Carlsborg Sewer Financial Plan February 2014

Transcription

1 Carlsborg Sewer Financial Plan February 2014

2 Outline Approximately how much will Carlsborg sewer customers have to pay each month? Key Assumptions Costs and Number of Connections Projected rates County subsidy needed Sensitivity analysis impact of faster or slower growth How much might it cost to connect? Connection charge Connection policies and incentives Get Connected Loan Program Page 2

3 Basic Assumptions Carlsborg system is a new utility Independent of Sequim Eventually independent of the County County subsidies are explicit and limited-term Carlsborg system must plan ahead for operating reserves and future capital costs Connection policies will be designed to encourage new connections up front Voluntary at first, but not indefinitely Wholesale agreement with Sequim for treatment and transmission Construction year is 2015; initial connection period is two years from availability Page 3

4 Assumptions Costs Paid to City Treatment Operating &Maintenance (O&M) charge Per-gallon rate paid to Sequim, based on the City s treatment O&M costs per gallon, minus State tax, plus 1.15 out-of-city multiplier Because City doesn t have to pay State tax on its revenue from Carlsborg, there is no need for Carlsborg to pay the City for that tax If the law is ever changed to make Carlsborg revenue taxable, then it should be added to the City s O&M charges Estimated for each year, with after-the-fact true up based on actual expenditures and relative flows from each party Current forecast: $.0092 per gallon (just under a penny per gallon) in 2016 Page 4

5 Assumptions Costs Paid to City Pipe charge for Sequim transmission O&M costs Flat rate paid to Sequim, based on [Estimated Carlsborg % of flows through shared pipe] multiplied by [Shared pipe lineal feet as % of total collection system lineal feet] The resulting % is multiplied by Sequim costs for collection, pumping & transmission, minus State tax, plus 1.15 multiplier Estimated for each year, with after-the-fact true up based on actual City expenditures O&M costs include proportionate share of City overhead O&M costs exclude customer billing and meter reading, because that service is not expected to be provided by the City Current forecast: Carlsborg share is 1.71% of Sequim collection system O&M after markup, $14,000/year in 2016 Page 5

6 Assumptions Costs Paid to City Initial Capacity Charge One-time buy-in payment, based on depreciated value of treatment capital assets, Estimated $1.7-$2.0 million, paid as part of project cost Future Capital Cost Share - % share depends on type of capital: Treatment capital : Based on relative projected flows in 20- year forecast, current estimate 6.3% Capital related to collection system as a whole: Same as O&M pipe charge, current estimate 1.71% Transmission route: Based on Carlsborg % of flow through particular segment to be upgraded or replaced current weighted average is 44.1% Page 6

7 Assumptions Costs Paid to City Out-of-City Multiplier Common practice with City owned utilities, can be applied to both retail and wholesale customers Recognizes risk borne by in-city ratepayers in creating and managing the system City s current out-of-city multiplier is 2.0, except where set at a different level by contract Bell Hill currently pays multiplier of 1.5 All other out-of-city customers of Sequim pay 2.0 times in-city rates We believe that City would support a reduced multiplier for Carlsborg of 1.15, subject to City Council approval Pending further discussions, forecast assumes that it applies to O&M charge but not to capital cost share or initial capacity charge Page 7

8 Assumptions Costs Paid to City City Utility Tax Paid by Sequim s in-city customers as well as out-of-city customers Calculated as 8% of gross receipts, which is equivalent to an 8.8% markup on the sewer bill before the tax When combined with the out-of-city multiplier of 1.15, the total City markup on O&M costs is 25%. City utility tax does not apply to future capital cost share, nor to initial capacity charge Page 8

9 Assumptions Capital Costs Initial project: $14.1 million in 2015 dollars Initial project funding: $14.3 million Actual project costs could be higher (if higher inflation) or lower (if capacity charge estimate is too high) Future Capital Costs (in 2013 constant dollars) Sequim Capital Cost Share: Differs by year, ranges from $5,000 in 2016 to $87,000 in 2019 Future Carlsborg system expansion: Assume beginning in 2026 (year 11) at $272,000 per year; two pump stations in 2030 (year 15) $763,000. Page 9

10 Assumptions Operating Costs Treatment O&M Cost: $82,000/year assuming 125 gpd average domestic flow Sequim pipe charge: $14,000/year Administration and billing: $16,000/year Collection system and pump station maintenance: $98,000/year State taxes (payments to Sequim can be deducted from gross revenue): $6,000/year Total O&M: about $216,000/year, of which $82,000 is variable (depends of customer growth and flows), while $134,000 is relatively fixed Page 10

11 Assumptions County Subsidy Assumptions: County is committed to getting the Carlsborg system launched, but in the future, it needs to be self-supporting Types of subsidies or potential subsidies: Initial construction - debt service on $10 million PWTF loan about $513,000 per year Initial construction shortfall in construction budget, if any currently showing a slight surplus 3-year operating subsidy, until number of customers grows and rate stabilizes current estimate about $122,000 Get Connected loan program for private plumbing costs Current assumption is about $600,000 to be repaid over ten years with 3% interest ($3,000 max loan) Page 11

12 Growth and Flow Assumptions Assumed average Equivalent Residential Unit (ERU) generates domestic flow of 125 gallons per day Equivalent to winter average metered water consumption of 5.08 ccfs per month Existing structures within range of initial sewer lines: estimate 484 ERUs, of which 78 are residential and 406 are commercial Base Case scenario assumes 75% of those 484 ERUs connect in first two years, during the Initial Connection Period The remainder connects over next 18 years, by 2035 In addition, assume 2.15% annual growth from new development 677 total ERUs by 2035 Page 12

13 Other Assumptions Financial policies Operating reserve: days of operating expenses Rate-funded capital reinvestment: 5% of annual depreciation initially Beginning in 2021: 10% of annual depreciation Beginning in 2026: 15% of annual depreciation Beginning in 2031: 20% of annual depreciation Economic assumptions Inflation 2.5% CPI, 3.5% construction inflation (ENR) Future debt (if needed) 4.75%, 20 years Initial $10 million PWTF loan 20-year payoff,.25% Page 13

14 Forecast Results Monthly Rates Basic Summary ERUs ERU Forecast (Cumulative) Percentage growth in ERUs 99.5% 3.9% 3.7% 3.6% 3.6% 3.4% County Funds County Subsidy - Debt Service 513, , , , , ,229 - County Subsidy - Get Connected Loan Program 300, , County Subsidy - Capital Project Costs County Subsidy - Operating Subsidy 101,814 15,326 4, Connection Charges Connection Charge - Existing Structures $ 500 $ 500 $ 8,109 $ 8,272 $ 8,438 $ 9,320 $ 11,370 Connection Charge - New Development $ 7,793 $ 7,949 $ 8,109 $ 8,272 $ 8,438 $ 9,320 $ 11,370 Monthly Rates Volume Rate (per ccf winter average) $7.43 $ 6.92 $ 6.89 $ 6.86 $ 6.83 $ 6.69 $ 6.43 Monthly Base Charge per ERU $30.24 $ $ $ $ $ $ Avg Volume Charge/ERU (125 gpd winter avg) $37.76 $ $ $ $ $ $ Total Monthly Charge/ERU (125 gpd winter avg) $68.00 $ $ $ $ $ $ Increase/(decrease) in monthly rate 0.0% 0.0% 0.8% -0.8% -0.7% 1.2% Total Monthly Charge/ERU (constant 2014 dollars) $64.72 $63.14 $61.60 $60.58 $58.65 $51.78 $65.43 Flat Rate for Properties on Wells (@175 gpd) $83.10 $82.07 $82.01 $82.49 $81.91 $81.54 $ Note: 2015 is assumed to be the construction year Page 14

15 Sensitivity Analysis Summary - Total Monthly Charge per ERU Base Case $68.00 $68.00 $68.00 $68.54 $68.01 $67.94 $ % Connected in first two years 75% Converted ERUs - annual growth 1.61% New Development - annual growth 2.15% Slower Growth $87.00 $87.00 $87.00 $86.62 $86.14 $87.96 $ % Connected in first two years 50% Converted ERUs - annual growth 1.50% New Development - annual growth 1.50% Faster Growth $62.00 $62.00 $62.00 $61.92 $61.10 $60.38 $89.61 % Connected in first two years 90% Converted ERUs - annual growth 2.00% New Development - annual growth 3.00% Take-home messages: This would not be possible without the County Without debt service subsidy, initial rate would be $142 instead of $68/month Keeping monthly rates manageable depends on getting existing properties connected as soon as possible Page 15

16 Connection Charge Connection Charge 2015 Calculations Notes Capital Projects (2013 Dollars) $ 16,573,895 Inflation to Convert to 2015 $ 1,180,476 Adds two years of inflation to escalate to system construction year Capital Projects (2015 Dollars) $ 17,754,371 Initial System Built in Construction Year (2015) plus collection system for UGA Estimated ERUs 2,324 Estimated ERUs in 40 years Connection Charge $ 7,640 Maximum Connection Charge per ERU in 2015 Connection Charge 2025 Calculations Notes Existing Cost Basis Existing Assets (2013 Dollars) $ 13,094,595 Inflation to Convert to 2015 $ 932, $ 14,027,257 Plus: 10 Years of Interest Weighted Interest Rate 1.69% $10M with 0.25%, $4M with 5.30% (1/30/14 Bond Buyer Revenue Bond Index) Applied to Existing Assets $ 2,374,614 Interest on Existing Assets per (10 Years worth) Total Existing Cost Basis $ 16,401,872 Future Cost Basis Planned Capital Projects (2025 Dollars) $ 5,257,461 Carlsborg capital projects planned but not yet built Total Cost Basis $ 21,659,333 Estimated ERUs Projected Connection Charge 2025 $ 9, Year Average Increase per Year 2.01% 2,324 Estimated ERUs in 40 years Page 16

17 Connection Charge Connection Charge Schedule 10-Year Average Annual Increase 2.01% $ 7,640 $ 7,793 $ 7,949 $ 8,109 $ 8, $ 8,438 $ 8,607 $ 8,780 $ 8,957 $ 9,136 $ 9,320 Page 17

18 Rate Comparison Rate and Connection Charge Comparison Connection Charge Carlsborg Projected Existing Structures $ 500 $ 500 $ 8,109 New Development $ 7,793 $ 7,949 $ 8,109 Sequim In-City $ 8,550 $ 8,800 $ 9,050 Out-of-City assuming 1.15 multiplier $ 9,833 $ 10,120 $ 10,408 Monthly Sewer Charges per ERU Carlsborg (assuming 5.08 ccf/month winter avg) $68.00 $68.00 $68.00 Carlsborg (assuming 8 ccf/month winter avg) $89.67 $88.19 $88.10 Sequim In-City Low Volume SF Res (<8 ccf/mo winter avg) $62.25 $64.74 $67.33 High Volume SF Res (>8 ccf/mo winter avg) $72.23 $75.12 $78.12 Sequim Out-of-City (assuming 1.15 multiplier) Low Volume SF Res (<8 ccf/mo winter avg) $71.58 $74.45 $77.42 High Volume SF Res (>8 ccf/mo winter avg) $83.06 $86.39 $89.84 Projected monthly rate is higher than Sequim Projected connection charge is lower than Sequim Page 18

19 Potential Revisions to Forecast Estimate of initial capacity buy-in charge to Sequim needs to be updated Need to factor in existing properties with wells Recommend assuming 175 gpd instead of 125 gpd Page 19

20 Connection Policies Need to balance desire for voluntary connections with the goal of avoiding extremely high rates Suggested policy No new septic systems; if existing septic system fails, must extend the line (if necessary) and connect The property owner(s) who extend a line can enter into developer reimbursement agreements and receive latecomer fees Potential hardship exception, if cost of extending line would be over 125% of cost of an approved septic system, and if property owner signs a nonprotest agreement for a future ULID to extend the line (similar to EUGA provision) If sewer is <200 feet, must connect within one year unless: It has been less than 20 years since existing septic system has been constructed or substantially renovated, and the septic system is designed to remove 50% of nitrates After the 20-year point, the property must be connected, at thenprevailing connection charges Page 20

21 Incentives In order to scale up, we need both carrot and stick The connection policy creates the certainty that eventually the property will have to be connected However, there should also be an incentive to connect for those property owners who have an option Recommend connection charge for existing structures (with septic systems) who connect within Initial Connection Period of 2 years: $500 Page 21

22 Incentives Property Owner Decision-Making - Example Example: Based on age of septic system, could wait until Cost of side sewer & septic decommissioning is $3,000. Connection charge up-front is $500. Connection charge in 2025 would be $8,571. Assumed average monthly sewer charge is $68.00/month. Assume inflation for private plumbing costs is 3% per year. Connection Year: Cost to Customer Connection charge $ 500 $ 8,571 Private plumbing costs 3,000 4,032 Monthly sewer bills for ten years 8,160 - Total Cost to Customer $ 11,660 $ 12,603 Savings from connecting in 2015 $ 943 Page 22

23 Get Connected Loan Program A way to make it possible for property owners to connect who are motivated to do so Private plumbing costs are an especially significant factor for single-family residential customers Assumed maximum $3,000 loan for 10 years at 3% Monthly payment to customer: $28.97 added to sewer bill County can opt to offer coordinated bidding and construction management as well If 200 properties take advantage of option, up-front cost to County $600,000; repayments $70,000/year Page 23