HomeMy WebLinkAboutDocumentation_Regular_Tab 25_04/10/2008Village of Tequesta
FINANCIAL FORECAST
AND REVENUE SUFFICIENCY ANALYSIS
Ap ri 110, 2008
-~
(~ Public Resources Management Group, Inc.
Utility, Rate, Financial and Management Consultants
Presentation Agenda
• Purpose of Report
• Financial Forecast Overview
• Rate Recommendations and Comparables
~:~ Overall Observations and Conclusions
2
Purpose of Analysis
• Identify Sufficiency of Existing Rates to Fund Expenditures
• Identify Ability of System Revenues To:
Meet Daily Operating Expenses
Finance Future Capital Improvement Plan
Fund Debt Payments and Meet Bond Covenants
Produce Ongoing Net Revenue Margins (positive cash flow)
• Forecast Developed for Ongoing Strategic Planning Purposes
3
Purpose of Analysis
• Identify Rate Adjustments/Trends
Develop Rates That Fully Recover Costs
Correct Rate Inconsistencies
Promote Rate Stability
4
r~
'~'
`~~ ~ Flnanclal Forecast Overview
• Last Financial Review by PRMG was in Fiscal Year 2005
• Financial Plan Covered a 5-year Period
Financial Forecast Period FY 2008 - 2012
Based on Fiscal Year 2008 Adopted Budget
• Recognized Existing System Conditions
Service Territory/Customer Base
Reduced Water Sales Due to Drought/Water Restrictions
Existing Rates for Service
5
Significant Events Affecting
Utility System Since Last Forecast
• Successful Implementation of the Bulk Service Agreement with
Jupiter Island and Purchase of the Rolling Hills Portion of the
Service Area (Approved June 10, 2004)
Represents $102,000 In Revenues
2.75% of Total System Revenues
• Successfully Implementation of Assessment Program with Martin
County Establishing the Tropic Vista MSBU
Transaction Occurred July 12, 2004
Assessment to Finance cost of Distribution Improvements
Resulting in 108 Additional Connections to the Village
Assessments Continue through 2024
6
Significant Events Affecting
tility System Since Last Forecast (cont'd.)
• Jupiter Bulk Water Agreement Ended June 2007
Reduction of 1.35 MGD of Water Purchase
Added 1.20 MGD of Water Capacity (RO Train No. 2)
100% Self Sufficient for Water Supply
Maintain Interconnect For Emergency Water Supply Events
• Water Restriction imposed by South Florida Water Management
District ("SFWMD") -April 2007
19.92% Drop In Water Consumption vs. FY 2005 and 2006
11.84% Drop In Water Revenues vs. FY 2005 and 2006
Reductions Assumed to be Permanent
7
f Significant Events Affecting
tility System Since Last Forecast (cont'd.)
• Alternative Water Supply Initiatives
Requires greater production from R.O. Vs. Filtration
Increase Cost of Power and Chemicals
• Planned Construction of Third R.O. Water Treatment Plant Train
1.20 MGD Train
Project Cost of $2,770,000
s
Monthly Water Production
0
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O Monthly Water Production Average Monthly Water Production 9
Y Major Assumptions -Customer Statistics
• Utility Service Area:
Currently Serves Approximately
• 4,909 customers
• 8, 397 E RCs
Approaching Built-out Condition - <0.5% Annual
Growth Rate
• Typical Average Residential Monthly Water Use
Single-Family Residential - 10,500 Gallons
Single-Family and Multi-Family - 7,500 Gallons
10
~~ r
`~~ ~ Ma'or Assum tions - CI P contd.
,~ J p
,,
• Significant Capital Improvement Program Identified -
$6, 353, 200
Renewals and Replacements
Facility Expansions (RO Plant)
• Significant Projects Include:
RO Train No. 3
RO Reject Modification -
Consent Order Resolution
Water Main Replacements
RO Membrane Replacement
Continued Other R&R Projects
Amount
$2, 770, 000
$1,320,000
$840, 000
$175, 000
$250,000
Year
2008-2010
2008/2009
2008-2012
2011
Annually
11
a Major Assumptions - CIP (cont'd.)
• Assumed Funding Program
Five-Year Capital Improvement Program
Amount Percent
Total Capital Program
Assumed Funding Source:
Available Operating Reserves
Operating Revenues
Future Debt
Renewal and Replacement Fund
Total Capital Funding
$6,353,200 100.00%
$1,470,000 23.14%
103,000 1.62%
2,500,000 39.35%
2,280,200 35.89%
$6,353,200 100.00%
12
Major Assumptions - CIP (cont'd.)
• Renewal & Replacement Fund
Required Through Bond Resolution
Dedicated Fund For Required Capital Improvements
Required - 5% Prior Year Gross Revenue
Target - 10% Prior Year Gross Revenue
• Transition to Pay-As-You Go Capital Funding
• $400,000 Annual Amount
13
Major Assumptions - CIP (cont'd.)
• Future Bonds -Assumed Issued October 1, 2008
Fund R.O. Treatment Plant Expansion (Train No. 3)
$2,625,000 Principal Amount
20 Year Term, 4.5% Interest Rate
Annual Debt Service Payment - $201,000
• Forecast Assumes No Future Grant Funds
14
Major Assumptions -Revenue/
Expense Projections
• Permanent Reduction in Average Consumption Assumed
Throughout the Forecast
• Less than 0.5% Customer Growth
• Rates Assume Annual Price Index Adjustment -Average
2.5% For FY 2010-2012
• Labor Cost Escalated
Reflects COLA Adjustments
No New Personnel
15
Major Assumptions -Revenue/
Expense Projections (cont'd.)
• Purchase Power and Chemicals
Reflects Reduction for Reduced Flows in First Year
Adjusted for Anticipated Flow Changes and Inflation
Alternative Water Supply Increase (More R.O. Vs. Filtration)
• Approximately $55,000 Annually
• Continued Inflation on General Operating Expenses
• Recognize 3.5% Contingency Allowance
• Maintain Working Capital at Minimum of 60 Days
16
9
Adequacy of Existing Rates
Revenues
Expenses
Other Revenue Requirements
Total Revenue Requirements
Rate Revenue Surplus/ (Deficiency)
Amount
Percent Surplus
Percent (Deficiency)
Adjustment Recognized in Forecast
Months Rate Adjustment In Effect
Percent Recognized
Surplus / (Deficiency) After Rate Adjustments
Projected Operating Results Ending September 30,
2008 2009 2010 2011 2012
$3,479,205
$2,620,051
$3,468,275
$2,803,213
$4,224,579
$2,943,637
$4,339,979
$3,089,411
$4,443,905
$3,243,748
1,001,013 1,324,889 1,116,604 1,220,065 1,199,693
$3,621,064 $4,128,102 $4,060,240 $4,309,476 $4,443,441
($141,859) ($659,827) $164,339 $30,503 $464
0.00% 0.00% 3.89% 0.70% 0.01
-4.31% -?0.00% 0.00% 0.00% 0.00%
0.00% -20.00% 0.00% 0.00% 0.00%
0 12 12 12 12
0% 100% 100% 100% 100%
($141,859) $0 $164,339 $30,503 $464
17
Rate Increase
• Proactive /Corrective Measure
• Recover "Lost Revenue" From Reduction in Water Sales
Assumed to Be Permanent
• Additional Debt Service Associated with Financing R.O. Plant
Expansion
• Operating Expenses Rising Faster Than Revenues -Reduced
Margins
• Village Last Significant Rate Adjustment Other than Indexing 10
Years Ago
18
Rate Increase (cont'd.)
• Proposed Rates are Competitive with Neighboring
Communities
• Other Neighboring Utilities Increasing Rates or Considering
Increasing Rates
West Palm- 48%
Cooper City - 7.5%
Davie - 88% (2 Phases)
Sunrise - 3.5%
Riviera Beach
Jupiter
Riviera Beach
Seacoast Utility Authority - 13%
Palm Springs
Oakland Park
Ft. Lauderdale
Plantation - 30% estimated
Hallandale Beach
Stuart - 11% estimated
Jupiter Island (Drought Surcharge 38%
on Flow Above lst Block)
19
Debt Service Coverage
Village of Tequesta
Debt Service Coverage -All Debt Issued
800, 000
700, 000
600, 000
500, 000
a 400, 000
~ 300, 000
c
c
a 200, 000
100, 000
3.00
2.50
2
00
.
1.50 ~,
~o
1.00 d
0.50
o Annual Debt Service Payment -+-Senior Lien Minimum Coverage
-~~Calculated Coverage
20
2008 2009 2010 2011 2012
Fiscal Year
fi
'~J ~
Water Rate Design
• Objective:
Recover the Total Revenue Requirements (Full Cost Recovery)
Provide Revenue Stability
Further Promote Water Conservation
Correct Rate Inconsistencies
• Current Monthly Base Service Charges Vary By Meter Size
•:~ Propose Same Monthly Base Service Charges Regardless of
Meter Size For Individually Metered (SF) Residential
Recognize Homogenous Nature of Single Family Class
All Customers Pay Same Conservation Block Structure
Higher Water Users Pay Higher Cost as Consumption Increases
21
a
Water Rate Design (cont'd.)
• Proposed Rates Recover Larger Percentage of Cost Recovery
through Monthly Base Charges;
Provides Revenue Stability
• Recommend Change to Village's Existing Consumption Block
Structure
Further Promotes Water Conservation
Addresses General Water Use Guidelines of Water Management
District
Comparable to Other Utilities Rate Structure
22
9
Water Rate Design (cont'd.)
Existing Block Structure
Block 1 (0 to 12,000 Gallons)
Block 2 (12,001 to 25,000 Gallons)
Block 3 (25,001 to 40,000 Gallons)
Block 4 (Above 40,000 Gallons)
Proposed Block Structure
Block 1 (0 to 6,000 Gallons)
Block 2 (6,001 to 12,000 Gallons)
Block 3 (12,001 to 25,000 Gallons)
Block 4 (Above 25,000 Gallons)
• Multi-Family Class Block Structure Varies by Number of Units
• Commercial/Government Class Varies by Meter Size
• Water Consumption Block Application Methodology for Other
Customers Remains Unchanged
23
Proposed Water Rates
Existing Proposed
Rates Rates
Monthly Service Charges (Inside Village)
Individually Metered Residential
5/8 -inch $11.72 $14.50
3/4 -inch 11.72 14.50
1 -inch 29.28 14.50
1 1/2 -inch 58.69 14.50
2 -inch 93.71 14.50
Multi-Family
Per Unit $11.72 $14.50
Commercial/Government
5/8 -inch $11.72 $14.50
3/4 -inch 11.72 14.50
1 -inch 29.28 36.25
1 1/2 -inch 58.69 72.50
2 -inch 93.71 116.00
3 -inch 175.72 217.50
4 -inch 292.84 362.50
6 -inch 585.71 725.00
* An Outside Village Surcharge of 25% is applied to all customers
located in Unincorporated areas.
24
Proposed Water Rates (cont'd.)
Existing
Proposed
Rates Rates
Consumption Charge (Inside Village)
Existing
Block 1 (0 to 12,000 Gallons)
Block 2 (12,001 to 25,000 Gallons)
Block 3 (25,001 to 40,000 Gallons)
Block 4 (Above 40,000 Gallons)
Proposed
Block 1 (0 to 6,000 Gallons)
Block 2 (6,001 to 12,000 Gallons)
Block 3 (12,001 to 25,000 Gallons)
Block 4 (Above 25,000 Gallons)
* An Outside Village Surcharge of 25% is applied to all customers
located in Unincorporated areas.
$1.86
3.12
4.25
5.45
$1.95
2.54
3.90
5.66
25
Single Family Residential
Customer Impact
Existing Rates
Monthly Use Total
(gal) Bill
0 $11.72
1,000 13.58
2,000 15.44
3,000 17.30
4,000 19.16
5,000 21.02
6,000 22.88
7,000 24.74
8,000 26.60
9,000 28.46
10,000 30.32
15,000 43.40
20,000 59.00
30,000 101.50
40,000 144.00
Proposed Rates
Total Change In Monthly Bill
Bill Amount
$14.50 $2.78 24%
16.45 2.87 21%
18.40 2.96 19%
20.35 3.05 18%
22.30 3.14 16%
24.25 3.23 15%
26.20 3.32 15%
28.74 4.00 16%
31.28 4.68 18%
33.82 5.36 19%
36.36 6.04 20%
53.14 9.74 22%
72.64 13.64 23
129.24 27.74 27%
185.84 41.84 29%
26
Rate Comparison for 5/8 inch Residential
a
Customer at 10,000 Gallons Per Month
$60.00
$50.00
$x0.00
$30.00
$20.00
$10.00
Q
~I
$0.00 `~~
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~~ Water Monthly Bill
D Adopted /Proposed Rate Increases -Other Utilites Average Bill
27
(*) Utilities: i) are involved in a rate study; ii) are planning to conduct a rate study; or iii) will implement rate revisions within twelve months.
Annual Indexing Adjustment
• Village Current Methodology:
Annual Adjustment for Inflation (Change In May CPI for the
Southeastern Region)
Only Applies to Operating Expenses
• Recommend Index Methodology:
Apply the Change in Inflation to the Village's Entire Rate
Better Recognition of Inflationary Pressures on Capital Funding and
Renewal and Replacement Requirements
Simple to Administer
Most Common Approach Used By Public Utilities
28
Observations and Conclusions
• Village Experiencing a Significant Decline in Water
Consumption and Revenues as a Result of Water
Restrictions Imposed By SFWMD
Reductions Assumed to Be Permanent
• Village Approaching Build-Out
Revenue Growth Less Than 0.5 Percent
Operating Cost Assumed to Increase Approximately
5.5%
Results in Declining Margins
29
9 Observations and Conclusions (cont'd.)
• Village has Identified Approximately 6,353,200 in Capital Projects
Renewals and Replacements and R.O. Plant Expansions
Assumed the Need for Issuance of Additional Debt
• Bank Qualified Loan
May be Financial Benefit to Refunding Existing Bonds
• Will Evaluate Restructuring in the Future
• Village's Existing Water Rates are projected to not be sufficient to
adequately recover the cost of service over the Forecast Period
(FY 2008-2012)
• Village should consider adoption of the Proposed Water Rates No
Later than Effective October 1, 2008 (Earlier Date Preferred)
Proactive Measure to Maintain Financial Sufficiency/Stability
30
a Observations and Conclusions (cont'd.)
• Village Will Need to Continue to Annually Index Water Rates in
Fiscal Years 2010 through 2012 to Maintain Revenue Margins
• Proposed Rates will Remain Competitive with Region Over
Time
• Proposed Rates and Anticipated Indexed Rates Should Be
Adequate to Meet the Rate Covenant Requirements of the
Village's Bond Resolution
• The Village Should Revise the Existing Annual Index Rate
Adjustment Methodology
• Update Financial Forecast at Least Every Two Years
31
Questions and Comments
32