your utility uses money as fuel- financial management ... lagoon seminar...source: w.mich regional...
TRANSCRIPT
MWEA Lagoon Seminar
Presented by: Rich Grant, PE February 2013
Your Utility Uses Money as Fuel-
Financial Management,
Capital Planning, Need for
Inflation Adjustments
CONCEPTS
• User Charges
• ‘Depreciation’
• Inflation
• ‘Saving Money’
CAPITAL PLANNING
• 5-10 yr Plans & Cash Financing
• Subsidized Financing
INFLATION ADJUSTMENTS
Proposed Agenda
User Charges =
Reliable Source of Funding
‘Depreciation’ =
Inevitable wear & tear
Inflation =
Inevitable … reduction of
buying power
Inadequate (Low) User Charge
IS NOT Saving Money
Concepts
Your User Charge needs are
unique.
It’s been a political hot topic to
compare rates … it’s not very
useful to your utility.
If your utility rates are lower than
needed, it’s not a “cost savings”
but a path to run the utility into the
$$ dirt.
Capital Planning
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
1970 1980 1990 2000 2010 2020 2030 2040 2050
Year
Funding Half Depreciation Funding No Depreciation Total Investment
System Value with Time
Legend:
Cash Balance
Facilities Condition
OK OK Disaster
“Cash
depletion”
“Facilities &
Depreciation”
Cash & Facilities
CAPITAL FUNDING OVERVIEW: Collection System
• Normal wear & tear, replacement
• Accelerated damage
(odor/corrosion effects)
• Correction of historic issues
• Infiltration/Inflow
• Overflows?
Treatment, Discharge, Reuse
• Normal wear & tear, replacement
• New permit requirements (e.g.
nitrogen, phosphorus)
• Correction of historic issues
Utility Capital Funding Needs
Reuse Older/excellent technologies
Lots more “miles” of treatment capability!
Successful WWTP Upgrade Strategies
Purchase Price + capital
improvements
“Depreciation” (wear & tear)
Asset life = _____ Years?
Maintenance
vs.
Replacement
Asset Capitalization
“Community Investment”
Take Ownership –
Sewer Enterprise Fund
How did it get to be so low?
Did someone try to “save money”?
Not Spending IS NOT An Option
Fuel it Up!
It’s About Dollars -
Convert 2ndry Trt to
Algae System
Increase Biogas
Energy Production
Location of New
2ndary Treatment
Location of New
Odor Control
Determine & Prioritize Needs
Your 5-10yr Plan is
used to justify the
most appropriate
Rates & Charges
… to keep the town’s
‘old truck’ running
TABLE 11
CITY OF
5-YEAR WWPF CAPITAL IMPROVEMENTS SUMMARY
Year Item Estimated Cost
1 Chemical Feed Evaluation & Improvements $11,000
RBC Loading Study & Flow Splitter Evaluation $3,000
Biosolids Decant Improvements Design & Construct $80,000
Lift Stn Generator Replacement $60,000
Biosolids Storage Improvements; Design $36,000
2 Secondary Clarifier; Rehabilitation $20,000
Life-Cycle Replacement Fund Evaluation $4,000
Biosolids Storage Improvements; Construct $414,000
3 Digester Improvements; Design & Construct $250,000
4 Digester Improvements; Construct $950,000
5 Digester Improvements; Construct $400,000
Flow Peaking Factor Study $4,000
Develop New 5-Year WWPF Plan $6,000
Total $2,238,000
5 yr Yearly Average $447,600
7 yr Yearly Average $319,700
Determine & Prioritize Needs
UTILITY DEPRECIATION ESTIMATE (COMPARE TO 5YR PLAN) • Calculate Utility Value example
– WWTP $20 million
– Collection System $28 million
• Estimate Useful Life
– WWTP 35 years (dollar-wtd average)
– Collection System 75 years
• Calculate Depreciation Rate
– WWTP + Collection System $945,000/year
• Fund at Least Half of Estimated Depreciation
– Common Benchmark
– i.e. Run the Facilities Twice as Long as estimated
Capital Planning
Source: W.Mich Regional Planning Commission, Customer Communities, US Census Bureau
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1970 1980 1990 2000 2010 2020 2030
Po
pu
lati
on
Year
City of Township
Township2 Village
Paying Customers
City of
Village
Of † Township Township2
2004-2007 Avg. Daily Flow
(MGD) 0.25 0.07 0.11 0.06
20 Year Projected Annual
Increase 1.0% 0.0% 0.2% 5.0%
2028 Projected Avg. Daily
Flow (MGD) 0.30 0.07 0.12 0.16
2006 Service Capacity
Allocation (MGD) 0.72 0.25 0.16 0.15
*Estimated population based on respective trend projections.
†Assumes population experiences no change from 2000 to 2028
Billable WW Flow Projections
5-10yr Plans & Cash Financing
• Plan to Use Cash for everything possible!
• Develop 5-10yr Plans
• Adjust Rates & Charges
• Build the Sewer Fund to a level that will allow this
• Keep ‘Critical Low’ Balance
Subsidized Financing if the cash is gone
• SRF (2.5% interest rate)
• USDA (1.78% – 3.125% interest rate)
• Optimize grant components, each source
Capital Planning
$27.84
$32.10
$27.90$27.90$27.90$27.00$27.00
$36.85
$35.05
$33.23
$31.58
$30.14$28.67
$27.00
$20.00
$25.00
$30.00
$35.00
$40.00
2003 2004 2005 2006 2007 2008 2009Proposed
YEAR
SE
WE
R C
HA
RG
ES
Inflation (Dept. of Labor – Bureau of Labor Statistics; CPI)
Historical Rate Adjustments
Proposed
Gap
$4.75
Sewer Fund Consumed by Inflation
FY2010/11 User Charges:
$32.46/family/month @ 6,000 gal
(City resident)
Inflation Adjusted 2003/4*:
$41.08/family/month @ 6,000 gal
(City resident)
*Based on C.P.I.
We are suggesting:
1.Correct the current rates & charges
2.Tie the future rates & charges to a
well-established gage of inflation
Adjust Rates & Charges
Critical low balance = $______
Preferred balance = $______
Current balance ….
How did it get to be so low?
Plan to counteract these issues
Enough for the 5-10yr Plan?
What is the Condition of the Fund?
ABOVE CRITICAL LOW FUND BALANCE:
Cost of Service Basis
- Fund balance amount tied to identified
needs
- Enterprise Fund dedicated for this utility
Enough for:
- Major equipment replacement (specific
units)
- Emergency actions (foreseeable,
planned)
- Unplanned actions, contingencies
Build the Fund Balance
Most Utility Charge Systems are out of date
The Utility Value and Reliability will be depleted without sufficient $
“Enough” User Charge developed by Cost-of-Service
specific to your town
Process of User Charge Adjustment need not kill the messenger
Process:
1. Develop 5-yr and 10-yr plans
2. Correct the current rates & charges
3. Tie future rates & charges to a well-established gage of inflation
Summary