WATERSHED MANAGEMENT PLAN Bondurant City Council Meeting November 17, 2014.
Central Iowa Regional Water Working Group–Bondurant - $0.5m refinanced; approximately $29,000/yr....
Transcript of Central Iowa Regional Water Working Group–Bondurant - $0.5m refinanced; approximately $29,000/yr....
Regional Cost-Sharing
Framework
JULY 2018
Central Iowa Regional Water
Working Group
Notice
The contents of this presentation include preliminary calculations of a possible scenario for forming a regional water authority in the Des Moines area. The values provided are intended for illustrative purposes only and not for any other reason than to facilitate discussion of the cost-sharing framework under which the proposed regional authority may operate.
All information provided in this presentation is subject to change.
Page 3FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Agenda
Review of Phase 2 Objectives
Definitions: What is the Regional Cost Sharing Framework?
Quantifying Costs
– Costs at Formation
– Ongoing Costs
Regional Cost Allocation
Next Steps
Preliminary – For Discussion Only – Subject to Change
Review of Phase 2 Objectives
Page 5FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Phase 2 is a Business Case Evaluation
5
What are the costs of producing with the current structures and approaches?
What is the expected cost of producing assuming the presence of a regional Authority?
Question 1
Question 2
BIGQUESTIONS
ANSWERSPHASE 2
Page 6FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Quantify the Net Costs/Benefits
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038
$ p
er 1
,00
0 G
allo
ns
Avg. Cost per 1,000 Gallons- Community X
Regional case
Status Quo case
The difference between the total average cost per unit of production defines the net cost or benefit in the business case
ILLUSTRATION ONLY
Page 7FCS GROUP
Preliminary – For Discussion Only – Subject to Change
The Steps to Get to the Answers
Status Quo Forecasts
Future Cost Sharing Plan
Authority Forecasts
June 27 July 31 August 30
How much can each community expect to
pay for produced water based on
today’s production functions?
How will future costs be shared if the
Authority assumes responsibility for rate setting and regional water production?
How much can each community expect to
pay for produced water assuming the
Authority is responsible for all
delivery?
You are here!
Preliminary – For Discussion Only – Subject to Change
Definitions: What is Regional Cost
Sharing?
Page 9FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Regional Cost Model
9
Regional Authority
O&M Contracts
Reserve Purchases
Project Costs
Existing Assets
MembersCost
Framework
Costs incurred at start-up
Ongoing expenditures
The regional Authority incurs the operating and capital costs of producing water and passes those costs on to the Members by way of a framework that defines the cost allocation process.
Admin Costs
Startup Costs
Page 10FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Regional Cost Sharing Framework
Establish a series of rules that clearly define the quantification of costs to be
recovered through rates, and the method of allocating costs to individual
Members.
Quantifying costs:
– Capital costs
– Operating costs
Allocation:
– Who pays for what types of costs, and
– Why (the rationale) members pay for those costs
Preliminary – For Discussion Only – Subject to Change
Capital Costs at Formation
Page 12FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Existing Assets
Subscribed
Reserve
Authority pays price per MGD as compensation to owners
Authority does not pay for this portion, but accepts it as a contributed asset at book value.
The entire asset is transferred to the Authority creating the following impacts:
a) Payments for reserve capacity are a capital cost to be financed and recovered in the Authority’s rates.
b) Contributed assets require ongoing repair & replacement (an ongoing capital cost)
c) Contributed assets also result in a credit to individual Members against future capital cost allocations.
Existing Assets
Page 13FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Total Capacity
Member
Owned
Production
Capacity (MGD) ASR (MGD)
Purchased
Capacity (MGD)
Total Capacity
(MGD)Polk County 1.95 1.95 Berwick 0.25 0.25 Urbandale 15.30 15.30 WDMWW 10.00 8.97 18.97 Ankeny 1.3 8.28 9.58Clive 6.98 6.98 Waukee 3.69 3.69 Warren Rural 3.25 3.25 Xenia 2.95 2.95 Norwalk 1.97 1.97 Bondurant 1.20 1.20 Altoona 4.00 1.00 5.00 Polk City 0.30 0.35 0.65 Grimes 2.52 0.72 3.24 Johnston -DMWW 110.00 9.50 (56.14) 63.36
TOTAL 126.82 11.52 0.00 138.3
Page 14FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Reserve Capacity
Member
Total Capacity
(MGD) Demand (MGD) Over/(Short)
Recognized
ReservePolk County 1.95 2.51 (0.56) 0.00Berwick 0.25 0.13 0.12 0.12Urbandale 15.30 10.64 4.66 4.66WDMWW 18.97 14.80 4.18 4.18Ankeny 9.58 11.58 (2.0) 0.00Clive 6.98 4.03 2.95 2.95Waukee 3.69 3.38 0.31 0.31Warren Rural 3.25 3.44 (0.19) 0.00Xenia 2.95 2.53 0.42 0.42Norwalk 1.97 2.38 (0.41) 0.00Bondurant 1.20 1.29 (0.09) 0.00Altoona 5.00 3.49 1.51 1.51Polk City 0.65 1.10 (0.45) 0.00Grimes 3.24 2.47 0.77 0.77Johnston - 5.07 (5.07) 0.00DMWW 63.36 46.26 17.11 17.11
TOTAL 138.34 115.09 23.25 32.03
Page 15FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Cost Data to Inform Reserve Price
Information SourceCost per Unit
($ / Gal.)
Estimated Cost of 32 MGD Reserve
($ million)
Estimated DebtService per Kgal*
Avg. Book Value of Assets (2018) $1.56 $50.0 $0.14
BV Report Mid-Range (2018 $) $2.64 $84.7 $0.23
Purchased Capacity Offer (2018 $) $2.82 $90.4 $0.25
BV Report RCLD (2018 $) $3.38 $108.2 $0.30
MEDIAN $2.73 $87.6 $0.23
* At 4% interest, 30 yr. term; 21.61 billion gallons annual delivery (2018 estimated annual demand)
Page 16FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Payments for Reserve
Reserve
Authority pays price per unit of unused capacity at the time of formation.
Reserve
Subscribed
32 MGD x = $87.6 millionEstimated Reserve Median
$2.73
Page 17FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Residual Local Debts
What if the payments made for reserve capacity are less than the outstanding
debts held by local communities?
Assume a price of $2.73 applies for reserve payment
Members with Debt Outstanding
Reserve Pmt. Received
Estimated Debt as of 2018
Residual Debt to Authority
Grimes $2.1M $4.3M $2.2M
West Des Moines* $11.4M $9.6M $0.0M
Ankeny $0.0M $6.4M $6.4M
Bondurant $0.0M $0.5M $0.5M
Urbandale $12.7M $7.3M $0.0M
DMWW** $46.8M $11.4M $0.0M
TOTAL $73.0M $39.6M $9.1M
* Includes $7.5M bonds plus $2.1M in financed purchased capacity** Includes $27.7M total debt net of financed purchased capacity debt for Ankeny ($6.4m), Bondurant ($0.5M), Urbandale ($7.3M), and WDMWW ($2.1M)
Page 18FCS GROUP
Preliminary – For Discussion Only – Subject to Change
How to Address Residual Debt in Rates
The Authority could refinance the residual debts to ensure assets can be
transferred without issue.
However, this debt is above and beyond the Authority’s needs.
The debt service should be recovered separately, apart from the normal rates,
from those affected:
– Grimes - $2.2m refinanced; approximately $127,000/yr. (~ $0.23 / kgal)
– Ankeny - $6.4m refinanced; approximately $370,000/yr. (~ $0.15/ kgal)
– Bondurant - $0.5m refinanced; approximately $29,000/yr. (~ $0.13/kgal)
Note: Estimates assume 4% financing, 30 yrs. $/kgal assumes 2018 each community’s individual demands from our analysis. Debt for Ankeny and Bondurant is related to financed purchased capacity.
Page 19FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Contribution of Subscribed Capacity
Reserve
Subscribed
Asset: $143.4MContributed Equity: $143.4M
CREDITDEBIT
Contributions will be explicitly shown as an amortized credit against future capital costs for those Members making the contributions (i.e., asset transfers)
Page 20FCS GROUP
Preliminary – For Discussion Only – Subject to Change
How Contributions will Work
Item Value
Assets Allocated toMember (on demands)
$1,000
(Less) UnamortizedContribution
(200)
Net Assets to Member $800
Rate of Return 6%
Return Portion $48
Annual Capital Cost = Net Assets to Member x Rate of Return + Depreciation Expense
Item Value
Depreciation Expense onMember Assets
$25
(Less) Amortization of Contribution
(6)
Net Depreciation Expense $19
Total capital cost from this simple example is $67 for the year.
It would have been $85 without the credit for contributions (saves 21% in this year).
Calculation of Return Portion: Calculation of Depreciation Portion:
Page 21FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Estimated Contributions
Member
% of Plant Subscribed Net of Purchased
Capacity
OCLD of Physical Plant
(2018 est. / $ millions)
EstimatedContribution
($ million)
DMWW 73% $170.8 $124.7
Altoona 62% 7.1 4.4
Polk City 100% 0.1 0.1
WDMWW 58% 11.9 6.9
Grimes 76% 9.6 7.3
Total $199.4 $143.4*
Recommended amortization period is 40 years after which the contribution amounts will be zero; the amount is reduced by 1/40th each year.
Contribution totals subject to change based on final determination of asset list –currently in progress with Technical Committee.
Page 22FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Summary of Formation Costs
These are the costs the Authority is expected to take on as part of its
formation-related acquisition of assets and payment for reserves.
Item Asset ($ million)
Liability($ million)
Equity($ million)
Reserve Capacity $87.6 $87.6 -
Asset Contributions 143.4 - 143.4
Residual Debts 9.1 9.1 -
Totals $240.1 $96.7 $143.4
Page 23FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Rate Implications from Formation Costs
Item Value
Net Asset Value $240.1
X 6 % return 14.4
(Less) Contribution Credits (6.2)
Net Return on Existing Assets $8.3
Cost per Unit = $0.60 / Kgal
Not only does the amount itself decrease every year as assets depreciate, but the average cost decreases as demand increases.
Item Value
Depreciation $8.0
(Less) Contribution Credits (3.3)
Net Depreciation on Existing Assets $4.7
Calculation of Return Component Calculation of Depreciation Component
Grand Total: $13 million
Page 24FCS GROUP
Preliminary – For Discussion Only – Subject to Change
What About Startup Costs?
Startup costs are currently unknown but are expected to include:
– Legal fees
– Engineering and consulting fees
– Initial payrolls for Authority staff
– Administrative & Insurance costs
These costs could be capitalized along with the others
– Every $1m in additional cost will add an amortized $0.003 per kgal
Preliminary – For Discussion Only – Subject to Change
Ongoing Costs
25
Page 26FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Fixed Operating Costs
The Authority expects to enter into operating contracts with existing
producers for the operations of the production facilities and network.
Cost Item DMWW WDMWW Altoona Grimes
Admin / A&G $7.5 $0.2 $0.0 $0.2
Fixed O&M 15.8 1.4 0.5 $0.9
Total Fixed Cost 23.3 1.6 0.5 1.1
MGD Owned (MGD) 119.5 10 4 3.2
Cost per MGD $0.195 $0.160 $0.130 $0.329
Total fixed O&M costs currently at $26.5 million for 136.7 MGD for an average (of these operators) of $193,915 per MGD.
$1.23 per Kgal
Page 27FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Variable Operating Costs
Variable operating costs will be handled as a direct pass-through under the
Operating Agreements.
Cost Item DMWW WDMWW Altoona Grimes
Variable O&M $6.2 $1.0 $0.4 $0.3
Kgal Produced (2018) 18.3M 2.0M 0.7M 0.5M
Cost per KGal $0.34 $0.51 $0.49 $0.62
$0.37 per Kgal
Page 28FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Project Costs – the Capital Call
The Authority will need to raise money ahead of major investment programs.
To do so, it will need to securitize revenues ahead of time, meaning it will
need to raise revenues before the projects are started.
We propose recognizing 3-years’ worth of projects based on approved capital
budgets.
Add the project budgets as assets for the purposes of rate setting.
$137 million X Return of 6%
8.2 million
+ Depreciation of 1/33rd
4.2 million
$12.4 million
Page 29FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Project Costs
Our estimate of regional project costs through 2022 (reflecting Authority’s
first financing effort) is approximately $137 million to add 17 MGD.
Item Amount Financed Annualized Return
Annualized Depreciation
Total Values $137 million $8.2 million $4.2 million
Cost per Kgal - $0.38 $0.19
DMWW LRP
Projects, $95.4
ASR, $7.3
Other Regional,
$33.8
Regional Project Breakdown (2018-2020)
Key facilities included:- Fleur- Saylorville- Core network- LP Moon- ASR #4- 4 MGD Other
Page 31FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Administrative Costs
The Authority is likely to have its own administrative costs related to some
level of staffing, consulting, engineering, audit and related expenses.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
DMWW Grimes WDMWW Altoona
Admin. Cost as % of Total Production O&M Cost
• Average is 23% of total operations & maintenance cost• Reduce this by half to avoid duplication with O&M contracts
$1.23 per Kgal x 23% x 0.5 = $0.14 per Kgal
Page 32FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Summarizing Costs
Cost ItemsEstimated Cost
per Kgal for 2018
Formation Costs $0.60
Operating Agreements $1.60
Administrative Costs $0.14
Total Before Project Costs* $2.34
CAUTION! This is not the expected rate for all Members. It’s what we would
expect if we divided total Authority revenue by total water sold. This value is subject to change.
Project Costs $0.57
Total with Project Costs $2.91
Preliminary – For Discussion Only – Subject to Change
Regional Cost Sharing
33
Page 34FCS GROUP
Preliminary – For Discussion Only – Subject to Change
General Cost Allocation Plan
100% of Costs Incurred
Avg. Usage
Peak Usage
Portion of assets used to meet average daily demands, allocated based on average-day use
Portion of assets used to meet peak demand, allocated based on max-day useB
A
Member ADD MDD
Member 1 20 MGD (67%) 30 MGD (60%)
Member 2 10 MGD (33%) 20 MGD (40%)
Total 30 MGD 50 MGD
Members will be allocated costs proportionate to their usage of the regional water production system; all usage based on measured demands.
Page 35FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Joint Cost Sharing Over Time
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060
Des Moines WDMWW Ankeny Urbandale Johnston Waukee All Other
Change in Projected Total Water Demand Over Time
Demand for the top 6 communities as of 2018 will decline from 77% of the total water delivered to just 62% of the total – the bottom 15 users today will pick up 15% more of the costs in the future
Page 36FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Allocate to Avg. and Peak Portions
Capital Cost Grouping 2018 Total Capacity
Total ADD in Region
% Used for Avg. Day
% Used for Peak
Existing Production and Core Network
138.3 MGD 59.2 MGD 43% 57%
• 43% of the costs shared jointly based on average-daily demand.
• 57% of the costs shared jointly based on maximum-daily demand.
Page 37FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Example: Allocating the Costs
Cost Items
Estimated Costs as of
2018Costs Related to ADD (47%)
Cost Related to MDD (53%)
Formation Costs $13.0 $5.5 $7.4
Operating Agreements 34.5 14.8 19.7
Project Costs / Financing 12.3 5.3 7.0
Administrative Costs 3.0 1.3 1.7
Total* $62.8 $26.9 $35.9
59.2 MGD of 138.3 is used in 2018 to provide average-day demands (47%); the rest is available for maximum-day demands (53%)
Page 38FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Cost-Sharing Groups
Expansion #2
Expansion #1
Initial Facilities
Capacity
Cost shared jointly among all members
Cost shared specificallywith Group 1
Cost shared specificallywith Group 2
Page 39FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Example: Who Shares the Costs?
Cost Items
Estimated Costs as of
2018Sharing Group
Formation Costs $13.0 Joint
Operating Agreements 34.5 Joint
Project Costs / Financing 12.3 Program 1
Administrative Costs 3.0 Joint
Total* $62.8
Page 40FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Example: Allocate the Joint O&M Costs
Member As % of ADD($ million)
As % of MDD ($ million)
TOTAL ($ million)
$ per Kgal
DMWW $5.8 $7.3 $13.1 $1.67
WDMWW $2.2 $3.0 $5.2 $1.77
Ankeny $1.8 $2.4 $4.3 $1.75
Urbandale $1.2 $1.8 $3.0 $1.87
Johnston $0.6 $1.1 $1.7 $1.99
Waukee $0.6 $0.9 $1.5 $1.91
All Other $3.9 $5.0 $8.8 $1.70
Total $16.1 $21.5 $37.5 $1.74
The calculation naturally results in a different rate per 1,000 gallons due to differences in how members use the system to meet peak needs.
Page 41FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Example: Allocate the Joint Capital Costs
Member As % of ADD($ million)
As % of MDD ($ million)
TOTAL ($ million)
$ per Kgal
DMWW $0.0 $0.0 $0.0 $0.00
WDMWW $1.0 $1.5 $2.5 $0.86
Ankeny $1.1 $1.5 $2.5 $1.05
Urbandale $0.7 $1.1 $1.8 $1.12
Johnston $0.4 $0.6 $1.0 $1.19
Waukee $0.3 $0.5 $0.9 $1.14
All Other $1.9 $2.4 $4.3 $0.82
Total $5.4 $7.6 $13.0 $0.60
The joint capital costs are adjusted for individual credits due to Members for contribution of Authority assets; these values will change in the future with more investment
Page 42FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Applying Credits for Contributions
Item Description DMWW WDMWW
Allocation of Assets Based on Demands ($M)
$83.8 $33.2
Contributed Assets ($M) $(124.7) $(6.9)
Net Assets ($M) $0.0 $26.2
X 6% Return ($M) $0.0 $1.6
• Contributions are amortized over time, reducing the amount available for credit each year.
• New investment in the original assets will increase the asset base but will not increase the credit – increasing the capital costs for the member
Page 43FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Example: Allocate the Project Costs
Member As % of ADD($ million)
As % of MDD ($ million)
TOTAL ($ million)
$ per Kgal
DMWW $0.5 $0.7 $1.2 $0.15
WDMWW $0.7 $1.0 $1.7 $0.58
Ankeny $0.4 $0.5 $0.9 $0.39
Urbandale $0.2 $0.3 $0.5 $0.34
Johnston $0.5 $0.9 $1.4 $1.66
Waukee $0.1 $0.1 $0.1 $0.19
All Other $2.8 $3.6 $6.5 $1.24
Total $5.3 $7.1 $12.3 $0.57
These costs are shared differently – it’s based on the contribution each member makes to the growth of the system.
Page 44FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Cost Sharing Group – In Depth
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Joint Costs Program Group 1
Joint Cost Sharing % vs. Program Grp. 1
OTH
WKE
JON
URB
ANK
WDM
DMWW
• All capital costs of these facilities will be included in the group
• Additional groups for future programs
• Those with highest growth expectations share larger portion of the program costs
Page 45FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Summary of Our Example Allocations
Member O&M Costs($ / Kgal)
Formation Costs
($ / Kgal)
Subtotal($/Kgal)
Project Costs ($ / Kgal)
Grand Total ($/Kgal)
DMWW $1.67 $0.00 $1.67 $0.15 $1.82
WDMWW $1.77 $0.86 $2.63 $0.58 $3.20
Ankeny $1.75 $1.05 $2.80 $0.39 $3.19
Urbandale $1.87 $1.12 $2.98 $0.34 $3.32
Johnston $1.99 $1.19 $3.18 $1.66 $4.84
Waukee $1.91 $1.14 $3.04 $0.19 $3.23
All Other $1.70 $0.82 $2.52 $1.24 $3.76
AVG $1.74 $0.60 $2.34 $0.57 $2.91
Page 46FCS GROUP
Preliminary – For Discussion Only – Subject to Change
Take Aways
Today is NOT a final answer of any sort
The figures give a “ballpark” estimate of how the cost allocations may look if
the authority were to assume responsibilities today
Figures do not give any indication of
– Future costs
– Economies of scale, either short or long-run
– Comparison of scenarios
Much is left to come….August
Preliminary – For Discussion Only – Subject to Change
Next Steps
Jason Mumm, Executive Consultant(303) 652-7548