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Review of the Financial Parameters Affecting Policy Decision Making Water and Sewer Enterprise System. March 1, 2007. Informational needs in order to make policy leadership decisions. 1.Financial parameters and limitations 2.Utility system – capabilities, strengths and weaknesses - PowerPoint PPT Presentation
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March 1, 2007
Review of theFinancial Parameters
Affecting Policy Decision Making
Water and Sewer Enterprise System
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
1. Financial parameters and limitations
2. Utility system – capabilities, strengths and weaknesses
3. Capital plan
4. Financial feasibility
Informational needs in order to make policy leadership decisions
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
1. Allocates resources, plans for contingencies
2. Contains data and information - to make good business decisions
3. Financial and capital decisions
4. Requirement to raise capital
5. Informs - planners, investors, banks, community
6. Rating agencies
Business Plan
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
What financial resources are available to invest in the
utility system?
What types of investments should be made?
What options are available to make water and wastewater
resources more available and who pays?
Policy leadership decisions
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Lenders contractual requirements
Financial structure and performance
Credit quality standards - cost of borrowing
Washington and Raleigh laws and regulations and BOCC policies
Factors influencing policy decisions
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Contractual Requirements
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
borrowed money for capital improvements
mortgage secured by the utility system revenues -
promises
contractual agreement - general trust indenture
enforce and monitor County’s compliance - lenders
appointed a trustee
Revenue Bonds
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Revenue Bonds - Trustee Accounts
Revenue Acct.$1.00
Debt Acct.1st – Revenue
2nd - Subordinate$0.30
Extension &Repair Acct.
$0.03
Surplus - CIP$0.20
O&M Acct.$0.47
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Revenue Bonds - Rate Covenant
Revenues +20%
WorkingCapital
Operations & Maintenance
+P&I+
20%>=
A B CSales 1.00 1.00 1.00Capacity Fees 0.30 0.30 -Working Capital (20%) 0.16 0.02 0.16
1.46 1.32 1.16
O&M 0.60 0.60 0.60Debt Service 0.70 0.70 0.70+20% 0.14 0.14 0.14
1.44 1.44 1.44
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
lenders’ permission historical earnings test – existing debt + new debt future earnings test – consulting engineer report for
the first two fiscal years liens or encumbrances – NTE 20% of assets
Revenue Bonds - Additional Bonds Test
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
political subdivision or public agency
portions of the system - no longer necessary, useful or profitable
Extension and Replacement Fund
Revenue Bonds - Sale of the System
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
file with lenders and the LGC an annual audit report
demonstrate compliance with rate covenant
SEC continuing disclosure
file with the lenders an annual budget
inspection of the system by consulting engineers and the filing
of the report with the lenders and the LGC
risk management – liability, property loss and damage,
business interruption
Revenue Bonds - Monitoring and Financial
Budget Report
Audit Report
Engineering Reports
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Credit Quality Standards
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Credit Quality Standards
lenders ===> evaluate risk no rating = no access to capital credit ratings impact borrowing costs higher ratings = lower borrowing costs each category in “investment grade” = $16K/$1MM Current CIP - $1.4MM A2, A and A+
AAA - Highest Quality
AA - High Quality
A - Strong Capacity
BBB - Adequate Capacity
BB - Low Speculative
B - Speculative
CCC & CC - High Speculation
D - Default
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
indicators - fiscal, debt, economic, management, system no single, absolute indicator
working capital (BOCC 365 days, 385 – 438 days NC) senior debt service coverage (credit compliance standard - 2.1X to 2.5X) all debt service coverage (BOCC 1.0X minimum – credit compliance standard
closer to 1.5X) contribution of equity to capital program (minimum 35%) rates – (1.5% MHI) cost of service based rates and self-sufficiency master plans, CIPs and financial feasibility
Credit Quality Standards
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Laws, Regulations and Policies
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
G.S. 153A-276/277/284 “establish and revise from time to time schedules of rents, rates, fees,
charges, and penalties for the use of or the services furnished by a public
enterprise” “rents, rates, fees, charges, and penalties may vary for the same class of
service in different areas of the county” “may vary according to classes of service”
recoup capital costs for facilities in use/not in use (I.e. growth) cannot be arbitrary nor w/o basis (i.e. result from planned
improvements) capacity component costs – water and wastewater treatment plant,
transmission and outfall facilities, pump and lift stations restricted to the use of capital costs for which capacity fees are
imposed
Laws and Regulations
NC General Statutes - Rates and Charges - Capacity Fees
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
BOCC Policies
PW Rules and Regulations
Water and Sewer Line Extension
Construction Policy
Rates, Fees and Charges
Easement Acquisition
Self-help
Automated Meter Reading
Risk Management
Sewer Cap
I&I Reduction and Rehabilitation
Billing and Collections
Cashiering and Petty Cash Policy
Water Conservation
Bank Drafts
Utility Line Locates & NC 1 Call
Fire Hydrant Usage
Harris Customer Information
System
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Financial Performance
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Capital Improvement Plan Summary (2007-2011 : $181mm)
Sources
Debt, $84,800,000 ,
47%
Paygo, $93,495,444 ,
51%
Contributed capital,
$3,325,724 , 2%
Uses
Water Treatment,
$69,063,000 , 38%
Sewer Treatment,
$52,575,260 , 29%
Collection, $8,989,055 ,
5%
Metering, $3,776,327 ,
2%
Storage, $17,032,637 ,
9%
Support, $3,494,963 ,
2%
Water Lines, $26,689,927 ,
15%
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Capital Improvement Plan Detail
Water
Construction of 25 miles of water transmission main and lines (12” to 36”)
Expansion of the Catawba River Water Treatment Plant increasing the County’s allocation from 18MGD to 30MGD
Construction of 8MGD Northern Union County Water Treatment Plant
Construction of 3 elevated storage tanks with combined capacity of 4MG
Sewer
Rerating (+0.5MGD) and expansion (+3.0MGD) of the 12 Mile Creek Wastewater Treatment Plant (after completion a 6MGD plant)
Expansion (+3MGD from 6MGD to 9MGD) 12 Mile Creek Wastewater Treatment Plant
NO COSTS FOR TREATMENT OR CONVEYANCE OF YADKIN/PEE DEE BASIN SEWER ($78M)
Project 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Total
Water Projects Treatment 1,080,000 2,133,000 14,653,000 17,945,000 33,252,000 69,063,000 Water Lines 9,098,753 10,235,424 3,903,000 2,444,000 1,008,750 26,689,927 Metering 3,776,327 - - - - 3,776,327 Storage 2,513,277 7,419,360 7,100,000 - - 17,032,637 Support 437,365 1,000,000 200,000 - - 1,637,365
Total Water Projects 16,905,722 20,787,784 25,856,000 20,389,000 34,260,750 118,199,256
Sewer Projects Treatment 18,300,609 9,824,651 9,050,000 7,700,000 7,700,000 52,575,260 Collection 3,775,555 1,540,000 3,443,500 115,000 115,000 8,989,055 Other Projects and Studies 985,598 672,000 200,000 - - 1,857,598
Total Sewer Projects 23,061,762 12,036,651 12,693,500 7,815,000 7,815,000 63,421,912
Total Water & Sewer Projects 39,967,484 32,824,435 38,549,500 28,204,000 42,075,750 181,621,168
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Financial Forecast Projection Projection Projection Projection ProjectionJune 30 June 30 June 30 June 30 June 30
2007 2008 2009 2010 2011
1 Capital Program2 Prior balance 14,040,336 - - - - 3 Paygo 20,900,000 15,544,388 16,010,720 12,700,000 14,300,000 4 Contributed capital 2,525,724 200,000 200,000 200,000 200,000 5 Debt 15,000,000 27,000,000 - 42,800,000 - 6 Total 52,466,060 42,744,388 16,210,720 55,700,000 14,500,000
7 Number of water customers 34,540 38,145 41,749 44,865 47,991 8 Number of sewer customers 24,177 26,716 29,254 31,448 33,649 9 % annual increase in customers 12.0% 10.5% 9.5% 7.5% 7.0%
10 % increase in avg. residential bill 0.0% 0.0% 1.5% 0.0% 0.0%
11 Revenue (w/o capacity fees) 26,472,993 28,408,344 31,316,592 33,516,299 35,823,340 12 Operating expenses (12,792,875) (13,576,993) (14,336,803) (15,145,848) (16,017,515) 13 Net revenues available for debt service (10+11) 13,680,118 14,831,351 16,979,789 18,370,451 19,805,825
14 Total debt service (7,245,065) (8,856,533) (9,035,811) (10,316,264) (11,138,334)
15 Net revenues after debt service (12+13) 6,435,053 5,974,818 7,943,977 8,054,187 8,667,492
16 Capacity fees 12,863,980 9,098,196 11,096,020 8,792,646 8,794,759
17 Net revenues available to fund capital (14+15) 19,299,033 15,073,014 19,039,997 16,846,833 17,462,251
18 Capital19 Recurring (669,582) (687,724) (665,910) (688,105) (727,905) 20 CIP (20,900,000) (15,544,388) (16,010,720) (12,700,000) (14,300,000) 21 Total Capital (21,569,582) (16,232,112) (16,676,630) (13,388,105) (15,027,905)
22 Other Transfers (158,367) (163,118) (168,012) (173,052) (178,243)
23 Remaining available funds (16+20) (2,428,916) (1,322,215) 2,195,356 3,285,676 2,256,102
24 25,187,807 22,758,891 21,436,676 23,632,032 26,917,707
25 22,758,891 21,436,676 23,632,032 26,917,707 29,173,810
26 Working capital required - days 365 19,583,934 21,913,529 23,931,285 26,187,191 28,722,979
27 Net sources available for reinvestment (24-25) 3,174,957 (476,853) (299,253) 730,517 450,830
Total Beginning Cash & Investments (incs. req. working cap.)Total Ending Cash & Investments (incs.req. working cap.)
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Rate Affordability Compliance
Effect of Proposed Water and Sewer Rate Increases on Average Residential Customer
$53.57$53.57$53.57$52.78$52.78
$86.71$84.47
$82.28$80.15
$78.07
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
FY07 FY08 FY09 FY10 FY11
Month
ly C
ost fo
r 6,7
00 G
allons
Acceptable Water/Sewer Burden*
*Acceptable Water/Sewer Burden is equal to 1.5% of the County's median household income. This threshold is set by the North Carolina General Assembly through the NC Clean Water Revolving Loan and Grant Act of 1987 in establishing high-unit cost for utilities.
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Debt Service Coverage
0
0.5
1
1.5
2
2.5
3
3.5
4
2004 2005 2006 2007 2008 2009 2010 2011
Senior Debt All Debt
BOCC Standard All Debt 1X; Credit Requirements – Senior 2.1 to 2.5X
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Working Capital Requirements
0
100
200
300
400
500
600
700
800
2004 2005 2006 2007 2008 2009 2010 2011
BOCC Standard 365 days; NC systems 385-438 days (Source: LGC)
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
policy leadership decision making
relevant and valid information
deliberate
considerations
Summary
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
What financial resources are available to invest in the utility system?
Size of CIP $181 and higher?? ==> PayGo, Debt and Capital
Contributions
What types of investments should be made? Historically, CIP includes
“backbone infrastructure” projects that benefit large #’s of customers
What options are available to make water resources more available and
who pays? Self-help … 1¢ for extension of distribution system
Next Steps …..Policy leadership decisions
Water and Sewer Enterprise SystemWater and Sewer Enterprise System
Capital Improvement Plan – Major wastewater decisions absent –
March meeting to review CIP
Business Plan – Revisions to CIP will require update
Capacity Fees – Revisions to CIP will necessitate update to fees; tiered
3/4” residential based on sq. ft.
Rates – CIP and Business Plan will likely necessitate review
Water extension line policy
Additional policy leadership decisions
Recommended