denver water contract summary wwbd (what would a business do?) decision point: – accept revised...

Denver Water Contract SummaryDenver Water Contract Summary

WWBD (What Would a Business Do?)• Decision point:

– Accept Revised Contract or,– Reject and retain Existing Contract.

• Key contract language comparison.• Determine respective contract values.• Other upside vs. downside.• Make the call.




c\brs\ppt\littleton\water\11 devner h2o contract summary 1.2_02.151








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Existing Contract

• §A – Denver Charter controls contract.

• §1 – Water service furnished similar to that inside Denver.

• §4 – Service charges outside Denver may be applied uniformly among similar users.

• §5(c) – Outside Denver service charges may not exceed comparable inside Denver charges by more than 100%.

• §5(d) – Board has reasonable discretion to establish rates inside and outside Denver.

• §8 – Water may be curtailed provided restriction is applied uniformly inside and outside Denver.

• §10 – Board retains property rights to water.

• §13 – Areas annexed by Littleton are automatically part of the CSA.

Existing Contract

• §A – Denver Charter controls contract.

• §1 – Water service furnished similar to that inside Denver.

• §4 – Service charges outside Denver may be applied uniformly among similar users.

• §5(c) – Outside Denver service charges may not exceed comparable inside Denver charges by more than 100%.

• §5(d) – Board has reasonable discretion to establish rates inside and outside Denver.

• §8 – Water may be curtailed provided restriction is applied uniformly inside and outside Denver.

• §10 – Board retains property rights to water.

• §13 – Areas annexed by Littleton are automatically part of the CSA.

Revised Contract

• Recital A – Denver Charter controls contract.

• Recital D – No limitation on Littleton annexation activities.

• §2.1 – Board will furnish all water necessary to serve full development within Littleton CSA.

• §2.9 – Water may be curtailed provided restriction is applied uniformly inside and outside Denver.

• §3.1 – Service charges applied uniformly among similar users outside Denver.

• §3.3 – Rates will be assessed to reasonably recover service costs.

• §4.1 – Water shall be provided in the same manner as that provided to customers inside Denver.

• §4.6 – Water service governed by Charter provisions, operating rules and engineering standards so long as not inconsistent with contract terms.

• §4.8 – Littleton CSA expansion OK with consent of current water distributor.

Revised Contract

• Recital A – Denver Charter controls contract.

• Recital D – No limitation on Littleton annexation activities.

• §2.1 – Board will furnish all water necessary to serve full development within Littleton CSA.

• §2.9 – Water may be curtailed provided restriction is applied uniformly inside and outside Denver.

• §3.1 – Service charges applied uniformly among similar users outside Denver.

• §3.3 – Rates will be assessed to reasonably recover service costs.

• §4.1 – Water shall be provided in the same manner as that provided to customers inside Denver.

• §4.6 – Water service governed by Charter provisions, operating rules and engineering standards so long as not inconsistent with contract terms.

• §4.8 – Littleton CSA expansion OK with consent of current water distributor.

Key Contract Language ComparisonKey Contract Language Comparison








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Existing Contract

• Littleton owns no water so nothing to sell; only a contractual right to consume and return.

• Unlimited supply clause value is chit for future annexation with sales, use, etc. tax revenue less police, fire, roads, etc. costs.

• Larger annexation more lucrative but less likely to occur and there are legal considerations (1/6 contiguity, owner consent).

• Annexation where and when? Not Sterling Ranch.

Existing Contract

• Littleton owns no water so nothing to sell; only a contractual right to consume and return.

• Unlimited supply clause value is chit for future annexation with sales, use, etc. tax revenue less police, fire, roads, etc. costs.

• Larger annexation more lucrative but less likely to occur and there are legal considerations (1/6 contiguity, owner consent).

• Annexation where and when? Not Sterling Ranch.

Revised Contract

• $2.1 million up front payment + $0.4 million for Geneva Park.

• Water Bank = 1,200 acre ft. available to sub-lease, five year increments, 20-year term, cost certainty, flow exchange point = sewer plant.

• Near-term enticement re: developer commitment to Sewer Plant.

• Existing Sewer Plant excess capacity = reduced treatment costs for incremental volumes (spread fixed costs over > volume).

• New tap fees = additional coverage for debt service obligation.

Revised Contract

• $2.1 million up front payment + $0.4 million for Geneva Park.

• Water Bank = 1,200 acre ft. available to sub-lease, five year increments, 20-year term, cost certainty, flow exchange point = sewer plant.

• Near-term enticement re: developer commitment to Sewer Plant.

• Existing Sewer Plant excess capacity = reduced treatment costs for incremental volumes (spread fixed costs over > volume).

• New tap fees = additional coverage for debt service obligation.

Respective Contract ValuesRespective Contract Values


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Finance Dept., 2007 – 2015 Sewer AnalysisFinance Dept., 2007 – 2015 Sewer Analysis

Total Cash EndingPrincipal Interest Admin Fees to be Paid Balance

2011 2,860,503 1,428,299 339,428 4,628,230 51,710,194 2012 2,779,818 1,317,384 262,924 4,360,126 47,350,068 2013 2,250,357 1,196,393 237,422 3,684,172 43,665,896 2014 2,365,357 1,084,027 237,422 3,686,807 39,979,089 2015 2,444,627 965,912 237,422 3,647,961 36,331,128 2016 2,587,431 860,584 237,422 3,685,437 32,645,691 2017 2,646,358 798,726 237,422 3,682,506 28,963,185 2018 2,710,642 735,460 237,422 3,683,524 25,279,661 2019 2,796,354 651,682 237,422 3,685,458 21,594,203 2020 2,882,066 565,254 237,422 3,684,743 17,909,461 2021 2,967,778 476,178 237,422 3,681,378 14,228,083 2022 3,064,204 384,452 237,422 3,686,079 10,542,004 2023 3,155,273 289,747 237,422 3,682,442 6,859,562 2024 3,251,699 192,226 237,422 3,681,347 3,178,215 2025 2,967,778 91,725 118,711 3,178,215 -

Total 41,730,245$ 11,038,049$ 3,570,130$ 56,338,424$

Total All Sewer Debt Payments

As of 9/1/2010 2008 2009 2010 2011 2012 2013 2014 2015Rates: Single Family, Inside City 197.73$ 209.59$ 228.45$ 228.45$ 239.87$ 251.86$ 261.93$ 272.41$ YOY Change, % 0.0% 6.0% 9.0% 0.0% 5.0% 5.0% 4.0% 4.0%

Other Information• Sewer Utility Fund 2010 Ending

Balance = $13.6 million.

• Sewer Utility Fund 2015 Est. Ending Balance = $7.5 million(a).

• Includes assumed installation of UV disinfection system @ $5.0 million.

(a) 2007-2015 Sewer Analysis balance +$2.4 million re: increase in

2010 actual vs. estimated balance.

Other Information• Sewer Utility Fund 2010 Ending

Balance = $13.6 million.

• Sewer Utility Fund 2015 Est. Ending Balance = $7.5 million(a).

• Includes assumed installation of UV disinfection system @ $5.0 million.

(a) 2007-2015 Sewer Analysis balance +$2.4 million re: increase in

2010 actual vs. estimated balance.


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Assumption Base Case Range Notes Annexation Start, Year 15 5 – 20 Each start year is equally likely to occur. Water Volume Used, No. Acre Ft.

2,546

1,000 – 4,000

At 0.46 acre ft. per residence, Base Value yields an annexation of roughly 33% of existing Littleton residences.

Incremental General Fund Tax Revenue, $

$11.6 Million

Scale to No. Residences

Annexed

Littleton 2010 actual General Fund revenue excluding Intra-Governmental revenues X proportion of annexed residences to existing Littleton residences.

Incremental General Fund Expenditures, $

$9.3 Million

Scale to No. Residences

Annexed

Littleton 2010 actual General Fund expenditures covering IT, Admin Services, Police, Fire net of Fire Partner revenue, Public Services, Community Development, General Operations and Contingencies assuming other cost centers absorb incremental residential and commercial properties X proportion of annexed residences to existing Littleton residences.

Probability of Annexation, % 10.0% 2.5% – 50.0% Likelihood of completing an annexation as described above.

Existing Contract Valuation AnalysisExisting Contract Valuation Analysis


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Revised Contract Valuation AnalysisRevised Contract Valuation Analysis

Assumption Base Case Range Notes Sewer Connect, Year 3 2 – 10 Each start year is equally likely to occur. Sewer Taps, No. / Year

800

200 – 1,200

Assume ten year duration based on Sterling Ranch estimated at 1,200 taps per year for ten years.

Sewer Taps, $ / Tap

$5,000

$3,500 – $5,000

Code stipulates $5,000 per tap but assume larger commitment number may receive volume discount.

Sewer Service Charge, $ / Account

$257

None

Littleton 2011 Budget Sewer Service Charges Sewer Utility Accounts.

Sewer Cost of Service, $ / Account

$304

None

Littleton 2011 Budget (Sewer Cost of Sales and Services + Debt Service) Sewer Utility Accounts

Capacity Cost Utilization Factor, %

50.0%

35.0% – 70.0%

Assumed true incremental cost of service for new accounts given sewer plant excess capacity.

Probability of Sewer Plant Connection, %

50.0%

20.0% – 75.0%

Somewhat higher than annexation probability given proximity, timing of Sterling Ranch.

Denver Water Up Front Cash Payment, $

$2.5 Million

None

Agreed upon per draft contract.


Other Analysis Assumptions

• Cash flow model with 50 year projections.

• Net Present Value – Think green light / red light example.

• 6.0% cost of money.

• 10,000 simulation trails.

Other Analysis Assumptions

• Cash flow model with 50 year projections.

• Net Present Value – Think green light / red light example.

• 6.0% cost of money.

• 10,000 simulation trails.

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ResultsResults

Item

Existing Contract

Revised Contract

Notes

Base Case, Net Present Value $1,453,150 $ 19,211,647 High End, Net Present Value $8,110,888 $28,683,069 95% statistical confidence limit. Low End, Net Present Value $455,795 $8,702,380 95% statistical confidence limit.


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WWBD (What Would a Business Do?)• Key contract language comparison.• Decision point:


• Determine respective contract values.• Other upside vs. downside.• Make the call.

WWBD (What Would a Business Do?)• Key contract language comparison.• Decision point:


• Determine respective contract values.• Other upside vs. downside.• Make the call.

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Other Upsides vs. Downsides

• Denver Water issues including volume / cost of available supplies, ability to reuse only a portion of flow due to downstream calls, drought, western state compact calls, potential litigation, conservation, infrastructure, density, etc.

• Timing, probability of future event (dry Highlands Ranch, Son of Two Forks) vs. near term sewer plant hard dollar obligations is a gamble.

• Revised Contract rate making consistency vs. Existing Contract rate making exposure. For example, suppose Denver Water supplies Existing Contract annexation supply with Wyoming water at +100% the inside Denver cost?

• Case law says Denver charter trumps contract re: rates, caps, commitments, etc.

• Littleton may be able to charge tap fees outside Combined Service Area for 350 acre ft. and 1,200 acre ft.

• Long standing (1970) partnering arrangement with Denver Water.

• What’s Existing Contract worth to Denver Water, how much will they pay to resolve?

Other Upsides vs. Downsides

• Denver Water issues including volume / cost of available supplies, ability to reuse only a portion of flow due to downstream calls, drought, western state compact calls, potential litigation, conservation, infrastructure, density, etc.

• Timing, probability of future event (dry Highlands Ranch, Son of Two Forks) vs. near term sewer plant hard dollar obligations is a gamble.

• Revised Contract rate making consistency vs. Existing Contract rate making exposure. For example, suppose Denver Water supplies Existing Contract annexation supply with Wyoming water at +100% the inside Denver cost?

• Case law says Denver charter trumps contract re: rates, caps, commitments, etc.

• Littleton may be able to charge tap fees outside Combined Service Area for 350 acre ft. and 1,200 acre ft.

• Long standing (1970) partnering arrangement with Denver Water.

• What’s Existing Contract worth to Denver Water, how much will they pay to resolve?

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Make the Call…Make the Call…








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denver water contract summary wwbd (what would a business do?) decision point: – accept revised...

Documents

existing contract

outside denver

contract terms

denver charges

revised contract recital

denver service charges

respective contract

water service