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Water and Sewer Rate Study Revenue Requirements and Rates Workshop April 18, 2012

King George County Service Authority. Water and Sewer Rate Study Revenue Requirements and Rates Workshop April 18, 2012. Contents. Objectives Revenue Requirements Rate Projections Recommendations. 2. Objectives - Why Review Water and Sewer Rates?.

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Water and Sewer Rate Study Revenue Requirements and Rates Workshop April 18, 2012

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  1. King George County Service Authority Water and Sewer Rate Study Revenue Requirements and Rates Workshop April 18, 2012

  2. Contents • Objectives • Revenue Requirements • Rate Projections • Recommendations 2

  3. Objectives - Why Review Water and Sewer Rates? • To ensure that rates and fees are stable through sound financial management at a level that fully recovers the costs of providing services and appropriately allocates costs to customers. • To Meet Objective: • Review current water and sewer rate structures and revenue adequacy • Design and analyze an alternative three tiered water structure as well as a cap on non-winter sewer use. • Tier 1: Small Users • Tier 2: Average Users • Tier 3: Excessive Users • Separate costs between user rates and capital fees (availability fees) to ensure the proper cost allocation

  4. Revenue Requirements 4

  5. O&M Expenses – Future Forecasts • Escalation factors for projecting future expenses based on the following: • Actual FY 2010-2011 customer information • Most recent full fiscal year of information • Budgeted FY 2011-2012 O&M Expenses • Actual existing debt schedule • County’s 5 year CIP • Personnel expenses projected based on a combination of indices. • Current assumption is 3% increase per year throughout the projection period

  6. Operating and Maintenance Expenses Current FY2011-2012 Operating and Maintenance Budget Total Budget = $2.96 million

  7. O&M Expenses Forecast

  8. Existing Debt Service Payments (in millions)

  9. Capital Improvement Projects – Water Fund • Projects are funded by a combination of cash, borrowing and availability fees

  10. Capital Improvement Projects – Sewer Fund • Projects are funded by a combination of cash, borrowing and availability fees

  11. Operating & Maintenance Reserve • Serves as working capital. • Industry Practice is to maintain 90 days of annual operating expenses for fund (25% of annual O&M) - typically required by Virginia SCC for investor-owned utilities. • Current Cash and Cash equivalents exceeds the target balance for the entire planning period in each fund, so no further contribution is currently recommended for either the water or sewer operating reserve.

  12. Repair, Replacement & Rehabilitation Reserve (“3R”) • What Should We Spend? • Book Value • Estimated useful life and approximate age • What Are We Spending? • Repair and replacement projects from the capital budget • What is the Required Contribution to Make Up the Difference? • Difference between annual spending and annual required reinvestment • Revenue raised through current user fees, not future borrowing 12

  13. Repair, Replacement & Rehabilitation Reserve (“3R”) - Preliminary Results 13

  14. Revenue Requirements – Water Fund Numbers may not add due to rounding.

  15. Revenue Requirements – Sewer Fund Numbers may not add due to rounding.

  16. Financial Conditions with Current Rates FY12 and FY13 numbers include the budgeted rate increases: 5% water, 10% sewer Numbers may not add due to rounding.

  17. Revenue Requirement Conclusions • Current Water Fund User charges recover costs associated with current expenditures, but will need adjustment in the coming years in order to maintain a self-funding water system. • Average residential water use (year round) ~ 5,000 gallons per month • About 90% of residential water bills are for less than 10,000 gallons per month • Current Sewer Fund User charges do not recover costs associated with current expenditures. Significant revenue adjustments will be necessary in the coming years in order to maintain a self-funding sewer system. • Average residential user’s summer water use is about 30% higher than winter usage.

  18. Financial Plan and Rate Recommendation Numbers may not add due to rounding.

  19. Financial Plan and Rate Recommendation Numbers may not add due to rounding.

  20. Sample Bills • Average User High User, Peak User Average Commercial

  21. Summary and Recommendations • Recommended Water Revenue Increase and Rates • Recommended Sewer Revenue Increase and Rates

  22. Benchmarking Monthly Water and Sewer Cost, Residential User, 5/8” Meter, 6,000 Gallons Average = $73

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