Utility Rates. October 13, 2015

Transcription

1 Utility Rates October 13, 2015

2 Agenda Summary Process Background Policy Rates Next Steps 2

3 Financial Needs Driving Rates 1. Bond coverage 2. Reserves Policy 3. Infrastructure - Asset management 3

4 Rate Setting Process Timeline Spring Finance Department begins updating rate model November Amendment to master plan contract for Cost of Services Study April 16, 2015 Utilities Task Force Look for wastewater treatment plant alternatives May & June 2015 budget July 16, 2015 Utilities Task Force July & August Utility Ratepayer Advisory Panel notice & selection. August 2015 Administrative draft Cost of Services Study August & September 2015 Utility Ratepayer Advisory Panel initial four meetings September 30, EDCO forum October 1, 2015 Final draft of Cost of Services Study October 7, 2015 INCO October 13, 2015 Council October 21, 2015 Notifications mailed December 8 & 15, 2015 Public hearings February 1, 2016 Earliest effective date of new rates 4

5 Utility Ratepayers Advisory Panel (URAP) Members: 8 Primary (4 business, 4 residential), 5 Alternate Term: Approximately 6-8 weeks Mission: The purpose of the URAP is to share information and gather input on the utilities rate setting process. Information will also be shared on an in-depth rate study analyzing the need for a rate increase based on the condition of the City s water and wastewater systems and treatment plant facilities, and to secure the City s utilities bond ratings, finance infrastructure improvements and provide for future operation and maintenance needs. Specific topics to be covered include: - Define the existing situation and problems - Envision what the future holds - Determine, rank and select alternatives - Provide input on rate setting process Date Topic Objective August 26 Wastewater plant tour, Utility background Vision statement September 2 Water Campus tour, Utility assessments Rate policy September 9 Materials Recovery Facility (MRF) tour, master plan, capital improvement plan CIP and rate structure September 16 Rate comparison and history, Proposition 218 process Rates 5

6 URAP Concerns Concerns 1. Process is too rushed 2. Not enough financial information (transition and competing events prevented significant Finance involvement) 3. Not many choices 4. Size of first year increase is large 5. Equity of increase (not all customers see the same percent increase) Other Issues 1. Create a new enterprise for storm water to keep expenses separate from wastewater and water 2. Double check that recycled water cost distribution meets new ruling on Proposition Set Golf Course recycled water rate before adopting new utility rates 4. Aggressively pursue ability to pump conservation credits and pumping allocations earned through recycled water sales. 6

7 Path Forward 1. Begin Proposition 218 notification process now Start full community engagement Delaying start of process will worsen situation 2. Continue Utility Ratepayers Advisory Panel Answer financial questions 3. Continue to review first year increase Review actual revenue and expenses in December 4. Final review of rate policy and cost of services study Approve in December 7

8 Vision

9 Water Resources Vision and Guiding Principles The City of Oxnard utility enterprises will provide cost-effective, reliable, sustainable, and transparent services. To achieve this, the City of Oxnard will: Provide utility services to meet the requirements of the General Plan Meet all regulatory requirements for water, wastewater, storm water and recycled water services Implement effective City-wide utility policy including a reserve fund for longterm capital improvements Implement best management practices to provide cost effective service with rates competitive with other comparable jurisdictions Implement master plans and asset management plans to meet infrastructure needs in a cost effective manner over the short and long term Provide a long-term sustainable and reliable water supply, and decrease reliance on imported water Provide a public forum for community involvement to increase transparency Our foremost mission is to protect public health and provide quality service to customers. 9

10 Utility Rates and Structure Utility rates shall not exceed reasonable cost of service. Utility rates allocate costs to users benefiting from the service everyone pays their fair share Existing balance between residential and commercial is appropriate. The balance within certain commercial wastewater and water rate classes need to be adjusted.

11 Regulatory Requirements Govern User Rates Proposition 218 SWRCB revenue guidelines (April, 1983) California government code charges shall not exceed the estimated reasonable cost of providing the service O&M Costs Capital Costs Debt Service Reserves Flow BOD TSS Adm Costs Residential Commercial Industrial 11

12 Rate Structure Considerations Functional Allocation: Allocation of costs to billable constituents Residential - Single Family - Multi-Family Customer Classifications: e.g. Single-Family Residential, Multi- Family, etc. Tiered Rates: e.g. based on consumption Commercial Industrial - General Commercial - Restaurants - Laundry Mats - Hotels - Billed Individually Based on Actual Billable Constituents Cost of services analysis provides a process for equitably recovering cost from system users $ Customer Service Meter Charges Base Usage Peak Day Usage Peak Hour Usage $ # of Accounts $ Meter Equivalents $ Hundred cubic feet (HCF) $ Hundred cubic feet (HCF) $ Hundred cubic feet (HCF) 12

13 Environmental and Water Quality Regulations Environmental and water quality regulations are one of the largest cost drivers for utilities.

14 New Utility Regulatory Requirements LA Regional Water Quality Control Board National Pollutant Discharge Elimination System (NPDES) Permit Wastewater collection system cleaning and inspection Monitoring and control of storm water quality California Water Resources Control Board 20% reduction of potable water by 2020 AB Mandatory Commercial Recycling Law % diversion from landfill by 2020 AB 32 - California Global Warming Solutions Act of 2006 Divert Organics 14

15 Utility Systems Overview The City General Plan determines the level of services required by utilities to meet future residential and business needs. The utility enterprises have been evaluated for operational efficiency and are implementing industry best practices.

16 Utility Customers and Systems Overview Customers: over 40,000 City Residents, City Industrial Businesses Naval Bases, City of Port Hueneme, Channel Islands Beach Community Services District, Nyeland Acres, Las Posas Estates, El Rio Wastewater Treatment Plant: approx. 19 million gallons per day Collection System: 462 miles of pipe, 15 lift stations Water & Recycled Water Over 25,000 acre-ft of potable water per year (22.3 million gallons per day) 6 Blending Stations, 1 Desalter, 10 Groundwater Wells, 1 Advanced Water Purification Facility (AWPF), 1 Aquifer Storage and Recovery well (soon) Environmental Resources Material Reuse Facility and Transfer Station: 245,000 tons per year Collection vehicles: 67 16

17 Best Management Practices Wastewater & Storm water KEH &Associates Regulatory Compliance Assessment Preventive Maintenance Operations Rounds Records Management Policies and Procedures Water and Recycled Water AECOM AWWA Best Management Practices/Benchmarking Computerized Maintenance Management System Drinking Water Distribution System Flushing and Valve Exercise Plan Desalter/Blending Station 1 - Optimization Study Regulatory Status Assessment Operations & Safety Training Environmental Resources -Tseng and Associates Over $2 million savings in first year Increased recyclables 17

18 Utility Infrastructure Capital Improvement Requirements There are significant utility infrastructure needs due to age of facilities limited maintenance. Significant wastewater treatment plant replacement can only be delayed about 6 to 8 years, even with stopgap measures.

19 20 year ( ) Capital Improvement Program Wastewater Stop gap projects to allow time for design, permitting, and construction of a more efficient and effective plant. Use proactive preventative maintenance program to mitigate risks associated with aging infrastructure Water Preventative maintenance program Complete existing phases of water supply and quality projects in increase reliability. Continue to implement recycled water to ensure that water is available for residents, businesses, and growth defined in the 2030 General Plan. Maximize grants, low interest loans, and public and private partnerships to minimize impact to rates. Environmental Resources Vehicle replacement, CNG fueling station, CNG vehicle maintenance bays Sorting equipment replacement and upgrade, Waste to energy conversion Replacement Value 2015/16 to 2025/26 CIP 2026/27 to 2040/41 CIP Wastewater $1.2 billion $243 million $432 million Water $520 million $98.4 million $122.4 million Recycled Water $152.4 million $101.2 million Environmental Resources $80 million Total Public Works Infrastructure Replacement Cost is over $3.5 billion A 50 year replacement cycle = $70 million/yr 19

20 Utility Financial Assessment

21 Outstanding Long-Term Obligations (June 30, 2015) Outstanding Parity Debt Water Fund Update Issue Description No variable rate debt or swap transactions on Water System debt Series 2010B Build America Bonds Final Maturity Interest Rate Mode Credit Enhancement Optional Redempt. Outstanding ($ millions) 2006 Revenue Bonds 6/1/36 Fixed MBIA (NPFG) 6/1/16 $ A Revenue Bonds 6/1/22 Fixed None 6/1/ B Revenue Bonds 6/1/40 Fixed None MWC Revenue Ref Bonds 6/1/30 Fixed None 6/1/ Rev Ref Bonds (Private Placement) 6/1/34 Fixed None 6/1/ Currently receives % of interest payment subsidies from US Government, down from original subsidy of 35.00% $1.88M annual BABs subsidy during interest only period through FY 2022 $

22 Water System Debt Service by Series Water Fund Update Annual debt service structured to be relatively level through FY 2040 No off balance sheet debt Series 2014 refunding bonds sold as private placement Millions $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 Series 2010B BABs Subsidy Series 2014 Series 2012 Series 2010B Series 2010A Series 2006 $2.00 $ Fiscal Year 22

23 Outstanding Long-Term Obligations (June 30, 2015) Outstanding Parity Debt Wastewater Fund Update Issue Description Series 2004B Interest Rate Swap Final Maturity 2004B Revenue Bonds 6/1/34 Interest Rate Mode Synthetic Fixed Credit Enhancement Ambac & Union Bank LOC (expires 8/26/16) Optional Redempt. The City pays 4.017% to RBC and receives 68% of 1-month LIBOR Outstanding ($ millions) Any IPD $ Revenue Bonds 6/1/36 Fixed Ambac 6/1/ Revenue Ref. Bonds (Private Placement) 6/1/20 Fixed None None Revenue Ref Bonds 6/1/34 Fixed Assured Guaranty 6/1/ $ The notional amount and tenor of the swap match those of the Series 2004B Bonds Contingent liability in connection with S&P underlying rating where a downgrade below BBB, to BBB- or lower, could trigger a swap termination event, allowing RBC as the counterparty to demand the termination payment immediately 23

24 Wastewater System Debt Service by Series Wastewater Fund Update Majority of outstanding Wastewater System debt will fully amortize within 20 years No off balance sheet debt (loan from Water Fund was fully repaid Nov. 2014) Series 2013 refunding bonds sold as private placement Millions $16 $14 $12 $10 $8 $6 $4 $2 $- Series 2014 Series 2013 Series 2006 Series 2004B (Swap) Fiscal Year (6/30) 24

25 Utility Rate Policy Following sound utility rate policy will: provide transparency, stability, and efficiency. help ensure the long term viability of utilities and stabilize rates.

26 Financial Policies Purpose/Importance of sound financial policy: 1. To provide guidelines for sound financial management with an overall long-range perspective 2. To enhance financial management transparency Improve the public s confidence 3. To mitigate risk/maintain financial solvency Provide a basis for coping with fiscal emergencies (revenue short-falls, asset failure, emergency etc.) Rate / Revenue stability (readiness to serve), Stability in working capital 4. To achieve/maintain a favorable credit rating 5. To determine the most opportune time to issue debt for capital improvements Examples of policies: 1. Reserves (365 days of operations and maintenance expenses) a) Operating reserve b) Capital improvement program (CIP) reserve/sinking fund for facility replacement c) Rate stabilization fund for droughts or other issues d) Debt service reserve e) Emergency 2. Debt coverage (1.25X) 3. High water use penalty charge 4. Consumer Price Index (CPI) adjustment to cover normal cost increases 5. Readiness to serve/stand-by charge (fixed cost verses variable cost) 6. Third party purchase or fee pass-throughs (imported water or land fill tipping fees) 26

27 Municipal Bond Ratings and Impact on Interest Rates Rating Description Example Rate AAA Highest rating. Extremely strong creditworthiness 3.06% AA Very strong creditworthiness 3.41% A Strong creditworthiness 3.86% BBB BB Adequate creditworthiness. Considered the lowest of what is known as an investment-grade bond rating Non-investment grade 4.06% AAA verses BBB For a $100,000,000 bond Cost of 1% rate increase = $20 million over life of bond 27

28 Recommended Utility Rate Policy The City of Oxnard utility rates will objectively and transparently meet the requirements of Proposition 218 and will phase in new policy and industry best practices proportionally* over a 5 year period for each utility enterprise fund. 1. Rates will be reviewed annually to ensure that revenues meet, but not exceed, the requirements of new policy and industry best practices. The review will be presented to Council approximately 60 days before rate increases will go into effect each year. 2. The rate setting process will adhere to Proposition 218 such that each customer pays their share of the cost of service. 3. A rate assistance program will be implemented and funded from donations and other sources as allowed by Proposition 218 such as a portion of the interest from O&M fund balance. 4. Utility operations will adhere to published industry best practices, including American Water Works Association Manual M1 and Water Environmental Federal Manual of Practice No. 27, to ensure that the utility enterprise funds are financially stable. 5. Maximize use of grants and low interest loans, and leverage partnerships with other public and private agencies to minimize project costs and impacts to customer rates. *May need to be accelerated to meet bond coverage requirements. 28

29 Recommended Utility Rate Policy Debt Each utility enterprise will maintain a minimum debt coverage ratio of 1.25 or such lower ratio to optimize bonding capacity at optimal interest rates. Debt payment term will be no longer than 75% of the life of facilities being funded. Reserves Each utility enterprise will hold total reserves of at least 365 days of operations and maintenance expenditures including an emergency reserve of a minimum of 1.0% of the replacement value of current assets. Maintain a Capital Improvement Program (CIP) reserve adequate to minimize impact on rates with a target of cash funding of 100% of assets with lives under 15 years and 50% of assets with lives over 15 years. Rates To stabilize future rates and avoid overestimating revenue requirements, rates will: Include appropriate readiness-to-serve charges, standby charges and capital surcharges with a target of funding fixed costs with fixed customer charges. Include appropriate pass-through of regular third-party cost increases such as imported water purchases and landfill tipping fees. Include applicable cost weighted escalators for labor and commodities such as electricity, natural gas and chemicals. Will include penalty charges when appropriate such as during times of drought. Penalty charges will not fund normal operating expenses but will be used for appropriate mitigation such as water conservation programs. 29

30 Rate Structure

31 Proposed Rate Structure Updates Environmental Resources No change in Environmental Resources rate structure Update rates based on the revenue requirements increase Wastewater No change in wastewater rate structure Complete a loadings study for commercial customers prior to the next Cost of Service Study Update rates based on the revenue requirements increase Water Base multi-family tier allotments on number of dwelling units. Use constant monthly fixed charges per meter size for each customer class. Increase from 21% to 30% of rate revenues Adjust commercial water rates to meet Proposition 218 requirements Shifts some cost from high users to lower users Update rates based on the results of the updated functional and customer demand allocations. 31

32 Water Key Assumptions and Structure Irrigation rate structure Oxnard Commercial and Irrigation rates revised to have a Two-Tiered Structure Irrigation rate classes have been separated from commercial classes as they have distinct consumption patterns Irrigation rates are slightly higher than Commercial rates, reflecting increased peak usage by irrigation customers Water Demand Assumptions Reductions driven by State Mandate FY 2014/15 Actual reduction of 12% FY 2015/16 Assumed additional 8% reduction Demands are expected to rebound 5% in FY 2017/18 and 5% in FY 2018/19 32

33 Recommended Rates Significant rate increases are required in the first year to meet Coverage requirements and make up for revenue short falls. Rate smoothing Pushes rates increases above inflation from 5 years to 14 years. Implements rate policy over 3 to 5 years. CarolloTemplateWaterWave.pptx

34 Wastewater Rate Revenue Increase Refinements FY 2015/16 Rate Revenue Increase Previous - 40% Proposed - 35% Adjustments to lower increase Pushed filling of vacant positions to FY 2016/17 Pushed all CIP projects out 1 year (earliest start is FY 2016/17) Meeting reserve requirement over five year period Lowered Reserve Contributions (operating reserve increase of $0.55 million) Meeting 1.25 x Coverage over 2 year period FY 2015/16 revenue only coverage set to 1.06 x 34

35 Water Rate Revenue Increase Refinements FY 2015/16 Rate Revenue Increase Previous - 20% Proposed - 15% Adjustments to lower increase Pushed filling of vacant positions to FY 2016/17 Pushed all CIP projects out 1 year (earliest start is FY 2016/17) Meeting reserve requirement over five year period Lowered Reserve Contributions (operating reserve increase of $1.45 million) Meeting 1.25 x Coverage over 3 year period FY 2015/16 revenue only coverage set to 1.06 x 35

36 Wastewater Year 1 Projection Wastewater Utility FY 2015/16 Pre Increase Rate Revenues $29,324,000 Other Revenues $1,195,000 Total Revenues Prior to Increase $30,519,000 O&M Expenditures $24,487,000 Debt Service $9,755,000 Total Expenditures $34,242,000 Cashflow (Prior to Increase) ($3,723,000) Coverage (Prior to Increase) 0.62 x Proposed Rate Revenue Increase Proposed Rate Revenue Increase 35.00% Revenues From Rate Increase $4,276,000 Resulting Cash Flows $553,000 Use of Revenues From Rate Increase Operating Shortfall $3,723,000 Additional Coverage (to Reach 1.06 x) $553,000 Total Use of Rate Increase Revenues $4,276,000 36

37 Water Year 1 Projection Water Utility FY 2015/16 Pre Increase Rate Revenues $40,683,000 Recycled Water $1,171,000 P&G $2,250,000 Other Revenues $5,873,000 Total Revenues Prior to Increase $49,977,000 O&M Expenditures $36,168,000 Debt Service $14,868,000 Total Expenditures $51,036,000 Cashflow (Prior to Increase) ($1,059,000) Coverage (Prior to Increase) 0.89 x Proposed Rate Revenue Increase Proposed Rate Revenue Increase 15.00% Revenues From Rate Increase $2,513,000 Resulting Cash Flows $1,454,000 Less New Recycled Water Revenues ($585,000) Available for Coverage Above 1.0x $869,000 Use of Revenues From Rate Increase O&M Shortfall $1,059,000 Additional Coverage (to Reach 1.06 x) $1,454,000 Total Use of Rate Increase Revenues $2,513,000 Note: Recycled water revenues associated with sales to new users are not counted for debt coverage 37

38 Average Rate Increase for Each Utility Proposed Rate Revenue Increase 40% 35% 30% 25% 20% 15% 10% 5% 0% 5 years 10 years Wastewater Water Environmental Resources 38

39 Average Combined Rate Increase 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Combined Rate Revenue Increase 5 years 10 years Water Wastewater Environmental Resources 39

40 Combined Rate Single Family Residential $300 $250 $200 $150 $100 $84.77 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $50 $0 Existing FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 Existing FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 Existing FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 6 HCF Water 9 HCF Water 20 HCF Water 4.8 HCF Wastewater 7.2 HCF Wastewater 16 HCF Wastewater 65 Gallon Container 95 Gallon Container 95 Gallon Container Bottom 30% of customers Average customer Top 10% customers 40

41 FY 2015/16 Water Rate Commercial Small Users $180 $160 Commercial Bill Comparison - 1" Meter $46.89 $140 $120 $100 $80 $60 $40 $20 $0 $22.70 $37.17 $46.18 $74.35 $ $ $16.55 $21.36 $16.55 $21.36 $16.55 $21.36 Existing $39.25 $19.28 FY2015/16 $58.53 Existing $62.73 $32.98 FY2015/16 $95.71 Existing $ FY2015/16 $ Low - 10 HCF Average - 20 HCF High - 40 HCF Monthly Fixed Charge Variable Charge 41

42 FY 2015/16 Water Rate Commercial Large Users $6,000 $5,000 $4,000 Commercial Bill Comparison - 4" Meter $ $ $3,000 $2,000 $ $2, $3, $4, $5, $1,000 $1, $1, $0 $ $ $ $ $ $ Existing $1, FY2015/16 $1, Existing $3, FY2015/16 $3, Existing $4, FY2015/16 $5, Low HCF Average HCF High HCF Monthly Fixed Charge Variable Charge 42

43 Competitiveness of Rates Common sense check on rates: Are they competitive with other agencies? Were they competitive in the past and have they kept pace with expenses? CarolloTemplateWaterWave.pptx

44 Utility Rate Comparison Surveyed 9 Surrounding Agencies Wastewater Rates Average Bill at 9.6 HCF per Month: $48.11 Current Oxnard Rates: $34.31 Oxnard Rates currently 29% below average Water Rates Average Bill at 12 HCF per Month: $59.96 Current Oxnard Rates: $50.83 Oxnard Rates currently 15% below average Environmental Resources Rates Average Bill: $27.99 Current Oxnard Rates: $31.02 Oxnard Rates currently 11% above average 44

45 Combined Monthly Average Residential Bills $180 $160 $140 $120 $100 $80 $60 $40 $20 $- Avg $ $ $ Water Wastewater Environmental Resources 45

46 Financial Forecast

47 Wastewater Financial Forecast Millions $120 $100 $80 $60 $40 $20 $- FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 Existing O&M Costs CIP Incremental O&M Backfill Staffing Costs Additional O&M Programs Total Debt Service Rate Funded Capital Policy Requirements Use of Capital Fund Total Revenues With Increase 47

48 Water Financial Forecast Millions $120 $100 $80 $60 $40 $20 $- Existing O&M Costs CIP Incremental O&M Additional O&M Programs Additional Staffing Costs Debt Service Rate Funded Capital Policy Requirements Capital Fund Balance Total Revenues With Increase 48

49 Environmental Resources Financial Forecast Millions $120 $100 $80 $60 $40 $20 $- FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 Existing O&M Costs Additional Staffing Costs Debt Service Policy Requirements CIP Incremental O&M Additional O&M Programs Rate Funded Capital Total Revenues With Increase 49

50 Combined Debt and Debt Service Outstanding Debt Millions $1,400 $1,200 $1,000 $800 $600 $400 $200 Projected Outstanding Debt (Future Value Principal) and Debt Service $70 $60 $50 $40 $30 $20 $10 Annual Debt Service Millions $ $- Water Wastewater Environmental Resources Water Wastewater Environmental Resources 50

51 CarolloTemplateWaterWave.pptx Rate Assistance Program

52 Utility Rates Assistance Program Criteria for Qualification in Program- Approx. 700 Qualifying Customers Ratepayer-Occupied Single Family Residential Head of Household 65 or Older Extremely Low Income (US Housing and Urban Development standard) Household Size & Income, e.g. family of 2 income $21, HCF Water Usage or less Discount Off Monthly Utilities Bill -- $25 per month Cost Discount $300 Per Year Per Customer Direct Cost of Subsidy $210,000 Program Administration Staffing Cost Utility Billing System Programming Cost Revenue Donations on utility bills one time, ongoing, round-up $80,000 per year from 10% of interest on operations and maintenance fund balance Implementation Conservation audits and rebates 52

53 CarolloTemplateWaterWave.pptx Next Steps

54 Path Forward 1. Begin Proposition 218 notification process now Start full community engagement Delaying start of process worsen situation 2. Continue Utility Ratepayers Advisory Panel Answer financial questions 3. Continue to look for methods to reduce first year increase Review actual water revenue in December 4. Final review of rate policy and cost of services study Approve in December 54

55 Proposition 218 Process Timeline April 16, 2015 July 16, 2015 U.T.F. Meeting Aug 26, 2015 to Sep 16, 2015 Initial four Utility Ratepayers Advisory Panel Workshops October 13, 2015 City Council Meeting October 21, 2015 Notice to Ratepayers is Mailed December 7, Day Review Period Ends December 8, 2015 Public Hearing First Reading of the Ordinance December 15, 2015 Second Reading of Ordinance January 15, Day Waiting Period and Notice to the Ratepayers of New Rates February 1, 2016 Rates would become effective EDCO September 30 INCO October 7 Special council meeting TBD 55

56 Direction Utilities Vision Rate policy Capital Improvement Program Rate structure Rates Proposition 218 notice 56

57 Questions?