Department of Public Utilities

1

Department Department of of Public UtilitiesPublic Utilities

Presentation of Study ResultsPresentation of Study Results

August 2006August 2006

2

Report Components

• Driving factors behind the report

• Results of the Rate Study

3

CHESAPEAKE CITY COUNCIL GOALS REVIEW

January 18, 2003

Primary responsibility• Rehabilitate water and sewer lines• Secure additional water sources to insure an abundant supply for City residents

Unstated support responsibility• Support established neighborhoods by keeping housing and infrastructure up-to-date• Strengthen emergency planning and facilities• Redevelop areas of the City to generate wealth• Maintain good financial management policies and strategies• Protect water resources• Create and implement economic development strategies that insure prosperity

4

The Utility Department operates as an Enterprise Fund

• It must be self-supporting through its rates and fees

• Operating costs are paid via User Fees• Capital costs are funded on - pay as you go basis - or bonds• Capital costs are paid through a combination of both user fees and connection fees• It receives no subsidy from the General Fund (i.e. taxes)• Bond Coverage Ratio (BCR) required by our Master Bond Resolution to be 1.0 or greater

5

Issue Overview

• Bond coverage

• Operating costs increased at a much greater rate than CPI

• EPA/DEQ regional consent order

• CIB Needs

• Unserved Areas

6

Bond Coverage Ratio

Revenues Expenses

• Required by our Master Bond Resolution to be 1.0 or greater

• BCR may be greater depending on type of financing

• BCR =

7

Average Annual Increase by Expense Category

6.1%

5.2%

3.8%4.1%

4.4%

-1.1%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Total Personnel Water Purchases Chemicals Electricity Debt Service Other O&M

Expense Category

Avg

. % In

crea

se--

2001

to

200

6Average Annual Increase By Expense Drivers (FY2001-2006)

8

Water Distribution Plan

9

Operating costs-Raw Water Purchases

• The 2001 Rate Study for the current rates estimated the cost to be $0.60 per 1,000 gallons (Lake Gaston raw water)

• Actual cost of water is $1.05 per 1,000 gallons (Norfolk raw water)

• $1.2M – $1.5M more per year

10

Operating Costs-Treated Water Purchases

FY 2001 –FY2005• Consumer Price Index from 2001 to 2005 +10%• Portsmouth Unit Price +15% • Norfolk Unit Price +28%

Through FY06 and FY07

Portsmouth’s rate will have increased another +9%

Norfolk’s rate will have increased another +12%

11

Impact of Purchased Water(Using current Rates)

Purchased Sold Net Loss (per CCF) (per CCF) (per CCF)

Norfolk Water $3.47* $3.225* ($0.25)Portsmouth Water $3.79* $3.225* ($0.57)

*at current water rate

12

Unit Purchase Price vs Unit Sales Price

0.00

1.00

2.00

3.00

4.00

5.00

6.00

FY97-98 FY98-99 FY99-00 FY00-01 FY01-02 FY02-03 FY03-04 FY04-05 FY05-06 FY06-07

$ p

er 1

000

ga

llon

s

Portsmouth

Norfolk

Chesapeake

Unit Purchase Price vs. Unit Sales Price

13

Other Operating Cost Increases

(Consumer Price Index from 2001 to 2005 increased 10%)

During this past Fiscal Year

Copper tubing (hourly quotes) +276% to +505%

Sewer main materials +218% to 361%

Water Main materials +147% to 218%

14

How Did Public Utilities Mitigate the Increases ?

• Controlled discretionary spending

• Controlled CIB projects in spite of needs

• Reduced CIB funds for system renewals (routine annual maintenance)

• Optimized service areas

15

Operating Expense Breakdown

24.80%

4.95%

14.36%

24.94%

30.96%

Personnel O&M-Controllable O&M-Non-Controllable Debt Water Purchases

Operating Expense Breakdown

Water Purchases

Debt

Personnel

O & M Controllable

O & M Non-Controllable

16

Does Growth Help?

• Increased operating costs (meter reading, billing, customer service, maintenance, repairs)

• Flat Sales

• Does not help as much as one might assume

17

Actual Revenue vs Actual Growth (FY02-06)

• Water/Sewer Account Growth +1.62% per FY

• Average amount of water people consumed only increased by +0.24% per FY

• Previous rate study estimated 2% growth in both categories

18

EPA/DEQ

• This is an unfunded mandate on region.

• Required by both the State and Federal Governments

• Sanitary Sewer Evaluation Survey (SSES)

• Potential fiscal impact of the SSES is unknown at this time.

• Proposal contains an approximation of the eventual EPA/DEQ impact • Norfolk (SSES $2.8M; CIB 2002-2004 $13.5M; CIB 2004-2008 $39.4M plus EPA mandated rate increase)

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CIB NeedsCurrent plan reflects a 5-year $66M CIB to address Infrastructure issues per the Council’s goals

• Membrane Replacement• Vehicle replacement• Water System Renewal (routine O&M)• Sewer System Renewal (routine O&M) • Pump Station & Wet Well Upgrade (routine O&M) • Customer Service/Billing software• System Optimization• Storm Hardening• Storage Tank Renovation• Northwest River Water Treatment Plant Cover Replacement• 800 MHz Digital Radio System• Waterline Upgrades (replacement)• Force Main Upgrades (replacement) • Sewer Line Upgrades (replacement) • Water Reliability (New Installations)• 30" NWR Raw Water Main• Raw Water Transmission Main• Greenbrier Tank (New Installations)

20

Unserved Areas

• 79 Sewer Projects totaling $74.7M (2005 Dollars)• 44 Water projects $20.4M (2005 Dollars)• This Financial Plan provides $27.0M for Unserved Areas• Best estimate indicates that 10 areas might be served• List prioritized by Chesapeake Department of Health • New Cost Participation Policy

21

Unserved Sewer AreasIdentified in 2005 Study

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Unserved Water AreasIdentified in 2005 Study

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Proposed Ten Unserved AreasSewer

Water• Willow Lakes $2.4M $0.9M• Albemarle Acres $5.3M $2.6M• Manning Ct/Vico $1.7M $0.3M• Etheridge Manor (Sect.1) $1.1M -• Battlewood Meadows $4.6M -• Bridgewood $0.8M $0.3M• Old Mill Rd $3.4M -• Cedar $1.7M -• Shipyard Rd $1.2M $0.3M• Waters Rd. $0.4M -

(Listed in priority per Chesapeake Health Department)

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Summary

• Operating costs have increased at a higher rate than expected

• We have exhausted all options to mitigate the increases

• The EPA/DEQ mandate is imminent/mandatory• The bond coverage ratio will be impossible to meet

without fiscal help.• An Unserved Areas program is introduced

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RATE STUDY

Utility Revenue Sources

Connection fees

Growth rate dependent

User Fees Usage dependent

1. Consumption charge per 750 gallons (CCF)

2. Minimum charge per month

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Coverage ratios for debt must be met as required by bond covenants Conservative account growth rates over time ( 1.5%, 1.0%…) Used a more representative inflation rate for operating costs and water purchase costs

Debt service for Unserved Areas included – 30 year bonds at 6%

Rates based on a combined utility of water and sewer

Basic assumptions used in study:

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Recommendations

28

Adopt connection fee increases (Includes both water and sewer connection fees) effective January 1, 2007: Example: 5/8” meter

City-Funded Developer-Funded Current $4,950 $4,050

Proposed $6,627 $6,399 Amount of Increase $1,677 $2,349 Percent Increase 34% 58%

Other Connection Fees increase with meter size

Recommendation for Connection Fees

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Comparison of Connection Fees5/8" meter

650900

1,940

3,241

4,050

4,950

5,8346,399 6,627

8,000 8,070

9,090

-

5,000

10,000

15,000

Total 650 900 1,940 3,241 4,050 4,950 5,834 6,399 6,627 8,000 8,070 9,090 12,230

Sewer 150 250 1,250 1,513 1,620 1,980 1,465 2,702 3,519 4,000 5,175 3,540 5,740

Water 500 650 690 1,728 2,430 2,970 4,369 3,697 3,108 4,000 2,895 5,550 6,490

P-mouth NorfolkNewport

NewsVa Beach

(2)

Chspke Current

(1)

Chspke Current

(2)

Chesterfield

Chspke Ppd (1)

Chspke Ppd (2)

Isle of Wight

HenricoSuffolk

(2)Suffolk

Ppd

12,230

(1) Dev. Installed(2) City Installed

Comparison of Connection Fees (5/8” meter)

30

Recommendation for User Fees (Phase 1 of 3)

User Fees effective January 1, 2007

Water Sewer Combined Consumption Charge (per 750 gals)

Current $3.225 $0.725 $3.950 Proposed $3.578 $1.789 $5.367 Amount of Increase $ .350 $1.060 $1.417 Percent Increase 11% 147% 36%

Minimum Charge (per Month) Current $15.50 $5.95 $21.45 Proposed $16.50 $6.95 $23.45

Amount of Increase $ 1.00 $1.00 $ 2.00 Percent Increase 6% 17% 9%

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January 1, 2007 (FY2007)

Current Average Monthly Residential Bill $45.15 Proposed Average Monthly Residential Bill $55.65 % of Change 23.3% Water usage by the average household in a month

32

FY2007 Rate Increase Factors

$1.07

$6.88

$0.67$0.21

$0.56

$1.11

Total Personnel Water Purchases Chemicals Electricity All Others Unserved

Water Purchases

Chemicals

Personnel

Electricity

Other Unserved

FY 2007 Rate Increase Factors

33

Average Monthy Bill for Water & Sewer Average Monthly Residential Bill

$36.65$40.41

$45.15 $45.60 $45.89$49.29

$52.17$55.36 $55.65

$-

$10

$20

$30

$40

$50

$60

7/1/2006 7/1/2006 (Current) 7/1/2006 7/1/2006 7/1/2006 7/1/2006 7/1/2006 (Eff. 01/01/07)

Chesterfield Newport News Chesapeake Portsmouth Va.Beach Suffolk Henrico Norfolk Chesapeake

Average Monthly Residential Bill

Average Monthly Bill for Water & Sewer

34


User Fees effective July 1, 2008


Current $3.578 $1.789 $5.367 Proposed $3.878 $2.554 $6.432 Amount of Increase $ .300 $ .77 $1.065 Percent Increase 8% 43% 20%



35

July 1, 2008 (FY2009)


36

FY2009 Rate Increase by Factor

6.11

0.21

1.28

0.79

CIB Needs Operations Incr EPA Projects Unserved Areas

CIB Needs

Unserved

EPA

Other


37


User Fees effective July 1, 2010


Current $3.878 $2.554 $6.432 Proposed $4.178 $3.971 $8.149 Amount of Increase $ .300 $1.42 $1.717 Percent Increase 8% 55% 27%



38

July 1, 2010 (FY2011)


39

FY2011 Rate Increase Factors

$1.22

$3.88

$1.05

$4.67

$0.42

$0.79

$0.23$0.03

Total Personel Water Purchases Chemicals Electricity All Others CIB Needs EPA Projects Unserved Areas

Water Purchases CIB

Needs

ChemicalsElectricity

PersonnelEPA

Unserved

Other


What’s Next . . . . . ?

August 8, 2006 – Conduct a work session for City Council

September 12, 2006 – Conduct a public hearing and request council action

November 1, 2006 – Implement revised rates

Discussion

Documents

Department of Public Utilities