City Of Phoenix Water Rates June 30, 2011 Denise Olson Deputy Finance Director Finance Department.
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City Of Phoenix City Of Phoenix Water Rates Water Rates June 30, 2011 June 30, 2011 Denise Olson Denise Olson Deputy Finance Director Deputy Finance Director Finance Department Finance Department
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Transcript of City Of Phoenix Water Rates June 30, 2011 Denise Olson Deputy Finance Director Finance Department.
City Of PhoenixCity Of PhoenixWater RatesWater Rates
June 30, 2011June 30, 2011
Denise OlsonDenise Olson
Deputy Finance DirectorDeputy Finance Director
Finance DepartmentFinance Department
AgendaAgenda
City of Phoenix Water System OverviewCity of Phoenix Water System Overview Legal Requirements & Industry StandardsLegal Requirements & Industry Standards Rate Setting ProcessRate Setting Process Reasons for Last Rate Increase Reasons for Last Rate Increase Water RatesWater Rates Rate ComparisonsRate Comparisons
Phoenix Water Services Phoenix Water Services BackgroundBackground
Service Area: Service Area: 540 square miles540 square miles System Includes:System Includes: 6 treatment plants6 treatment plants
7,000 miles of water mains7,000 miles of water mains21 active wells21 active wells109 water pump stations109 water pump stations53,000 fire hydrants53,000 fire hydrants
Fiscal Year 2011-12 Budget: $411 millionFiscal Year 2011-12 Budget: $411 million Number of positions (2010-11): 803Number of positions (2010-11): 803 Net Assets FY 2010 = 1.2 billionNet Assets FY 2010 = 1.2 billion AAA Bond RatingAAA Bond Rating
Distribution of Water Accounts Distribution of Water Accounts by Major User Groups FY 2010by Major User Groups FY 2010
Accounts 403,000
Single-Family 88%
Non-Residential 8%
Multi-Family 4%
Distribution of Water Consumption Distribution of Water Consumption by Major User Groups FY 2010by Major User Groups FY 2010
Single-Family 51%
Multi-Family 15%
Non-Residential 34%
Consumption 119,411,848 ccf1 ccf equals 748 gallons
Water & Wastewater Water & Wastewater Annual Budgeted ExpendituresAnnual Budgeted Expenditures
Debt Service 25%
Pay as you Go Capital
27%
Chemicals, Water & Electricity
15%
Materials, Supplies, &
Outside Services 16%
Personnel 17%
Legal and Industry StandardsLegal and Industry Standards
““Just and Reasonable” per ARS - Cost of Just and Reasonable” per ARS - Cost of Service BasedService Based
Federal Equal Protection Regulations - Federal Equal Protection Regulations - equityequity
Cost Recovery per Phoenix City CodeCost Recovery per Phoenix City Code Revenue StabilityRevenue Stability Cost of Providing Service Using Industry Cost of Providing Service Using Industry
Standards (AWWA M1) Standards (AWWA M1) Rates Approved Through The Public Rates Approved Through The Public
Process per ARS Process per ARS
Public Notice RequirementsPublic Notice Requirementsper ARS title 9, ch 5, art 2, per ARS title 9, ch 5, art 2, sec 9-511.01 & 9-499.15sec 9-511.01 & 9-499.15
TasksTasks Days to EffectiveDays to Effective DateDate
Post Notification on City webPost Notification on City web >90>90
Council gives Notice of IntentCouncil gives Notice of Intent >60>60
File Notice of Intent & rate record with Clerk File Notice of Intent & rate record with Clerk
>60>60
Publish Legal AdvertisingPublish Legal Advertising >40>40
Hold Public HearingHold Public Hearing >30>30
Approve Rate AdjustmentApprove Rate Adjustment >30>30
Rate becomes EffectiveRate becomes Effective 00
Develop 10-Year CIP & (2 year) O&M Budget
Develop 10-Year CIP & (2 year) O&M Budget
Develop Revenue Estimates
Develop Revenue Estimates
Determine Rate Increase Necessary to Support Financial Plan
Determine Rate Increase Necessary to Support Financial Plan
Prepare Financial Plan
Prepare Financial Plan
City Council Approves 5-Year CIP and Financial Plan
City Council Approves 5-Year CIP and Financial Plan
City Council Authorizes First Year Rate Increase and Bond Authorizations
City Council Authorizes First Year Rate Increase and Bond Authorizations
Phoenix Annual Phoenix Annual Rate Development Rate Development
ProcessProcess
Methods to Determine Required Methods to Determine Required RevenuesRevenues
Cash Needs ApproachCash Needs Approach
(Municipal)/Phoenix(Municipal)/Phoenix
Utility Approach (Similar Utility Approach (Similar to Investor-owned)to Investor-owned)
O&M CostsO&M Costs O&M CostsO&M Costs
Capital ExpendituresCapital Expenditures Depreciation Expense and Depreciation Expense and Rate of Return or cash Rate of Return or cash fundedfunded
Amortization of DebtAmortization of Debt Depreciation ExpenseDepreciation Expense
Interest on DebtInterest on Debt Rate of Return (utility Rate of Return (utility risks)risks)
Taxes/PILOT Taxes/PILOT (Payment in Lieu (Payment in Lieu of Taxes)of Taxes)
TaxesTaxes
Debt payments for $1 billion in capital improvement Debt payments for $1 billion in capital improvement projects for bonds issued in the last five years.projects for bonds issued in the last five years.
$200 million construction expenses required to comply $200 million construction expenses required to comply with the Federally mandated Safe Drinking Water Act.with the Federally mandated Safe Drinking Water Act.
$15 million additional operational costs associated with $15 million additional operational costs associated with Safe Drinking Water Act compliance.Safe Drinking Water Act compliance.
Continued maintenance and replacement of an aging Continued maintenance and replacement of an aging infrastructure.infrastructure.
And continued implementation of cost saving programs And continued implementation of cost saving programs like the automatic meter reading equipment.like the automatic meter reading equipment.
FACTORS IMPACTING FACTORS IMPACTING ADDITIONAL RATE REVENUEADDITIONAL RATE REVENUE
Date of Date of IncreaseIncrease
Previous Previous ForecastForecast
New 2011 New 2011 ForecastForecast
March 2011March 2011 8.0%8.0% 7.0%7.0%
March 2012March 2012 8.0%8.0% 7.0%7.0%
March 2013March 2013 7.0%7.0% 6.25%6.25%
March 2014March 2014 7.0%7.0% 5.5%5.5%
March 2015March 2015 7.0%7.0% 5.0%5.0%
March 2016March 2016 Not ForecastedNot Forecasted 5.0%5.0%
PROJECTED WATER PROJECTED WATER RATE INCREASESRATE INCREASES
Questions and DiscussionQuestions and Discussion
Water Fund Available Cash/Liquidity Water Fund Available Cash/Liquidity as Compared to Debt Service as Compared to Debt Service
(With March 2011 Increase)(With March 2011 Increase)
-50
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017
$ M
illio
ns
Available Cash/Liquidity
Debt Service
FISCAL YEAR
Assumes all future increases after March 2011 implemented and no change in expenditures. Financial policy is for available fund balances to equal, at a minimum, total debt service. Higher liquidity is required if debt service coverages are below recommended levels as is the case through 2015.
Water Fund Available Cash/Liquidity Water Fund Available Cash/Liquidity as Compared to Debt Serviceas Compared to Debt Service
(No Increase in March 2011)(No Increase in March 2011)
-50
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017
$ M
illio
ns
Assumes all future increases after March 2011 implemented and no change in expenditures. Financial policy is for available fund balances to equal, at a minimum, total debt service. Higher liquidity is required if debt service coverages are below recommended levels.
Available Cash/Liquidity
Debt Service
FISCAL YEAR
Standard & Poors: Phoenix, Standard & Poors: Phoenix, Arizona; Water/Sewer assigns AAA Arizona; Water/Sewer assigns AAA Rating and Stable - April 4, 2009Rating and Stable - April 4, 2009
The stable outlook reflects our expectation that The stable outlook reflects our expectation that the systems’ strong financial performance will the systems’ strong financial performance will continue as the city implements its large CIP and continue as the city implements its large CIP and regular annual rate increases. regular annual rate increases.
The water system has a consistent history of The water system has a consistent history of city-approved rate increases, having city-approved rate increases, having implemented 19 rate increases in the last 20 implemented 19 rate increases in the last 20 years.years.
Water Base ChargeWater Base Charge
Meter Meter MonthlyMonthly
5/8”5/8” $4.36$4.36
3/4”3/4” $4.45$4.45
1”1” $4.49$4.49
1-1/2”1-1/2” $5.57$5.57
2”2” $5.97$5.97
3”3” $20.23$20.23
4”4” $22.56$22.56
6”6” $24.60$24.60
• Covers the cost to read the Covers the cost to read the meter, bill and support the meter, bill and support the customer and maintain the customer and maintain the metermeter
• Charge varies by meter sizeCharge varies by meter size• Includes 6 ccf of water in winter Includes 6 ccf of water in winter
months and 10 ccf in summer months and 10 ccf in summer months. (Lifeline)months. (Lifeline)
Rates effective April 1, 2011
Finance
DanThis Base charge includes Cust Serv call center and billing system costs. It is divided equally among the 400,000 cust. Meter maint cost is proportionate to the size of the meter. The Base charge also includes 6 or 10 ccf of "free" water. We call this the lifeline amount. More discussion to follow.The last rate change came after our study in 2006. The rates were partially reduced pending a second review after the new billing system is operational. Currently, $5m is being over collected in Base charges.
Water Volume ChargeWater Volume Charge
Winter Season Winter Season Dec – MarDec – Mar $2.44$2.44
Spring/Fall Season Spring/Fall Season Apr, May, Oct, NovApr, May, Oct, Nov $2.95$2.95
Summer Season Summer Season Jun – SepJun – Sep $3.77$3.77
• Raw Water CostsRaw Water Costs• All Other Costs to Treat and Deliver WaterAll Other Costs to Treat and Deliver Water• Rate based on Seasonality of costsRate based on Seasonality of costs
Rates effective April 1, 2011
Finance
DanThe Volume Rate is charged per ccf after the 6 or 10 units that are included in the Base.Volume charge recovers the costs for the water, costs to treat and the cost to deliver the water. Except for raw water costs, costs are relative to proportionate consumption required between seasons. The Winter rate is based on the minimum usage of the system during Dec, Jan, Feb and Mar. The summer rate is based on the additional plant capacity and cost needed to meet maximum day and max hour usage during Jun, Jul, Aug and Sep. This is based on several peaking studies. The rate runs about 1.5 times the winter rate.The spring and fall transition to and from summer rate.The rates were last increased March 2008.
Water Environmental ChargeWater Environmental Charge
• Environmental ChargeEnvironmental Charge
Environmental Costs to Treat and Deliver WaterEnvironmental Costs to Treat and Deliver Water• Charged to total consumptionCharged to total consumption
Rate per ccfRate per ccf $0.42$0.42
Rates effective April 1, 2011
Finance
DanImplemented December 1992.Rate based on costs incurred to meet federal and state environmental regulations.Rate is charged on the total amount of consumption.Rates last increased March 2008.
WATER & WASTEWATER RATE COMPARISONSWATER & WASTEWATER RATE COMPARISONSCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILLCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL
20 LARGEST U.S. CITIES20 LARGEST U.S. CITIES
0
20
40
60
80
100
120
140
160
180
San
Fra
nci
sco
San
Die
go
New
Yo
rk
Jack
snvl
le
Was
h D
C
Co
lum
bu
s
Bal
tim
ore
San
Jo
se
Lo
s A
ng
eles
Ph
ilad
elp
hia
Ho
ust
on
Dal
las
Ind
ian
apo
lis
Det
roit
Pro
po
sed
Cu
rren
t
Milw
auke
e
El P
aso
San
An
ton
io
Ch
icag
o
Mem
ph
is
Water
$/MONTH
Wastewater
Based on rates in effect October 1, 2010
$58.46$56.25
WATER & WASTEWATER RATE COMPARISONSWATER & WASTEWATER RATE COMPARISONSCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILLCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL
SOUTHWEST REGIONSOUTHWEST REGION
0
20
40
60
80
100
120
140
Water
$/MONTH
Wastewater
Based on rates in effect October 1, 2010
WATER & WASTEWATER RATE COMPARISONSWATER & WASTEWATER RATE COMPARISONSCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILLCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL
PHOENIX METRO AREAPHOENIX METRO AREA
0
20
40
60
80
100
120
Gle
ndal
e
Mes
a
Propo
sed
Scotts
dale
Peoria
Curre
nt
Chandl
er
Tempe
Water
$/MONTH
Wastewater
Based on rates in effect October 1, 2010
$105.99
$66.27$60.88 $58.46 $58.28 $56.48 $56.25 $54.52
$46.39
Proforma 7% rate increaseProforma 7% rate increase
Objectives of Current Rate StructureObjectives of Current Rate Structure UnderstandableUnderstandable Simpler to forecast revenuesSimpler to forecast revenues Flattens peaks in SummerFlattens peaks in Summer Includes essential lifeline water demandsIncludes essential lifeline water demands Stable monthly water bill for low volume usersStable monthly water bill for low volume users Equitable by the fact that each customer pays same Equitable by the fact that each customer pays same
rate for water rate for water Provides an incentive for all customers to conserveProvides an incentive for all customers to conserve
Finance
MelindaThe current rate structure is easier for the public to understand.It is simpler to forcast revenuesThe higher costs in the summer months aids in flattening the peaks that occur in the system during these months.Provides a lifeline of essential water demands for single family users.This structure provides a low cost, stable monthly bill for low water users as the lifeline is not affected by a rate increase. Each customer pays the same rate, which makes the rate structure equitable. it provides an incentive for all customers to conserve above the lifeline allocation.Although the previous structure did provide the required revenue, it made revenue very hard to forecast. Equity was also difficult to determine. Also, and maybe the most important, the lack of simplicity may not have allowed for customers to fully realize the potential for water conservation. A survey given to customers before the new rate schedule was adopted found that only 50% were aware that summer rates were higher than winter.
Why Seasonal RatesWhy Seasonal Rates
System capacity is designed to meet peak System capacity is designed to meet peak demands demands
Peak Demand in Phoenix is in Summer MonthsPeak Demand in Phoenix is in Summer Months Rate structure focuses on degree of variability in Rate structure focuses on degree of variability in
usage between seasonsusage between seasons Provide a price signal to the consumer during the Provide a price signal to the consumer during the
peak period peak period Encourage efficient use of water systemEncourage efficient use of water system
Finance
MelindaHere are some reasons why Phoenix has a seasonal rate structure
Date of Date of IncreaseIncrease
Previous Previous ForecastForecast
New ForecastNew Forecast
2011 Financial 2011 Financial PlanPlan
March 2011March 2011 4.5%4.5% 0.0%0.0%
March 2012March 2012 4.5%4.5% 0.0%0.0%
March 2013March 2013 4.5%4.5% 2.0%2.0%
March 2014March 2014 4.5%4.5% 3.0%3.0%
March 2015March 2015 4.5%4.5% 3.0%3.0%
March 2016March 2016 Not ForecastedNot Forecasted 2.0%2.0%
PROJECTED WASTEWATER RATE INCREASES
Costs of Service AllocationCosts of Service Allocation
EnvironmentalEnvironmental Environmental ChargeEnvironmental Charge
Environmental ModelEnvironmental Model Cost of Service Rate ModelCost of Service Rate Model
Raw WaterRaw Water
TreatmentTreatment
DistributionDistribution
Customer Customer ServicesServices Base ChargeBase Charge
Volume ChargeVolume Charge
Meter Meter MaintenanceMaintenance
• Base costs to meet average usage Base costs to meet average usage
• Extra costs to meet max day and Extra costs to meet max day and max hour usage (Summer)max hour usage (Summer)
Finance
DanManagement Service prepares a two-year budget and allocates the expenses by operation function and cost related to complying to the Safe Drinking Water Act. This is called the Environmental model. The splits were determined by an engineering study in 2004. FUA takes the results from the Envir model and allocates the costs to the Base, Volume or Environmental charge components based on the cost of service provided. The Base charge includes Cust Serv Call center and billing system costs. It is divided equally among the 400,000 cust. Meter Maint cost is allocated by the size of the meter. The Base also includes 6 or 10 ccf of "free" water. We call this the lifeline amount. The last rate change came after our study in 2006. The rates were partially reduced pending a second review when the new billing system is operational. We expect the rates to go down again. The volume rate is charged per ccf after the 6 or 10 units that are included in the base. Volume charge recovers the costs for raw water, costs to operate the treatment plants and the costs to deliver the water. The costs are allocated at two levels of capacity. The base capacity covers the average usage of the system as if there were no peak usage. This is the winter rate. The higher capacity is based on the additional plant capacity needed to meet maximum day and max hour usage. This is the summer rate. These levels are based on several peaking studies. The spring and fall rates transition to and from the summer rate as consumption changes. The environmental rate was implemented in 1992. The rate recovers costs incurred to meet the Federal Safe Drinking Water Act and other state regulations. The rate is charged on the total consumption amount.
Why No Customer ClassesWhy No Customer Classes Rates should allocate peak costs based on a Rates should allocate peak costs based on a
customer’s contribution to that peak water customer’s contribution to that peak water demanddemand
Customer classes are not the only method to Customer classes are not the only method to fairly allocate peaking costsfairly allocate peaking costs
City of Phoenix data shows that peaking City of Phoenix data shows that peaking characteristics do not vary materially among characteristics do not vary materially among customer classescustomer classes
Seasonal structure results in fairer and more Seasonal structure results in fairer and more equitable ratesequitable rates
Finance
MelindaThe largest capital expense for a water utility is providing for the max day or hour water demand.This is how treatment plants and distribution systems are sized. Based on this, a basic principle of rate design is to allocate the peak costs based on a customer's contribution to that peak demand.Phoenix considered this, as well as points that I have already mentioned earlier to decide on a rate structure. Customer classes are not the only fair method to allocate peaking costs.Customer classes should be considered if:the classes have little variation within the class in relation to their peaking characteristicsA material difference in peaking exists between the customer classesA material cost of service difference can be clearly identified for the specific customer classImportant rate objectives to the community (water conservation) are not compromised.
Rates Compared to Billed ccfsRates Compared to Billed ccfs
0
0.5
1
1.5
2
2.5
3
Jan March May July Sept Nov
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
Jan March May July Sept Nov
$ Volume Charge per Month
Monthly Billable UnitsCCfs
Finance
Quickly - These two bar charts illustrate the direct relationship between our seasonal rates and consumption on our water system per month.
Water & Wastewater Water & Wastewater Annual Budgeted ExpendituresAnnual Budgeted Expenditures
Debt Service 25%
Pay as you Go Capital
27%
Chemicals, Water & Electricity
15%
Materials, Supplies, &
Outside Services 16%
Personnel 17%
$761 Million
