Capital Planning and the User- Friendly Capital Improvement Plan

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1 Capital Planning and the User- Friendly Capital Improvement Plan Tool David Tucker Shadi Eskaf September 23 and 25, 2014

Dedicated to enhancing the ability of governments

programs and services in fair, effective, and

Research Teaching and Outreach Program Design and

2 Dedicated to enhancing the ability of governments and other organizations to provide environmental programs and services in fair, effective, and financially sustainable ways through: Applied Research Teaching and Outreach Program Design and Evaluation How you pay for it matters 2

Alabama Department of Environmental Management Alabama is blessed with a wealth and variety of natural resources which provide significant social, economic, and environmental benefits and

3 Alabama Department of Environmental Management Alabama is blessed with a wealth and variety of natural resources which provide significant social, economic, and environmental benefits and opportunities for the citizens of Alabama. Our mission at ADEM is to protect and improve the quality of Alabama's environment and the health of all its citizens. Funding for this project was provided by the Alabama Department of Environmental Management s State Revolving Fund (SRF) program. For more information about how the SRF can help your utility save money and keep rates affordable, please contact: James Dailey SRF Section Alabama Department of Environmental Management PO Box Montgomery, AL (334) jwd@adem.state.al.us

Smart Management for Small Water Systems under a Cooperative Agreement with the US EPA The EFCN provides training and technical assistance to small public water systems in all fifty states and five

4 Smart Management for Small Water Systems under a Cooperative Agreement with the US EPA The EFCN provides training and technical assistance to small public water systems in all fifty states and five territories to help local water systems achieve and maintain compliance with the Safe Drinking Water Act. Workshops, trainings and direct assistance: Asset Management Water Loss Reduction Water System Collaboration Fiscal Planning and Rate Setting Energy Management Funding Coordination, and Managerial and Financial Leadership Sign up for direct assistance at

Alabama Webinar Series This webinar is being offered as part of a series of free webinars on financial management topics for water and wastewater utilities in Alabama,

Affordability Assessment Tool (August 26 & 28) Rate Setting Using the Water & Sewer Rates Analysis Model (September 9 & 11) Capital Planning and the User-Friendly Capital

5 Alabama Webinar Series This webinar is being offered as part of a series of free webinars on financial management topics for water and wastewater utilities in Alabama, including: Benchmarking Water and Sewer Rates and the 2014 Alabama Water & Wastewater Rates Dashboard (August 14 & 19) Affordability of Water and Sewer Rates and the Affordability Assessment Tool (August 26 & 28) Rate Setting Using the Water & Sewer Rates Analysis Model (September 9 & 11) Capital Planning and the User-Friendly Capital Improvement Tool for Water & Wastewater Utilities (September 23 & 25) Earn up to 4 CEH Credits Under Utility Management and Finance (1 CEH per topic)

6 Objectives Briefly introduce capital planning process Demonstrate how to use the EFC s User- Friendly Capital Improvement Plan for Water & Wastewater Utilities tool Provide a list of other resources Answer questions about the tool or capitalplanning in general

7 How Do You Pay for This? Emergency repair vs. Preventative rehab./ replacement (capital planning)

8 General Capital Planning Process 1. Create an inventory of all your assets: Name, description, location Age Current condition Criticality (how important is it?) Expected useful life remaining

9 General Capital Planning Process 2. Prioritize rehabilitation/ replacement of assets 3. Determine timeline of rehabilitating and replacing all assets Asset Management Plan

10 General Capital Planning Process 4. Identify capital projects that would complete next few years AMP goals + new assets 5. Estimate costs for projects Asset Management Plan

11 General Capital Planning Process 6. Determine how will pay for capital projects 7. Adjust timelines as needed Capital Improvement Plan Asset Management Plan

12 Helpful and Important Estimate rate increases required and steps needed to obtain funding Get board approval User-Friendly C.I.P. Tool can do this Capital Improvement Plan Asset Management Plan

13 User-Friendly Capital Improvement Plan (C.I.P.) for Water & Wastewater Utilities Tool Free, simplified CIP tool using only MS Excel, developed by the Environmental Finance Center at UNC. Download the latest version at Find it in Resources / Tools. Tool development was funded by the Public Water Supply Section of DWR/ NCDENR and partly by the USEPA.

14 What the tool does Summarizes your utility s capital needs in the next 20 years, and estimates rate increases needed to fully fund the capital projects, based on debt and/or cash funding requirements

15 Inputs Basics of current rates and water use, growth, reserves, revenues and expenses

16 Inputs Capital projects, including timeline, costs, financing mechanism (debt, capital reserves, grant), terms of debt, start year to build up reserves, changes to O&M expenses

17 Outputs Year-by-year projections and graphs

Automatically-forecasted minimum rate increases needed to ensure

18 Outputs Total expenses by year (O&M, changes, capital) Projected end-of-year fund balance (yearly revenues from rates, yearly expenses) Automatically-forecasted minimum rate increases needed to ensure year-end fund balance always remains above target Smoothed out rate increases when possible

19 Simple tool = some limitations (in this version) Limited to the options and assumptions included. Cannot add more complexity. e.g.: rate structure details, non-linear growth of expenditures or water use, more specifics of revenues, etc.

20 This model estimates rate increases needed to pay for this CIP, but does not prescribe rate increases. Projections are purely illustrative. A rate study is still necessary.

21 When you first use this file after downloading from our website, click on Enable Editing at the top

Download the latest version at http://efc.sog.unc.edu Go to Resources / Tools, then scroll to find it.

22 Download the latest version at Go to Resources / Tools, then scroll to find it. For more resources on Alabama water/sewer rates, at the EFC website: Go to Programs / Drinking Water & Wastewater / Alabama Water and Wastewater Rates and Rate Structures

23 Demo of the User-Friendly C.I.P. for Water & Wastewater Utilities Tool

Developed by the Environmental Finance Center

24 Developed by the Environmental Finance Center at the University of North Carolina, Chapel Hill Development was funded by the Public Water Supply Section of the North Carolina Department of Environment and Natural Resources, and by the U.S. Environmental Protection Agency

25 Resources on Capital Planning

26 smallsystems/pdfs/ final_asset_inventory_for_small_systems.p df

27 Software: CUPSS (EPA)

Resource Webpage for Capital Planning http://www.efc.sog.unc.

28 Resource Webpage for Capital Planning Search for CAPITAL PLANNING RESOURCES FOR WATER AND WASTEWATER UTILITIES

29 Resource Website on Asset Management, Capital Planning and Rates & Finance for Small Water Systems Look in Resources and Trainings

30 Rates in Alabama Check out our Alabama Rates Dashboard On the EFC Website Go to and search for Alabama Water and Wastewater Rates Dashboard

31 Other EFC Financial Tools All free. Find all tools in Resources / Tools:

Free Advising and One-on-One Assistance Thanks to the US EPA, we can provide free, in-depth one-on-one advising to any water system serving up to 10,000 people on: Asset Management Water Loss

32 Free Advising and One-on-One Assistance Thanks to the US EPA, we can provide free, in-depth one-on-one advising to any water system serving up to 10,000 people on: Asset Management Water Loss Reduction Fiscal Planning and Rate Setting Energy Management In-depth assistance includes several hours (~20?) of back and forth between the Environmental Finance Center Network and the water system staff or their consultants. Sign up for direct assistance at or indicate on the next poll.

33 Stay in Touch to Learn More Subscribe to our Environmental Finance Blog Tools, trainings, assistance and resources for small water systems from the EFCN Follow us on

34 How Quickly are Costs Related to Capital Rising? Instead of looking at Consumer Price Index, look at Construction Cost Index (CCI). ~3%/year. %/year 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% - 1% Annual Changes to CPI- U ("Infla5on") and Construc5on Cost Index: Infla6on (Annual Change in the CPI- U) Annual Change in the Construc6on Cost Index Data Sources: Bureau of Labor Statistics, Engineering News-Record ENR.com, InflationData.com, USDA Natural Resources Conservation Services

35 Q & A - about the tool - about capital planning in general

36 Thank you! Shadi Eskaf EFC at University of North Carolina, Chapel Hill Aubrey H. White, III Chief, General Services Branch Alabama Department of Environmental Management David Tucker EFC at University of North Carolina, Chapel Hill Dennis Harrison Chief, Drinking Water Branch Alabama Department of Environmental Management

Setting Rates to Support a Capital Improvement Plan

Setting Rates to Support a Capital Improvement Plan Stacey Isaac Berahzer 18th Alabama Annual Surface Water Meeting October 29, 2015 http://efc.sog.unc.edu @EFCatUNC Dedicated to enhancing the ability