combined utility system cost of service rate study presentation april 6, 2010
DESCRIPTION
Combined Utility System Cost of Service Rate Study Presentation April 6, 2010. Combined Utility System (CUS). The CUS is an enterprise fund All funds used in the CUS are generated from water & sewer rates and fees Does not receive any general fund money - PowerPoint PPT PresentationTRANSCRIPT
1
Combined Utility System Cost of Service Rate StudyPresentation April 6, 2010
2
Combined Utility System (CUS)
The CUS is an enterprise fund All funds used in the CUS are generated from
water & sewer rates and fees Does not receive any general fund money
Closed system – Under CUS master bond ordinance, cannot fund anything but water and sewer services One exception – may fund a limited amount of
drainage out of fund balance, per Ord. 2004-299 Cannot send funds to the general fund
3
Recent History of CUS
Rising prices for FY04 through FY10 TCEQ Unfunded Mandate -Annual Fees 228% Chemicals 167% Electricity 136% Sludge Disposal 99% Infrastructure Maintenance (O&M) 76% Insurance 60% Health Insurance/Pension 52%
Overall O&M 32%
Annual Debt Service – First/Junior Liens 53% ($233M in FY04, $356M in FY10)
4
Recent History of CUS
Residential Water Use per account
Fiscal Year 2004 - 2010 Residential consumption in gallons per month has declined as
more low flow appliances and fixtures are installed. As townhouses/condominiums replace single family homes, also
see lower consumption per account. From FY04 to FY09 the range has been from a high of 6,736 in
FY06 (drought year) to a low of 5,971 in FY07. The average from FY04 to FY09 is 6,276.
In the last 3 years average is 6,006 gallons/month. This trend continues into FY10 given the colder fall, winter and spring.
Even though lower usage recently, must have capacity for drought demand
5
CUS Historical Charts
600
650
700
750
800
850
900
2004 prj
Actual*
290
340
390
440
490
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2004 prj
Actual*
4,000
5,000
6,000
7,000
2004 2005 2006 2007 2008 2009
Actuals
Total Revenues
O&M Expenditures
Average Residential Customer Gallons/Month Billed
* FY10 is current projection prj = projection
6
CUS Financial Position FY07 through FY11
Full Year Revenues & Expenditures ($1,000) FY2007 FY2008 FY2009 FY2010
Projection *
FY2011 Projection without Rate Adjustment
Total Operating Revenues 615,465$ 648,637$ 687,587$ 727,068$ 717,267$ Less: Total Operating Expenses (315,348) (360,222) (374,255) (412,452) (407,000) Add: Total Nonoperating Rev (Exp) 24,735$ 34,996$ 42,215$ 36,510$ 31,013$
Income (Loss) Before Debt Services and Transfers 324,852$ 323,411$ 355,547$ 351,126$ 341,280$
Debt Services and Transfers Debt Service Transfer 258,554$ 270,779$ 305,016$ 378,103$ 415,682$ Transfer to PIB - Water & Sewer 24,211$ 25,804$ 28,419$ 26,878$ 21,744$ Pension Liability Interest 6,260$ 4,564$ 4,303$ 3,814$ 3,814$ Equipment Acquisition & Other 9,428$ 14,072$ 13,113$ 16,000$ Transfer to Stormwater 34,056$ 36,540$ 39,129$ 31,365$ 35,738$ Total Debt Services and Transfers 323,081$ 347,115$ 390,939$ 453,274$ 492,978$
Net Activity 1,771$ (23,704)$ (35,392)$ (102,148)$ (151,698)$
* February 2010 PWE MFOR Submission
7
Recent Steps Taken to Decrease CUS O&M
PWE has adopted less expensive ways to treat water and buy chemicals
Cost savings in chemicals alone for FY10 will exceed $4M Implementing McKinsey & Company recommendations
for an estimated $7 million in savings in FY11 Continuing to review/re-negotiate contracts for savings
Bio-solids contract change – savings of $7.0 million over next 5 years Sludge removal contract – savings of $800k over 5 years
Began energy conservation study for major wastewater facilities Significant capital costs that will be paid for out of energy savings Long term benefits only
8
FY10 Rate Study
Objectives of Rate Study Understand the System’s “cost of service” rates for each
customer class for water and wastewater Propose rates that ensure revenues fully cover the CUS’s costs
and that meet all bond covenants – debt coverage and sound business practices
Propose rates that provide for the long term health and sustainability of the system
Consider new rate structure that moves rates in the direction of covering actual cost of service for each rate class over time
Restructure program by replacing “lifeline” rate (over time) with service charge waiver or discount for qualified single family customers
Structure single family rates to encourage conservation Ensure that contract/non-City of Houston customers’ rates are set
at the “cost of service” rate – not subsidized by Houston citizens
9
Options for Rate Study
The Rate Study created three financial scenariosCAPITAL IMPROVEMENT PROGRAM
(in millions)FY11 FY12 FY13 FY14 FY15
Minimum Health, Safety & Regulatory (HSR) $172 $183 $210 $210 $210
Minimum HSR Plus Selective Investments * $216 $216 $225 $225 $234
Best Practices ** $370 $370 $370 $370 $370
CIP History FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
$ Millions $291 $415 $293 $304 $360 $329 $246 $350 $256 $167
History of CUS Water and Wastewater CIP
*HSR plus other selected investments** Provide for the long term health and sustainability of the system – best practices
10
CUS Annual Debt Coverage Ratio History
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.020
04
2005
2006
2007
2008
2009
2010
2011
2012
2013
2004 Projection
Act. & Forecast
Annual Debt Coverage Ratio – Threshold 1.2 Net revenues to first lien debt service
Prior to FY10, NONO use of fund balance was required for this bond covenant. FY10 requires an estimated $40M use of fund balance to meet this covenant.
11
Consequences of Doing Nothing
The CUS must at least implement the Minimum Health, Safety &
Regulatory CIP to meet regulatory requirements.
12
Consequences of Doing Nothing
The system will continue to lose money Likely downgrades from Rating Agencies
Moody’s assigned a NEGATIVE outlook to the CUS on March 2nd, 2010. If the CUS issues new debt without a significant rate adjustment, the System risks a ratings downgrade.
Downgrades will result in higher costs Higher interest cost over the bonds life per $100M Par. Estimates: A1 to
A2 $2.3M, A1 to A3 $3.45M & A1 to BAA1 $5.75M Letters of Credit fees increase for every ratings downgrade, per notch:
A1 to A2 $3.2M higher fees, at A2 to A3 add $0.7M plus A3 to BAA1 add $1.1M
If insured, higher insurance fees on new issues will cost more Downgrades may impact future LOC availability
13
Proposed 2011Proposed 2011 Residential Monthly Water & Wastewater Bill Residential Monthly Water & Wastewater Bill
Minimum HSR CIPMeter 5/8 & 3/4" Percent of Bills 82.9%
IN 1,000 GA Existing Proposed $ Change 0 $9.97 $10.76 $0.791 9.97 $10.96 $0.992 14.70 $15.79 $1.093 14.70 $16.16 $1.464 31.85 33.76 $1.915 37.77 40.58 $2.816 46.87 48.98 $2.118 60.63 66.28 $5.65
10 74.39 83.58 $9.1912 88.15 100.88 $12.7314 106.63 122.78 $16.15
Minimum HSR Plus Selective Investments CIPMeter 5/8 & 3/4" Percent of Bills 82.9%
IN 1,000 GA Existing Proposed $ Change 0 $9.97 $11.07 $1.101 9.97 11.28 $1.312 14.70 16.24 $1.543 14.70 16.63 $1.934 31.85 34.71 $2.865 37.77 41.70 $3.936 46.87 50.32 $3.458 60.63 68.08 $7.45
10 74.39 85.84 $11.4512 88.15 103.60 $15.4514 106.63 126.06 $19.43
Best Practices CIPMeter 5/8 & 3/4" Percent of Bills 82.9%
IN 1,000 GA Existing Proposed $ Change 0 $9.97 $11.56 $1.591 9.97 11.79 $1.822 14.70 16.91 $2.213 14.70 17.41 $2.714 31.85 36.32 $4.475 37.77 43.63 $5.866 46.87 52.74 $5.878 60.63 71.54 $10.91
10 74.39 90.34 $15.9512 88.15 109.14 $20.9914 106.63 132.66 $26.03
This rate class threeyear average gallonsper month is 6,000
14
Proposed 2011Proposed 2011 Multi-Family Monthly Water & Wastewater Bill Multi-Family Monthly Water & Wastewater Bill
Minimum HSR CIPMeter 5/8 & 3/4" Percent of Bills 47.2%
IN 1,000 GA Existing Proposed $ Change 0 $12.81 $18.91 $6.101 16.77 24.91 $8.142 20.73 30.91 $10.183 27.26 39.00 $11.744 33.79 47.09 $13.305 40.32 55.18 $14.866 46.85 63.27 $16.42
10 72.97 95.63 $22.6615 105.62 136.08 $30.4620 138.27 176.53 $38.2625 170.92 216.98 $46.06
Minimum HSR Plus Selective Investments CIPMeter 5/8 & 3/4" Percent of Bills 47.2%
IN 1,000 GA Existing Proposed $ Change 0 $12.81 $19.50 $6.691 16.77 26.13 $9.362 20.73 32.76 $12.033 27.26 41.10 $13.844 33.79 49.44 $15.655 40.32 57.78 $17.466 46.85 66.12 $19.27
10 72.97 99.48 $26.5115 105.62 141.18 $35.5620 138.27 182.88 $44.6125 170.92 224.58 $53.66
Best Practices CIPMeter 5/8 & 3/4" Percent of Bills 47.2%
IN 1,000 GA Existing Proposed $ Change 0 $12.81 $19.53 $6.721 16.77 26.71 $9.942 20.73 33.89 $13.163 27.26 42.68 $15.424 33.79 51.47 $17.685 40.32 60.26 $19.946 46.85 69.05 $22.20
10 72.97 104.21 $31.2415 105.62 148.16 $42.5420 138.27 192.11 $53.8425 170.92 236.06 $65.14
15
Proposed 2011Proposed 2011 Commercial Monthly Water & Wastewater Bill Commercial Monthly Water & Wastewater Bill
Minimum HSR CIPMeter 5/8 & 3/4" Percent of Bills 40.2%
IN 1,000 GA Existing Proposed $ Change ` $26.51 $26.51 $0.001 26.51 30.26 $3.752 26.51 34.01 $7.503 30.48 40.56 $10.084 37.37 49.01 $11.645 44.26 57.46 $13.206 51.15 65.91 $14.767 58.04 74.36 $16.328 64.93 82.81 $17.889 71.82 91.26 $19.44
10 78.71 99.71 $21.00
Minimum HSR Plus Selective Investments CIPMeter 5/8 & 3/4" Percent of Bills 40.2%
IN 1,000 GA Existing Proposed $ Change 0 $26.51 $26.51 $0.001 26.51 31.11 $4.602 26.51 35.71 $9.203 30.48 43.11 $12.634 37.37 51.76 $14.395 44.26 60.41 $16.156 51.15 69.06 $17.917 58.04 77.71 $19.678 64.93 86.36 $21.439 71.82 95.01 $23.19
10 78.71 103.66 $24.95
Best Practices CIPMeter 5/8 & 3/4" Percent of Bills 40.2%
IN 1,000 GA Existing Proposed $ Change 0 $26.51 $26.51 $0.001 26.51 31.87 $5.362 26.51 37.23 $10.723 30.48 45.01 $14.534 37.37 54.10 $16.735 44.26 63.19 $18.936 51.15 72.28 $21.137 58.04 81.37 $23.338 64.93 90.46 $25.539 71.82 99.55 $27.7310 78.71 108.64 $29.93
16
Water & Wastewater Rate Comparison Single Family 3,000 Gallons
5/8 & 3/4 Inch Meters
17
Water & Wastewater Rate Comparison Single Family 6,000 Gallons
5/8 & 3/4 Inch Meters
18
Water & Wastewater Rate Comparison Single Family 10,000 Gallons
5/8 & 3/4 Inch Meters
19
Water & Wastewater Rate Comparison Multi-Family 10,000 Gallons
20
Water & Wastewater Rate Comparison Commercial 10,000 Gallons
21
Recommendations
Set rates at Best Practices CIP rates to ensure long term health and sustainability of the system
Set all non-city rates at cost of service Implement Water & Wastewater rate adjustment
June 1st
Change annual automatic rate increase to be based on PPI, not to exceed annual CPI plus population index, in compliance with Proposition 1
22
Comparison of Regional CPI vs. PPI
123456789
10
2004 PRJ CPI
Actual CPI &PRJ
PPI All Comm.
Houston Regional CPI & PPI In Percentages
Abbreviations: “PPI” - Producer Price Index all commodities
Ann
ual P
erce
ntag
e
23
Addendum – Other Rates