Municipal & Financial Municipal & Financial Services Group - - PowerPoint PPT Presentation

Municipal & Financial Services Group Municipal & Financial Services Group

Water and Sewer Rate Study WSSC Commissioner Briefing

Washington Suburban Sanitary Commission

February 26, 2014

Contents

Customers and Usage Analysis Water and Sewer Affordability Guidelines Rate Analysis and Rate Alternatives Recommendations and Customer Impacts National Trends

National Trends – Rate Increases Since 2002

3

70-89% Increase 130-233% Increase 90-129% Increase

WSSC rates have increased 85% since 2002

National Trends

4

Significant Capital Investments in Water and Sewer Infrastructure

• Majority of water and sewer systems were constructed 70 plus years ago
• Nationwide estimated replacement costs over next 30 years

(Water Systems $1.0 trillion, Sewer Systems $2.5 trillion)

Declining Water Use - Declines of per capita consumption of 20% to 30% over past decade resulting from:

• Water fixture replacement
• Declines in average household size
• Conservation ethic
• Increases in rates
• Economic conditions

To stabilize revenues there has been a national trend to increase fixed portion of the utility revenues (increased fixed charges)

National Trends

5

Sell Less Water Reduced Water Sales Revenue Need for Higher Water Rates Customers Use Less Water Escalating CIP Costs Increased Affordability Concerns

WSSC Current Revenues

6 Account Maintenance Fees $22,900,000 3% Usage Charges $558,980,000 88% Other Revenues $55,000,000 9%

• WSSCs current revenues are highly dependent on water usage
• Fixed revenues represent only 3% of total system revenues
• Typical range for fixed revenues is 10% to 30%

Affordability Guidelines

Financial Analysis Assumptions and Findings

8

Rate study is predicated on a cash needs based analysis of WSSC’s water and sewer fund

• Allocation of costs between water and sewer activities
• Allocation of CIP projects (if not clearly defined)
• Annual cash needs drive rates – including any contributions to

reserves

Data is based on the most recent financial information available Incorporates findings and recommendations contained within the Bi-County Infrastructure Funding Working Group Report (May 2012)

• Assumes new debt will mature in 30 years

Financial analysis is in agreement with WSSC’s Spending Affordability model

WSSC Affordability Guidelines

(in Thousands) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Combined Rate Increase 6.0% 10.4% 8.8% 8.4% 7.2% Total Operating Budget $678,591 $721,343 $775,209 $834,956 $895,742 Debt Service Expense $227,042 $250,013 $267,835 $282,596 $292,612 New Debt $384,622 $364,894 $335,620 $310,226 $241,952 9

Additional Financial Metrics

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Debt as a Percentage of Revenue 33.5% 34.7% 34.4% 33.7% 32.5% Operating Reserve Balance (% of Revenues) 10% 10% 10% 11% 11% End of Year Operating Reserve Balance (in Thousands) $55,600 $65,600 $73,600 $81,600 $89,600 Unrestricted End of Year Fund Balance (in Thousands) $21,175 $10,675 $5,175 $3,675 $2,175 New Debt Service Coverage (Revenues / Debt Service) 2.29 2.50 2.62 2.77 2.92 10

Customers and Usage Analysis

FY 2010 - 2012 Customers and Usage

FY 2010 Average Daily Use (GPD) FY 2011 Average Daily Use (GPD) FY 2012 Average Daily Use (GPD) Meter Size # of Meters Commercial Residential Commercial Residential Commercial Residential 5/8" 144,318 171 155 172 154 164 150 3/4" 238,612 193 165 198 164 193 159 1" 47,363 490 202 491 202 470 194 1 1/2" 4,453 1,182 1,609 1,175 1,622 1,142 1,623 2" 3,763 1,906 3,064 1,887 3,088 1,937 3,088 3" 924 4,979 10,687 5,076 10,998 4,856 11,069 4" 638 6,650 14,990 6,783 15,714 6,790 15,338 6" 1,146 10,540 27,064 10,390 27,298 8,389 26,043 8" 644 25,474 46,579 27,277 46,063 25,351 43,359 10" 119 38,407 84,288 41,210 85,120 36,946 83,511 12" 6 67,974

• 79,311
• 70,969
• 12
• Average customer users between 160 and 150 gallon per day (GPD)
• Gradual decline in per account usage for average user 2010 - 2012

Actual FY 2012 Customers and Usage

Rate Block (GPD) % of Total Bills Commercial Residential 0 - 49 12.9% 7.4% 50 - 99 11.3% 21.1% 100 - 149 9.2% 25.2% 150 - 199 7.0% 19.3% 200 - 249 5.4% 11.7% 250 - 299 4.1% 6.5% 300 - 349 3.0% 3.4% 350 - 399 2.4% 1.8% 400 - 449 2.1% 1.1% 450 - 499 1.6% 0.6% 500 - 749 6.5% 1.2% 750 - 999 4.3% 0.3% 1,000 - 3,999 16.9% 0.4% 4,000 - 6,999 4.5% 0.0% 7,000 - 8,999 1.8% 0.0% 9,000 & Greater 7.0% 0.0%

• Over 91% of Residential bills fell below 299 GPD
• 50% of Commercial bills fell below 299 GPD

13

Actual FY 2012 Customer Bill Distribution

14

• 100,000

200,000 300,000 400,000 500,000 600,000

# of Total Bills

Average Quarterly Consumption Residential Commercial Average 13,000 30,000 Median 10,000 11,000

Actual FY 2012 Revenue Distribution

15

$- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000

Total Annual Revenue

Meter Size

Top 10 Revenue Generating Accounts

16

Account # Customer Meter Size Annual Consumption (1,000 gal.) FY 2012 Revenue 6312 National Institute of Health 8” 630,845 $4,087,876 2586147 Andrews Air Force Base 10” 203,102 $1,316,101 4553640 Gaylord Hotel 8” 157,727 $1,022,071 12716 University of Maryland 6” 111,015 $719,377 20248 Pepsi Cola 6” 109,732 $711,063 2823847 United States Navy 10” 103,756 $672,339 3681 Leisure World of Maryland Trust 10” 183,543 $646,636 7500 NIST 10” 92,679 $600,560 2882421 University of Maryland 10” 91,820 $594,994 6338 United States Navy 10” 90,934 $589,252

Rate Analysis and Alternative Rate Designs

Rate Design – Methodology

Reconstruction Fee

• MFSG developed the fee to recover 100% of future annual debt

service costs (FY 2015 issues and beyond) associated with large and small water and sewer line reconstruction

Account Maintenance Fee

• Quarterly fixed charge per account
• Designed to recover the costs of customer service, billing, meter

services and (where applicable) fire protection

Usage Rates

• Designed to capture the cost of water and sewer treatment

(chemicals), pumping (electricity / line maintenance), and other

• perating and capital costs

18

Reconstruction Fee

Reconstruction Fee

Reconstruction Fee would be set to fund the debt service expense related to water and sewer line reconstruction (both small and large diameter) beginning in FY 2015

(in thousands) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Water Reconstruction Funding Target 6,659 15,501 24,270 32,716 42,560 Sewer Reconstruction Funding Target 3,434 7,128 12,234 17,143 22,300 Total Reconstruction Fee Target Revenue $10,092 $22,628 $36,504 $49,858 $64,860 Five Year Average Target $36,789 $36,789 $36,789 $36,789 $36,789

20

Reconstruction Fee Analysis

There are several methods that can be used to collect the desired revenue, of which three were modeled by MFSG: Option A - Fixed Quarterly Charge per meter based on Actual Average GPD

• Five year Average Fee per Equivalent Meter: $11.00

Option B - Fixed Quarterly Charge per meter based on AWWA Flow Differentials

• Five year Average Fee per Equivalent Meter: $12.00

Option C - Volumetric Rate per 1,000 Gallons

• Five Year Average: $0.80 per 1,000 gallons

21

Reconstruction Fee Recommendation - Option A

22 Fixed Charge Based on Actual Average GPD Five Year Average # of Meters Revenue 5/8" $11.00 145,330 $6,394,512 3/4" 12.00 240,285 $11,260,589 1" 14.00 47,695 $2,722,819 1 1/2" - Residential 119.00 1,944 $926,687 1 1/2“ – Non-Residential 84.00 2,541 $852,846 2" 185.00 3,544 $2,616,231 3" 585.00 930 $2,177,162 4" 813.00 511 $1,659,902 6" 1,265.00 137 $692,860 10" 4,425.00 1 $17,823 Flow Meter - 4" 499.00 73 $144,663 Flow Meter - 6" 616.00 802 $1,976,042 Flow Meter - 8" 2,524.00 554 $5,591,497 Flow Meter - 10" 2,714.00 103 $1,115,177 Flow Meter - 12" 5,214.00 6 $126,008

Account Maintenance Fee

Account Maintenance Fee

Account Maintenance Fee designed to capture the costs associated with:

• Customer Service
• Billing
• Meter Replacement
• Fire Protection (if applicable)

Projected FY 2015 AMF revenue:

• $23.0 million

24 In Thousands FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Customer Service / Billing 24,605 25,835 27,127 28,483 29,908 Meter Replacement 6,344 6,661 6,994 7,344 7,711 Fire Protection 1,186 1,268 1,377 1,500 1,632 Total $32,135 $33,764 $35,498 $37,327 $39,251 Five-Year Average $35,595 $35,595 $35,595 $35,595 $35,595

Account Maintenance and Fire Protection Expenditures

Customer Service / Billing

• Finance Team: $2.1 million
• Customer Care: $21.0 million
• Logistics Team: $1.4 million

Assessed on a per account basis as a flat quarterly fee, regardless of meter size.

AMF – Cost of Service

Meter Services

• Customer Care: $4.0 million
• Logistics Team: $2.3 million

Assessed as a flat quarterly fee based

• n meter size. This fee’s differentials

are determined by the actual cost of each meter.

Fire Protection

• Allocation based on NBFU* and

Maine Formula

• Private Fire Protection: $1.0 mil

Assessed as a flat quarterly fee based

• n meter size. This fee’s differentials

are set by AWWA, based on flow

• capabilities. Only applies to FM and DC

meters.

* National Board of Fire Underwriters

Cost of Service Method of Recovery

25

AMF Analysis – Total AMF (FY 2015 - 2019)

Customer Services Meter Services Fire Protection Total Cost Current FY 2014 Fee % Change # of Meters 5/8" through 1 1/2" - Residential $14.00 $2.00

• $16.00

$11.00 45.5% 435,227 1 1/2" 14.00 10.00

• 24.00

31.00 (22.58%) 2,541 2" 14.00 13.00

• 27.00

51.00 (47.06%) 3,544 3" 14.00 52.00

• 66.00

92.00 (28.26%) 930 4" 14.00 128.00

• 142.00

145.00 (2.07%) 511 6" 14.00 140.00

• 154.00

237.00 (35.02%) 137 10" 14.00 232.00

• 246.00

458.00 (46.29%) 1 Detector Check - 2" 14.00 13.00 $6.00 33.00 53.00 (37.74%) 244 Detector Check - 4" 14.00 128.00 35.00 177.00 53.00 233.96% 59 Detector Check - 6" 14.00 140.00 101.00 255.00 73.00 249.32% 214 Detector Check - 8" 14.00 232.00 215.00 461.00 197.00 134.01% 94 Detector Check - 10" 14.00 232.00 387.00 633.00 256.00 147.27% 16 Flow Meter - 4" 14.00 133.00 35.00 182.00 145.00 25.52% 73 Flow Meter - 6" 14.00 178.00 101.00 293.00 237.00 23.63% 802 Flow Meter - 8" 14.00 223.00 215.00 452.00 379.00 19.26% 554 Flow Meter - 10" 14.00 281.00 387.00 682.00 458.00 48.91% 103 Flow Meter - 12" 14.00 350.00 625.00 989.00 458.00 115.94% 6 26

Usage Rates

Current Usage Rates

Rate Block (GPD) Current FY 2014 Combined Rate per 1,000 gallons 0 – 49 $7.01 50 – 99 8.03 100 – 149 9.14 150 – 199 10.42 200 – 249 11.69 250 – 299 12.66 300 – 349 13.46 350 – 399 14.08 400 – 449 14.49 450 – 499 14.92 500 – 749 15.21 750 – 999 15.56 1,000 - 3,000 16.08 4,000 - 6,999 16.45 7,000 - 8,999 16.67 9,000 & Greater 17.05

• Average GPD is calculated for each

customer based on total consumption divided by days in the billing period

• All consumption is billed at the cost per

1,000 gallons shown in the table based

• n the customer’s average GPD
• Fairly unique rate structure among

water utilities

28

Current Structure Observations

While WSSC’s rate structure is unique, it has several benefits over more traditional rate structures:

• By calculating rates based on GPD, billing period issues are not a
• factor. Standard inclining block rate structures are often criticized

because of the inequity of varying billing period.

• Customers are charged more per 1,000 gallons on average as their

consumption increases.

• The structure is easy to administer.
• Structure is not more punitive than typical inclining block rate
• structure. In a typical inclining block rate structure a large

customer’s consumption typically quickly reaches the highest block with limited effect of having consumption at the lower tiers.

29

Current Structure Observations

There are some drawbacks, however, for consideration:

• Users that generally consume about the same GPD, but tend to fall
• n a tier’s edge (for example, 198 GPD some months, 202 GPD
• thers) can see large fluctuations in their bill without any

perceivable changes in consumption.

• The structure may be difficult for customers to understand and

therefore may generate perceived inequity within the system.

30

Alternative Rate Designs – Usage Rates

Alternative Designs Considered: (1) Condensed Rate Structure:

• Reducing the number of GPD tiers from 16 to 8
• Attempting to minimize customer impacts as result of

structure change by mimicking current structure (2) Flat Unit Rate

• Assessing each customer the same rate per 1,000 gallons

based simply on revenue requirements divided by projected sales of water and sewer service

31

Alternative Rate Designs – Usage Rates

32 Rate Block (GPD) Updated FY 2015 Combined Rates Condensed FY 2015 Combined Rates Combined Unit Rate FY 2015 0 – 49 $7.43 $8.20 $12.97 50 – 99 8.51 100 – 149 9.69 10.00 150 – 199 11.05 200 – 249 12.39 13.03 250 – 299 13.42 300 – 349 14.27 15.00 350 – 399 14.92 400 – 449 15.36 16.02 450 – 499 15.82 500 – 749 16.12 16.77 750 – 999 16.49 1,000 - 3,000 17.04 17.72 4,000 - 6,999 17.44 7,000 - 8,999 17.67 18.37 9,000 & Greater 18.07

Recommendations and Customer Impacts

Recommendations

34

General Financial Planning

• WSSC should increase water and sewer rates and fees over the next

five years to fund the ongoing operations and maintenance of the system.

• The amount of revenue that is generated from fixed fees should be

increased to reduce the Commission’s dependency on water usage and to reduce volatility in cash flow.

Reconstruction Fee

• WSSC should implement a separate reconstruction fee to fund the

necessary capital investments in water and sewer line reconstruction.

• The reconstruction fee should be a fixed fee assessed based on average

usage by meter size

• The fixed fee should be based on five year average costs and set for a

five year period.

Recommendations

35

Account Maintenance Fee

• WSSC should adopt a cost of service based account maintenance

fee.

• The AMF should be based on the average cost of providing these

services over the next five years (allowing for a constant fee over this period).

Usage Rates

• The current usage rate structure should remain in place.
• Usage rates should be increased in FY 2015 in light of the additional

revenues generated from the reconstruction fee and AMF.

FY 2015 Recommended Rates

36 Rate Block (GPD) Combined Rate per 1,000 gallons 0 – 49 $7.33 50 – 99 8.39 100 – 149 9.54 150 – 199 10.88 200 – 249 12.21 250 – 299 13.22 300 – 349 14.06 350 – 399 14.71 400 – 449 15.14 450 – 499 15.58 500 – 749 15.89 750 – 999 16.25 1,000 - 3,000 16.79 4,000 - 6,999 17.18 7,000 - 8,999 17.41 9,000 & Greater 17.81 Meter Size AMF Reconstruction Fee Total Fixed Charge 5/8" $16.00 $11.00 $27.00 3/4" 16.00 12.00 28.00 1" 16.00 14.00 30.00 1 1/2" - Residential 16.00 119.00 135.00 1 1/2" 24.00 84.00 108.00 2" 27.00 185.00 212.00 3" 66.00 585.00 651.00 4" 142.00 813.00 955.00 6" 154.00 1,265.00 1,419.00 10" 246.00 4,425.00 4,671.00 Detector Check - 2" 33.00

• 33.00

Detector Check - 4" 177.00

• 177.00

Detector Check - 6" 255.00

• 255.00

Detector Check - 8" 461.00

• 461.00

Detector Check - 10" 633.00

• 633.00

Flow Meter - 4" 182.00 499.00 681.00 Flow Meter - 6" 293.00 616.00 909.00 Flow Meter - 8" 452.00 2,524.00 2,976.00 Flow Meter - 10" 682.00 2,714.00 3,396.00 Flow Meter - 12" 989.00 5,214.00 6,203.00

Projected Revenues - FY 2015 through FY 2019

37 In Thousands FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 AMF Revenue 35,498 35,498 35,498 35,498 35,498 Reconstruction Fee Revenue 36,789 36,789 36,789 36,789 36,789 Usage Rate Revenue 581,020 619,310 667,741 717,193 761,901 Total $653,307 $691,597 $740,028 $789,480 $834,188 % of Revenues Fixed 11% 10% 10% 9% 9% % of Revenues Variable 89% 90% 90% 91% 91%

Customer Impacts - Residential Customers

38 Meter Size Quarterly Consumption (gallons) Current FY 2014 Quarterly Bill Recommended FY2015 Quarterly Bill $ Change per Quarter 5/8” 3,000 $32.03 $48.98 $16.95 5/8” 5,000 $51.15 $68.94 $17.79 5/8” 13,000 $129.82 $151.08 $21.26 5/8” 20,000 $244.80 $271.22 $26.42 5/8” 30,000 $414.80 $448.77 $33.97 5/8” 40,000 $590.60 $632.44 $41.84 5/8” 50,000 $361.50 $393.28 $31.78 5/8” 60,000 $431.60 $466.53 $34.93

Customer Impacts - Commercial Customers

39 Meter Size Quarterly Consumption (gallons) Current FY 2014 Quarterly Bill Recommended FY2015 Quarterly Bill $ Change per Quarter 1 ½” 5,000 $89.45 $169.33 $79.88 1 ½” 10,000 $122.40 $203.73 $81.33 1 ½” 20,000 $300.20 $389.46 $89.26 1 ½” 30,000 $487.30 $584.90 $97.60 1 ½” 40,000 $674.20 $780.03 $105.83 1 ½” 50,000 $704.00 $811.23 $107.23 1 ½” 100,000 $732.00 $840.84 $108.84 1 ½” 250,000 $1,783.50 $1,939.67 $156.17

Residential Quarterly Bill 5/8” Meter - Average 45 gallons per day

(Rate Tier: 0 - 49 gallons per day)*

40

*7.4% of residential customers fall into this tier

$39 $41 $45 $48 $51 $55 $56 $58 $61 $64 $66 $0 $10 $20 $30 $40 $50 $60 $70 Current Bill FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Current Rates and Account Maintenance Fee (Status Quo) Recommended Rates, Account Maintenance Fee and Reconstruction Fee

Residential Quarterly Bill 5/8” Meter - Average 100 gallons per day

(Rate Tier: 100 - 149 gallons per day)*

41

*25.2% of residential customers fall into this tier

$93 $98 $110 $119 $129 $139 $113 $119 $127 $135 $142 $0 $20 $40 $60 $80 $100 $120 $140 $160 Current Bill FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Current Rates and Account Maintenance Fee (Status Quo) Recommended Rates, Account Maintenance Fee and Reconstruction Fee

Residential Quarterly Bill 5/8” Meter - Average 150 gallons per day

(Rate Tier: 150 - 199 gallons per day)*

42

*19.3% of residential customers fall into this tier

$152 $160 $180 $195 $213 $229 $175 $185 $198 $212 $225 $0 $50 $100 $150 $200 $250 Current Bill FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Current Rates and Account Maintenance Fee (Status Quo) Recommended Rates, Account Maintenance Fee and Reconstruction Fee

Commercial Quarterly Bill 1” Meter - Average 445 gallons per day

(Rate Tier: 400 -449 gallons per day)*

43

*2.1% of commercial customers fall into this tier

$591 $627 $706 $772 $844 $912 $636 $677 $733 $790 $844 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 Current Bill FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Current Rates and Account Maintenance Fee (Status Quo) Recommended Rates, Account Maintenance Fee and Reconstruction Fee

Commercial Quarterly Bill 1 1/2” Meter - Average 1,200 gallons per day

(Rate Tier: 1,000 - 3,999 gallons per day)*

44

*16.9% of commercial customers fall into this tier

$1,748 $1,856 $2,093 $2,289 $2,504 $2,709 $1,922 $2,046 $2,213 $2,386 $2,545

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Current Bill FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Current Rates and Account Maintenance Fee (Status Quo) Recommended Rates, Account Maintenance Fee and Reconstruction Fee