Utility Financial Management Plan
Presented by:
Bill Meyer, Interim Utilities Director
&
Michael Burton, President
Andrew Burnham, Senior Vice President
Compliance with Council Priorities
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Ecological Stewardship
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Quality Infrastructure
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Maintain water distribution and sewer collection systems
Insure performance of water production facilities
Adequate water resources
Good Governance
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Prevention of pollution resulting from sewer overflows
Stewardship of physical and financial resources
Long range planning
Public Utilities is an Enterprise Fund
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It must be self supporting through its rates and fees
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Operating costs covered by User fees
Capital costs fund by
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Pay as you go
Bonds
It receives NO subsidy from the General Fund
Driving Issues for Financial Plan
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Regional Consent Order Renewal, Replacement, Reliability
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Long Term System Maintenance
Purchased Water Cost Increases
Operating Cost Inflation
Regional Consent Order
Two Components:
CAPITAL REPAIRS & UPGRADES
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Requires development of a plan to
address system defects identified in
study phases
99 basins identified
Estimated cost - $300 million
Identify improvements by Nov 2013
MAINTENANCE AND OPERATION
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Meet identified operation
criteria as outlined in the M&O
Plan approved by DEQ –
7/27/12
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Annual reports on progress
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Modify activities to meet
requirements
 Staffing
 Equipment
 Services
Renewal, Replacement,
Reliability
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Stewardship of the System
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In addition to the
improvements under
the Regional Consent
Order, the remainder
of the sewer system as
well as the water
system needs
improvements to
continue to provide
reliable service to our
customers.
Purchased Water Cost Increases
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Portsmouth Treated Water Purchases
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Norfolk Water Purchases
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Minimum purchase quantity changes in 2020 from 4 to 5 MGD
Average annual rate increase – 4.00%
Treated Water – 3.5% average annual increase
Raw Water – 2.75% average annual increase
Operating Cost Inflation
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Increases in key items:
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Increases in expenses outside control of utility:
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Electricity
Chemicals Fuel
Materials
Retirement
OPEB
Equipment replacement
Operational Efficiencies
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Utilized part‐time/Encore employees where feasible
Updated with more efficient equipment
Cost savings on construction projects
Basis of Financial Management Plan
Review and evaluate recent historical results
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Integrate current operating and capital improvement budgets
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Develop capital cash flow requirements and operating expense forecasts
Identify timing and amount of future borrowing requirements
Identify key factors or drivers affecting rates (see next slide)
Perform various sensitivity and scenario analyses using our interactive model and decision support process
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Customers, demands, operating revenues, expenses
Growth, rate stabilization transfers, capital spending, cost escalation, etc.
Develop a rate adjustment plan to ensure compliance with bond covenants and to maintain adequate operating reserve
Prepare FY 2013 comparative residential rate survey
Financial Management Plan:
Key Drivers
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Financial Management Plan:
Rate Increase Requirements
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Plan of Water & Sewer Rate Increases is Needed to:
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Address immediate and ongoing impacts of key drivers
Satisfy annual debt service requirements, including coverage
Maintain adequate operating reserve (equal to 6 months of O&M expenses)
Description
FY 14
FY 15
FY 16
FY 17
FY 18
4.9%
4.9%
4.9%
4.9%
4.9%
Effective Date
7/1/13
7/1/14
7/1/15
7/1/16
7/1/17
Monthly Water & Sewer Cost*
$60.30
$63.25
$66.35
$69.61
$73.02
Change in Monthly Cost
$2.83
$2.95
$3.10
$3.26
$3.41
Water & Sewer Rate Increase
*Based upon 5,000 gallons and excludes HRSD fees. Utility billing is bi-monthly for most customers
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Financial Management Plan:
Rate Increase Distribution
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US Consumer Price Index:
Overall Index
90%
Increase
Since 2000
40%
Increase
Since 2000
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US CPI – Overall:
5 year average annual increase = 2.2%
10 year average annual increase = 2.4%
20 year average annual increase = 2.5%
30 year average annual increase = 3.1%
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US CPI – Water & Sewerage Maintenance
5 year average annual increase = 6.3%
10 year average annual increase = 5.6%
20 year average annual increase = 4.7%
30 year average annual increase = 5.4%
Monthly Residential Bill Comparison
Water & Sewer Service for 5,000 Gallons
Suffolk
Isle of Wight County
Gloucester County
Poquoson
Richmond
Norfolk
Virginia Beach
Portsmouth
Smithfield
Chesapeake
Newport News
York County
Hampton
Franklin
Alexandria
Prince William County
Chesterfield County
Fairfax County
James City County
Williamsburg
Henrico County
$99.58
$92.75
$85.49
$80.52
$77.55
$73.40
$73.32
$72.61
$70.97
$69.62
$69.57
$67.97
$65.02
$63.33
$61.72
$61.25
$59.79
$54.95
$52.35
$44.75
$40.65
$4.84
* Reflects rates in effect as of 7/1/12; Includes HRSD Fees as applicable
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FY
2014 Bill = $72.45
Conclusions & Recommendations
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Revenue Produced by Current Rates is Not Sufficient to Address
Annual Operating, Capital, Debt, and Reserve Requirements
5-Year Plan of Annual Rate Adjustments is Recommended
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4.9% per year for FY 2014 – FY 2018
Comparable to national and local trends
Should result in comparable cost for typical user to neighboring communities
Annual Financial Management Updates As Part of 5-Year Rate Plan
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Update analysis based upon changes and report results to Council
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Costs, demands, growth, consent order requirements, etc.
Modify the rate adjustment plan as needed (up or down) to meet financial
requirements of system and minimize rate adjustments to customers