Utility Financial Performance Indicators and Benchmarks

Transcription

1 Utility Financial Performance Indicators and Benchmarks Shadi Eskaf Senior Project Director February 29, 2012, Lake Junaluska, NC

2 Can You Sleep at Night? Is your utility (public enterprise) self sufficient? Can your utility meet its short term obligations? If your customers stop paying their bills, how long can you maintain operations? Are you able to cover your debt service after paying for your day to day operations? How much of your utility s expected life has already run out (and how much is left)? Operating Ratio Quick Ratio Days Cash on Hand Debt Service Coverage Ratio Asset Depreciation

3 Sample Income Statement Interest is a source of non-operating expense/revenue Impact fees (system development charges) are a source of non-operating revenue. Separate them out from your tap (connection) fees, which ARE operating revenues.

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5 Operating Ratio A measure of self sufficiency. Natural Benchmark: > 1.0 The revenue you get from daily operations, divided by the expenditures or expenses you make to keep operations running (see next slides)

6 T'mayto, Tahmahto: Operating Ratio North Carolina Local Government Commission Operating revenues divided by operating expenses including depreciation and the provision for bad debts. National Association of Clean Water Agencies Operating revenues divided by operating expenditures (excludes depreciation).

7 T'mayto, Tahmahto: Operating Ratio Mississippi Water Association Financial Indicators Study Operating Expenses are equal to the sum of the following: salaries, board per diem, fringe benefits, office supplies, utilities, insurance, repairs, contractual services, travel, interest, depreciation, and other expenditures not included in nonoperating expenses. Non-operating expenses are defined as being equal to the purchase of investments. While this definition is not one that is prescribed to by most financial analysts, investment purchase is used as a significant cash flow tool by water associations making these purchases and therefore is included here. Includes interest payments and impact fees.

8 T'mayto, Tahmahto P tayto?: Operating Ratio Margin Operating Margin: operating revenues minus operating expenses including depreciation

9 Quick Ratio Accepted Benchmark: > 2 A measure of short-term liquidity: ability to pay your current bills

10 Days Cash on Hand Benchmark? At the very least, enough to last a billing cycle or when you expect a substantial inflow of cash A measure of the ability of the utility to weather a significant temporary reduction in revenue to continue paying for daily operations

11 Debt Service Coverage Ratio Natural Benchmark: > 1 A measure of the ability to pay debt service with operating revenue: Operating revenue left over after daily operation expenditures, divided by debt service

12 Debt Ratios

13 Infrastructure Condition* *Caveat This indicator is only as good as your depreciation schedule and even then historic pricing is likely to distort the results. Benchmark? Don t get close to 1.0 A measure of how much of your total assets have already depreciated. As you approach 1.0, your system is near the end of its expected life.

14 Ratios and Benchmarks Checked by Other Agencies

15 Key Indicators Being Monitored by the Local Government Commission Net Income Before Capital Contributions = Operating Revenue + Non-operating Revenue + Transfers In Operating Expenses Non-operating Expenses Transfers Out Must be > 0 Debt to Equity = Total Long Term Debt / Total Fund Equity among others Annual Memo

16 FY LGC Water & Sewer Summary and Key Ratios Source: LGC, Memorandum # Statistical Information on Water and Sewer Operations

17 LGC s County and Municipal Fiscal Analysis Dashboard dlocalgov/lgcreport

18 Drought Bill Section 9 Eligibility Criterion for State Funds Effective July 2009 Applies to applicants state funding Rates must be adequate to pay the cost of maintaining, repairing, and operating the system, including reserves for payment of principal and interest on indebtedness incurred for maintenance or improvement of the water system Criterion summarized at: water_rate_structure_guidance_2.pdf

19 Drought Bill Section 9 Eligibility Criterion for State Funds: Checklist 1. Operating Revenues >= Operating Expenditures (excludes depreciation)? Must be YES. 2. Operating Revenues >= Operating Expenditures + Principal + Interest Payments on Debt? If not YES, go to next step. a) Were there unusual circumstances this year? If YES, show how revenues will meet requirements on an ongoing basis in the future. b) Is there another major reason? If YES, submit financial plan to show how revenues will meet requirements within 3 years.

20 Shadi Eskaf Environmental Finance Center University of North Carolina CB #3330, Knapp-Sanders Building Chapel Hill, NC USA