a. Water and Wastewater Financial Business Plan and Water & Sewer Rate Recommendations Summary Presentation.

Transcription

1 WORK SESSION April 22, 2014 City Commission Room, 700 N. Jefferson, Junction City KS :00 P.M. - CALL TO ORDER 2. SPECIAL PRESENTATIONS: Mayor Michael Ryan Vice Mayor Mick McCallister Commissioner Pat Landes Commissioner Jim Sands Commissioner Cecil Aska City Manager Gerald Smith Assistant City Manager Cheryl Beatty City Attorney Catherine Logan City Clerk Tyler Ficken a. Water and Wastewater Financial Business Plan and Water & Sewer Rate Recommendations Summary Presentation. 3. ADJOURNMENT: 1

2 Backup material for agenda item: a. Water and Wastewater Financial Business Plan and Water & Sewer Rate Recommendations Summary Presentation. 2

3 City Commission Agenda Memo April 15, 2014 From: To: Subject: Gregory S. McCaffery, Municipal Services Director City Commission and Gerald Smith, City Manager Water and Wastewater Financial Business Plan and Water & Sewer Rate Recommendations Summary Presentation Objective: City Commission Workshop for the Water and Wastewater Financial Business Plan and Water & Sewer Rate Recommendations Summary Presentation Explanation of Issue: The City on February 18, 2014 retained the services of Raftelis Financial Consultants, Inc. (RFC) to complete a Water and Wastewater Financial Business Plan and provide recommendations on water and sewer rates towards implementation of the City s water & wastewater overall systems operations. These operational costs include general operations & maintenance, capital improvements, and debt obligations for each system. The City, through HDR Engineering (HDR), recently complete reports which identified immediate, short and long term improvement needs at the City s three treatment plants. Additionally, City staff and HDR Engineering completed a review of the City s Master Water & Wastewater Plans, completed by Burns & MacDonald towards needed water distribution and sanitary collection systems replacement needs. These Needs Summaries were used towards the development of the Financial Business Plan, in addition to the overall costs for services and debt obligations. RFC will provide three alternatives to the City Commission for consideration and discussion. These alternatives include the existing water and wastewater revenues, costs of service and planned improvements and rate considerations. The presentation is provided in order that the City Commission has a general understanding of the financial needs and development of the City s a water & sewer rate recommendations. As a follow-up to this presentation, and subject to input from the City Commission, it is the intent of RFC to provide an overall recommendation to the City for consideration and approval of the final Financial Business Plan and Water & Sewer Rate Recommendations. These recommendations would be subsequently brought before the City Commission for consideration at a regular Commission meeting in late May/ June As this is a workshop, no action from the City Commission is necessary at this time. 3

4 CITY OF JUNCTION CITY Water and Wastewater Financial Business Plan April 22,

5 For Discussion Adequacy of Existing Water and Wastewater Revenues Water and Wastewater Financial Business Plan Alternative #1 (Recommended Schedule) Alternative #2 (Extended) Alternative #3 (Deferred Regulatory) Cost of Service Study Rate Design Considerations Customer Bill Impacts 2 5

6 ADEQUACY OF EXISTING REVENUES 6

7 Factors Impacting Revenue Sufficiency Demand Factors Normal decline in per capita water consumption Difficulties in forecasting account growth/decline Operating Costs Inflationary O&M Increases Financial Management Practices (e.g. reserve policy) Capital Costs Cash Funded Capital Existing and Proposed Debt Service 4 7

8 Water Utility Revenues at Existing Rates Millions $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $ Recommended Extended Deferred Regulatory 2014 Rates 5 8

9 Wastewater Utility Revenues at Existing Rates Millions $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $ Recommended Extended Deferred Regulatory 2014 Rates 6 9

10 FINANCIAL BUSINESS PLAN 10

11 Financial Planning Overview Purpose: determine rate revenue required for financial sustainability Process Forecast customer units of service and revenue at existing rates Forecast operation and maintenance expenditures ( O&M ) Forecast capital expenditures» CIP» Existing and Proposed DS Develop detailed cash flow forecasts 8 11

12 Factors Driving Financial Plans Inflationary O&M Increases Size and Timing of Capital Improvements Financial Policies 9 12

13 Inflationary O&M Increases Largely associated with personnel costs Annual COLA adjustments to Salaries and Medical Legacy costs» Pension and Retiree Healthcare» Generally increase with salaries, usually higher based on pension funding levels Also related to the cost of materials and supplies (e.g. chemicals, electricity) Veolia Water Contract Increases in cost of services provided via the General Fund (i.e. overhead cost allocation) 10 13

14 O&M Inflation Assumptions Pension Benefits Salaries and Wages Telecommunications Maintenance Vehicle Materials/Supplies General Utilities-Gas Utilities-Electric Chemicals Transfer to Other Funds Medical 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 11 14

15 Capital Improvement Programs Some recapitalization necessary on an annual basis Level and frequency based on age of water and wastewater system and original construction materials Can reduce O&M costs (i.e. less sewer back-ups, water main breaks etc.) Avoids mining assets CIP includes projects from Burns and McDonnell Master Plans + WTP/WWTP needs identified by HDR Engineering Plan to fund future improvements with KPWSLF loans + some cash 12 15

16 Water CIP Millions $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $ Recommended Extended Deferred Regulatory 13 16

17 Wastewater CIP Millions $25 $20 Capital Expenditures (Wastewater) $15 $10 $5 $ Recommended Extended Deferred Regulatory 14 17

18 Financial Policies Separate Financial Plans for Each Utility Equity for Customers Ensures one fund is not subsidizing another Operating Reserve Target of 90 days O&M and Debt Service Generally minimum rec d for utilities Existing and Proposed Debt Service Coverage Currently GO and SRF outstanding Minimum Target of 1.25 Overall 15 18

19 Reserve Balance (Water) Millions $3 $3 $2 $2 $1 $1 $ Recommended Extended Deferred Regulatory Target ("Recommended") Target ("Extended") Target ("Deferred Regulatory") 16 19

20 Reserve Balance (Wastewater) Millions $3 $3 $2 $2 $1 $1 $ Recommended Extended Deferred Regulatory Target ("Recommended") Target ("Extended") Target ("Deferred Regulatory") 17 20

21 Debt Service Coverage (Water) Recommended Extended Deferred Regulatory Target (1.25x) 18 21

22 Debt Service Coverage (Wastewater) Recommended Extended Deferred Regulatory Target (1.25x) 19 22

23 COST OF SERVICE STUDY 23

24 Cost of Service Study Overview Purpose: Allocate costs to customer classes based on the demands they impose on the water and wastewater utility systems Demand» Water: Average and Peak (Max Day, Max Hour) usage, and Customer Costs» Wastewater: Volume, Strength (BOD and TSS) and Customer Costs Process Determine revenue requirement Allocate revenue requirement to cost components Determine units of service by customer class Determine unit cost of service Allocate costs to customer classes 21 24

25 RATE DESIGN 25

26 Rate Design Considerations Balance Between Fixed vs. Volumetric Charges Move to Customer Class Rates? Contract Rates 23 26

27 Fixed Versus Volumetric Charges Existing Breakdown $0.42 $0.58 Total Volumetric Total Fixed Fixed Charges Considerations Typically recovers meter reading billing and collection and CS (+) Stable $ (-) Impact on lower volume users Volumetric Recovers average and peak demand (water), strength and volume (wastewater) (+) Impact on lower volume users, (-) Variable $ 24 27

28 Move to Rates by Customer Class? All classes currently pay the same volume and fixed charges More equitable» Customers pay according to how they cause costs to be incurred by utility Wastewater: higher volume and strength classes pay more Water: higher peaking classes pay more Creates winners and losers (initially) Potential Demand Response» Losers may use less» Winners unlikely to increase usage Can be difficult to understand/explain 25 28

29 Contract Rates Armour Eckridge Water» 5% total water rate revenue» The higher of $1.00 per 1,000 gallons or 60% of residential rate» Currently charged 37% of Tier 2 rate $.88 per CCF $1.18 per 1,000 gallons» Recommendation: Should move towards 60% Wastewater» 10% of wastewater rate revenue» AE Units and revenue lower than stipulated in ED contract» Recommendation: Industrial Surcharge should be increased Grandview Plaza: Inflation Only (3% assumed) Rural Water District No. 1: Retail Rate 26 29

30 BILL IMPACTS 30

31 Projected Combined Bill (5 CCF) $ $ $80.00 $/Month $60.00 $40.00 $20.00 $ Recommended Extended Deferred Regulatory Inflation Only 28 31

32 Water Bill vs. Area Utilities $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $

33 Wastewater Bill vs. Area Utilities $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $

34 QUESTIONS? 34