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Practices for Financial Viability” (Presentation #39755): Defining a Resilient Business Model for Water Utilities

Water Research Foundation #4366 ACE 2013 DENVER

Tues; 1:30 – 4:30PM

Jeff Hughes, Environmental Finance Center at UNC

jhughes@unc.edu

Efc.unc.edu

Project Title(s)

• Water Research Foundation Project #4366

• Defining a Resilient Business Model for Utilities

• Assessing Financial Trends and Developing Strategies and Practices to Address Challenges

• If it is Broke, Maybe you Should Fix it…

TUE01: Defining a Resilient Business Model for Water Utilities

Rates, Revenues and Resiliency: Current and Major Problems Facing Utilities: What Do the Numbers Say?

Strategies and Practices: What IS (and IS NOT) Working in Addressing the Financial Problems Utilities are Facing?

Emerging Strategies and Practices: What MIGHT Work in Addressing the Financial Problems Utilities are Facing?

Team: Environmental Finance Center at UNC

Jeff Hughes Principal Investigator

Stacey Isaac Berahzer Outreach Coordinator

Mary Wyatt Tiger Project Manager

Shadi Eskaf Technical Lead

Sarah Royster Technical Support

Team: Raftelis Financial Consultants

Peiffer Brandt Co-Principal Investigator

Alexis Warmath Utility Liaison

Doug Bean Project Advisor and Liaison

Catherine Noyes Technical Support

Rocky Craley Technical Support

Project Advisory Committee

• Nick Dugan, US Environmental Protection Agency

• Amber Halloran, Louisville Water Company

• Scott Haskins, CH2M Hill

• Myron Olstein, Independent Consultant

Water Research Foundation Project #4366 EPCOR

NEOMSD

Aqua America

Loveland

Denver

Austin

Water Research Foundation Project #4366 – Utility Partners

Presentation

• Non-pricing practices supporting revenue resiliency

Industry Revenue Roller Coaster

One Utility’s Experience

And Another’s

Newport News Waterworks’ Drop in Demand

Rethinking Rate Models, Projections, and Cash flow Plans

• More conservative

• Rate models with less (or no) dependence on revenues from high volume or high block sales

• “Excess” revenues transferred to reserve funds or used for increased pay as you go cash capital funding

Internal Financial Performance Targets (E.g. Charlotte Mecklenburg Utilities)

• Debt service coverage ratio minimum 1.80

• Fund balance to be maintained at level equal to 100% of the operating expenses for the current budget for the operating year

• The City’s goal is a 40-60% mix of PAYGO to financing within next 2 years

15

Internal Financial Performance Targets (E.g. EBMUD)

EBMUD Financial Indicator Target

Working capital reserve ≥ 3x monthly net O&M expenses

Self-insurance reserve 1.25x expected annual costs

Contingency/rate stabilization reserve 20% of annual water volume revenues

Debt service coverage ratio ≥1.6x coverage

Debt-funded capital ≤65% of total CIP spending over 5 year planning period

Alternative Rate Adjustment Procedures

• “Beginning October 1, 2008 and on the first day of October of each year thereafter, the water and sewer rates in effect as of September 30th, 2008 and each year thereafter shall be increased by 5 percent. The 5 percent rate increase shall be computed each year by increasing the previous year's rates by 5 percent. Said rates shall remain in effect until modified, amended or terminated by the Authority.”

Types of affordability programs

Options facing payment-troubled customers

Percent N

Payment plan to allow customer to pay amount over time 76% 231

Customer referral to private, nonutility agency 54% 163

Customer referral to a local gov. agency for assistance 49% 149

Education 35% 105

In-home conservation assistance 25% 76

Special billing arrangements 21% 64

Change in the rate customer is charged 8% 24

Other 8% 24

One-time bill credit from utility funds 3% 8

2010, Best Practices in Customer Payment Assistance Programs, Water Research Foundation #4404

1 2 3 4 5

0%

20%

3%

53%

23%

On a scale of 1 -5, how well would affordability programs work with your utility or the utilities you work with?

1. Very well

2. Pretty well

3. Maybe so, maybe not

4. Not well

5. Dreadfully

Source: Informal Survey Administered by EFC/RFC at ACE 2012 Session

Product Diversity

• Pricing and selling fire protection

• Customer line repair programs

– Self administered

– Third party

• Selling services to other enterprises

– Meter reading and billing

– Project management

Fire Protection Pricing (e.g. EPCOR – Edmonton)

• Fire Hydrant Service fee charged to the City of Edmonton; the City of Edmonton’s Fire Rescue Service Budget

Line Protection Programs

OWASA Screen Shot

QUESTIONS/COMMENTS?