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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

Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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Page 1: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 2: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

Agenda

Prior Board Presentation Recap Updated Financial Forecast Rate Structure Updated Rate Recommendations

Page 3: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

Board Retreat & May 24, 2016 Board

Meeting

Presentation Recap

Page 4: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 5: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 6: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 7: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 8: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 9: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 10: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 11: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 12: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 13: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 14: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

Updated Financial Forecast as of June 2016

14 6/20/2016

Page 15: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 16: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 17: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 18: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 19: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 20: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 21: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 22: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 23: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 24: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 25: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

Proposed Rate Structure

25 6/20/2016

Page 26: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 27: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 28: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 29: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 30: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 31: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

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

Page 32: Financial Rate Update and Recommendations Presentation to ......Financial Rate Update and Recommendations Presentation to Board of Directors . June 21, 2016 . Public Resources Management

Questions and Discussion

32 6/20/2016