Fiber Rate Restructuring. February 3, 2014

Transcription

1 Fiber Rate Restructuring February 3, 2014

2 2012 Fiber Strategic Plan Established financial policies for the Fiber System to be achieved over time Minimum cash reserves Break even rate of return No debt Financial policies are not forecast to be met by end of 2016 Interim goal is to work towards a stable cash position until strategic outreach is complete Includes the need for rate restructuring 2

3 Goals of Rate Restructuring Broader product and service offerings to accommodate customer needs Solidify revenues for the future Develop the processes that will make it a positive experience for the customer Develop the policies that are fair, clear and easy to follow 3

4 Service Provider Feedback Overall no surprise on 5% Expected it from 2012 Fiber Strategic Plan VLAN pricing Term contracts on VLANs and possibly other services Concerns of rates exceeding market Marketing to new customers Growth 4

5 Rate Setting Approach Standard: Revenue Requirement Analysis Process of comparing the revenues derived from rates to the cost needed to be covered by the rates The financial policies, in conjunction with the District financial forecast, have been the primary basis for determining the revenue requirements for each system Current : Cash Flow Analysis Expenditures and cash projections of the District s financial forecast are the basis for determining income requirements of each system This includes principal and interest payments on existing debt (not applicable for Fiber) but does not include depreciation on system assets 5

6 Key Assumptions Current capital plan Churn at (2.5%) Limited install growth through per year Current staffing and expense plan levels 6

7 Rate Pricing Considerations Cost of Service Asset based costing Applied costs to lines of service Competition Based Wholesale vs. retail markets Maximum that can be charged in this market Price elasticity 7

8 Cash Scenarios Modeled No revenue increase current rates 5% annual revenue increase in years Wholesale market limit revenue increase of 14% in 2014 Revenue increase of 5% in

9 Cash View: No Rate Increases Amounts in Thousands Net Cash Flow* ($338) ($2,186) ($1,357) ($164) ($584) Cash Balance $3,769 $1,583 $226 $61 ($523) Note: Cash balance continues to deteriorate. *Excludes depreciation expense. 9

10 Cash View: Rates Adjusted to Increase Revenue 5% in Amounts in Thousands Net Cash Flow* $79 ($1,335) ($55) $1,148 $760 Cash Balance $4,186 $2,851 $2,795 $3,943 $4,703 Note: Cash balance peaking in 2019 and then declines. *Excludes depreciation expense. 10

11 Cash View: Market Revenue Adjustment of 14% in 2014 Amounts in Thousands Net Cash Flow* $817 ($1,031) ($199) $1,007 $624 Cash Balance $4,924 $3,894 $3,695 $4,702 $5,326 Note: Cash balance declines after *Excludes depreciation expense. *Leaves room for Service Provider margin 11

12 Cash View: Rates Adjusted to Increase Revenue 5% in 2014 Amounts in Thousands Net Cash Flow* $79 ($1,769) ($939) $258 ($148) Cash Balance $4,186 $2,417 $1,477 $1,735 $1,587 *Excludes depreciation expense. 12

13 Net Cash Flow $1,500 $1,000 $500 $0 ($500) ($1,000) ($1,500) ($2,000) ($2,500) No Rate Increases 14% Revenue Increase in % Revenue Increase % Revenue Increase

14 Net Cash Balance $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ ($1,000) No Rate Increases 14% Revenue Increase in % Revenue Increase % Revenue Increase

15 Proposed Rate Structure Changes Service tiers Tier 1 NOC support Tier 2 Local network administration support Tier 3 Field dispatch Classes of service Basic Tier 1 technical support 24/7 Higher tiers of support available normal business hours Premium All tiers of support available 24/7 Rate changes based on achieving a 5% revenue increase 15

16 Proposed Rates: 5% Revenue Increase Basic Service Current Rate Proposed Rate $ Inc/Dec % Inc/Dec Tier 1: Internet up to 25X2 Mbps $21.09 $22.14 $1.05 5% Tier 2: Internet up to 60X6 Mbps New $ Tier 3: Internet up to 100X10 Mbps $30.00 $31.50 $1.50 5% Tier 4: Internet up to 100X100 Mbps $39.11 $41.07 $1.96 5% Wireless Internet $21.09 $21.09 $0.00 0% POT s Phone Service $10.90 $11.45 $0.55 5% Video Service $9.81 $10.30 $0.49 5% 16

17 Premium Core Services Service Current Rate Proposed Rate $ Inc/Dec % Inc/Dec Tier 1: Internet up to 25X2 Mbps $21.09 $23.20 $ % Tier 2: Internet up to 60X6 Mbps New $ Tier 3: Internet up to 100X10 Mbps $30.00 $33.00 $ % Tier 4: Internet up to 100X100 Mbps $39.11 $43.02 $ % POT s Phone Service $10.90 $11.99 $ % Video Service $9.81 $10.79 $ % 17

18 Premium Advanced Services Internet Bandwidth* Current Rate Proposed Rate $ Inc/Dec % Inc/Dec Internet Connection 30 Mbps New $ Internet Connection 50 Mbps New $1, Internet Connection 100 Mbps New $2, *1 Mbps service eliminated from service offering (no customers). *Eliminating 3 Mbps, 5 Mbps & 10 Mbps service offerings & consolidating into new 30 Mbps service offering (3 customers). 18

19 Premium Advanced Services Time Division Multiplex Services Current Rate Proposed Rate $ Inc/Dec % Inc/Dec STS-1 $1, $1, $ % STS-3 New $3, DS1/PRI $ $ $ % DS3/T3 New $2,

20 Premium Advanced Services Ethernet VLAN Services All products receive 5% increase Except 100 Mbps service, no increase Dark Fiber Services All products receive 5% increase 20

21 Conclusion Proposing revenue adjustments for 2014 Overall revenue increase is 5% Rate increases for individual services vary Proposed 2014 revenue adjustments do not result in system financial targets being met Proposed revenue adjustments do improve cash flow and cash balance for 2014 Look to strategic planning efforts for future direction 21

22 Next Steps February 18 Board Meeting Presentation of revised rate schedule March 3 Board Meeting Commission and public feedback on rate proposal Presentation of resolution March 17 Board Meeting Request approval of rate proposal 22