WATER, WASTEWATER AND RECLAIMED WATER RATE STUDY
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Transcript of WATER, WASTEWATER AND RECLAIMED WATER RATE STUDY
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. Public Resources Management Group, Inc.Utility, Rate, Financial and Management Consultants
WATER, WASTEWATER AND RECLAIMED WATER RATE STUDYPublic Meeting to ReviewProposed Financial Plan for Utility
April 1, 2014
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November 12, 2013: Public Meeting to Establish City Council Expectations, Direction and Policy
● Minimum Monthly Charges and Base Usage Rates Unchanged Since 2008
● Course of Action Discussed: Present Proposed Financial Plan (e.g., Need for Revenue / Rate Increases) and Obtain Council Approval Before Proceeding With Rate Design
April 1, 2014 (Today): Presentation of Proposed Financial Plan for Utility
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Rate Study Timeline
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Staff Has Identified Approximately $57.5 Million in Capital Projects
● Primarily Necessary Repairs and Upgrades to Utility System
─ Public Health and Safety
─ Quality of Service
─ Asset Management
─ Could Face Future Fines From Regulatory Agencies If Not Completed
● Recommend Additional Debt Financing to Avoid “Rate Shock”
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Major Issues Currently Affecting Utility System
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Projected Funding of Capital Program:● Balance of Internal Funding Sources and
Debt Financing
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Major Issues Currently Affecting Utility System (continued)
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Operating Expenses Projected to Continue Increasing● Congressional Budget Office National CPI Projections: Over 2%
Increase Per Year
● Due to Regulatory Environment, Capital-Intensive Nature of Utility Operation, and Commodity Cost Increases (Electricity, Chemicals, Fuel, etc.), Utility Costs Typically Increase at Higher Rate Than General Inflation
● Inflation and Costs of Construction (ENR Construction Cost Index) Continue to Increase Despite Economy
5
Major Issues Currently Affecting Utility System (continued)
Items 1-Year Change 5-Year Change 10-Year Change 20-Year Change
BUREAU OF LABOR STATISTICSCPI - U.S. City Average 1.49% 2.10% 2.38% 2.39%Electricity 3.21% 0.93% 3.76% 2.38%Fuel Oil -1.81% 8.31% 10.89% 7.76%Water and Sewerage Maintenance Index 3.84% 5.93% 5.87% 4.61%
ENGINEERING NEWS-RECORDConstruction Cost Index 2.41% 2.56% 3.50% 2.99%
HISTORICAL INFLATIONHistorical Annual Compound Growth Rate
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Must Meet Debt Service Requirements Associated With Existing and Anticipated Debt● 150% All-In Coverage Target Recommended
(Supported by Credit Rating Agencies)
Need to Maintain Adequate Operating Reserves and Margins to Ensure Continued Creditworthiness of System and Provide Funds for Emergencies● Target Operating Reserves Balance = 90 Days of Rate
Revenue
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Major Issues Currently Affecting Utility System (continued)
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Projected Need to Adjust Rates to Keep Utility Sustainable
Cumulative National CPI Change Since Last Adjustment (in 2008) of Minimum Monthly and Base Usage Charges: 7.3%
Revenue Requirements Analysis:
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Revenue Under Existing Rates Projected to Be Insufficient to Meet All Revenue Requirements
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Balance of Operational and Financial Considerations
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Projected Need for Revenue Adjustments
2015 2016 2017 2018 2019
Water System (CPI Adjustments) 1.9% 2.1% 2.2% 2.4% 2.4%Wastewater and Reclaimed Water System 9.0% 9.0% 9.0% 9.0% 9.0%
Combined Retail System - Water, Wastewater and Reclaimed Water 5.0% 5.3% 5.4% 5.6% 5.8%
Fiscal Year Ending September 30,
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Water Revenue Adjustments● CPI Adjustments to Preserve Operating Margins
● User Rates Anticipated to Remain Around Average of What Neighboring Utilities Are Charging
Wastewater and Reclaimed Water Revenue Adjustments● Adjustments for Wastewater and Reclaimed Water Are Same
Since Systems Are Integrally Linked─ City Considers Reclaimed Water 100% Wastewater-Related
─ Reclaimed Water Revenue Classified as Component of Wastewater Revenues in City Financial Reports
● User Rates Anticipated to Gradually Increase to Average of What Neighboring Utilities Are Charging
Alternative: Could Make All User Rate Revenue Adjustment Percentages the Same
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Revenue Adjustment Comments
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Existing Senior Lien Bonds Fully Paid By Fiscal Year 2022 and Largest Existing SRF Loan Fully Paid By Fiscal Year 2024● Revenues Currently Used to Pay These Debt Issues Can Be
Used for Either:─ Pay-As-You-Go Funding for Routine Capital Replacements
─ Additional Debt for Major Capital Expenditures
(e.g., Growth-Related Projects, Major System Replacements)
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Revenue Adjustments Are Positioning Utility for More Pay-As-You-Go Funding of Renewals and Replacements
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Discussed During November 12th Meeting
In Absence of Rate Study Recommendation, Automatic Rate Increases for Inflationary Effects on Costs of Operation● Implemented Without Formal Public Hearing or Analysis
● Effective October 1st of Each Fiscal Year
● Could Consider Maximum and Minimum Percentages (e.g., No Rate Decreases If Index Percentage Change Is Negative)
Favored By Credit Rating Agencies● More Assurance That Rates Will Keep Up With Inflation
● Less Implied Risk of Default on Debt Service Payments
Any Adjustments Above Index Adjustment Would Require Council Adoption 11
Recommendation: Price Indexing Adjustment Clause
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Monthly Usage of 4,000 Gallons ● Average Usage of Single Family Residential Customer in System
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Water User Rate Comparison
[*] Utilities in CAPITALIZED letters: i) are involved in rate study; ii) are planning to conduct rate study; or iii) will implement rate revision or price index / pass-through adjustment within twelve months
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Wastewater User Rate Comparison
[*] Utilities in CAPITALIZED letters: i) are involved in rate study; ii) are planning to conduct rate study; or iii) will implement rate revision or price index / pass-through adjustment within twelve months
Monthly Usage of 4,000 Gallons ● Average Usage of Single Family Residential Customer in System
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Combined Water and Wastewater User Rate Comparison
[*] Utilities in CAPITALIZED letters: i) are involved in rate study; ii) are planning to conduct rate study; or iii) will implement rate revision or price index / pass-through adjustment within twelve months
Monthly Usage of 4,000 Gallons ● Average Usage of Single Family Residential Customer in System
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Monthly Usage of 12,000 Gallons ● Average Usage of Single Family Residential Customer with Reclaimed
Water Service in System
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Reclaimed Water User Rate Comparison
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Request Approval of Proposed Financial Plan
PRMG Will Return in a Few Weeks with Proposed Rates
●User Rates
●Development Fees (Impact Fees)
●Miscellaneous Service Charges
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Moving Forward…
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Development of Financial Forecast
● Fiscal Years 2014 to 2019
● Purpose: To Identify Funding Requirements and Cost Recovery Strategies
● Assess the Adequacy of Existing Rates
Analysis Includes Forecast of:
● Customer Growth and Revenue
● Operating Expenses
● Debt Service Obligations
● Capital Improvement Requirements / Funding17
Financial Plan
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Compliance With Regulatory Requirements
● EPA / FDEP / SJRWMD
Revenues Should Be Sufficient to Recover Full Cost of Providing Service
Utility Should Remain Financially Viable and Sustainable
● Adequate Funding for Operating and Maintaining the System
● Capital Investment to Improve, Renew and Rehabilitate Facilities
● Compliance With Rate Covenants for Existing and Anticipated Debt
● Balanced Debt Risk (Pay-As-You-Go vs. Debt Financing)
● Adequate Cash Reserves18
Financial Plan Guiding Principles
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Identified Water System Capital Program:
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Major Issues Currently Affecting Utility System (continued)
Estimated Total % ofCost During Total Capital
Project Description Forecast Period Costs
WATER SYSTEMWater System Replacements $4,255,397 7.4%Upgrade Water Meters and Flex Tower Read 3,116,664 5.4%Potable Water Plant Renovations / Replacements 2,145,831 3.7%Departmental Capital 1,389,015 2.4%City Cost Participation Projects 695,441 1.2%Fleet Replacement Projects 594,247 1.0%Telemetry Instrument / Control System Upgrades 530,000 0.9%Potable Water Supply Projects 521,573 0.9%Other Water System Projects 1,298,597 2.3%
Total Water System Projects $14,546,765 25.3%
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Identified Wastewater and Reclaimed Water System Capital Program:
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Major Issues Currently Affecting Utility System (continued)
Estimated Total % ofCost During Total Capital
Project Description Forecast Period Costs
WASTEWATER ANDRECLAIMED WATER SYSTEM
Sewer System Rehabilitation $16,810,490 29.2%Existing Plant Renovations 10,376,841 18.0%Upgrade Water Meters and Flex Tower Read 3,543,503 6.2%Water Reuse Program 3,150,000 5.5%Replace Existing Lift Stations 2,470,845 4.3%Reservoir Outfall 2,342,304 4.1%Departmental Capital 843,237 1.5%Fleet Replacement Projects 615,253 1.1%Other Wastewater and
Reclaimed Water System Projects 2,795,544 4.9%Total Wastewater and
Reclaimed Water System Projects $42,948,017 74.7%
TOTAL CAPITAL PROGRAM $57,494,782 100.0%
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Reflect Total Expenditures Funded from Rates
Expenditures Include the Following:● Operation and Maintenance Expenses
● Debt Service Requirements
● Renewals and Replacements
─ Ongoing: Allows Assets to Meet Useful Service Life
─ Major: Extends Useful Service Life of Assets
● Administrative Transfers
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Revenue Requirements
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Breakdown of Need for Revenue Adjustments
5.0% FY 20155.3% FY 20165.4% FY 20175.6% FY 20185.8% FY 2019
30.2% Cumulative
Implementation ofCumulative Revenue
Adjustment
CompoundAnnual Growth
2014 2019 Rate
Revenue Under Existing Rates:Projected Rate Revenues $22,744,950 $23,004,309 0.23%Other Operating Revenue 808,053 812,253 0.10%Unrestricted Interest Income 20,383 118,907 42.30%
Total System Revenue $23,573,385 $23,935,469 0.31%
Revenue Requirements:Projected Operating Expenses $13,209,290 $15,830,386 3.69%Annual Debt Service (Senior Lien Bonds Plus SRF Loans) 6,808,526 9,041,723 5.84%Transfer to Renewal and Replacement (R&R) Fund 2,399,999 2,917,066 3.98%Payment-in-Lieu-of-Taxes (PILOT) 1,276,118 1,443,810 2.50%Capital Funded From Rates 732,520 1,233,262 10.98%Allowance For Debt Service Coverage / Maintenance of
Adequate Operating Reserves / Additional R&R Funding 0 411,663Total System Revenue Requirements $24,426,453 $30,877,911Less Bulk, Other Revenue and Unrestricted Interest Income (828,436) (931,160)Total Amount to Be Recovered From User Rates $23,598,018 $29,946,751
Revenue Surplus / (Deficiency) ($853,068) ($6,942,442)Use of Operating Reserves to Cover Deficiency $853,068Months in Effect 12Cumulative Revenue Adjustment Required 0.0% 30.2%
Fiscal Year