Transcript City of Phoenix Water Rates, by Denise M. Olson, City of Phoenix

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
Phoenix Water Services
Background


Service Area:
System Includes:




Fiscal Year 2011-12 Budget: $411 million
Number of positions (2010-11): 803
Net Assets FY 2010 = 1.2 billion
AAA Bond Rating
540 square miles
6 treatment plants
7,000 miles of water mains
21 active wells
109 water pump stations
53,000 fire hydrants
Distribution of Water Accounts
by Major User Groups FY 2010
Single-Family
88%
Multi-Family
4%
Accounts 403,000
Non-Residential
8%
Distribution of Water Consumption
by Major User Groups FY 2010
Single-Family
51%
Multi-Family
15%
Non-Residential
34%
Consumption 119,411,848 ccf
1 ccf equals 748 gallons
Water & Wastewater
Annual Budgeted Expenditures
Debt Service
25%
Pay as you
Go Capital
27%
Personnel
17%
Materials,
Supplies, &
Outside Services
16%
Chemicals, Water
& Electricity
15%
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
Public Notice Requirements
per ARS title 9, ch 5, art 2,
sec 9-511.01 & 9-499.15
Tasks
Days to Effective
Date
Post Notification on City web
Council gives Notice of Intent
File Notice of Intent & rate record with Clerk
>90
>60
>60
Publish Legal Advertising
Hold Public Hearing
Approve Rate Adjustment
>40
>30
>30
Rate becomes Effective
0
Develop 10-Year CIP &
(2 year) O&M Budget
Develop
Revenue Estimates
Phoenix Annual
Rate Development
Process
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
Methods to Determine Required
Revenues
Cash Needs Approach
(Municipal)/Phoenix
O&M Costs
Utility Approach (Similar
to Investor-owned)
Capital Expenditures
Depreciation Expense and
Rate of Return or cash
funded
Depreciation Expense
Amortization of Debt
Interest on Debt
Taxes/PILOT (Payment in Lieu
of Taxes)
O&M Costs
Rate of Return (utility
risks)
Taxes
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.
PROJECTED WATER
RATE INCREASES
Date of
Increase
Previous
Forecast
New 2011
Forecast
March 2011
March 2012
March 2013
8.0%
8.0%
7.0%
7.0%
7.0%
6.25%
March 2014
March 2015
March 2016
7.0%
7.0%
Not Forecasted
5.5%
5.0%
5.0%
Questions and Discussion
Water Fund Available Cash/Liquidity
as Compared to Debt Service
(With March 2011 Increase)
250
$ Millions
200
150
100
50
0
-50
2010
2011
2012
2013
2014
2015
2016
2017
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.
Water Fund Available Cash/Liquidity
as Compared to Debt Service
(No Increase in March 2011)
250
$ Millions
200
150
100
50
0
-50
2010
2011
2012
2013
2014
2015
2016
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.
2017
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.
Water Base Charge
• Covers the cost to read the
Meter
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)
Monthly
5/8”
$4.36
3/4”
$4.45
1”
$4.49
1-1/2”
$5.57
2”
$5.97
3”
$20.23
4”
$22.56
6”
$24.60
Rates effective April 1, 2011
Water Volume Charge
• Raw Water Costs
• All Other Costs to Treat and Deliver Water
• Rate based on Seasonality of costs
Winter Season
Dec – Mar
$2.44
Spring/Fall Season
Apr, May, Oct, Nov
$2.95
Summer Season
Jun – Sep
$3.77
Rates effective April 1, 2011
Water Environmental Charge
• Environmental Charge
Environmental Costs to Treat and Deliver Water
• Charged to total consumption
Rate per ccf
$0.42
Rates effective April 1, 2011
WATER & WASTEWATER RATE COMPARISONS
COMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL
20 LARGEST U.S. CITIES
$/MONTH
180
160
140
120
100
$58.46
80
$56.25
60
40
Water
Based on rates in effect October 1, 2010
Wastewater
Memphis
Chicago
San Antonio
El Paso
Milwaukee
Current
Proposed
Detroit
Indianapolis
Dallas
Houston
Philadelphia
Los Angeles
San Jose
Baltimore
Columbus
Jacksnvlle
New York
San Diego
San Francisco
0
Wash DC
20
WATER & WASTEWATER RATE COMPARISONS
COMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL
SOUTHWEST REGION
$/MONTH
140
120
100
80
60
40
20
Water
Based on rates in effect October 1, 2010
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Wastewater
WATER & WASTEWATER RATE COMPARISONS
COMBINED AVERAGE SINGLE-FAMILY MONTHLY BILL
PHOENIX METRO AREA
$/MONTH
120
$105.99
100
80
$66.27
$60.88
60
$58.46
$58.28
$56.48
$56.25
$54.52
$46.39
40
20
Water
Based on rates in effect October 1, 2010
Wastewater
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0
Proforma 7% rate increase
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
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
PROJECTED WASTEWATER
RATE INCREASES
Date of
Increase
Previous
Forecast
March 2011
4.5%
March 2012
March 2013
March 2014
March 2015
4.5%
4.5%
4.5%
4.5%
March 2016
Not Forecasted
New Forecast
2011 Financial
Plan
0.0%
0.0%
2.0%
3.0%
3.0%
2.0%
Costs of Service Allocation
Environmental Model
Cost of Service Rate Model
Customer Services
Meter Maintenance
Base Charge
Raw Water
Treatment
Distribution
Volume Charge
• Base costs to meet average usage
• Extra costs to meet max day and
max hour usage (Summer)
Environmental
Environmental Charge
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
Rates Compared to Billed ccfs
Volume Charge per Month
$
3
2.5
2
1.5
Monthly Billable Units
CCfs
1
16,000,000
14,000,000
0.5
12,000,000
0
Jan
March
May
July
Sept
Nov
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
Jan
March
May
July
Sept
Nov
Water & Wastewater
Annual Budgeted Expenditures
$761 Million
Debt Service
25%
Pay as you
Go Capital
27%
Personnel
17%
Materials,
Supplies, &
Outside Services
16%
Chemicals, Water
& Electricity
15%