One Step Ahead: Using a Finance Plan for Regional Water System Operations

Deena Hood

Central Wyoming Regional Water System

Carol Malesky

Integrated Utilities Group, Inc.

September 18, 2002

RMSAWWA/RMWEA

Joint Annual Conference

Central Wyoming Regional Water System (CWRWS)

Located in Casper, Wyoming Serves eight wholesale customers Governed by Joint Powers Board (JPB) Annual rate setting is crucial Computerized finance plan is a critical tool

Challenges Faced by the Regional Water System

Issuing revenue bonds Using a Capital Construction Reserve

Fund Change from contract to in-house

operations Establishing a Rate Stabilization Fund Responding to drought conditions

Issuing Revenue Bonds

Issue: Refinanced $23 million loan Saved ratepayers $12 million over 30 year

period

Finance Plan: Savings estimated Coverage calculated New rate determined

Using a Capital Construction Reserve Fund

Issue: Reserve needed for major construction

project

Finance Plan: Raised sufficient revenues to set aside

necessary funds over 2 years

Changing from Contract toIn-House Operations

Issue: A number of options for operations exist

for Regional Water

Finance Plan: Compared rate impact of city operations

vs. regional operations Impact did not differ significantly

Establishing a RateStabilization Fund

Issue: Revenue bonds provided for the

establishment of this fund Rate changes needed to be levelized

Finance Plan: Established the fund Provided mechanism for tracking transfers

Responding to Drought Conditions

Issue: Call placed on North Platte River Water purchases necessaryFinance Plan: Projected for future water purchases and

zero growth in usage Alternate scenarios answered “what if”

questions Projected rate increases under scenarios

Finance Plan Schematic

Finance Plan Model

Requires data input Forecasts revenue requirements Estimates debt service payments Determines water rates Allows CWRWS to evaluate alternative

financing scenarios

Tool for Planning

Budgeting process– One year of history, current budget year, 10

years of forecasting– Used every year to prepare and justify budget

and rate

Shows expected changes– Capital improvements– Water sales– Rates

Model Inputs

Project expenditures to date Budgeted and actual O&M expenditures Bond issue sizing Beginning fund balances Water rate revenues Non-rate revenue Water usage billed Interest rates on fund balances Transfers to other funds

Assumptions Used in the Model

Expected water sales– Growth factor– Actual sales

Coverage ratio– Net annual revenues over annual debt

service– Minimum of 1.10

Maintain 25% of annual revenue requirement in operating fund.

Establishing a Rate

Based on revenue requirements and water sales

Same rate for each customer No rate decreases Current rate= $1.09

Conclusion

Finance plan is part of long-term financial management strategy

Allows JPB to control rates Shows how different financial planning

scenarios impact rates and fund balances Flexible model matures with the regional

water system

Conclusion (continued)

Model is accurate Managers and policy makers can make

informed decisions and be proactive Provides credibility