UTILITY RATE STUDY. Public Hearing

Transcription

1 UTILITY RATE STUDY Public Hearing. Public January 23, 2018 Resources Management Group, Inc. Utility, Rate, Financial, and Management Consultants

2 Rate Guiding Principles Recognized 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 Recurring Capital Investment to Improve, Renew, and Rehabilitate Facilities Compliance With Rate Covenants for Existing Debt Adequate Cash Reserves 2

3 Recap of Major Issues Currently Affecting Utility System Operating Expenses Anticipated to Increase Above General Inflation Rate and Growth in Customers Declining Operating Margins Affect Ability to: Reinvest in Utility System Meet Debt Service Coverage Targets and Requirements District Not Projected to Meet Coverage Requirements in All Years of Forecast Period Without Further Rate Adjustments 3

4 Recap of Major Issues Currently Affecting Utility System (cont.) Substantial Need for Renewals, Replacements, and Upgrades to Aging Utility System as Identified in Recently Completed Master Plan $12.3 Million Through Fiscal Year 2022 $20.1 Million from Fiscal Year 2023 to 2027 Annual Capital Expenditures Exceed Margins Available for Pay-As-You-Go Capital Funding Adjustments Needed to Maintain Target Cash Balances 4

5 Moving Forward Based on Board Direction, Have Recognized Uniform or Across-the-Board User Rate Adjustments for Both Water and Wastewater During December Board Meeting, Two (2) Adjustment Options Above Rates Effective October 1, 2017 Were Identified By Board: EFFECTIVE DATE OPTION 1 OPTION 2 February 1, % Volumetric Adjustment 4% Volumetric Adjustment October 1, % Across-the-Board 4% Across-the-Board October 1, % Across-the-Board 4% Across-the-Board October 1, % Across-the-Board 4% Across-the-Board October 1, % Across-the-Board 4% Across-the-Board Level of Capital Needs Recognized in Master Plan Supports Either Option 5

6 Graphical Overview With 5% Adjustments 6

7 Graphical Overview With 4% Adjustments 7

8 Combined Water and Wastewater User Rate Comparison Average Monthly Usage of Single Family Residential Customer in System Is 3,000 Gallons [*] 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 8

9 Proposed Residential Rates Considered Affordable By Utility Industry Standards Monthly Water and Wastewater Bill Less Than 2% to 4.5% (Depending Upon Source) of Median Household Income Considered Affordable Englewood, FL Monthly Water and Wastewater Bill for Average Single Family Residential Customer Under Proposed User Rates [1] $57.01 Median Monthly Household Income per U.S. Census Bureau [2] $3,542 Percent of Total 1.61% [1] Monthly usage of 3,000 gallons. [2] $42,500 Annual Median Household Income / 12 Months. 9

10 Proposed Capital Capacity Charges Per ERC Plant Capacity / Transmission System Fees Calculated Based on Historical Installed Costs and Estimated Multi-Year Capital Program / Equity Buy-In Method Existing and Proposed Water and Wastewater Capital Capacity Charges Per ERC Difference System Existing Proposed Amount Percent Water $2, $1, ($322.96) (15.6%) Wastewater $2, $2, ($95.94) (3.4%) Total $4, $4, ($418.90) (8.5%) ERC = Equivalent Residential Connection 10

11 Capital Capacity Charge / Impact Fee Comparison Per ERC 11

12 Accrued Guaranteed Revenue Fee (AGRF) New Fee Being Recommended for Consideration $329 Per Water ERC, $580 Per Wastewater ERC Allowed By Florida Public Service Commission in Regulation of Private Utilities and Applied By Several Public Utilities Recovers "Cost of Carrying Capacity" Capital Capacity Charges Recover Capital Costs, AGRF Recover Interest Costs Applied Only to New Connections Paid at Same Time as Capital Capacity Charges Included as Operating Revenue of Utility System Improves Debt Service Coverage and Capital Reinvestment Margins Benefits Existing Customers Over Long Run By Increasing System Revenue, Thereby Reducing Future Monthly User Rate Adjustments 12

13 Other Charges Wholesale Water and Wastewater Rates Applicable Unless Otherwise Set By Contract Existing Proposed Effective Effective Description 10/1/2017 2/1/2018 Wholesale Water Rates Capital Capacity Charges Paid for Service: Wholesale Monthly Billing Charge $25.00 $0.00 Rate Per 1,000 Gallons No Capital Capacity Charges Paid for Service: Wholesale Monthly Billing Charge $25.00 $0.00 Rate Per 1,000 Gallons Wholesale Wastewater Rates (Master Meters and Non-District Collection Systems) Capital Capacity Charges Paid for Service per 1,000 Gallons: Billing Off Water Meter Rate $5.83 $ % of Metered Water Consumption) Billing Off Wastewater Meter Rate Proposed Wholesale Rates for Fiscal Year 2019 and Beyond Based on Uniform / Across-the- Board Adjustments for Each Respective System No Capital Capacity Charges Paid for Service per 1,000 Gallons: Billing Off Water Meter Rate $5.83 $7.81 (@ 80% of Metered Water Consumption) Billing Off Wastewater Meter Rate

14 Other Charges (cont.) Reuse Water Rates Applicable Unless Otherwise Set By Contract Existing Proposed Effective Effective Description 10/1/2017 2/1/2018 Reuse Water Rate Per 1,000 Gallons Usage to Isolated Pond $0.15 $0.28 Pressurized Usage Proposed Reuse Water Rates for Fiscal Year 2019 and Beyond Based on Uniform / Across-the-Board Adjustments for Wastewater System Monthly Fire Protection Charges Based on Florida Public Service Commission (FPSC) Ratemaking Guidelines (Florida Administrative Code Private Fire Protection Rates) Applied By Private Utilities Regulated By FPSC and Several Public Utilities One-Twelfth (1/12) of Monthly Base Charge Applied to AWWA Meter Equivalents Corresponding With Service Line Size 14

15 Other Charges (cont.) Miscellaneous Service Charges Considerations for Determining Proposed Miscellaneous Service Charges: Current Utility Costs to Provide Service Comparison with Similar Charges of Other Florida Utilities District Policies Frequency of Service Provided Such Charges Reduce Level of Expenditures (Revenue Requirements) That Must Be Recovered from All Customers Via Monthly User Rates Recommend Consolidation of Certain Customer Visit-Related Fees to Single "Premise Visit" Fee 15

16 RECOMMENDATIONS Adopt Monthly User Rate Adjustments for Fiscal Years 2018 Through 2022 Help Ensure Full Cost Recovery, Meet Coverage Requirements, and Address Capital Needs Adopt Proposed Capital Capacity Charges and AGRF Since Capital Capacity Charges Proposed to Decrease, 90-Day Implementation Waiting Period Per Florida Statute Not Applicable Adopt Proposed Other / Miscellaneous Service Charges Re-evaluate Sufficiency of User Rates / Financial Forecast in Three Years Continuously Monitor Financial Results and Adjust Financial Plan as Necessary Changes in Economic Conditions, Customer Usage Trends, Climate Change, Regulatory Environment, Etc. 16

17 RESULTS OF FINANCIAL / RATE IMPLEMENTATION PLAN Conformity With Utility Rate Guiding Principles "Right-Size" Fee Levels Many Years Since Last Formal Utility Rate Study Address Major Issues Affecting Utility Substantial Renewal and Replacement Capital Needs Consideration of Capital Needs Identified in Master Plan to Be Addressed in Both Current Forecast Period and FY 2023 to FY 2027 Timeframe Projected Increases in Operating Costs and Effects on Debt Service Coverage Compliance With Rate Covenant and Cash Balance Requirements 17

18 RESULTS OF FINANCIAL / RATE IMPLEMENTATION PLAN (cont.) Maintain Creditworthiness of Utility Meet Financial Targets Recognized By Utility Industry Maintain Affordable and Competitive Rates Monthly User Rates Lower Than Average of Surveyed Utilities 18

19 QUESTIONS AND DISCUSSION 19

20 Utility Overview Capital-Intensive Business Over $160 Million in Gross Assets Includes: Water Treatment and Storage Facilities Approx. 266 Miles of Water Mains Wastewater Treatment and Disposal Facilities Approx. 233 Miles of Force Mains, Gravity Mains, and Vacuum Mains / 82 Lift Stations Approx. 23 Miles of Reuse Water Mains Service to Over 17,200 Water Accounts, Approx. 15,600 Wastewater Accounts, and 17 Reuse Water Accounts Utility Infrastructure Is Aging / Approaching End of Useful Service Highly-Regulated Business (FDEP / SWFWMD / Health Department) Operations Funded Essentially from Rates for Service 20

21 Overview of Multi-Year Capital Program Through Fiscal Year 2022 SUMMARY OF ESTIMATED MULTI-YEAR CAPITAL PROGRAM THROUGH FISCAL YEAR 2022 Description Total Water System Projects Water Treatment Plant Replacements and Upgrades $3,194,000 Water Distribution Extensions and Improvements 1,125,000 Asset Management and Master Planning 113,500 Total Water System Projects $4,432,500 Wastewater System Projects Wastewater Main Extensions, Replacements, and Upgrades $2,002,000 Water Treatment Plant Replacements and Upgrades 1,015,000 Vacuum System Upgrades 725,000 Lift Station Upgrades 365,000 Reuse Water System Rehabilitations and Upgrades 328,000 Asset Management, Master Planning, and Repairs 263,500 Total Wastewater System Projects $4,698,500 Departmental Capital [*] $3,185,322 Total Capital Program $12,316,322 [*] Includes improvements other than buildings; tools and equipment; computer hardware; furniture and equipment; and transportation equipment. 21

22 Overview of Multi-Year Capital Program: Fiscal Years 2023 to 2027 Description SUMMARY OF ESTIMATED MULTI-YEAR CAPITAL PROGRAM: FISCAL YEAR 2023 TO 2027 Total Water System Projects Replace AC Water Main on Beach Road Charlotte County Area $2,440,000 Replace AC Water Main on Beach Road Sarasota County Area 2,330,000 Upgrade RO WTP Generator to Full Stand-by Power Capacity 965,000 Install new Reverse Osmosis (RO) Skids in the Expanded RO Addition 400,000 Install PVC Water Mains in Grove City and Decommission Old System 175,000 Replace Old High Service Pump Motors and Pumps 172,000 Evaluate Life Cycle Cost Vs Replacement of Lime WTP 150,000 Replace Pipes under HSP Building to Elevated Water Tank 142,000 Other Water Projects 363,000 Total Water System Projects $7,137,000 Wastewater System Projects Add Second Force Main from Lift Station #121 to Add System Capacity $8,500,000 Add Reuse Main from WRF to Holiday Venture Storage Tank 1,000,000 Add Reuse Storage Tank at Holiday Ventures 950,000 Line Interior of Gravity Sewer Mains and Manholes 900,000 Rehabilitation of WWTP #4 - Rebuild Air Manifold, Diffusers and Coat Tanks 300,000 Additional Chlorine Contact Chamber 220,000 Install Wireless Monitor System on the Vacuum System 200,000 Replace Generator and Increase Capacity to Include Reuse Pumps 200,000 Other Wastewater Projects 650,000 Total Wastewater System Projects $12,920,000 Departmental Capital [*] TBD Total Capital Program $20,057,000 [*] Includes improvements other than buildings; tools and equipment; computer hardware; furniture and equipment; and transportation equipment. 22

23 Rate Study Objectives Many Years Since Last Formal Rate Study Determine Amount of Revenues Needed to Fund Revenue Requirements / Financial Plan Rate Study Follows Completion of Utility Master Plan Design Rates to Recover Necessary Revenue Perform Comprehensive Rate Review Monthly Water and Wastewater Retail User Rates Wholesale Water and Wastewater Rates Reuse Water Rates Capital Capacity Charges (Impact Fees) Miscellaneous Service Charges 23

24 Rate Guiding Principles Recognized 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 Recurring Capital Investment to Improve, Renew, and Rehabilitate Facilities Balanced Debt Risk (Pay-As-You-Go vs. Debt Financing) Compliance With Rate Covenants for Existing Debt 150% All-In Debt Service Coverage Target 24

25 Rate Guiding Principles Recognized (cont.) Utility Should Remain Financially Viable and Sustainable (cont.) Adequate Cash Reserves Promote Creditworthiness of Utility Working Capital: 120 Days of Rate Revenue Target Cash Balance Renewal and Replacement Fund Balance: One Year of Depreciation Expense Target Cash Balance $7.5 Million Minimum Cash Balance Required Per District's Swap Agreement $10 Million Cash Balance Target Historically Recognized By District Fitch Ratings: Stronger Financial Credits May Have One Year Days Cash on Hand (One Year of Operating Expenses) 25

26 Revenue Requirements Reflect Total Expenditures and Transfers / Deposits Funded from Rates Projected Through Fiscal Year 2022 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 26

27 Financial Risk of Not Adjusting Rates at This Time User Rates May Be Even Higher in Future Capital Needs for System Will Not Go Away, But May Be More Expensive to Address in the Future Inflation, Costs of Construction, and Costs to Repair Aging System Continue to Affect Utility Costs Risk of Not Meeting All Debt Service Coverage Requirements Subordinate Lien Coverage Is Not Strong at This Time 27

28 Some Reasons Why User Rates Differ Among Utilities Size of Existing Customer Base / Available System Growth Demographics (e.g., Customers Spread Out vs. Close Together, Types of Customers Served) Level of Capital Improvements to Meet Service Area Growth Amount of Needed Renewals and Replacements / Remaining Service Life of Assets Differences in Bond Covenants Source of Water Supply and Treatment Process Costs Plant Capacity Utilization and Assistance in Funding of Such Capacity (e.g., Grants, Impact Fees) Time of Last Rate Review Amount of General Fund and Administrative Fee Transfers 28

29 Capital Capacity Charges / Impact Fees Support Policy of "Growth Paying for Growth" Common in Utility Industry Based on Cost of Capacity Available to Serve Growth Used to Pay for Growth-Related Capital Projects and/or Debt Service Dual Rational Nexus Requirements Established Through Case Law Fee Must Be Proportionate to Benefit Received 29

30 Other Charges Wholesale Water and Wastewater Rates Reflect System Costs Up to Point of Delivery Wholesale Water Rate Recovers Costs of Supply, Treatment, and Transmission Functions Wholesale Wastewater Rate Recovers Costs of Transmission, Treatment, and Disposal Functions Distribution and Collection Functions Are Not Recovered Through Wholesale Rates For "Reasonableness Check," Compared Calculated Rates With Overall System Cost Per 1,000 Gallons Calculated Rates Differ Based on Whether Customer Paid Capital Capacity Charge Prior to Receiving Service Separate "Capacity Component" of Wholesale Rates If Capital Capacity Charges Not Paid 30

31 Other Charges (cont.) Miscellaneous Service Charges Represent Approximately 2% of Operating Revenues Include: Meter Installation Charges (With and Without Tap) New Service Application Fee (Proposed New Charge) Turn On/Off Plan Review / Construction Review Meter Test Meter Tampering Charge Late Payment Penalty Return Check Charge Other Miscellaneous Service Charges 31