Determine revenue needed
to meet utility costs
• Project O&M, capital and
debt expenses
• Analyzes reserves
Revenue
Requirements Analysis
Cost of Service
Analysis
• Allocate utility costs by
function and customer
demand
• Assign revenue required to
each customer class in a
proportionate manner
• Develop rate structure for
each customer class to
collect appropriate level of
revenues
• Encourage water
conservation
Rate Design Analysis
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Revenue Requirements
• Analyzed EGWD Budget
– EGWD financials embedded within model
– Model may be used as part of budgetary process
• Accounted for specific adjustments
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–
–
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Capital Improvement Plan
Debt Management
10-year projection
Reserves
• Established financial thresholds
• Created multiple scenarios to reach five year goal
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Comprehensive Modeling Dashboard
GUIDE
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Variable Assumptions Programmed scenarios Visualize impacts on
revenue & rates
Toggles and Inputs for quick comparisons
immediately
Financial
Thresholds
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Scenarios are quickly run
with a push of the “Run
Scenario Button”
GUIDE provides the
ability to save, name, and
compare scenarios to
determine the optimal
financial plan.
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Key Variables:
I nflation / Escalation Factors
Numerous assumptions
that are easy to modify
allow for easy and
instantaneous, yet
complex, scenario
planning
Assumptions
Include:
 Purchased Water
 Power
 Inflation
 Reserve Policies
 Debt Management
 Reserves Funded
Materials &
Supplies (%)
Treatment (%)
3.0
Pension (%)
Purchased
Water (%)
3.0
4.0
5.0
Purchased
Power (%)
Labor (%)
Other
Production (%)
Administration &
General (%)
5.0
7.0
3.0
3.0
Miscellaneous (%)
Elasticity (%)
Capitalized
Expense (%)
Flat
8.0
3.0
3.0
0.0
Minimum
Operating Fund
Net Income
Minimum
120
90
Elections /
Studies
Financing Options & Assumptions
Depreciation
Options
CIP
R&R Fund Balance Operating Reserve Debt Coverage
Minimum ($1,000)
Buffer (%)
Service Ratio (%)
Full Recovery
Yes
Include New
Depreciation
Catastophe
Fund (Target)
Yes
$
400
200,000.00
5.00
125.00
CIP Options
Issue New Debt?
Full CIP Program
No
Capital I nv estment Funds and Reserv es
Unrestricted
$9,523,502
Meter Retrofit
$1,320,000
Supply/Dist
Treatment
Plant
Building
Capital
Replacement
$430,000
$340,000
$135,000
$25,000
$120,000
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Immediate reflection of impacts to revenues & rates
30,000,000
20,000,000
10,000,000
FYE 2013
(10,000,000)
FYE 2014
FYE 2015
FYE 2016
FYE 2017
FYE 2018
FYE 2019
FYE 2020
FYE 2021
FYE 2022
FYE 2023
25,000,000
(20,000,000)
(30,000,000)
(40,000,000)
20,000,000
15,000,000
Total Expenses
Debt Service
Capital Projects - R&R Funded (PAYGO)
Total Revenue
Operating Fund Balance
Fund Balance Days of O&M
10,000,000
5,000,000
-
FYE 2013
FYE 2014
Total Expenses
Total Revenue
FYE 2015
FYE 2016
FYE 2017
Debt Service
FYE 2018
Operating Fund Balance
FYE 2019
FYE 2020
FYE 2021
FYE 2022
FYE 2023
Capital Projects - R&R Funded (PAYGO)
Fund Balance Days of O&M
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Revenue Options
SCENARIOS
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Revenue Adjustments Based on Annual Needs
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•
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Reserves allow District to defer two years of increases
4th and 5th yr adjustments @ 9% and 11%, respectively
Bond covenants maintained and reserves funded
Yearly fluctuations in revenue collection
Rate shock to customers starting in 4th year
Reactive approach to utility’s 5yr/10yr financial plan
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Financial Outlook - Reactive
FYE 2013
FYE 2014
FYE 2015
FYE 2016
FYE 2017
Unlock
Unlock
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Proposed Revenue Increase
0.0%
0.0%
4.0%
9.0%
11.0%
Days of Operating Reserves
398
323
267
182
181
140.8%
128.0%
128.4%
145.7%
172.8%
Calculated Debt Coverage Ratio
Net Income $
1,160,521 $
838,081
$
980,544
$
935,105
$
2,574,739
Total Reserves $
9,114,102 $
7,780,183
$
6,745,727
$
4,840,832
$
5,069,571
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One Year Delay on Revenue Adjustments
• O&M Reserve equals 180 days of O&M
• Reserves allow District to defer adjustment for 1 year
• Revenue adjustments of 4% , 4%, 4%, 6% for remaining years
– Bond covenants satisfied
– District already has three years of 3% adjustments approved
– Essentially two years of new increase (Years 4 and 5)
– Allows economy to recover
– Years 6 through 10 not pro-actively considered
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Financial Outlook - 1st Year Delay
FYE 2013
FYE 2014
FYE 2015
FYE 2016
FYE 2017
Lock
Lock
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Lock
Unlock
Proposed Revenue Increase
0.0%
4.0%
4.0%
4.0%
6.0%
Days of Operating Reserves
398
346
311
219
185
140.8%
142.0%
142.8%
142.7%
150.9%
Calculated Debt Coverage Ratio
Net Income $
1,160,521 $
1,383,881
$
1,548,144
$
815,805
$
1,674,839
Total Reserves $
9,114,102 $
8,325,983
$
7,859,127
$
5,834,932
$
5,163,771
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3% Revenue Adjustments
• Revenue adjustments of 3% for next five years
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–
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District already has three years of 3% adjustments approved
O&M Reserve adjusted from 180 days to 120 days
Reserves fully funded – including reserve programs
Bond covenants satisfied
CIP funded with a combination of existing Debt and PAYGO
Higher increases necessary in later years
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Financial Outlook - 3% Adjustments
FYE 2013
FYE 2014
FYE 2015
FYE 2016
FYE 2017
Lock
Lock
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Lock
Proposed Revenue Increase
3.0%
3.0%
3.0%
3.0%
3.0%
Days of Operating Reserves
416
375
344
252
199
151.4%
149.4%
146.6%
143.0%
139.9%
Calculated Debt Coverage Ratio
Net Income $
1,569,921 $
1,669,081
$
1,700,044
$
824,705
$
1,223,539
Total Reserves $
9,523,502 $
9,020,583
$
8,705,627
$
6,690,332
$
5,567,871
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O&M Reserves Adjusted to 90-Days
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District already has three years of 3% adjustments approved
O&M Reserve adjusted from 180 days to 90 days
All five years reflect 3% revenue adjustments
Reserves fully funded – including reserve programs
CIP funded with a combination of existing Debt and PAYGO
Bond covenants satisfied
Funds short-term and long-term needs
Years 6-10 revenue adjustments range between 4%-6%
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O&M Reserves - 90 Days
FYE 2013
FYE 2014
FYE 2015
FYE 2016
FYE 2017
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Proposed Revenue Increase
3.0%
3.0%
3.0%
3.0%
3.0%
Days of Operating Reserves
416
375
344
252
199
151.4%
149.4%
146.6%
143.0%
139.9%
Calculated Debt Coverage Ratio
Net Income $
1,569,921 $
1,669,081
$
1,700,044
$
824,705
$
1,223,539
Total Reserves $
9,523,502 $
9,020,583
$
8,705,627
$
6,690,332
$
5,567,871
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Debt Restructure with 90-Day O&M Reserve
• O&M Reserve adjusted from 180 days to 90 days
• Debt management allows District to take advantage of current
market conditions
— Debt obligation reduced
— Bond covenants easier to satisfy
• Reserves fully funded – including reserve programs
• CIP funded with a combination of refinanced Debt and PAYGO
— May consider funding certain improvements with debt restructure
• Funds short-term and long-term needs
• Revenue adjustments in years 6-10 limited to 3%-4%
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Recommended – Debt Restructure; 90-Day O&M
FYE 2013
FYE 2014
FYE 2015
FYE 2016
FYE 2017
Lock
Lock
Lock
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Lock
Proposed Revenue Increase
3.0%
3.0%
3.0%
3.0%
3.0%
Days of Operating Reserves
421
388
366
285
245
156.7%
156.7%
156.4%
155.8%
154.8%
Calculated Debt Coverage Ratio
Net Income $
1,699,599 $
1,851,065
$
1,947,870
$
1,156,924
$
1,619,152
Total Reserves $
9,653,180 $
9,332,246
$
9,265,115
$
7,582,039
$
6,855,191
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Next Steps
• Incorporate consumption data into model
• Review and correlate CIP with depreciation
• Rate Design
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Analyze peaking factors and demand characteristics
Set unique rates for each customer class
Discuss tiered structure
Options for residential
Conservation objectives
• Collaborate with EGWD staff throughout rate
design process
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