Water and Wastewater System Planning for Small and Medium Utilities

1. Water and Wastewater System Planning for Small and Medium Utilities Using Prudent Utility Management Practices Florida Rural Water Association

2. Planning Covers a very wide range of Utility Functions • Identification of Utility Management Functions • Identify the special problems faced by Small and Medium Utilities • Describe the Planning Function • Identify the Critical Plans for Effective Utility Management • Review the Components of Cost of Service Ratemaking • Identify Special Florida Planning Issues • Identify Specific Utility Plans that Minimize Costs, Protect Revenue, and Ensure Maximum Facility Life Florida Rural Water Association

3. Basic Utility Management Responsibilities • Planning • Organizing • Staffing • Directing • Monitoring and Controlling Florida Rural Water Association

4. Planning is the Most Critical of the Utility Management Tasks Florida Rural Water Association

5. Planning addresses the Serious Issues faced by Small and Medium Utility Systems • Insufficient Revenues • Aging Infrastructure • Difficulties in Obtaining Financial Assistance • Lack of Economy of Scale • Limited In-house Management Capabilities • New Regulatory Requirements • Uncertain Financial Stability because of the lack of Long-Term Utility Planning Florida Rural Water Association

6. Some Reasons for Insufficient Utility Revenues • Increases in Chemical and Energy costs • Increases in Equipment Maintenance costs • Politics and difficulties in Raising Rates • Conflicting Priorities for use of Utility Funds • No Reserve Funds for needed W/WW improvements Florida Rural Water Association

7. Problems with Aging Infrastructure • Antiquated Infrastructure and Facilities • Facilities are inadequate to meet current or pending Regulations • Useful age of facilities is exceeded • Environmental Pressures, i.e. contamination from septic tanks, water quality degradation due to droughts and increasing populations densities, water access restrictions, etc. Florida Rural Water Association

8. Difficulties in Obtaining Financial Assistance for Utility Projects • Treatment optimization is not a fundable component in any loan or grant program. • Demands for CIPs exceed SRF availability • RD grants cover only poverty income designations • Loans Applications are often Intimidating, confusing and include cumbersome Paperwork requirements • Loan payments often mean significant rate increases for distressed customer base • $100,000 is commonly the Threshold for Cost Effectiveness removing critical improvements from consideration Florida Rural Water Association

9. Economies of Scale are Lacking for Small W/WW Systems • Smaller Customer Base to spread costs • Cost per household are typically already higher than larger systems • Smaller Systems are more likely to be under-funded • Small systems lack financial, managerial and technical capabilities as compared to the capabilities of larger utility systems Florida Rural Water Association

10. Limitations in Management Capabilities for Small and Medium Sized Utility Systems • Management of Small Systems is performed by a few individuals with limited OJT experience • Systems are have difficulty documenting and evaluating the needs for improvements • Small systems have difficultly operating or maintaining sophisticated equipment or systems • Management of infrastructure improvements is either ad hoc or “part-time” • Understanding of System Requirements and Regulatory Compliance is generally inadequate Florida Rural Water Association

11. Difficulty with Regulatory Compliance Issues • Regulations are Burdensome • Regulations are Difficult to Understand • Regulations are increasingly stringent and complicated • System Facilities often are not Adequate to meet Regulations • Uncertain Future Regulations Exacerbate Problems Florida Rural Water Association

12. Lack of Long-Term Planning • Typically Long-Term Planning is neglected • Future impacts of demographic changes are not known or their affects are not identified • Lack of Long-Term Planning often is the cause of regulatory non-compliance • Most systems bogged down coping with current issues (putting out fires) • Pending Regulations are often not known Florida Rural Water Association

13. Capabilities of System Operators • Regulations are often Confusing • How Regulations apply to operated Facilities are not Clear • Operator training did not include newer technologies • Succession Planning for current system operation does not exist and often there is no backup • Often there are changes in operating services or personnel based on unforeseen conditions • There are few opportunities to upgrade operator training • Labor shortages in coverage and in backup exist Florida Rural Water Association

14. Some Very Recent Examples of Regulatory Changes • Disinfection By-Products Rule (TTHM and HAA5 compliance) • New IDSE Requirements • Biological Compliance Testing and CT Calculations • Groundwater Rule • Total Coliform Rule • Future Arsenic and Fluoride requirements Florida Rural Water Association

15. Planning for Small and Medium Utilities “In preparing for battle I have found that plans are useless but planning is indispensable.” Dwight D. Eisenhower Florida Rural Water Association

16. Components of System Planning • Establishing Goals and Objectives • Collecting and Evaluating Pertinent Information • Identifying and Setting Priorities • Identifying and Comparing options and alternatives • Devising both short-term and long-term strategies • Developing Contingency Plans • Preparing Budgets, Developing Policies and Procedures to achieve Planning Goals Florida Rural Water Association

17. Present Resources Budget (Monies) Human Resources (Staff) Assets (Facilities and Equip.) Future Resources Financial Capability Facility Rehabilitation and Replacement New Facility Needs Staffing Utility Planning Concerns Florida Rural Water Association

18. Types of Plans Covered in this Presentation • Organizational Plan • Financial Plan • Operation and Maintenance Plan (O&M Budget) • Asset Management Plan • Capital Improvements Plan (CIP) • Financing Plan • Personal Services Plan • Preventative Management and Energy Management Plan Florida Rural Water Association

19. Organizational Plans Florida Rural Water Association

20. The Organizational PlanPrimary Plan of an Organization Defines organization’s structure, the system of activities, authority relationships and provides the linkage for effective collaborative planning. • Establishes Unity of Command • Identifies Clear Lines of Authority • Defines the Divisions of Labor • Identifies Employee and Group Responsibilities • Identifies Formal Lines of Communications Florida Rural Water Association

21. Financial Plans Florida Rural Water Association

22. The Components of Financial Planning • Revenue Forecasting • Rate Planning based on the Cost of Providing Services (Cost of Service Study) • Borrowing Plans such as Bonds and Short Term Securities • Cost and Performance Tracking - Operating Budget - Personal Services Budget - Capital Improvement Plan • Financial Plan Maintenance • Asset Management Plan • Water Conservation Plan Comfort Zone: Performing tasks in areas where we have experience and knowledge that provides obstacle to effective utility management. Florida Rural Water Association

23. Rate Planning Florida Rural Water Association

24. Typical Cost Components Funded by Utility Rates Govt. Transfers Florida Rural Water Association

25. Operating Revenues Water sales Connection Fees Impact Fees Late payments Reconnection fees Non-Operating Revenues Interest on checking acct. Interest on reserve acct. Equity Buy-In fees Capital Recovery Fees Sources of Revenues for a Water System Florida Rural Water Association

26. Major Sources of Utility Revenue are Rates and Connection Fees Operating Revues Non-Operating Revenues Water Rates (Typically Recover all other Costs) Connection Fees (Typically Recover Cost of WTP) Florida Rural Water Association

27. Objectives of a Rate Analysis • Identifies Current and Future Cost Variables • Uses Most Current Utility Information • Sets Upfront Reasonable Objectives • Uses AWWA Methodology and GAAP Standards • Sets Water Revenue meeting current requlatory Requirements • Identifies Operating , Debt Service and Replacement Fund Requirements • Sets sustainable Capacity Charges and Service Fees • Provides Utility with Statistical Performance information for gauging success Florida Rural Water Association

28. FRWA Comprehensive Rate Analysis & Rate Design • Water Systems are evaluated in Technical, Managerial and Financial Areas • Water Rates are Analyzed using FRWA Model • This provides cost coverage, repairs, equity to customers, CIP needs, population analysis and needs for grants and loans • Capital Needs are Analyzed using DWSFR USF Methodology to build replacement and annual annuity analysis building basic “asset management” program • FRWA assists utility in obtaining needed funds FRWA Provides Assistance to Utility Boards in Developing Prudent Long-Term Capital Program Florida Rural Water Association

29. Setting Water Rates (AWWA M1) • Determine the full cost of doing business by calculating your costs. • Determine your current revenues. • Consider your reserve requirements to ensure you have enough funds to cover your asset rehabilitation and repair costs as well as unexpected costs during the next 5 years. • Calculate how much money you need to collect from customer charges to cover your costs and fully fund your reserve account. • Evaluate appropriate rate structures and distribute the variable costs component to the various customer classes in accordance with their requirements for service. • Implement the rates. • Review and adjust your rates so they recover from each class of customer, within practical limits, the cost to serve them Florida Rural Water Association

30. Customer Related Costs of Providing Water Service • Supply and Transmission Costs – averagecost of supply and transmission to customer, i.e. electricity, chemicals & labor • Commodity Cost - Costs that vary proportionately with the amount of water provided under average consumption; typically based on size of meter (proportioned by meter size) • Capacity Cost - Costs that are incurred to meet the maximum demand (Peak demands have much higher costs) • Customer Related Cost - The costs that are associated with serving customers independent of the amount of water they use • Public Fire Protection. Thecost of hydrants and the over-sizing of water mains and reservoirs to provide fire flows. • Taxes, Surcharges and GF Transfers. Costs include state & city utility taxes, customer billing audits utility maintenance. Florida Rural Water Association

31. Cost of Service Study used in Designing Fair, Equitable and Sustainable Rates • Determine current expenses for residential, commercial and industrial classes of customers. • Estimate short and long-term facility needs based on identified development, historical trends and economic indicators. • Establish Construction Schedules, Capital Needs (cash flows), cash, interest payments and interest ratios to be maintained required by Bond Requirements. • Estimate operating revenue and non-operating expenses • Rates are allocated to individual classes of customers that fairly allocates charges to those using the service Florida Rural Water Association

32. Preparing the Financing Plan • Debt Service Coverage (Bonds Outstanding) • Cash Funding of the Capital Improvement Program (Typically ~30%) • Rate Stabilization Fund (Minimizes Rate Shock) • Cash Targets Maintained (Available Working Capital) • Variable Rate Debt for Short-Term Securities (Commercial Paper) Florida Rural Water Association

33. Asset Management Concepts • Defining all Facilities by type, age and condition • Defining and Identifying Status by category • Determining Sustainable Level of Service • Identifying Critical Assets • Defining CIP and O&M Strategies • Using Asset Management to determine costs • Identifying Long-Term Funding Strategies • Developing Rates and a Budgeting Plan Florida Rural Water Association

34. The Water Conservation Plan • Water System Operations Training • Water Conservation Strategy Development • Performing Water System Audits • Performing Water System Rate Analysis • Performing Leak Detection • Identifying Drought Management Responses • Performing W/WW Energy Reduction Investigations(discussed later) Engaging Water Managers Florida Rural Water Association

35. Direct Benefits of Water Conservation Programs • Locates, corrects and eliminates illegal taps • Institutes water audits and institute leak detection programs that reduce Water Loss levels < 10%. • Evaluates water meters for efficiency and institute cost effective replacement programs • Trains meter readers in leak and illegal connections • Evaluates User fees, deposits and other charges • Improves timeliness and effectiveness of customer collections policies • Adds new customers to existing underutilized facilities • Initiates Cooperative purchases for metes, pipe and standardizes equipment Florida Rural Water Association

36. O&M Budget Plan Florida Rural Water Association

37. Purpose and Use of an O&M Budget • All businesses rely on proper budgeting and financial management to monitor and control expenses • Because Growth, Aging of Facilities and Equipment, External Constraints and Environmental Regulations affect the budget conformance, the budget is always a planning tool • A Budget can be a short or long-term plan that anticipates future expenditures based on estimated variables • A Budget prioritizes financial needs using actual expenses and trends from prior year(s) in “line items” • The line items are then monitored to identify extraordinary expenses and their causes and to determine future needs Florida Rural Water Association

38. Use of a Line Item Budget *140 Extraordinary Expense Necessary to Replace Confined Space DO Meter Florida Rural Water Association

39. The Capital Improvement Plan (CIP) Florida Rural Water Association

40. Capital Improvement Plan (CIP) Development Process • Identification of the needs for capital improvements • Development of the CIP (typically 20 years) • Prioritization of capital projects • Scheduling of the Projects (typically 5 year horizon) • Identification of Funding Sources • Determining Borrowing Schedules Florida Rural Water Association

41. Major Capital Improvement Program CIP Categories • Source Water Improvements (Wells) • Water Treatment Improvements • Water Storage and Pumping Improvements • Water Transmission Improvements • Water Distribution Improvements • Replacement and Rehabilitation • Relocation of Pipelines • Pipeline Improvements including Upsizing • New Development • Water Service (Meters and Appurtenances) Florida Rural Water Association

42. CIP Project Management using a Five Year (Short-Term) Window • ESSENTIAL: Project needed to meet water demand from new development or essential for the maintenance of the water system.. Water demands or infrastructure conditions if not completed there is the risk of being unable to provide water to its new and existing customers. These Projects are included in the First year Schedule. • REQUIRED: A project that is important for providing water service to customers yet timing of construction is not as critical as an essential project. Required projects are generally found in the last four years of the plan. External factors such as the pace of new development or the condition of existing infrastructure may delay or accelerate the timing of project construction. These Projects are included in the 5-yr. window. • DEFERRABLE: Projects are not immediately critical to the operation of the water system. Expenditures in this category generally require a business case study or specific criteria to be met before spending can occur. Contingent spending is deferrable and covers emergency replacement. These projects are long-term and are placed beyond window. Florida Rural Water Association

43. CIP Line Item Budget Example Typically 5 Yrs. Florida Rural Water Association

44. Capital Project Management Florida Rural Water Association

45. Capital Improvement Program and Technical Capacity Demonstration • Is Peak Demand Day > 85% of Permitted Capacity and: • Have Boil Water Notices been issued? • Are there Notices of Violations? • Are there Regulatory Agreements? • Is the System under a Formal Consent Orders? • Have all Regulatory Issues been Resolved? • Is both Capacity and type of facilities adequate? • Do Operator(s) have proper Licenses for needed treatment levels? Florida Rural Water Association

46. Environmental Pressures on Existing Facilities Florida Rural Water Association

47. Florida’s Population Growth Leads to Stressed Water Supplies 2005 PWS 37% of use – 6.5 BGD 2025 PWS 43% of use – 8.5 BGD Florida Rural Water Association

48. Florida’s Ground Water Supplies and Projected Water Shortages 5,691 Public Water Systems use 10,160 Ground Water Supply Wells Ground water supplies are already scarce in some areas of Florida. Ground water withdrawals are are projected to result in critical water supply problems in the next 20 years. These problems include public water degradation of water quality for public use, significant declines in lake levels and drying of wetlands within these areas. Water Resource Caution Areas Withdrawals in Water Resource Caution Areas results in upwelling of water from lower zones and higher dissolved solids content Florida Rural Water Association

49. Florida Droughts are Common and Sometimes Severe Six Droughts Since Year 2000 Florida Rural Water Association

50. Changes in Land Use Intensify the Effects of Drought Florida Rural Water Association