Town of Prescott Business Plan for Water and Wastewater. June, 2011

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1 Town of Prescott Business Plan for Water and Wastewater June, 2011

2 Study Scope and Purpose Scope: Full view of Town of Prescott Water and Wastewater Systems Objectives: Determine current and projected cash flows Identify cash flow issues Examine system financing Deliverables: A computer based model that projects system costs and revenues and permits full business case analysis Summary documentation that lays out the revenues and cost for water and sanitary Page 2

3 Key Steps Data Assembly Model Development Model Calibration and Runs Reporting Page 3

4 Methodology People AECOM Economists: familiar with business planning and the development of integrated models for water and wastewater systems management systems Town of Prescott Staff and Consultants: involved with building, operating and financing Town s water and wastewater systems Review of available documentation on Town s current and projected plans for water and wastewater systems Develop service demand projections Chart system water and waste water flows Project capital and operating costs Project revenues Examine cash flows and test alternative tariff strategies Page 4

5 Quantrix Model Fully Integrated top to bottom 20 Modules 57 matrices 325 formulas 18,000 calculations 19,500 cells Enables full on the fly business case analysis Page 5

6 Calibrating Financial Parameters Module 1 Permits the calibration of financing assumptions such as interest rate, financing periods, and annual inflation rates Inputs can be changed at any time Page 6

7 Calibrating Connections and Flows Module 2 Takes input data: 1. # of current water and sewer connections for residential commercial and export uses 2. the current flow volumes in m 3 for each type of connection 3. the anticipated growth in connections 4. the anticipated growth in flow volumes Note: for illustrative purposes growth in connections and flows have been calibrated at 1% across the projection period, in this instance, 2010 to 2030 Connection and volume calibrations are depicted on following page and graph shows results for water flows given assumption of 1% annual growth for connections and volumes Page 7

8 Projecting Water Flows Page 8

calibrations drive a revenue projection over the planning period Starting Rates Note:

9 Revenues for Water Modules W Revenues calibrated with current monthly flat and volume charge rates calibrated with assumptions on the anticipated growth in rates above calibrations drive a revenue projection over the planning period Starting Rates Note: results can be reflected in nominal and real $ through a toggle. Above is in nominal $ Page 9

10 The Costs of Water Modules W Capx calibrated with short term and long term capital programs Templates allow the scheduling of capital items by year for each item the specification of; Life span Install year Costs Labour and materials Payment means general revenue, reserves or debt W Capx Schedule this is a calculating model that takes the information entered above and drives a summary schedule of short term and long term capital expenditures W Opx This module is calibrated with information from the current operating budget for items associated with the Distribution System and Water Filtration Plant Page 10

11 Short Term Capital Program for Water Page 11

Financing for Water Modules W Current Accounts this is a calculating module that takes the

Debenture this is a second calculating module that takes information entered on debenture

after calibration of investment interest rates and contribution escalation rates as well as

12 Financing for Water Modules W Current Accounts this is a calculating module that takes the cost information previously calibrated and produces a current account cash flow summary W Debenture this is a second calculating module that takes information entered on debenture financing and produces cash flow summary W Reserves this is a third calculating module that after calibration of investment interest rates and contribution escalation rates as well as reserve balances drives a projection of reserve balances across the projection period Page 12

Cash Flows for Water Modules Water Summary This is a calculating module that takes all the water revenue and cost information and generates a summary cash flow.

13 Cash Flows for Water Modules Water Summary This is a calculating module that takes all the water revenue and cost information and generates a summary cash flow. As in any of the modules the results can be viewed in table and graph forms. to 2030 Note: In this illustration given the assumptions calibrated into the preceding modules the net cash flow is positive showing that revenues exceed costs across the forecast period. If the green line were to fall below the 0 the adjustments would need to made to create a positive cash flow. This would involve raising revenues or lowering costs by various means. Page 13

14 Projecting Sanitary Flows Page 14

Revenues for Sanitary Modules W Revenues calibrated with current monthly flat and volume charge rates calibrated with assumptions on the anticipated growth in rates above

15 Revenues for Sanitary Modules W Revenues calibrated with current monthly flat and volume charge rates calibrated with assumptions on the anticipated growth in rates above calibrations drive a revenue projection over the planning period Starting Rates Note: results can be reflected in nominal and real $ through a toggle. Above is in nominal $ Page 15

16 The Costs of Sanitary Modules W Capx calibrated with short term and long term capital programs Templates allow the scheduling of capital items by year for each item the specification of; Life span Install year Costs Labour and materials Payment means general revenue, reserves or debt W Capx Schedule this is a calculating model that takes the information entered above and drives a summary schedule of short term and long term capital expenditures W Opx This module is calibrated with information from the current operating budget for items associated with the Distribution System and Water Filtration Plant Page 16

17 Short Term Capital Program for Sanitary Page 17

Financing for Sanitary Modules W Current Accounts this is a calculating module that takes

W Debenture this is a second calculating module that takes information entered on debenture

18 Financing for Sanitary Modules W Current Accounts this is a calculating module that takes the cost information previously calibrated and produces a current account cash flow summary W Debenture this is a second calculating module that takes information entered on debenture financing and produces cash flow summary W Reserves this is a third calculating module that after calibration of investment interest rates and contribution escalation rates as well as reserve balances drives a projection of reserve balances across the projection period Page 18

Cash Flows for Sanitary Modules Water Summary This is a calculating module that takes all the water revenue and cost information and generates a summary cash flow.

19 Cash Flows for Sanitary Modules Water Summary This is a calculating module that takes all the water revenue and cost information and generates a summary cash flow. As in any of the modules the results can be viewed in table and graph forms. to 2030 Note: In this illustration given the assumptions calibrated into the preceding modules the net cash flow is positive showing that revenues exceed costs across the forecast period. If the green line were to fall below the 0 the adjustments would need to made to create a positive cash flow. This would involve raising revenues or lowering costs by various means. Page 19

20 Summary and Conclusions Both water and sanitary have positive net cash flows with the current model calibrations. These conditions are dependent on: Rate Setting selection of strong starting rates and then escalation over planning period particularly first 5 years. Rates need to keep pace with growth of flows Capital Program Scheduling short and long term capital programs need to be staged to keep to smooth out expenditures Operating Costs - are more or less fixed but escalation needs to be done to ensure rising costs of goods and labour are accounted for in projected cash flows. Financing for Capital Expenditures - needs to be handled through a combination of mechanisms including draws from current accounts and reserves and the use of debentures. Water and Sewer Reserve Funds - are in place and monies need to be set aside on an annual basis to help pay for ongoing capital expenditures and long term infrastructure replacements. Page 20

21 Summary and Conclusions (continued) The financial model has been configured to enable calibration of all of the preceding. Depending on the calibrations used the cash flows can be altered up or down. Sensitivity analysis shows that positive cash flows are particularly sensitive to the setting of rates and the magnitude and scheduling of capital expenditures. Reserves are an important part of the long term business planning framework for both sets of infrastructure and annual contributions need to be sufficient to ensure monies are available at the end of lifecycles to pay for replacement. Going forward these replacement costs need to A reserve fund structure is in place but at the time of model configuration calibration the long term replacement costs had not been calculated. While reserve contributions are being accounted for in the model a comprehensive reserve strategy needs to be formulated in the model to ensure full infrastructure replacement requirements can be met. Page 21

Time Value Tools: Program Overview

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