Municipal Utility Districts Declining Revenue OHM

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Declining RevenueTennessee Association of Utility Districts

August 6, 2009

Evan N. Pratt, PE, PrincipalOrchard, Hiltz, and McCliment

Learning Objectives

• Identify changing trends in financial challenges to public utilities

• Identify current problems and reactions

• Identify actions you can take to create a contingency plan

Presenter

Presentation Notes

How many GM’s? How many Engineers or Operations folks? How many other Administrators?

Baseline: How’s It Going?

• Problems are different today

• Problems are bigger today

Presenter

Presentation Notes

The problems are different than they used to be, and tougher than they used to be Exercise: In groups, take 10 minutes to identify a common problem, and 2-3 actions you can take or have taken

Baseline: The Problems

• Declining Revenue

• Rising Expenses

• Both

Baseline: Common Language

• Revenue: Basic Components

– User Fees and Connection fees

• Expenses: Basic Components

– Labor

– Capital Improvements

– Debt Retirement

– O and M

– Administrative

Presenter

Presentation Notes

What gets whacked first? Usually the capital and O/M – the ones that only get more and more expensive. Who feels that these are understood?? Educating the public, your Board, and your customer communities on the total value of your system, and relating that to a car is key, as noted in the previous AM presentation. But today, our focus is on revenue.

The Future: Expenses

Presenter

Presentation Notes

Debt Service, Internal charges not in legend

The Future: Revenue

Presenter

Presentation Notes

Big corporations are using Asset Management – replacing equipment that has high operating costs – energy, water, etc – The biggest GM plant in the US (B-24 plant) used 15% of YCUA water, in 2003 did major equipment change out, and cut use in half. They saved millions, YCUA still had the same operating, capital, and maintenance expenses.

The Future: Big Problem!

Presenter

Presentation Notes

Look at the shape of the revenue curve vs the expense curve

The Future: Challenges

Change has to make sense to people.

• Communicate how you are cutting costs

• Manage costs by managing assets

• Make up for lost revenue

• Focus on desired level of service of customers

Presenter

Presentation Notes

Relate cuts in cost to services customers value: Critical assets, development, fire protection

Plan for the Unknown

• Concept: Sensitivity analysis

– Assume revenue trend is worse

– Assume costs escalate faster

– Run at least one parallel budget

• Concept: Contingency plan

Presenter

Presentation Notes

Assume revenue trend is worse. Assume costs escalate faster. Run at least one parallel budget.


Typical cost controls

• Freeze hiring

• Cut budgets

• Layoffs

• Reduce Capital spending

• Freeze rates

• Delay higher cost maintenance

• Find lowest prices

Presenter

Presentation Notes

Assume most of you have already been implementing the typical cost controls


Issue: Cost vs

More Cost

• Reduce Capital spending

• Freeze rates

• Delay higher cost maintenance

• Find lowest prices

Presenter

Presentation Notes

Cuts in all of these areas run the risk of increased costs – need to do more life cycle analysis – all the more critical that your team include someone with a head for value

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

2005 2010 2015 2020 2025 2030

Years

$ B

udge

t

How to get Behinder

Existing Funding

Needed Funding

Presenter

Presentation Notes

KEY SLIDE: The less we reinvest, the behinder we get. This is the key message you need to share.

Sidebar: Financial Issue

GASB 34

Depreciation Accounting

• Cannot account for true cost• Infrastructure condition is not assessed

Plan for the Unknown: Value

Managing Assets Saves $

• What do you have

• Condition

• Service level

• Maintenance

• Life cycle approach –

capital & maintenance

Presenter

Presentation Notes

Cuts in all of these areas run the risk of increased costs – need to do more life cycle analysis – all the more critical that your team include someone with a head for value


• How do I really know my costs for the next 10 years?

• CIP with funding options

• Operational Assessment –

www.apwa.net

• Asset Management approach

– Capital work

– Maintenance work

Presenter

Presentation Notes

APWA offers a self-assessment guide


• Now you know WHAT you need

• You have some idea how to pay for it

• It’s Rate Study time!

• CRITICAL TIP: Sensitivity Analysis

Presenter

Presentation Notes

What will it mean if prices escalate at 4% vs 5%??

Funding CIP and Maintenance

• Are you capturing all your costs today?

• Where do these (CIP and maintenance) fit in your rates/fees?

Presenter

Presentation Notes

Where do CIP and Maintenance costs fit in your fee and rate schedules?

AWWA Manual M1 (2000)

• 5 basic methods of funding

– Connection fees

– User Fees

– Debt Financing

– Developer reimbursement (SDCs)

– Stock issuance (Third Party funding)

Presenter

Presentation Notes

I lump grants in with debt financing – normally not too helpful unless a small system

Financing Tip

• Debt financing gives you a buffer for rate hikes

• TMBF, Revolving Loan Funds, or other low interest programs cut costs 25-30%

Conclusions

• Things suck

• They will get worse

• You will find a way

• It hurts less with a plan

On Leadership

• People hear what leaders do more than what they say.

• Survival is not just for the strongest or smartest

• Survivors will be those who adapt most quickly. Look for them on staff.

Key Points

• Problems are tougher than ever

• Learn more about your system, its needs, the costs, and the rate impacts

• TOOLS: Sensitivity Analysis and Contingency Plan (worst case)

Key Points

• Communicate the issues with staff and the public. Solutions too!

• Brag about cost savings

• Relate public desire to service costs

Presenter

Presentation Notes

You need PR to brag about cost savings – they have to make sense to people, BUT people MUST hear what you are doing to save their money.

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Questions

http://www.advancing

communities.blogspot.com

Municipal Utility Districts Declining Revenue OHM

Economy & Finance

Transcript of Municipal Utility Districts Declining Revenue OHM