Rising Utility Costs Challenge All of Us

Rising Utility Costs Challenge
All of Us
• The huge increase in oil costs and the large capital investments required to modernize our water and wastewater systems and comply with federal environmental laws have resulted in significantly increased u:lity costs in the past decade for all of us 1
Rising Utility Costs Challenge
All of Us
•  GPA is looking to diversify away from oil and move to LNG and increased renewable energy genera:on to lower power costs by the end of the decade. •  LNG will be a game changer. •  Power rates will con:nue to fluctuate with oil but reduced debt service from 2015-­‐2020 will hold non-­‐fuel rates steady thru 2020. 2
Rising Utility Costs Challenge
All of Us
•  GWA is rebuilding the en:re water and wastewater system to improve service, become more efficient and comply with environmental federal laws ignored since the 1980’s •  Water/WW rates will con:nue to rise thru 2020 with over 60% of the increases due to escala:ng debt service on CIP financing. •  ATer 2020, rates will stabilize. •  The business community and the Government of Guam will carry the largest burden of water rate hikes while subsidizing lower residen:al rates 3
Economy will benefit from
infrastructure investments
• Together, GPA and GWA will inject over $800 million in construc:on projects between 2014 and 2020 4
Guam Power Authority
Chamber of Commerce Update
October 30, 2013
Dramatic Increase in Fuel
Costs
Fuel Costs ($000) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 -­‐ 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fuel Cost/ kWh
0.2
0.18
0.16
0.14
0.12
0.1
GPA’s fuel costs
have increased 422%
over the period!
0.08
0.06
0.04
0.02
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Historical Rate Increases
6.00%
5.00%
4.00%
Base rate increases since
2008 have totaled 10%.
Prior to 2008, there had
not been a base rate
increase since 1997.
Since 2002, 90% of the
increase in utility bills have
come from rising fuel
costs, only 10% from nonfuel costs (PDN Dec 2012)
3.00%
Increase
2.00%
1.00%
0.00%
FUEL SAVINGS RELATIVE TO 83% BASELOAD USE
98% 99% 98% 98%
98%
97%
97% 97%
95%
1
$360
$330
321.8579527
$300
93%
282.9886158
$240
250.1356112
0.92
$270
$210
208.3238166
0.88
$180
$173
118.8128153
$150
$120
85.23084081
0.84
$90
52.22388701
83%
$60
33.9359605
Actual Baseload Production (%)
Fuel Savings ($M)
FY'13
FY'12
FY'11
FY'10
FY'09
FY'08
FY'07
$30
FY'06
FY'05
FY'04
0.8
FY'03
(Apr'03Sep'03)
13.88504718
3.628389907
$0
Fuel Savings ($M)
93%
5-Years
Pre-CCU
% Of Actual Baseload Production
0.96
$390
Cents per kWh 80 71.684 70 60 49.25 50 42.97 40 30 41.57 36.13 35.63 48.5 38.65 38.45 33.1 26.43 20 10 0 Guam Saipan Kauai Oahu Hawaii Maui Molokai Lanai American Samoa Fiji Barbados GPA has been given the go-ahead to
prudently implement its Integrated Resource
Plan (IRP).
  The IRP recommends:
 
◦  switching to LNG as a primary source of energy
◦  replacing older less efficient plants with newer
more efficient plants
◦  acquiring another 40 MW of renewable energy while
co-existing with the growth of renewable
generation by private providers to existing GPA
customers
Implementing the IRP will cost between
$300-$500 million. These needs will be
financed by the fuel savings resulting from
switching to LNG and using much less oil.
  Converting existing fuel dollars to pay for
both CIP’s and lower cost LNG will still allow
for modest rate decreases thereafter.
  LNG also will allow GPA to avoid USEPA
compliance costs of $300-$400 million for
emissions control resulting from continuing
to burn oil as primary source of energy.
 
GPA Renewable Initiatives
GPA renewable projects will diversify and hedge GPA fuel exposure, creating savings for
ratepayers
Phase I – Near Completion
Phase II – Future Plans
  NRG Quantum Guam Power
 
20 MW solar
 
25 year contract with GPA
 
June 2014 operational date
  GPA is considering additional renewable
resources
  40-45 MW Phase II renewable bid under
development
  Quantum Guam Power
 
Acquired power purchase agreement from
Pacific Green Resources on April 25, 2013
 
5.65 MW solar due 2015
 
25 year contract with GPA
  Pacific Green Resource
 
9.35 MW wind due 2016
16
In 2008, in response to P.L. 27-132, the PUC
established a net metering tariff.
  The tariff allows customers to install
renewable energy equipment behind the
meter.
  Net metering equipment allows energy to
flow through the grid to the home and from
the home to the grid.
 
 
 
 
An interim tariff was established that allowed for
customers to receive a one for one credit for every
kWh that goes back into the system.
This means net metering customers get to use GPA’s
generation and grid assets for free, shifting this cost
to customers who do not have access to net
metering.
GPA recently petitioned the PUC to create a new rate
which would reduce the full credit tariff to recognize
that net metering customers still use the grid for
storage and delivery but are not paying for it. This
petition was rejected until more impact information is
available as the number of net metering customers
increase.
Bill 74-32 is currently in the Guam
Legislature
  The bill would allow the Department of
Education (DOE) to contract with vendors for
renewable energy solutions.
  Currently DOE contributes $5.6 million in
base rate revenues each year. If they go
away, all other ratepayers would have to
make up for this lost revenue since GPA’s
costs of assets don’t change.
 
In more mature renewable energy
markets, this cost-shifting challenge is
forcing power companies to raise their
prices on those remaining customers
who cannot access renewable energy.
  GPA is working with the GREA and the
Legislature to find a better solution that
will not cause the costs of net metering
customers to be shifted to non-net
metering customers while recognizing the
benefits of renewable energy.
 
Due to improved performance, rating
agencies upgraded GPA to an investment
grade utility. This lowered GPA’s interest
costs by 75 basis points, saving ratepayers
$9M in annual interest costs.
  Half of the $34M Smart Grid investment was
funded by the federal govt. SG will save $3M
to $5M per year in T&D costs
  GPA once had 900 employees. Today only
535 employees remain and this number has
been fixed for a number of years.
 
Rising Utility Costs Challenge
All of Us
•  GPA is looking to diversify away from oil and move to LNG and increased renewable energy genera:on to lower power costs by the end of the decade •  Power rates will con:nue to fluctuate with oil but reduced debt service from 2015-­‐2020 will hold non-­‐fuel base rates steady thru 2020. •  LNG will be a game changer and will lead to lower power bills aTer the transi:on is completed by 2020 19
Introduction Introduc7on  In December 2002, USEPA sued Gov Guam and GWA for failure to comply with federal clean water and safe drinking water laws. The original federal Court Order (CO) was signed in June 2003.  From 2003 to 2010, GWA borrowed and invested $220M to begin modernizing, repairing and replacing GWA infrastructure in order to improve service to ratepayers and bring GWA into full compliance with applicable federal laws. 21 Introduc7on  Court Order was amended in 2011 requiring GWA to complete CIP projects es:mated to cost $313M between 2013 and 2021.  In the past year, USEPA iden:fied more projects in its “Significant Findings for Water & Wastewater” to be completed, outside of the 2011 Court Order. Es:mated Cost $130M.   Consequently, GWA seeks to borrow up to $495M (inclusive of financing costs) over the next five years in three separate financings (2013, 2015, 2017) to complete these projects. 22 Introduc7on  To fund the borrowings, GWA submiked its third 5-­‐year rate plan to the PUC in June.  Last night, the PUC approved the rate plan, subject to annual review.  Rates will increase between 20% -­‐ 31% for Residen:al customers and 66% for Commercial and Govt. ratepayers between FY 2014-­‐2018.  GWA hopes to obtain approval from the Legislature and the Governor to issue the first $195M in bond financing in the next week. 23 How $495M will be spent The 2011 Federal Court Order Es:mated Cost of the 2011 Federal Court Order is over $300 Million Project Tank Rehabilita:on & Replacement Agat-­‐Santa Rita WWTP Improvements Baza Gardens WWTP Improvements Umatac-­‐Merizo WWTP Improvements Northern District WWTP Upgrades Agana WWTP Interim Measures Sinajana Water System Groundwater Chlorina:on Water Metering SSES and I&I/SSES Work Plan Ugum Surface Water Treatment Plant Total Cost 25 Preliminary and subject to change. Cost($M) $153.4 60.6 33.0 18.1 11.5 11.5 9.0 6.3 5.9 2.1 1.9 $313.3 2012 Significant Findings Water Capital Improvements related to 2012 Significant Findings Water 2012 Significant Findings Water Planned Capital Investments Cost ($ millions) Project Water System Planning 8.6 Waterline Replacement Program 28.6 Water Booster Pump Sta:ons 9.4 Electrical/Mechanical Improvements 0.75 Ugum Treatment Plant 6.0 New Produc:on Well Development 22.5 Lab (50%) 0.75 SCADA Implementa:on (Water) 3.0 Total Es7mated Cost $79.6 Preliminary and subject to change. 26 2013 Significant Findings Wastewater Capital Improvements related to 2013 Significant Findings Wastewater 2013 Significant Findings Wastewater Planned Capital Investments Cost ($ millions) Project Planning 7.7 I&I/SSES (Northern, Central and Southern Basins) 6.8 Wastewater Collec:on System Rehabilita:on 18.1 LiT Sta:on 14.4 Lab (50%) 0.75 SCADA Implementa:on (Wastewater) 3.0 Total Es7mated Cost $50.75 Preliminary and subject to change. 27 Future Secondary Treatment Plant Requirements New NPDES Permits Requirements, June 2013 GWA has begun discussions with USEPA on the Secondary Treatment Plant Requirements for the Hagatna WWTP Plant and Northern District WWTP – GWA will be seeking extended :melines of as much as 25 years to migrate to Secondary Treatment in order to avoid even higher rate hikes while complying with exis:ng court ordered and environmental mandates. 28 Financial Requirements Opera7onal and Financial Improvements Investment in infrastructure and an increased focus on opera7ng expenses over the past several years have led to significant financial improvements Opera7onal Improvement Installed new water meters Reduced Navy water purchases significantly Financial Improvement  
Significant increase in water revenues beyond amount of rate increases  
Based on current prices, GWA saves $2.29 for every kgal reduc:on in Navy Water purchase  
Reduced from 38 days in FY 2011 to 3.7 days in FY2013 resul:ng in $2.4 million in expected annual savings  
FY2013 power consump:on (kWh) is 5.50% below FY2012 and 6.69% below FY2011  
Net opera:ng revenues have increased at a CAGR of approximately 30% since 2008 Vastly improved water leak repair 7me Decreased power consump7on Increased focus on net revenues 11 Revenue Improvements As GWA works to complete the installa7on of new water meters, water revenues con7nue to show steady increases month over month Vastly Improved Water Revenues Increased Water Sales New meters have increased water revenues significantly New meters have also resulted in significant increases in water sales Water Revenue 4-­‐Month Rolling Average FY2011-­‐2013 $4.2mm Metered Water Sales (RevenueGals) 4-­‐month Rolling Average FY2009-­‐2013 550mm $4.0mm 525mm $3.8mm (RevenueGals) (RevenueGals) $3.6mm $3.4mm $3.2mm 500mm 475mm Historical Water Revenues FY2011 FY2012 Source: GWA. 12 Avg. $3.09 mm Avg. $3.32 mm FY2013 Budget Avg. $3.68 mm FY2013 Avg. $3.71 mm Historical Annual Water Sales in KgaL FY2011: 5.99M FY2012: 5.79M *In FY 2013 4.72M for 9 months yield 6.29M for 12 months FY2013*: 6.29M May-­‐13 Feb-­‐13 Nov-­‐12 Aug-­‐12 May-­‐12 Feb-­‐12 Nov-­‐11 Aug-­‐11 450mm May-­‐11 $2.8mm May-­‐11 Jun-­‐11 Jul-­‐11 Aug-­‐11 Sep-­‐11 Oct-­‐11 Nov-­‐11 Dec-­‐11 Jan-­‐12 Feb-­‐12 Mar-­‐12 Apr-­‐12 May-­‐12 Jun-­‐12 Jul-­‐12 Aug-­‐12 Sep-­‐12 Oct-­‐12 Nov-­‐12 Dec-­‐12 Jan-­‐13 Feb-­‐13 Mar-­‐13 Apr-­‐13 May-­‐13 Jun-­‐13 $3.0mm Expense Improvements GWA has focused on improving leak repair 7me and significantly decreasing Navy water purchases Reduc7on of Expenditures from Leak Repairs Decreased Navy Water Purchases Improved leak repair 7me is es7mated to save GWA $2.4 million per year GWA has drama7cally reduced water purchases from the Navy Leak Cost Based on Average Days to Repair (October 2010 -­‐ June 2013) $300,000 Navy Water Purchases 6-­‐Month Rolling Average FY2010-­‐FY2013 150,000 $250,000 130,000 KGALS Cost Savings $200,000 $150,000 110,000 $100,000 90,000 Source: GWA. 13 Aug-­‐13 Jun-­‐13 Apr-­‐13 Feb-­‐13 Oct-­‐12 Dec-­‐12 Aug-­‐12 Jun-­‐12 Apr-­‐12 Dec-­‐11 Feb-­‐12 Oct-­‐11 Aug-­‐11 Jun-­‐11 Apr-­‐11 Feb-­‐11 Oct-­‐10 70,000 Dec-­‐10 06/01/13 04/01/13 02/01/13 12/01/12 10/01/12 08/01/12 06/01/12 04/01/12 02/01/12 12/01/11 10/01/11 08/01/11 06/01/11 04/01/11 02/01/11 12/01/10 $0 10/01/10 $50,000 FY
2011
2012
2013
2014
33 Consumption
1,508,513 1,123,727 963,952 % Consumption Change from Prior Year
-­‐6%
-­‐26%
-­‐14%
Rate/kgal
% Rate Change from Prior Year
4.11 4.48 4.57 5.41 1%
9%
2%
18%
Amount
$ 6,199,988 $ 5,034,296 $ 4,405,263 Opera7ng Revenues and Expenses Since 2008, opera7ng revenues have grown twice as fast as expenses System Revenues and Opera7ng Expenses ($000s) System Revenues and Opera7ng Expenses Trendline ($000s) 75,000 75,000 8% CAGR 48% Total Growth 70,000 60,000 65,000 45,000 60,000 55,000 30,000 50,000 15,000 22% Total Growth 45,000 0 2008 2009 Opera:ng Revenues 2010 2011 2012 Opera:ng Expenses Source: FY2008-­‐2012 audited financials. FY2013 is preliminary & unaudited. 14 2013 40,000 2008 2009 2010 Opera:ng Revenue Trendline 2011 2012 2013 Opera:ng Expense Trendline GWA Financial Results GWA’s financial results illustrate commitment to an improving financial profile Historical Opera.ng Results (1) Fiscal Year Ending S eptember 30
($000s)
Operating Revenues
Wa ter S a l es R evenues -­‐ Current R a te S chedul e
2010
2011
2012
2013 (Unaudited)
(2)
$37,596 $38,695 $42,922 $47,306 (2)
21,488
818
21,796
607
23,935
701
26,186
449
$59,902 $61,098 $67,558 $73,941 $6,669 14,344
18,086
$6,283 15,192
18,499
$5,263 17,016
18,891
$4,571 17,288
19,935
3,381
1,898
3,355
2,244
3,069
2,263
2,825
2,418
3,847
$48,225 5,286
$50,859 5,423
$51,925 7,736
$54,773 $11,677 $10,238 $15,633 $19,168 9
$11,686 11
$10,249 10
$15,643 11
$19,179 $7,704 $7,706 $7,708 $7,704 1.52x
1.33x
2.03x
2.49x
Wa s tewa ter R evenues -­‐ Current R a te S chedul e Other R evenues
Total Operating Revenues
Operating Expenses
Wa ter Purcha s es
Power Purcha s es
S a l a ri es a nd Wa ges
Contra ctua l (3)
R eti ree a nd H ea l thca re
Admi ni s tra ti ve a nd G enera l Total Operating Expenses
(4)
Amounts Available for D ebt Service Net Opera ti ng R evenues
(5)
(6) Other I ncome (Expens e) Balance Available for D ebt Service
Total Senior Lien D ebt Service (7)
Coverage of Senior Lien D ebt Service by Balance
Available for D ebt Service
15 (8)
1. 
Derived from audited informa:on provided by the Authority. 5. 
Not included are surcharges to pay amounts owed to GPA and Navy (see footnote 2) 2. 
Represents amount billed as Revenue pursuant to the Indenture. Amounts not collected are included in Administra:ve and General Opera:ng Expenses as bad debt. Amounts shown include amounts collected for certain past re:rement benefits. Not included are 1) surcharges to pay amounts owed to GPA and Navy and 2.) System Development Charges. 6. 
7. 
Includes interest earnings on the Debt Service Reserve for the 2005 Bonds. Amounts are shown net of capitalized interest. 3. 
Includes contractual labor, materials, equipment rental, legal services, tes:ng, and miscellaneous. 8. 
Calculated based on Balance Available for Debt Service divided by Total Debt Service. 4. 
Includes bad debt expense. No. of Customers
Customer Class No. of Accounts Residen:al 38,286 Commercial 2,558 Hotel 51 Government 409 Agriculture 327 Irriga:on 33 Total 41,664 Per Capita Water Consumption – Residential Accounts
Customer Class Consump7on No. of Accounts Residen:al Less than 5,000 gallons per month (lifeline customers) 18,840 Residen:al Greater than 5,000 gallons per month 19,446 Customer Class
Residential < 5 kgal
Residential > 5 kgal
Commercial
Hotel
Government
Agriculture
Irrigation
37
Aggregate
Current Bill FY2014 FY2015 FY2016 FY2017 FY2018
% Change
$56.75 $57.46 $59.74 $62.72 $67.06 $67.94 20%
75.48 78.65 83.94 90.75 96.97 98.96 31%
1,112 1,259 1,435 1,665 1,778 1,847
184,086 208,330 237,413 275,489 294,173 305,553 4,288 4,853 5,530 6,417 6,852 7,117
73.60 83.29 94.92 110.14 117.61 122.16 94.09 106.48 121.34 140.80 150.35 156.17 66%
66%
66%
66%
66%
ACTUAL
2011
2012
2013
PROJECTED
2014
2015
2016
2017
2018
Operating Revenues
$ 61,098 $ 67,558 $ 73,941 $ 83,797 $95,690 $109,413 $120,748 $130,257 Bond Debt Service*
$ 7,706 $ 7,708 $ 7,704 $ 12,593 $15,274 $ 30,153 $ 30,148 $ 41,520 % of DS to GS
*Excludes Capitalized Interest
38
13%
11%
10%
15%
16%
28%
25%
32%
Debt service accounts for 60 % of the required rate increases between 2014-­‐2018 Summary What will this borrowing do for ratepayers?   Clean safe drinking water will be maintained.   Beker flow and pressure through improved water distribu:on and storage systems.   Increased system reliability.  Improvements in system and equipment efficiencies will result in opera:onal savings that reduces GWA costs and resul:ng rate increases. 41 What will this borrowing do for ratepayers?  Our primary water resource, the Northern Aquifer, will be protected from over-­‐
pumping due to the reduc:on of unaccounted for water by improved metering, line replacement, leak repair and improved planning for the protec:on of the aquifer.   Our surrounding waters which will no longer be polluted by untreated wastewater. 42 Rising Utility Costs Challenge
All of Us
•  GWA is rebuilding the en:re water and wastewater system to improve service, become more efficient and comply with environmental federal laws ignored since the 1980’s •  Water/WW rates will con:nue to rise thru 2020 with over 60% of the increases due to escala:ng debt service on CIP financing. •  ATer 2020, rates will stabilize. •  The business community and the Government of Guam will carry the largest burden of water rate hikes while subsidizing lower residen:al rates 43
Rising Utility Costs Challenge
All of Us
• Ques:ons and hopefully Answers 44