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Presentation for a
WATER RATE STUDYChris FisherJeff McGarveyTony Thrasher
CITY OF
SOLEDAD, CALIFORNIA
Presented by
Presentation to the City of Soledad | Water Rate Study | 2
PRESENTATION CONTENTS• Introductions• Utility Rate Setting Process• Results of Analyses– Major Assumptions– Customer Information– Financial Outlook• Current State: “Do – Nothing” or Status Quo• Recommendation: Proposed Revenue Path
• Questions and Discussion
PURPOSE OF THE RATE STUDY
CITY OF
SOLEDAD, CALIFORNIA
Presentation to the City of Soledad | Water Rate Study | 4
PURPOSE OF THE RATE STUDY
• Evaluate sufficiency of the existing water rate revenue stream to:–Provide funding for current and future operating /
capital expenses–Meet minimum reserve level requirements–Meet legal obligations associated with outstanding
debt• Develop rates and charges which will generate
sufficient revenue / meet cost of service standards (Prop 218)
UTILITY RATE SETTING PROCESS
CITY OF
SOLEDAD, CALIFORNIA
Presentation to the City of Soledad | Water Rate Study | 6
UTILITY RATE SETTING PROCESS
Utility Rates
Regulatory Requirements
System Needs
Political Pressures
Economic Impact
Financial Goals
Presentation to the City of Soledad | Water Rate Study | 7
UTILITY RATE SETTING PROCESS
Typical utility rate-setting processPlanning
Project Initiation & Management
• Data Collection & Assessment
• Confirmation of Goals and Objectives
• Frequent Communication
Analysis
Rate Setting & Financial Plan
• Customer Statistics
• System Revenue Requirements
• Integration of Capital Improvement Plan
• Multi-year Financing Analysis
• Alternatives Analyses
Communication
SummaryReport
• Written
• Public Presentations
Adopted Rates & Financial Plan
Presentation to the City of Soledad | Water Rate Study | 8
Comprehensive rate-setting process…
UTILITY RATE SETTING PROCESS
Presentation to the City of Soledad | Water Rate Study | 9
Evaluate Current Financial ConditionOperating Revenues
less Operating Expensesless Debt Serviceless Transfersless Capital Expendituresless Reserve Requirements
= Total Available Resources vs. Needed Capital Additions and O&M
Identify Optimum Funding Strategy
UTILITY RATE SETTING PROCESS
Presentation to the City of Soledad | Water Rate Study | 10
Rates & Rate Design Issues:Revenue Related Cost Related Practical
• Meet total revenue requirements
• Revenue stability and predictability
• Rate stability and predictability
• Promote efficient use of water
• Reflect internal costs
• Fairness of rates
• Non-discriminatory
• Responsiveness to changes in demand/supply
• Easy to understand and administer
• Free from controversy
• Defensible (Prop 218)
UTILITY RATE SETTING PROCESS
Presentation to the City of Soledad | Water Rate Study | 11
UTILITY RATE SETTING PROCESSHolistic Approach to Rate Design:
RESULTS OF ANALYSES
CITY OF
SOLEDAD, CALIFORNIA
Presentation to the City of Soledad | Water Rate Study | 13
MAJOR ASSUMPTIONS• AMBAG Regional Growth Forecast provided account
class specific growth assumptions• Yearly escalation factors: – Materials & Supply 4%– S&B 3%, Pension 4%– Admin & General 3% – Utility 3%
• Staff provided an updated CIP schedule to ensure proper utility function for the next decade
• Reserve targets: – O&M reserve of 90 days– Depreciation is fully funded after the second year
Presentation to the City of Soledad | Water Rate Study | 14
CUSTOMER INFORMATION
Description Growth FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
Accounts:
Public 0.00% 67 67 67 67 67
Commercial 2.15% 189 193 197 201 206
Multi-Residential 1.08% 382 386 390 395 399
Single-Family Residential 1.73% 3,066 3,119 3,173 3,228 3,284
School 0.00% 17 17 17 17 17
Total Accounts 3,721 3,782 3,844 3,908 3,972
Total Meter Equivalents 5,595 5,595 5,687 5,780 5,876
Presentation to the City of Soledad | Water Rate Study | 15
CUSTOMER INFORMATION
Description Avg/Cust FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
Consumption (HCF*):
Public 1,147 76,530 76,530 76,530 76,530 76,530
Commercial 597 112,792 115,217 117,695 120,225 122,810
Multi-Residential 382 146,066 147,643 149,238 150,849 152,479
Single-Family Residential 216 661,296 646,833 658,017 669,395 680,969
School 5,078 86,328 86,328 86,328 86,328 86,328
Total Consumption 7,420 1,083,012 1,072,552 1,087,807 1,103,328 1,119,116
* HCF is one hundred cubic feet, which is 748 gallons
Presentation to the City of Soledad | Water Rate Study | 16
Description FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
Revenues $1,453 $1,476 $1,501 $1,526 $1,551 Less: Operating Expenses [1] 1,226 1,277 1,329 1,382 1,438Non-Operating Expenses 80 80 80 80 80Debt Service 300 298 302 300 299Capital Expenditures 950 372 277 337 177
Expenditures $2,556 $2,027 $1,988 $2,100 $1,994 Difference ($1,104) ($551) ($487) ($574) ($442)
FINANCIAL OUTLOOK• Current State: No revenue increases – cumulative
negative cash flow of $3.2 million
All figures in thousands[1] Excludes depreciation expense
Presentation to the City of Soledad | Water Rate Study | 17
FINANCIAL OUTLOOK• Current State: No revenue Increases
– Graph shows cumulative effect and includes beginning operating fund cash balance
Presentation to the City of Soledad | Water Rate Study | 18
Description FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
Proposed Revenue Increase 0.00% 0.00% 0.00% 0.00% 0.00%
Net Income (incl depr, excl CIP) ($548) ($573) ($604) ($631) ($659)
Metrics:
Days of Operating Reserves 6 (98) (201) (313) (397)
Debt Service Coverage (125%) (56%) (65%) (73%) (83%) (94%)
Operating Fund Balance $28 ($544) ($1,148) ($1,779) ($2,438)
Capital R&R Fund Balance ($210) $22 $22 ($98) $52
FINANCIAL OUTLOOK• Current State: No revenue increases
** All figures in thousands
Presentation to the City of Soledad | Water Rate Study | 19
Description FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18
Revenues $1,558 $2,181 $2,538 $2,658 $2,784 Less: Operating Expenses [1] 1,226 1,277 1,329 1,382 1,438Non-Operating Expenses 80 80 80 80 80Debt Service 300 298 302 300 299Capital Expenditures 950 372 277 337 177
Expenditures $2,556 $2,027 $1,988 $2,100 $1,994
Difference ($999) $154 $551 $559 $790
FINANCIAL OUTLOOK• Recommendation: FY 2013/14 - 30% revenue increase - implemented in Q4, and;• FY 2014/15 - 30% revenue increase – implemented mid-year (Jan 1), and;• CPI inflator (maximum 3%) implemented mid-year (Jan 1) each subsequent year
All figures in thousands
Presentation to the City of Soledad | Water Rate Study | 20
FINANCIAL OUTLOOK• Recommendation: FY 2013/14 30% and FY2014/15 30% revenue Increases, with CPI inflator
– Graph shows cumulative effect and includes beginning operating fund cash balance
Presentation to the City of Soledad | Water Rate Study | 21
Description FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
Proposed Revenue Increase 30.00% 30.00% 3.00% 3.00% 3.00%
Net Income ($443) $132 $434 $502 $573
Net Income (Incl Depr, excl CIP) ($443) ($150) $157 $285 $246
Metrics:
Days of Operating Reserves 29 48 95 95 95
Debt Service Coverage (125%) (21%) Covered Covered Covered Covered
Operating Fund Balance $134 $266 $538 $537 $580
Capital R&R Fund Balance ($210) $22 $183 $566 $1,247
FINANCIAL OUTLOOK• Recommendation: FY 2013/14 30% and FY2014/15 30% revenue
increases, with CPI inflator
All figures in thousands
Presentation to the City of Soledad | Water Rate Study | 22
FINANCIAL OUTLOOK• Using CPI as an inflator each year since previous rate analysis, the 2014 rates would be
54% higher than the 1996 rates • FYE 2014 cash flow deficiency is projected to be 64% of current revenue• Based on past bills PG&E rates have risen 6.7% per year, on average, since 1997
Year Flat Charge Tier 1 Tier 2 Tier 3 Tier 4 CPI1996 11.73 0.63 0.95 1.10 1.44 X1997 12.08 0.65 0.98 1.13 1.48 3.0%1998 12.36 0.66 1.00 1.16 1.52 2.3%1999 12.56 0.67 1.02 1.18 1.54 1.6%2000 12.83 0.69 1.04 1.20 1.58 2.2%2001 13.27 0.71 1.07 1.24 1.63 3.4%2002 13.64 0.73 1.10 1.28 1.67 2.8%2003 13.86 0.74 1.12 1.30 1.70 1.6%2004 14.18 0.76 1.15 1.33 1.74 2.3%2005 14.56 0.78 1.18 1.37 1.79 2.7%2006 15.06 0.81 1.22 1.41 1.85 3.4%2007 15.54 0.83 1.26 1.46 1.91 3.2%2008 15.97 0.86 1.29 1.50 1.96 2.8%2009 16.58 0.89 1.34 1.55 2.04 3.8%2010 16.51 0.89 1.34 1.55 2.03 -0.4%2011 16.78 0.90 1.36 1.57 2.06 1.6%2012 17.32 0.93 1.40 1.62 2.13 3.2%2013 17.68 0.95 1.43 1.66 2.17 2.1%2014 18.05 0.97 1.46 1.69 2.22 2.1%
Scenario: Using CPI each year since last rate analysis
QUESTIONS & DISCUSSION
CITY OF
SOLEDAD, CALIFORNIA