Utility Financial Management Plan Presented by: Bill Meyer, Interim Utilities Director & Michael Burton, President Andrew Burnham, Senior Vice President
Compliance with Council Priorities Ecological Stewardship Prevention of pollution resulting from sewer overflows Quality Infrastructure Maintain water distribution and sewer collection systems Insure performance of water production facilities Adequate water resources Good Governance Stewardship of physical and financial resources Long range planning 2
Public Utilities is an Enterprise Fund It must be self supporting through its rates and fees Operating costs covered by User fees Capital costs fund by Pay as you go Bonds It receives NO subsidy from the General Fund 3
Driving Issues for Financial Plan Regional Consent Order Renewal, Replacement, Reliability Long Term System Maintenance Purchased Water Cost Increases Operating Cost Inflation 4
Two Components: Regional Consent Order CAPITAL REPAIRS & UPGRADES 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 Meet identified operation criteria as outlined in the M&O Plan approved by DEQ 7/27/12 Annual reports on progress Modify activities to meet requirements Staffing Equipment Services 5
Renewal, Replacement, Reliability Stewardship of the System 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. 6
Purchased Water Cost Increases Portsmouth Treated Water Purchases Minimum purchase quantity changes in 2020 from 4 to 5 MGD Average annual rate increase 4.00% Norfolk Water Purchases Treated Water 3.5% average annual increase Raw Water 2.75% average annual increase 7
Increases in key items: Electricity Chemicals Fuel Materials Operating Cost Inflation Increases in expenses outside control of utility: Retirement OPEB Equipment replacement 8
Operational Efficiencies Utilized part time/encore employees where feasible Updated with more efficient equipment Cost savings on construction projects 9
Basis of Financial Management Plan Review and evaluate recent historical results Customers, demands, operating revenues, expenses Integrate current operating and capital improvement budgets 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 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 10
Financial Management Plan: Key Drivers 11
Plan of Water & Sewer Rate Increases is Needed to: Financial Management Plan: Rate Increase Requirements 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 Water & Sewer Rate Increase 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 *Based upon 5,000 gallons and excludes HRSD fees. Utility billing is bi-monthly for most customers 12
Financial Management Plan: Rate Increase Distribution 13
US Consumer Price Index: Overall Index 40% Increase Since 2000 90% Increase Since 2000 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% 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% 14
Monthly Residential Bill Comparison Water & Sewer Service for 5,000 Gallons Suffolk $99.58 Isle of Wight County $92.75 Gloucester County $85.49 Poquoson $80.52 Richmond $77.55 Norfolk $73.40 Virginia Beach $73.32 Portsmouth $72.61 $4.84 Smithfield $70.97 Chesapeake $69.62 Newport News $69.57 York County $67.97 Hampton $65.02 Franklin $63.33 Alexandria $61.72 Prince William County $61.25 Chesterfield County $59.79 Fairfax County $54.95 James City County $52.35 Williamsburg $44.75 Henrico County $40.65 * Reflects rates in effect as of 7/1/12; Includes HRSD Fees as applicable 15 FY 2014 Bill = $72.45
Conclusions & Recommendations 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 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 Update analysis based upon changes and report results to Council 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 16