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City Of Phoenix Water Rates June 30, 2011

City Of Phoenix Water Rates June 30, 2011. Denise Olson Deputy Finance Director Finance Department. Agenda. City of Phoenix Water System Overview Legal Requirements & Industry Standards Rate Setting Process Reasons for Last Rate Increase Water Rates Rate Comparisons.

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City Of Phoenix Water Rates June 30, 2011

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  1. City Of PhoenixWater RatesJune 30, 2011 Denise Olson Deputy Finance Director Finance Department

  2. Agenda • City of Phoenix Water System Overview • Legal Requirements & Industry Standards • Rate Setting Process • Reasons for Last Rate Increase • Water Rates • Rate Comparisons

  3. Phoenix Water Services Background • Service Area: 540 square miles • System Includes: 6 treatment plants 7,000 miles of water mains 21 active wells 109 water pump stations 53,000 fire hydrants • Fiscal Year 2011-12 Budget: $411 million • Number of positions (2010-11): 803 • Net Assets FY 2010 = 1.2 billion • AAA Bond Rating

  4. Distribution of Water Accounts by Major User Groups FY 2010 Multi-Family 4% Single-Family 88% Non-Residential 8% Accounts 403,000

  5. Distribution of Water Consumption by Major User Groups FY 2010 Multi-Family 15% Single-Family 51% Non-Residential 34% Consumption 119,411,848 ccf 1 ccf equals 748 gallons

  6. Water & Wastewater Annual Budgeted Expenditures Debt Service 25% Pay as you Go Capital 27% Personnel 17% Chemicals, Water & Electricity 15% Materials, Supplies, & Outside Services 16%

  7. Legal and Industry Standards • “Just and Reasonable” per ARS - Cost of Service Based • Federal Equal Protection Regulations - equity • Cost Recovery per Phoenix City Code • Revenue Stability • Cost of Providing Service Using Industry Standards (AWWA M1) • Rates Approved Through The Public Process per ARS

  8. Public Notice Requirementsper ARS title 9, ch 5, art 2, sec 9-511.01 & 9-499.15

  9. Phoenix Annual Rate Development Process Develop 10-Year CIP & (2 year) O&M Budget Develop Revenue Estimates Prepare Financial Plan Determine Rate Increase Necessary to Support Financial Plan City Council Approves 5-Year CIP and Financial Plan City Council Authorizes First Year Rate Increase and Bond Authorizations

  10. Methods to Determine Required Revenues

  11. FACTORS IMPACTING ADDITIONAL RATE REVENUE • Debt payments for $1 billion in capital improvement projects for bonds issued in the last five years. • $200 million construction expenses required to comply with the Federally mandated Safe Drinking Water Act. • $15 million additional operational costs associated with Safe Drinking Water Act compliance. • Continued maintenance and replacement of an aging infrastructure. • And continued implementation of cost saving programs like the automatic meter reading equipment.

  12. PROJECTED WATER RATE INCREASES

  13. Questions and Discussion

  14. Water Fund Available Cash/Liquidity as Compared to Debt Service (With March 2011 Increase) FISCAL YEAR Available Cash/Liquidity Debt Service Assumes all future increases after March 2011 implemented and no change in expenditures. Financial policy is for available fund balances to equal, at a minimum, total debt service. Higher liquidity is required if debt service coverages are below recommended levels as is the case through 2015.

  15. Water Fund Available Cash/Liquidity as Compared to Debt Service(No Increase in March 2011) FISCAL YEAR Available Cash/Liquidity Debt Service Assumes all future increases after March 2011 implemented and no change in expenditures. Financial policy is for available fund balances to equal, at a minimum, total debt service. Higher liquidity is required if debt service coverages are below recommended levels.

  16. Standard & Poors: Phoenix, Arizona; Water/Sewer assigns AAA Rating and Stable - April 4, 2009 • The stable outlook reflects our expectation that the systems’ strong financial performance will continue as the city implements its large CIP and regular annual rate increases. • The water system has a consistent history of city-approved rate increases, having implemented 19 rate increases in the last 20 years.

  17. Water Base Charge • Covers the cost to read the meter, bill and support the customer and maintain the meter • Charge varies by meter size • Includes 6 ccf of water in winter months and 10 ccf in summer months. (Lifeline) Rates effective April 1, 2011

  18. Water Volume Charge • Raw Water Costs • All Other Costs to Treat and Deliver Water • Rate based on Seasonality of costs Rates effective April 1, 2011

  19. Water Environmental Charge • Environmental Charge Environmental Costs to Treat and Deliver Water • Charged to total consumption Rates effective April 1, 2011

  20. WATER & WASTEWATER RATE COMPARISONSCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL20 LARGEST U.S. CITIES $/MONTH $58.46 $56.25 Water Wastewater Based on rates in effect October 1, 2010

  21. WATER & WASTEWATER RATE COMPARISONSCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILLSOUTHWEST REGION $/MONTH Water Wastewater Based on rates in effect October 1, 2010

  22. WATER & WASTEWATER RATE COMPARISONSCOMBINED AVERAGE SINGLE-FAMILY MONTHLY BILLPHOENIX METRO AREA $/MONTH $105.99 $66.27 $60.88 $58.46 $58.28 $56.48 $56.25 $54.52 $46.39 Water Wastewater Based on rates in effect October 1, 2010

  23. Proforma 7% rate increase

  24. Objectives of Current Rate Structure • Understandable • Simpler to forecast revenues • Flattens peaks in Summer • Includes essential lifeline water demands • Stable monthly water bill for low volume users • Equitable by the fact that each customer pays same rate for water • Provides an incentive for all customers to conserve

  25. Why Seasonal Rates • System capacity is designed to meet peak demands • Peak Demand in Phoenix is in Summer Months • Rate structure focuses on degree of variability in usage between seasons • Provide a price signal to the consumer during the peak period • Encourage efficient use of water system

  26. PROJECTED WASTEWATER RATE INCREASES

  27. Costs of Service Allocation Environmental Model Cost of Service Rate Model Environmental • Customer Services • Base Charge Meter Maintenance • Raw Water • Treatment • Volume Charge • Distribution • Base costs to meet average usage • Extra costs to meet max day and max hour usage (Summer) • Environmental Charge

  28. Why No Customer Classes • Rates should allocate peak costs based on a customer’s contribution to that peak water demand • Customer classes are not the only method to fairly allocate peaking costs • City of Phoenix data shows that peaking characteristics do not vary materially among customer classes • Seasonal structure results in fairer and more equitable rates

  29. Rates Compared to Billed ccfs Volume Charge per Month $ Monthly Billable Units CCfs

  30. Water & Wastewater Annual Budgeted Expenditures $761 Million Debt Service 25% Pay as you Go Capital 27% Personnel 17% Chemicals, Water & Electricity 15% Materials, Supplies, & Outside Services 16%

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