Transcript Water and Sewer Enterprise System Review of the Financial Parameters

Review of the
Financial Parameters
Affecting Policy Decision Making
Water and Sewer Enterprise System
March 1, 2007
Water and Sewer Enterprise System
Informational needs in order to make
policy leadership decisions
1.
Financial parameters and limitations
2.
Utility system – capabilities, strengths and weaknesses
3.
Capital plan
4.
Financial feasibility
Water and Sewer Enterprise System
Business Plan
1.
Allocates resources, plans for contingencies
2.
Contains data and information - to make good business decisions
3.
Financial and capital decisions
4.
Requirement to raise capital
5.
Informs - planners, investors, banks, community
6.
Rating agencies
Water and Sewer Enterprise System
Policy leadership decisions
 What financial resources are available to invest in the
utility system?
 What types of investments should be made?
 What options are available to make water and wastewater
resources more available and who pays?
Water and Sewer Enterprise System
Factors influencing policy decisions
 Lenders contractual requirements
 Financial structure and performance
 Credit quality standards - cost of
borrowing
 Washington and Raleigh laws and
regulations and BOCC policies
Water and Sewer Enterprise System
Contractual Requirements
Water and Sewer Enterprise System
Revenue Bonds
 borrowed money for capital improvements
 mortgage secured by the utility system revenues promises
 contractual agreement - general trust indenture
 enforce and monitor County’s compliance - lenders
appointed a trustee
Water and Sewer Enterprise System
Revenue Bonds - Trustee Accounts
Revenue Acct.
$1.00
O&M Acct.
$0.47
Debt Acct.
1st – Revenue
2nd - Subordinate
$0.30
Extension &
Repair Acct.
$0.03
Surplus - CIP
$0.20
Water and Sewer Enterprise System
Revenue Bonds - Rate Covenant
Revenues
+
20%
Working
Capital
Sales
Capacity Fees
Working Capital (20%)
O&M
Debt Service
+20%
>=
Operations &
Maintenance
+
P&I
+
20%
A
1.00
0.30
0.16
1.46
B
1.00
0.30
0.02
1.32
C
1.00
0.16
1.16
0.60
0.70
0.14
1.44
0.60
0.70
0.14
1.44
0.60
0.70
0.14
1.44
Water and Sewer Enterprise System
Revenue Bonds - Additional Bonds Test
 lenders’ permission
 historical earnings test – existing debt + new debt
 future earnings test – consulting engineer report for
the first two fiscal years
 liens or encumbrances – NTE 20% of assets
Water and Sewer Enterprise System
Revenue Bonds - Sale of the System
 political subdivision or public agency
 portions of the system - no longer necessary, useful or profitable
 Extension and Replacement Fund
Water and Sewer Enterprise System
Revenue Bonds - Monitoring and Financial
 file with lenders and the LGC an annual audit report
 demonstrate compliance with rate covenant
Budget Report
 SEC continuing disclosure
Audit Report
 file with the lenders an annual budget
Engineering
Reports
 inspection of the system by consulting engineers and the filing
of the report with the lenders and the LGC
 risk management – liability, property loss and damage,
business interruption
Water and Sewer Enterprise System
Credit Quality Standards
Water and Sewer Enterprise System
Credit Quality Standards
 lenders ===> evaluate risk
 no rating = no access to capital
 credit ratings impact borrowing costs
 higher ratings = lower borrowing costs
 each category in “investment grade” = $16K/$1MM
 Current CIP - $1.4MM
 A2, A and A+
BBB - Adequate Capacity
AAA - Highest Quality
BB - Low Speculative
AA - High Quality
B - Speculative
A - Strong Capacity
CCC & CC - High Speculation
D - Default
Water and Sewer Enterprise System
Credit Quality Standards
 indicators - fiscal, debt, economic, management, system
 no single, absolute indicator
 working capital (BOCC 365 days, 385 – 438 days NC)
 senior debt service coverage (credit compliance standard - 2.1X to 2.5X)
 all debt service coverage (BOCC 1.0X minimum – credit compliance standard
closer to 1.5X)
 contribution of equity to capital program (minimum 35%)
 rates – (1.5% MHI)
 cost of service based rates and self-sufficiency
 master plans, CIPs and financial feasibility
Water and Sewer Enterprise System
Laws, Regulations and Policies
Water and Sewer Enterprise System
Laws and Regulations
NC General Statutes - Rates and Charges - Capacity Fees
 G.S. 153A-276/277/284

“establish and revise from time to time schedules of rents, rates, fees,
charges, and penalties for the use of or the services furnished by a public
enterprise”

“rents, rates, fees, charges, and penalties may vary for the same class of
service in different areas of the county”

“may vary according to classes of service”
 recoup capital costs for facilities in use/not in use (I.e. growth)
 cannot be arbitrary nor w/o basis (i.e. result from planned
improvements)
 capacity component costs – water and wastewater treatment plant,
transmission and outfall facilities, pump and lift stations
 restricted to the use of capital costs for which capacity fees are
imposed
Water and Sewer Enterprise System
BOCC Policies
PW Rules and Regulations
 Water and Sewer Line Extension
 Billing and Collections
 Construction Policy
 Cashiering and Petty Cash Policy
 Rates, Fees and Charges
 Water Conservation
 Easement Acquisition
 Bank Drafts
 Self-help
 Utility Line Locates & NC 1 Call
 Automated Meter Reading
 Fire Hydrant Usage
 Risk Management
 Harris Customer Information
 Sewer Cap
 I&I Reduction and Rehabilitation
System
Water and Sewer Enterprise System
Financial Performance
Water and Sewer Enterprise System
Capital Improvement Plan Summary
(2007-2011 : $181mm)
Collection,
$8,989,055 ,
5%
Sewer
Treatment,
$52,575,260 ,
29%
Uses
Water
Treatment,
$69,063,000 ,
38%
Sources
Support,
$3,494,963 ,
2%
Storage,
$17,032,637 ,
9%
Debt,
$84,800,000 ,
47%
Contributed
capital,
$3,325,724 ,
2%
Paygo,
$93,495,444 ,
51%
Metering,
$3,776,327 ,
2%
Water Lines,
$26,689,927 ,
15%
Water and Sewer Enterprise System
Capital Improvement Plan Detail
Project
2007-2008
2008-2009
2009-2010
2010-2011
1,080,000
9,098,753
3,776,327
2,513,277
437,365
2,133,000
10,235,424
7,419,360
1,000,000
14,653,000
3,903,000
7,100,000
200,000
17,945,000
2,444,000
-
33,252,000
1,008,750
-
69,063,000
26,689,927
3,776,327
17,032,637
1,637,365
Total Water Projects
16,905,722
20,787,784
25,856,000
20,389,000
34,260,750
118,199,256
Sewer Projects
Treatment
Collection
Other Projects and Studies
18,300,609
3,775,555
985,598
9,824,651
1,540,000
672,000
9,050,000
3,443,500
200,000
7,700,000
115,000
-
7,700,000
115,000
-
52,575,260
8,989,055
1,857,598
Total Sewer Projects
23,061,762
12,036,651
12,693,500
7,815,000
7,815,000
63,421,912
39,967,484
32,824,435
38,549,500
28,204,000
42,075,750
181,621,168
Water Projects
Treatment
Water Lines
Metering
Storage
Support
Total Water & Sewer Projects
2006-2007
Water
 Construction of 25 miles of water transmission main
and lines (12” to 36”)
 Expansion of the Catawba River Water Treatment
Plant increasing the County’s allocation from 18MGD
to 30MGD
 Construction of 8MGD Northern Union County Water
Treatment Plant
 Construction of 3 elevated storage tanks with
combined capacity of 4MG
Total
Sewer
 Rerating (+0.5MGD) and expansion (+3.0MGD) of
the 12 Mile Creek Wastewater Treatment Plant (after
completion a 6MGD plant)
 Expansion (+3MGD from 6MGD to 9MGD) 12 Mile
Creek Wastewater Treatment Plant
 NO COSTS FOR TREATMENT OR CONVEYANCE
OF YADKIN/PEE DEE BASIN SEWER ($78M)
Water and Sewer Enterprise System
Financial Forecast
Projection
June 30
2007
1 Capital Program
2
Prior balance
3
Paygo
4
Contributed capital
5
Debt
6
Total
7
8
9
10
14,040,336
20,900,000
2,525,724
15,000,000
52,466,060
Number of water customers
Number of sewer customers
% annual increase in customers
% increase in avg. residential bill
Projection
June 30
2008
15,544,388
200,000
27,000,000
42,744,388
Projection
June 30
2009
16,010,720
200,000
16,210,720
Projection
June 30
2010
12,700,000
200,000
42,800,000
55,700,000
Projection
June 30
2011
14,300,000
200,000
14,500,000
34,540
24,177
12.0%
0.0%
38,145
26,716
10.5%
0.0%
41,749
29,254
9.5%
1.5%
44,865
31,448
7.5%
0.0%
47,991
33,649
7.0%
0.0%
26,472,993
(12,792,875)
13,680,118
28,408,344
(13,576,993)
14,831,351
31,316,592
(14,336,803)
16,979,789
33,516,299
(15,145,848)
18,370,451
35,823,340
(16,017,515)
19,805,825
(7,245,065)
(8,856,533)
(9,035,811)
(10,316,264)
(11,138,334)
6,435,053
5,974,818
7,943,977
8,054,187
8,667,492
16 Capacity fees
12,863,980
9,098,196
11,096,020
8,792,646
8,794,759
17 Net revenues available to fund capital (14+15)
19,299,033
15,073,014
19,039,997
16,846,833
17,462,251
18 Capital
19
Recurring
20
CIP
21
Total Capital
(669,582)
(20,900,000)
(21,569,582)
(687,724)
(15,544,388)
(16,232,112)
(665,910)
(16,010,720)
(16,676,630)
(688,105)
(12,700,000)
(13,388,105)
(727,905)
(14,300,000)
(15,027,905)
22 Other Transfers
(158,367)
(163,118)
(168,012)
(173,052)
(178,243)
(2,428,916)
(1,322,215)
25,187,807
11 Revenue (w/o capacity fees)
12 Operating expenses
13
Net revenues available for debt service (10+11)
14 Total debt service
15 Net revenues after debt service (12+13)
23 Remaining available funds (16+20)
Total Beginning Cash & Investments (incs. req. working
24 cap.)
Total Ending Cash & Investments (incs.req. working
25 cap.)
26 Working capital required - days
27 Net sources available for reinvestment (24-25)
365
2,195,356
3,285,676
2,256,102
22,758,891
21,436,676
23,632,032
26,917,707
22,758,891
21,436,676
23,632,032
26,917,707
29,173,810
19,583,934
21,913,529
23,931,285
26,187,191
28,722,979
730,517
450,830
3,174,957
(476,853)
(299,253)
Water and Sewer Enterprise System
Rate Affordability Compliance
Effect of Proposed Water and Sewer Rate Increases on Average
Residential Customer
$100.00
$90.00
Acceptable Water/Sewer Burden*
Monthly Cost for 6,700 Gallons
$84.47
$80.00
$78.07
$80.15
$86.71
$82.28
$70.00
$60.00
$50.00
$52.78
$52.78
$53.57
$53.57
$53.57
FY07
FY08
FY09
FY10
FY11
$40.00
$30.00
$20.00
*Acceptable Water/Sewer Burden is equal to 1.5% of the County's median household income. This threshold is set by the North Carolina
General Assembly through the NC Clean Water Revolving Loan and Grant Act of 1987 in establishing high-unit cost for utilities.
Water and Sewer Enterprise System
Debt Service Coverage
4
3.5
3
2.5
2
1.5
1
0.5
0
2004
2005
2006
2007
Senior Debt
2008
2009
All Debt
BOCC Standard All Debt 1X; Credit Requirements – Senior 2.1 to 2.5X
2010
2011
Water and Sewer Enterprise System
Working Capital Requirements
800
700
600
500
400
300
200
100
0
2004
2005
2006
2007
2008
2009
BOCC Standard 365 days; NC systems 385-438 days (Source: LGC)
2010
2011
Water and Sewer Enterprise System
Summary
 policy leadership decision making
 relevant and valid information
 deliberate
 considerations
Water and Sewer Enterprise System
Next Steps …..
Policy leadership decisions
 What financial resources are available to invest in the utility system?
Size of CIP $181 and higher?? ==> PayGo, Debt and Capital
Contributions
 What types of investments should be made? Historically, CIP includes
“backbone infrastructure” projects that benefit large #’s of customers
 What options are available to make water resources more available and
who pays? Self-help … 1¢ for extension of distribution system
Water and Sewer Enterprise System
Additional policy leadership decisions
 Capital Improvement Plan – Major wastewater decisions absent –
March meeting to review CIP
 Business Plan – Revisions to CIP will require update
 Capacity Fees – Revisions to CIP will necessitate update to fees; tiered
3/4” residential based on sq. ft.
 Rates – CIP and Business Plan will likely necessitate review
 Water extension line policy