Transcript Impact Study on MSD Rate Payers of Proposed Consolidation/Merger Phase I – City of Asheville Water System and Phase II – Towns of Biltmore.

Impact Study on MSD Rate Payers of
Proposed Consolidation/Merger
Phase I – City of Asheville Water System
and
Phase II – Towns of Biltmore Forest,
Montreat and Weaverville
Presentation to the
MSD Board
March 20, 2013
Imagine the result
Agenda
1. Overview/Purpose of Study
2. Asheville Water System Overview (Phase I)
3. Evaluation of Consolidation/Merger (Phase I)
4. Towns’ Water Systems Review (Phase II)
5. Summary and Conclusions
6. Questions & Answers
Overview / Purpose of Study
• Assess impact of the proposed merger of Water
Systems within Buncombe County with MSD
• Phase 1 – City of Asheville water system
• Phase 2 – Towns of Biltmore Forest, Montreat and
Weaverville
• Potential legal, governance, valuation and asset
compensation issues were beyond the scope of
this study.
Phase I:
City of Ashville
Water System
City of Asheville Water System
• Approximately 125,000 people served
• 56,000 customers
• 183 square mile service area
• Water assets include:
•
•
•
•
3 Water Treatment Plants
40 pump stations
32 ground storage tanks
Approximately ,1,660 miles distribution pipe
• Treatment capacity of ~44 mgd
• Average daily demand of about 21 mgd
System Inspection / Condition Review
System Review
• Field visits conducted for major assets
• Performance data, including regulatory compliance reports
• Available engineering and asset management reports
Conclusions
• WTPs appeared to be good condition
• Pump stations appeared to be in good condition (Many are
relatively new)
• Increase in the level of reinvestment in buried
infrastructure is needed.
City Capital Improvement Plan
• The Water System CIP approved for this current fiscal
year is a 5 year $36.5 million plan. It appears to be
inadequate in terms of reinvestment in buried
infrastructure.
• As a part of a parallel study, in October the City
increased its CIP to 10 year $122 million plan.
• Generally this most recent draft of the City’s CIP appears
to be reasonable given the age and condition of the
assets.
• Two projects involving the Dam at North Fork and the
main transmission lines into the City are currently being
studied and may have significant impact on the CIP.
Evaluation of Consolidation / Merger – Assumptions
1. MSD would retain all current City Water Department
employees;
2. MSD would assume City water system indebtedness;
3. MSD would keep water and sewer accounting separate,
with no immediate impact to sewer customers or MSD’s
long-term business plan;
4. All City water customers, including wholesale customers
would remain unchanged after the merger; and
5. The evaluation of legal, governance, and asset
compensation issues were beyond the study scope.
Merger Impact Components
Potential Reductions in Water System Costs
1. City Overhead Costs Avoided and Replaced by
the Addition of 13 New MSD Staff Positions
2. Operational Efficiencies Could Result in
Reduction in Staff Through Attrition and
Retirements
3. Avoidance of Sullivan Act Transfers and
Community Development Funding
Merger Impact Components
Potential Incremental Costs
1. Salary and Benefits Parity Adjustment
2. Transaction Costs – Legal, Engineering, and
Financing
3. IT Systems Integration
4. Customer Service and Maintenance Building
Summary of Merger Scenarios
• Baseline (Status Quo) – No merger/consolidation
• Merger Scenario 1 –MSD transfers all of the staff from the
City’s Water Department to MSD and maintains that level of
staffing from FY2014 through FY2022
• Merger Scenario 2 –MSD transfers all of the staff from the
City’s Water Resources Department to MSD and reduces staff
through attrition and retirements
• Merger Scenario 3 –Incorporates potential reductions in MSD
staff through attrition and retirements directly related to the
merger.
Merger Scenario 1
$8,000,000
Savings = $10.3 M through FY2022
$6,000,000
Transaction Cost - Legal,
Engineering, Financing
Additional Cost for IT Integration
$4,000,000
$2,000,000
$-
Customer Service & Maintenance
Buildings
Elimination of Sullivan Act
Transfers included in City CIP
$(2,000,000)
Addition of 13 Postions (Salary &
Benefits)
$(4,000,000)
Elimination of City Overhead
Charges
$(6,000,000)
City vs MSD Water Salaries and
Benefits Cost Difference
$(8,000,000)
Net Total
Merger Scenario 2
$8,000,000
Savings = $16.8 M through FY2022
$6,000,000
$4,000,000
$2,000,000
$$(2,000,000)
$(4,000,000)
$(6,000,000)
$(8,000,000)
Transaction Cost - Legal,
Engineering, Financing
Additional Cost for IT Integration
Customer Service & Maintenance
Buildings
Reduction in Salaries and Benefits
Cost - Water Staff Attrition
Elimination of Sullivan Act
Transfers included in City CIP
Addition of 13 Postions (Salary &
Benefits)
Elimination of City Overhead
Charges
City vs Water MSD Salaries and
Benefits Cost Difference
Net Total
Merger Scenario 3
$8,000,000
$6,000,000
Transaction Cost - Legal,
Engineering, Financing
Additional Cost for IT Integration
$4,000,000
CS & Maintenance Buildings
$2,000,000
Reduction in Salaries and Benefits
Cost - Wastewater Attrition
Reduction in Salaries and Benefits
Cost - Water Staff Attrition
Elimination of Sullivan Act
Transfers included in City CIP
Elimination of City Overhead
Charges
Addition of 13 Postions (Salary &
Benefits)
City vs MSD Water Salaries and
Benefits Cost Difference
Net Total
Savings = $21.9 M through FY2022
$$(2,000,000)
$(4,000,000)
$(6,000,000)
$(8,000,000)
Water Rate Increase Impacts
4.0%
Blended Annual Water Rate Increase
Scenario 1
Scenario 2
Scenario 3
Baseline
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Summary and Conclusions (Phase I)
1. Potential for significant savings to water customers
from the merger
• Greater than $2 - $4 million per year by FY2022
• As much as $10.3 - $21.9 Million over 9 years
2. Potential to reduce City projected water rate increases
3. Staff reductions from operational efficiencies possible.
Assumed reductions may occur only from retirements
or natural attrition.
4. Post merger, MSD will need to continue to re-invest in
the system to preserve and prolong the life of the water
system assets.
Benefits of Merged System
1. Unified front for economic development
2. Regional board representation
3. Enhanced ability to coordinate/manage
water and sewer pipe replacements
4. Elimination of subsidy by non-city water
customers (transfers to General Fund)
Benefits of Merged System
5. Coordinated and unified customer
service and communications
6. Uniform rate policies and structures
7. Staff opportunities for career
advancement with a unified organization
Additional Considerations
1. Potential significant challenge associated with
conversion of billing and CMMS systems and data
2. Ownership and control of City’s reservoir lands (Lease
option could be considered)
3. Alignment of miscellaneous fees with MSD billing and
customer service policies
4. Potential savings could be realized by switching to
contract paving
5. Integration of cultures of City and MSD organization
(e.g., cross training, safety, and work practices)
Phase II:
Towns of Biltmore
Forest, Montreat and
Weaverville
Phase II: Summary of Towns’ Water System
Characterization
Biltmore Forest
Montreat
Weaverville
Customers
762 residential, 9 commercial and 9
industrial
640 residential, 28 institutional
2,119 residential, 148
commercial, 11 industrial, 9
institutional
Water Supply/Sources
City of Asheville
Bedrock Aquifer in Blue Ridge and
Inner Piedmont Recharge Area
Ivy River
Water Assets
20 miles of distribution pipelines
12 supply wells, 2 water storage
tanks, 2 booster pump stations,
18 miles of distribution lines,
emergency connection with Black
Mountain
Lawrence T. Sprinkle, Jr. Water
Treatment Plant; 62 miles of
distribution pipelines; 7 storage
tanks; 4 pump stations;
emergency water connections
with City of Asheville and Town
of Mars Hill
Planned Improvements
No future improvements anticipated
by the Town; approximately 85% of
water lines replaced in 2002
Water system evaluated in 2006
(McGill Associates). No
improvements were identified.
Meter replacement program is
underway; valve exercising and
leak detection programs; fire
hydrants and distribution lines
flushed annually
Water Rates
Base Rate (Bi-Monthly): $37.99
(includes 2,250 gallons)
From 2,250 to 60,000 gallons: $4.51
per 1,000 gallons
From 60,000 gallons to 100,000
gallons: $4.18 per 1,000 gallons
Above 100,000 gallons: $2.60 per
1,000 gallons
Monthly Residential Water Access
Fee: $14.00
Monthly Institutional Water
Access Fee (1” Line): $90.00
Monthly Institutional Water
Access Fee (2” Line): $220.00
Water Rate (per 1,000 gallons):
$4.49
($ per 1,000 gallons) (Inside
Town)
First 3,000 gallons: 6.77
Next 22,000 gallons: $7.41
Next 175,000 gallons: $8.07
Next 300,000 gallons: $8.73
All over 500,000 gallons: $9.40
Phase II - Evaluation of Consolidation / Merger –
Assumptions
1. MSD would retain Town of Weaverville water system
employees
•
•
9 full-time budgeted staff from Weaverville Water System
(Scenario 1)
No staff from Biltmore Forest or Montreat as these Towns do not
have full-time staff dedicated to the water systems;
2. MSD and Town of Weaverville will need to decide whether
the Public Works Facility (15 Quarry Road) would be
needed for the water system as part of the consolidated
entity;
3. Biltmore Forest would continue to receive treated water
from the Asheville system (no longer under the wholesale
agreement)
Phase II - Evaluation of Consolidation / Merger –
Assumptions
4. Billing would be consolidated and performed by MSD;
5. MSD would assume Towns’ water system indebtedness or
possibly compensate Town’s for remaining debt;
6. MSD would keep water and sewer accounting separate,
with no immediate impact to sewer customers or MSD’s
long-term business plan;
7. All Town water customers, including wholesale customers
would remain unchanged after the merger; and
8. The evaluation of legal, governance, and asset
compensation issues were beyond the study scope.
Potential Merger Impacts – Town of Biltmore Forest
1. Reduction in personnel expense. Current water system
staff are part-time and would remain Town employees.
0.5 FTE added.
2. Elimination of indirect transfers to General Funds
3. Existing note (annual debt service $450,000) assumed to
continue to be paid by the Town.
4. Water Rate Structure Converted to City’s Existing
Structure – Residential bill ~17% lower
5. Cost savings of approximately $775,000 through FY2022;
Net savings of $200,000 accounting for water revenue
reduction (Asheville water rates lower)
Summary of Merger Impacts – Town of Biltmore Forest
$400,000
Savings = $200,000 through FY2022
$300,000
$200,000
Revenue Impact (Water Rates
Changed to Asheville Rates)
$100,000
Elimination of Asheville Wholesale
Water Revenue
$-
Elimination of City of Asheville
Water Purchases
$(100,000)
Addition of 0.5 FTE
$(200,000)
Reduction in Personnel Expense
Net Total
$(300,000)
$(400,000)
$(500,000)
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
Potential Merger Impacts – Town of Montreat
1. Reduction in personnel expense. Current water system
staff are part-time and would remain Town employees
providing other Town services and functions. 0.5 FTE
added.
2. Elimination of contributions to the General Fund
3. Water Rate Structure Converted to City’s Existing
Structure – Residential bill ~17% lower
4. Cost savings of approximately $422,000 through FY2022;
Net savings are negligible accounting for water revenue
reduction (Asheville water rates lower)
Summary of Merger – Town of Montreat
$400,000
Merger Impact = Negligible
$300,000
Revenue Impact (Water Rates
Changed to Asheville Rates)
$200,000
Reduction in Contributions to the
General Fund
Addition of 0.5 FTE
$100,000
Reduction in Personnel Expense
$Net Total
$(100,000)
$(200,000)
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
Potential Merger Impacts – Town of Weaverville
1. Staffing
• Transfer of 9 full-time budgeted staff to MSD (Scenario 1).
•
If water supplied by the Asheville system, assumed
reduction in the number of budgeted staff by 4 positions by
FY2017 (Scenario 2)
•
Other Personnel expense reduction. Indirect personnel cost
would be reduced. (Both Scenarios 1 &2)
2. Water Rate Structure Converted to City’s Existing
Structure – Negligible Residential bill impact
3. Scenario 1 Net Savings of $209,000 (FY2014 - FY2022)
Scenario 2 Net Savings of $ 675,000
Summary of Merger – Weaverville (Scenario 1)
400,000
Savings = $209,000 through FY2022
300,000
200,000
Reduction in Indirect Personnel
Expense
Town vs MSD Benefits Cost
Difference
100,000
Net Total
-
(100,000)
(200,000)
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
Summary of Merger – Weaverville (Scenario 2)
$600,000
Savings = $675,000 through FY2022
$400,000
Capital Cost of Pump Station and
Water Line (amortized)
$200,000
Addition of Asheville Water
Production Cost
Reduction in Weaverville WTP
Operating Cost
$-
Town vs MSD Benefits Cost
Difference
$(200,000)
Reduction in Indirect Personnel
Expense
Reduction in Direct Personnel
Expense
$(400,000)
Net Total
$(600,000)
$(800,000)
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
Merger Impact Additional Considerations
1. Regional / uniform approach to water resources and supply
2. Future system capital needs shared by a regional customer
base
3. Enhanced ability to coordinate/manage water and sewer
pipe replacements
5. Coordinated and unified customer service and
communications
6. Reduction in Town control over the water system
Question & Answer
Thank you!
ARCADIS G&M
Imagine the result