financial rate update and recommendations presentation to ......financial rate update and...
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Alexandria Renew Enterprises Financial Rate Update and Recommendations
Presentation to Board of Directors
June 21, 2016
Public Resources Management Group, Inc. Utility, Rate, Financial and Management Consultants
Agenda
Prior Board Presentation Recap Updated Financial Forecast Rate Structure Updated Rate Recommendations
Board Retreat & May 24, 2016 Board
Meeting
Presentation Recap
Board Presentation Recap
4
• Prepared Fifteen-Year Financial Forecast 2016 to 2030 Gross Revenue Requirements
• Identify Trends in Expenditures and Funding Requirements (Long-Term) • Support Rate Adjustments Next Two to Three Years (Short-Term)
Expenses Debt Reserves / Capital
Less Fairfax Contribution & Other
Revenue
Net Revenue Requirements
6/20/2016
Board Presentation Recap - Expenses Operating Expenses
• Currently Represent Approximately 50% of Total System Revenue Requirements • Average Annual Increase: 3.13%
• Primary Drivers:
• Continued Inflation – Power , Chemicals, and Billing Costs • Incremental Expenses due to Increased Regulations and Risk Management • Additional Personnel and Benefit costs to meet vision and mission • Arlington WWTP Cost Increases - Based on Their Projections • Fairfax Flow reductions Includes Contingency / Bad Debt Allowance
5
OpEx Forecast
2016 2023 2030
TOTAL $26,350,000 32,869,000 40,601,000
AlexRenew % 60% 61% 62%
6/20/2016
Board Presentation Recap – Capital • Capital Funding continues to be Major Driver of Rates • Fifteen-Year Capital Plan - Initial Financial Forecast =
• Primarily for:
• Continued Nutrient Management • Preliminary and Primary Wastewater Treatment Plant Improvements for CSO / Wet Weather • Plant Renewals, Replacements, Upgrades – Long-Range Plan • Service Chamber and Pump Station Upgrades • Solids Handling Improvements • SCADA and IT Upgrades
• In these presentations, Wet Weather costs for CSO 2, CSO 3 and CSO 4 Were Assumed to be Paid by AlexRenew
6
Total Expenditures 2016 - 2030 $575 million Tentative Alloc %
Allocation to Fairfax $252 million 44%
Allocation to City of Alexandria $323 million 56%
6/20/2016
Board Presentation Recap – Capital
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Capital Improvement Program Funding
Debt Proceeds Grants / Contributions Joint IRR Fund Fairfax Transfers AlexRenew G-IRR / General Fund
Total Capital Spending (includes City LTCPU Funding support) = $525,000,000 6/20/2016 7
Board Presentation Recap - Debt
8
Add’l Debt FY17 = $10M* FY18 = $10M FY19 = $10M FY20/21 =$20M FY22/23 = $20M FY26-28 = $30M Total = $100M
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2047 2049
Existing and Proposed Debt Payments - Principal and Interest
Proposed CP Debt Payments Existing CP Debt Payments
Proposed Senior Lien Debt Payments Existing Senior Lien Debt Payments
*Note FY17 debt assumes conversion of $10m line of credit to permanent financing.
6/20/2016
Board Presentation Recap – Revenue Adjustments
Year % Rev Adj. 2017 2.00%
2018 3.00%
2019 3.00%
2020 2.50%
2021 2.50%
2022 2.50%
2023 2.50%
2024 2.50%
2025 2.50%
2026 2.50%
2027 2.50%
2028 2.50%
2029 2.50%
2030 2.50%
9
Recommended
Identified
Applied Rate Revenue Increase Uniformly to all Rates
6/20/2016
Board Presentation Recap– Financial Metrics
10
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
General and Operating Fund Ending Cash Balance
OPERATING FUND GENERAL FUND 120 - Minimum Days of O&M6/20/2016
Board Presentation Recap– Financial Metrics
11
174% 165% 166% 167% 160% 165% 157%
204% 212%
247%
205% 213% 225% 231%
222%
0%
50%
100%
150%
200%
250%
300%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Debt Service Coverage Ratio - All - In (Total) Debt Basis
Calculated Coverage Targeted Coverage6/20/2016
Board Presentation Recap - Proposed Rates
Adopt Rates for the Next 3 Years
Fiscal Year 2017 = 2.0%
Fiscal Year 2018 & 2019 = 3.0%
12
Existing 2017 2018 2019
Monthly Base Charge
Residential Single Family $8.38 $8.98 $9.68 $10.41
Commercial, Master Metered & Other
5/8 – inch $25.15 $26.95 $29.03 $31.22
3/4 – inch $25.15 $26.95 $29.03 $31.22
1 – inch 62.87 $67.38 $72.58 $78.05
1-1/2 – inch $125.75 $134.75 $145.17 $156.11
2 – inch $201.2 $215.60 $232.27 $249.77
3 – inch $377.25 $404.25 $435.50 $468.32
4 – inch $628.74 $673.75 $725.82 $780.51
6 – inch $1,257.50 $1,347.50 $1,451.66 $1,561.05
8 – inch $2,012.00 $2,156.00 $2,322.65 $2,497.68
Monthly Use Charge per 1k Gallons $6.77 $6.81 $6.93 $7.05
Board Presentation Recap - Customer Bill Impacts
13
Fiscal Year
0 Gallons
Change per Month
ChangePer Year
4,000 gal
Change per Month
ChangePer Year 6,000 gal
Change per Month
ChangePer Year
Existing $8.38 $35.46 $49.00
2017 $8.98 $0.60 $7.20 $36.22 $0.76 $9.12 $49.84 $0.84 $10.08
2018 $9.68 $0.70 $8.40 $37.40 $1.18 $14.16 $51.26 $1.42 $17.04
2019 $10.41 $0.73 $8.76 $38.61 $1.21 $14.52 $52.71 $1.45 $17.40
Updated Financial Forecast as of June 2016
14 6/20/2016
Updated Forecast • Change in Capital Plan and Corresponding Financing Plan • Fifteen-Year Capital Plan – Adjusted Financial Forecast
Primary Adjustment for Updated Forecast – Assumes Wet Weather Costs for CSO2, CSO3, and CSO4 Not Paid by AlexRenew
15
Total Expenditures 2016 - 2030 $416 million Tentative Alloc %
Allocation to Fairfax $210 million 51%
Allocation to AlexRenew $206 million 49%
Wet Weather Capital Costs Initial Forecast (includes LTCPU program)
Adjusted Forecast (w/o LTCPU program)
2016-2024 2025-2030 2016-2024 2025-2030
Capital Costs $110.9M $79.7M $11.2M $20M
$190.6M $31.2M 6/20/2016
Updated Forecast – Adjusted Capital Plan
Total Capital Spending = $415,521,500 6/20/2016 16
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Capital Improvement Program Funding with LTCPU
Debt Proceeds Grants / Contributions Joint IRR Fund
Fairfax Transfers AlexRenew G-IRR / General Fund Previous CIP
Updated Forecast - Debt
17
Add’l Debt FY17 = $10M* FY18 = $10M FY19 = $0M FY20/21 =$0M FY22/23 = $0M FY26-28 = $0M Total = $20M
*Note FY17 debt assumes conversion of $10m line of credit to permanent financing.
6/20/2016
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2047 2049
Existing and Proposed Debt Payments - Principal and Interest with LTCPU
Proposed Senior Lien Debt Payments Existing Senior Lien Debt Payments Previous Debt
Proposed Revenue Adjustments Under New Scenario
Year Initial Adjusted 2017 2.00% 1.00%
2018 3.00% 1.00%
2019 3.00% 1.00%
2020 2.50% 1.00%
2021 2.50% 1.00%
2022 2.50% 1.00%
2023 2.50% 1.00%
2024 2.50% 1.00%
2025 2.50% 1.00%
2026 2.50% 1.00%
2027 2.50% 1.00%
2028 2.50% 1.00%
2029 2.50% 1.00%
2030 2.50% 1.00%
18
Recommended
Identified
Applied Rate Revenue Increase to Base Charge Only;
Only the Base Charge Increases To cover increased cost of service and meet best practice standards
Flow Charge Remains Constant
6/20/2016
Updated Forecast – Financial Metrics
19
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
General and Operating Fund Ending Cash Balance
OPERATING FUND GENERAL FUND 120 - Minimum Days of O&M
6/20/2016
20
174% 163% 158% 159% 160% 160% 159%
256% 260%
315% 308% 312% 327% 328%
290%
0%
50%
100%
150%
200%
250%
300%
350%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Debt Service Coverage Ratio - All - In (Total) Debt Basis
Calculated Coverage Targeted Coverage6/20/2016
Updated Forecast – Financial Metrics
21
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Outstanding Debt to Net AlexRenew Allocable Plant Investment
Outstanding Debt to Alex Renew Net Plant Maximum Target
6/20/2016
Updated Forecast – Financial Metrics
6/20/2016 22
Year AlexRenew Bill at 5,000 gallons w/o
LTCPU
City Rate Increase with
LTCPU
City Monthly Bill at 5,000 gallons Total Customer Bill Monthly Bill change
2016 $42.23 $1.25 $6.25 $48.48 2017 $42.64 $1.40 $7.00 $49.64 $1.16 2018 $43.05 $1.40 $7.00 $50.05 $0.41 2019 $43.46 $1.82 $9.10 $52.56 $2.51 2020 $43.88 $2.37 $11.85 $55.73 $3.17 2021 $44.30 $2.89 $14.45 $58.75 $3.02 2022 $44.73 $3.61 $18.05 $62.78 $4.03 2023 $45.16 $3.86 $19.30 $64.46 $1.68 2024 $45.59 $3.86 $19.30 $64.89 $0.43 2025 $46.03 $3.86 $19.30 $65.33 $0.44 2026 $46.48 $3.86 $19.30 $65.78 $0.45 2027 $46.93 $3.86 $19.30 $66.23 $0.45 2028 $47.38 $3.86 $19.30 $66.68 $0.45 2029 $47.83 $3.86 $19.30 $67.13 $0.45 2030 $48.32 $3.86 $19.30 $67.62 $0.49
Scenario: City Funds LTCPU Project Based on Preliminary City Rate Projections
Very Preliminary City estimates
6/20/2016 23
Year AlexRenew Bill at 5,000 gallons w/
LTCPU
City Rate Increase w/o
LTCPU
City Monthly Bill at 5,000 gallons Total Customer Bill Monthly Bill change
2016 $42.23 $1.25 $6.25 $48.48 2017 $43.03 $1.40 $7.00 $50.03 $1.55 2018 $44.33 $1.40 $7.00 $51.33 $1.30 2019 $45.66 $1.71 $8.55 $54.21 $2.88 2020 $46.77 $2.03 $10.15 $56.92 $2.71 2021 $47.91 $2.22 $11.10 $59.01 $2.09 2022 $49.07 $2.43 $12.15 $61.22 $2.21 2023 $50.27 $2.43 $12.15 $62.42 $1.20 2024 $51.51 $2.43 $12.15 $63.66 $1.24 2025 $52.77 $2.43 $12.15 $64.92 $1.26 2026 $54.05 $2.43 $12.15 $66.20 $1.28 2027 $55.44 $2.43 $12.15 $67.59 $1.39 2028 $56.79 $2.43 $12.15 $68.94 $1.35 2029 $58.25 $2.43 $12.15 $70.40 $1.46 2030 $60.27 $2.43 $12.15 $72.42 $2.02
Scenario: AlexRenew Funds LTCPU Project
Based on City Sewer Master plan projections
6/20/2016 24
$0.00$5.00
$10.00$15.00$20.00$25.00$30.00$35.00$40.00$45.00$50.00$55.00$60.00$65.00$70.00$75.00$80.00
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Residential Monthly Bill Scenarios
AlexRenew (No LTCPU) City AlexRenew (w/ LTCPU) City
Blue = No LTCPU Capital Costs Funded by Alex Renew Green = LTCPU Capital Costs Funded by Alex Renew
Comparison based on 5,000 Gallons of Use Sewer Collection Rates Based on Forecasts by City
Proposed Rate Structure
25 6/20/2016
Proposed Rates
Adopt Rates for Next 2 Years
Fiscal Year 2017-18 = 1% Annual Rate Revenue Increase
26
Existing 2017 2018
Monthly Base Charge
Residential Single Family $8.38 $8.79 $9.20
Commercial, Master Metered & Other
5/8 – inch $37.73 $39.56 $41.40 3/4 – inch $37.73 $39.56 $41.40 1 – inch $62.88 $65.93 $69.00 1-1/2 – inch $125.75 $131.85 $138.00 2 – inch $201.20 $210.96 $220.80 3 – inch $377.25 $395.55 $414.00 4 – inch $628.75 $659.25 $690.00 6 – inch $1,257.50 $1,318.50 $1,380.00 8 – inch $2,012.00 $2,109.60 $2,208.00
Monthly Use Charge per 1k Gallons $6.77 $6.77 $6.77
6/20/2016
Customer Bill Impacts
27
Fiscal Year
0 Gallons
Change per Month
ChangePer Year
4,000 gal
Change per Month
ChangePer Year 6,000 gal
Change per Month
ChangePer Year
Existing $8.38 $35.46 $49.00
2017 $8.79 $0.41 $4.92 $35.87 $0.41 $4.92 49.41 $0.41 $4.92
2018 $9.20 $0.41 $4.92 36.28 $0.41 $4.92 49.82 $0.41 $4.92
6/20/2016
Rate Comparison
28
$35.46 $35.87
$25.87 $28.58
$34.95 $35.10 $36.24
$53.03
$5.00 $5.60
$40.46 $41.47
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
FY 2016 City ofAlexandria
FY 2017 City ofAlexandria
WashingtonSuburban Sanitary
Commission
Loudoun Water Fairfax County Prince WilliamCounty Service
Authority
Arlington County DCWASA
Monthly Residential Wastewater Utility Bill at 4,000 Gallons
Comparable Utilities
Alex Renew Enterprises
City of Alexandria
6/20/2016
29
$49.00 $49.41
$37.62 $40.14 $48.20 $48.31
$54.36
$68.43
$7.50 $8.40
56.50 57.81
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
FY 2016 City ofAlexandria
FY 2017 City ofAlexandria
Loudoun Water WashingtonSuburban Sanitary
Commission
Prince WilliamCounty Service
Authority
Fairfax County Arlington County DCWASA
Monthly Residential Wastewater Utility Bill at 6,000 Gallons
Comparable Utilities
Alex Renew Enterprises
City of Alexandria
6/20/2016
Rate Comparison
Proposed Account Activation Fee
• Currently 18% of Customers Have Security Deposit ($451,000) • Returned to customers via credit to bill
• After Review of Other Utilities and to Promote Positive Customer Service Practices – Propose Elimination of Account Deposits
• Recommendation Establishing Account Activation Fee - $15.00 • Charged when Customer Initially Establishes Service • Not a Recurring Charge
• Recovers Incremental Costs to Establish Account • Help Offset Cost of Deposit Discontinuance • Generate Alternative Revenue Sources
30 6/20/2016
Financial Plan Updated Recommendations
• Consider Approval of Following Rate Increases for Next 2 Years • 1% For Fiscal Year 2017-18 • Revenue Increase Targeted from the Base Charge Only to Increase Fixed Cost Recovery
• Maintain Current Structure of base and volumetric charges
• Eliminate Customer Deposit and Adopt Activation Fee of $15 per New Account
• Continue to Annually Review Financial Forecast and Adjust Rate Adjustments
as Necessary
31 6/20/2016
Questions and Discussion
32 6/20/2016