TARIFF MODEL FOR REGULATED WATER UTILITIES USER S … · MWCI Manila Water Company, Inc. MWSI...

National Water Resources Board

TARIFF MODEL

FOR REGULATED WATER UTILITIES

USER’S MANUAL

Revised December 2016

National Water Resources Board Tariff Model for Regulated Water Utilities User’s Manual

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ABBREVIATIONS AND ACRONYMS

A-ROR allowable rate of return BS balance sheet BWSA Barangay Water and Sanitation Association CAPEX capital expenditures CD-ROM compact disc, read-only-memory COA Commission on Audit CPC Certificate of Public Convenience CPI consumer price index EPA extraordinary price adjustments ER equivalent revenue EV equivalent volume of water sold IS income statement KPI key performance indicators LGU local government unit lps liters per second LWUA Local Water Utilities Administration m3 cubic meters mb megabytes MWCI Manila Water Company, Inc. MWSI Maynilad Water Services, Inc. NRW non-revenue water NWRB National Water Resources Board OPEX operating expenses PESER property and equipment in service entitled to return PIP performance improvement plan PSA Philippine Statistics Authority ROR rate of return RWSA Rural Waterworks and Sanitation Association TARR total annual required revenue TEV total equivalent volume TVS total volume sold USB universal serial bus VAT value-added tax WU water utility


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TABLE OF CONTENTS

1 WHAT IS THE NWRB TARIFF MODEL? ..............................................................................1 1.1 INTRODUCTION .................................................................................................................... 1 1.2 SOFTWARE AND HARDWARE REQUIREMENTS ........................................................................... 1

2 TARIFF MODELS FOR DIFFERENT WATER UTILITY CATEGORIES .........................................2 2.1 CATEGORIZATION OF WATER UTILITIES .................................................................................... 2 2.2 TARIFF MODELS AVAILABLE ................................................................................................... 5

2.2.1 Tariff Model for Category A and B Water Utilities .................................................. 5 2.2.2 Tariff Model for Category C Water Utilities ............................................................. 5

3 ORGANIZATION OF THE TARIFF MODEL ...........................................................................5 3.1 TARIFF MODEL FOR CATEGORY A AND B WATER UTILITIES ......................................................... 5 3.2 TARIFF MODEL FOR CATEGORY C WATER UTILITIES ................................................................... 6

4 WHEN TO USE THE TARIFF MODEL ..................................................................................7 4.1 INITIAL REQUEST FOR CPC APPLICATION .................................................................................. 7 4.2 REQUEST FOR INCREASE OF TARIFF AND/OR RENEWAL OF CPC .................................................... 7

5 DOCUMENTS NEEDED .....................................................................................................8

6 TARIFF MODEL FOR CATEGORY A AND B WATER UTILITIES............................................. 11 6.1 GUIDE SHEETS ................................................................................................................ 11 6.2 INPUT SHEETS ................................................................................................................ 11

6.2.1 Assumptions .......................................................................................................... 11 6.2.2 Historical Income Statement and Balance Sheet ................................................... 20 6.2.3 Existing Assets ....................................................................................................... 22 6.2.4 New Investments in Constant Prices ...................................................................... 24 6.2.5 Loans ...................................................................................................................... 26 6.2.6 Evaluation .............................................................................................................. 27

6.3 COMPUTATION SHEET ................................................................................................... 30 6.3.1 Supply, Demand and Revenue ............................................................................... 30 6.3.2 Operating Expenses ............................................................................................... 31 6.3.3 Project Cash Flow................................................................................................... 34 6.3.4 Tariff Design .......................................................................................................... 34 6.3.5 Basic Tariff ............................................................................................................. 35 6.3.6 Balance Sheet Movements .................................................................................... 36

6.4 OUTPUT SHEETS............................................................................................................. 36 6.4.1 Highlights ............................................................................................................... 37 6.4.2 CPI Adjusted Tariff ................................................................................................. 40 6.4.3 Reports ................................................................................................................... 43

7 TARIFF MODEL FOR CATEGORY C WATER UTILITIES ....................................................... 47 7.1 GUIDE SHEETS ................................................................................................................ 47 7.2 INPUT SHEETS ................................................................................................................ 47

7.2.1 Existing Assets ....................................................................................................... 47 7.2.2 Supply, Demand and Revenue ............................................................................... 48 7.2.3 Operating Expense ................................................................................................. 49 7.2.4 Loans ...................................................................................................................... 51 7.2.5 Tariff Design .......................................................................................................... 51


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7.3 COMPUTATION SHEETS ................................................................................................. 53 7.3.1 Basic Average Tariff ............................................................................................... 53 7.3.2 CPI Adjusted Tariff ................................................................................................. 55 7.3.3 CPI Adjusted Tariff-Block ....................................................................................... 57

LIST OF FIGURES

FIGURE 3-1 MAP OF THE TARIFF MODEL – CATEGORY A AND B ................................................................................... 6 FIGURE 3-2 MAP OF THE TARIFF MODEL-CATEGORY C ............................................................................................... 7 FIGURE 6-1 RECOVERED, UNRECOVERED AND NOT RECOVERABLE ASSETS ................................................................... 23 FIGURE 6-2 EVALUATION OF FINANCIAL PERFORMANCE............................................................................................ 28 FIGURE 6-3 RATE OF RETURN COMPUTATION FLOW ................................................................................................ 40

LIST OF TABLES

TABLE 2-1 HOW TO DETERMINE THE WATER UTILITY CATEGORY .................................................................................. 3 TABLE 2-2 TARIFF METHODOLOGY FOR EACH WATER UTILITY CATEGORY ...................................................................... 3 TABLE 5-1 DATA REQUIREMENTS FROM WATER UTILITIES BY CATEGORY ....................................................................... 8 TABLE 6-1 AVERAGE INCOME OF LOW-INCOME HOUSEHOLD..................................................................................... 12 TABLE 6-2 BALANCE SHEET ASSUMPTIONS ............................................................................................................. 13 TABLE 6-3 INCOME STATEMENT ASSUMPTIONS ...................................................................................................... 15 TABLE 6-4 SUPPLY AND DEMAND ASSUMPTIONS .................................................................................................... 16 TABLE 6-5 NEW CONNECTIONS ASSUMPTIONS ....................................................................................................... 17 TABLE 6-6 TOTAL CONNECTIONS ASSUMPTION ....................................................................................................... 18 TABLE 6-7 AVERAGE CONSUMPTION ASSUMPTIONS ................................................................................................ 18 TABLE 6-8 OTHER ASSUMPTIONS ......................................................................................................................... 19 TABLE 6-9 BASIC INPUTS IN HISTORICAL DATA ........................................................................................................ 20 TABLE 6-10 INCOME STATEMENT INPUT SHEET ....................................................................................................... 21 TABLE 6-11 BALANCE SHEET INPUT SHEET ............................................................................................................. 22 TABLE 6-12 EXISTING ASSET SHEET ...................................................................................................................... 24 TABLE 6-13 NEW INVESTMENTS .......................................................................................................................... 26 TABLE 6-14 LOAN SOURCE DOCUMENTS ............................................................................................................... 26 TABLE 6-15 LOANS ............................................................................................................................................ 27 TABLE 6-16 ACTUAL FINANCIAL PERFORMANCE ...................................................................................................... 28 TABLE 6-17 FINANCIAL PROJECTION FOR YEARS 6 TO 10 .......................................................................................... 29 TABLE 6-18 ADJUSTMENTS ON PREVIOUS PLANNING PERIOD .................................................................................... 29 TABLE 6-19 SUPPLY AND DEMAND SECTION ........................................................................................................... 30 TABLE 6-20 REVENUES ....................................................................................................................................... 31 TABLE 6-21 OPERATING EXPENSE ........................................................................................................................ 33 TABLE 6-22 PROJECT CASH FLOW ........................................................................................................................ 34 TABLE 6-23 COMPUTATION OF WATER REVENUES .................................................................................................. 35 TABLE 6-24 BASIC AVERAGE TARIFF IN CONSTANT PRICES ........................................................................................ 36 TABLE 6-25 KEY PERFORMANCE INDICATORS AND ASSUMPTIONS ............................................................................... 37 TABLE 6-26 INVESTMENTS AND FUNDING SOURCES ................................................................................................. 39 TABLE 6-27 CALCULATION OF BASE TARIFF ............................................................................................................ 40 TABLE 6-28 CPI ADJUSTED TARIFF ....................................................................................................................... 41 TABLE 6-29 CONSUMPTION BLOCK FACTOR ........................................................................................................... 41 TABLE 6-30 PROPOSED TARIFF FOR APPROVAL ....................................................................................................... 42 TABLE 6-31 AFFORDABILITY TEST ......................................................................................................................... 42 TABLE 6-32 LEVELS OF SERVICE ........................................................................................................................... 43 TABLE 6-33 KEY PERFORMANCE INDICATORS .......................................................................................................... 43


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TABLE 6-34 INCOME STATEMENT ......................................................................................................................... 44 TABLE 6-35 FLOW OF FUNDS STATEMENT ............................................................................................................. 45 TABLE 6-36 BALANCE SHEET ............................................................................................................................... 46 TABLE 7-1 EXISTING ASSETS ................................................................................................................................ 47 TABLE 7-2 WATER SUPPLY .................................................................................................................................. 48 TABLE 7-3 WATER DEMAND/SOLD ....................................................................................................................... 48 TABLE 7-4 WATER REVENUES .............................................................................................................................. 49 TABLE 7-5 OPERATING EXPENSES ......................................................................................................................... 50 TABLE 7-6 LOAN AMORTIZATION ......................................................................................................................... 51 TABLE 7-7 TARIFF DESIGN SHEET ......................................................................................................................... 52 TABLE 7-8 CONSUMPTION AND CONNECTIONS SUMMARY ........................................................................................ 53 TABLE 7-9 AFFORDABILITY TEST ........................................................................................................................... 53 TABLE 7-10 BASIC AVERAGE TARIFF ..................................................................................................................... 54 TABLE 7-11 CPI ADJUSTED TARIFF – FLAT TARIFF ................................................................................................... 55 TABLE 7-12 CONSUMPTION BLOCK FACTOR ........................................................................................................... 58 TABLE 7-13 CPI ADJUSTED TARIFF – CONSUMPTION BLOCK ..................................................................................... 58


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1 What is the NWRB Tariff Model?

1.1 Introduction

The Tariff Model is a spreadsheet-based financial management tool specially designed for water utilities (WU) regulated by the National Water Resources Board (NWRB)1. It helps WUs set their water tariff to be charged to customers. The tariff model calculates the required tariff that will result to a rate of return (ROR) equal to the allowable ROR or that will result to the required revenue of the WU. It generates reports required by NWRB such as the proposed tariff structure, income statement and balance sheet, among others. The tariff model is also a tool for NWRB to regulate WUs. The tariff model can be used to assess the performance of the WU and can perform sensitivity analysis that would be very helpful in making management decisions. The objective of this User’s Manual is to help WUs use the tariff model to come up with the proposed tariff rates for approval by NWRB. The User’s Manual should be read in conjunction with the NWRB Economic Regulatory Framework promulgated by the NWRB Board per Board Resolution No. 25-0818 dated 28 August 2018.

1.2 Software and Hardware Requirements

The tariff model is an Excel file composed of several sheets that are linked together by formulas. When running the tariff model, the macro setting should be enabled. The tariff model requires a computer which should have the following software and hardware:

1. Microsoft Excel (2007) or later version 2. CD-ROM drive or USB port 3. Hard drive 4. Color monitor

1 The previous 5-year Tariff Model was developed by IDP Consult, Inc. in 2005 under ADB TA 6123-REG: Pilot and Demonstration Activity – Rationalizing Tariffs for Private Water Utilities under the National Water Resources Board. This December 2016 version of the model reflects improvements in the model based on the Economic Regulatory Framework study under the Expanded Small Water Utilities Improvement and Financing Technical Assistance - Phase 2 (ESWIF2) of the World Bank.


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2 Tariff Models for Different Water Utility Categories

NWRB determines the profile of WUs at the time of application for a Certificate of Public Convenience (CPC) and/or tariff increase and classifies them into categories to determine how they are to be regulated and how their tariffs are to be calculated.

2.1 Categorization of Water Utilities2

Category A WUs are those WUs that operate for profit and have sufficient potential to expand and invest. WUs belonging to this category are generally privately-owned or privately-run WUs. Government-owned or government-run utilities may also fall under this category if they opt to be classified here, or NWRB has classified them as Category A. Their CPC is valid for ten years. Their rate of return is based on the NWRB-agreed rate. Category B WUs are those WUs that are local government unit (LGU) owned and controlled entities. These include water districts and LGU-run water utilities. Currently, the mandates of regulating these WUs are with the Local Water Utilities Administration (LWUA) for water districts and the LGU for LGU-run WUs. At present, Category B WUs do not need to secure a CPC from the NWRB to be able to operate the WU. Instead, these WUs are required to file an application with NWRB for tariff increases that are over and above the yearly allowable inflationary increase. Water utilities under this category are supposed to be not operating for profit. Hence, their rate of return is zero. Category C WUs are those WUs that operate on a limited scale such that they have been identified as having very little or no potential for expansion. WUs belonging to this category may include those run by Homeowners’ Associations, Rural Waterworks and Sanitation Associations (RWSA), Barangay Water and Sanitation Associations (BWSA), and cooperatives operating to provide water services to specific areas of residence of their members/community. These utilities operate only to provide water service to their consumers, and not for profit. Hence their rate of return is also zero. Their base tariff is calculated simply by dividing their total revenue requirements for one year by the total volume of water to be sold for the same period of one year. Table 2-1 shows how WUs are categorized, while Table 2-2 summarizes the features of the tariff methodology for each of these categories.

2 For details, refer to the NWRB Economic Regulatory Framework, 2015


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2.2 Tariff Models Available

2.2.1 Tariff Model for Category A and B Water Utilities

Category A and B WUs share this tariff model. This model uses a project cash flow method and considers various parameters to arrive at the proposed tariff.

2.2.2 Tariff Model for Category C Water Utilities

Category C WUs calculate their tariff by simply dividing their revenue requirements by the volume of water sold. Revenue requirements consist of operating expenses (with provision for contingencies and working capital), depreciation reserve and loan amortization, if applicable. The use by the WU of the Excel-based tariff model is optional.

3 Organization of the Tariff Model

3.1 Tariff Model for Category A and B Water Utilities

The Tariff Model for Category A and B WUs is composed of the following: Guide sheets. These guide sheets are composed of the table of contents showing a brief description of each worksheet (Contents), flowchart of the worksheets used in the tariff model (Flowchart), and the NWRB prescribed depreciation rates (Depreciation Table). Input sheets. Data are entered in these sheets. Inputs are done only on the yellow-shaded cells. The other cells contain formulas and are protected. The input sheets include: assumptions used in the financial projection (Assumptions), historical income statement and balance sheet (Historical IS BS), list of existing assets (Existing Assets), list of new capital investments in constant prices (New Cap Inv-Constant), existing and projected loans (Loans), the Evaluation sheet which is used to evaluate the past performance of the WU. Computation sheets contain mostly formulas to process the data from the input sheets. The computation sheets include: water supply and demand and revenue projections (Supply-Demand-Revenue), operating expenses (OPEX), existing or proposed tariff structure (Tariff Design), projected cash flow (Project Cash Flow), movements of balance sheet accounts (BS Movements), and basic average tariff at constant prices (Basic Average Tariff). Output sheets contain the results from the input and computation sheets. There are two sheets, however, where inputs are still allowed, so that results can be fine-tuned further. These are the financial highlights (Highlights) of the financial projections, and the proposed tariff adjusted to include inflation (CPI Adjusted Tariff). The output sheets also include the financial reports where the resulting income statement and balance sheet (Reports) are shown. Figure 3-1 is a graphic presentation of these sheets that comprise the tariff model for Category A and B water utilities.


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Figure 3-1 Map of the Tariff Model – Category A and B

3.2 Tariff Model for Category C Water Utilities

The Tariff Model for Category C is composed of the following: Guide sheets. These guide sheets are composed of the table of contents showing a brief description of each worksheet (Contents), flowchart of the worksheets used in the tariff model (Flowchart), and the NWRB prescribed depreciation rates (Depreciation Table). Input sheets. These sheets are where the data are entered. Inputs are done only on the yellow-shaded cells. The other cells contain formulas and are protected. The input sheets are: list of existing assets of the WU (Existing Assets), water supply, demand, and revenue estimates (Supply-Demand-Revenue), operating expenses (OPEX), existing and projected loans (Loans), and existing or proposed tariff structure (Tariff Design). Computation sheet. The Basic Average Tariff sheet contains formulas to process data from the input sheets. It computes for the basic average tariff in constant prices. Output sheets. The CPI Adjusted Tariff-Flat and CPI Adjusted Tariff-Block sheets contain outputs resulting from the input and computation sheets. The CPI Adjusted Tariff-Flat shows the average tariff (one flat tariff rate for all customer categories) taking into account the inflation rate for the next four years prior to the next detailed review or CPC renewal. The CPI Adjusted Tariff-Block shows the different tariff rates for each consumption block and customer category. Figure 3-2 is a graphic presentation of these sheets that comprise the tariff model.


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Figure 3-2 Map of the Tariff Model-Category C

4 When to Use the Tariff Model

4.1 Initial Request for CPC Application

An initial CPC application requires a business plan for Categories A and B. The business plan is supported by the proposed tariff that will allow the recovery of investments in the water utility. The tariff model calculates this proposed tariff. A Category C WU is not required to submit a business plan. But it has to present how its proposed tariff is calculated. The Category C WU may calculate this using its independent calculation. It may also choose to use the tariff model for Category C WUs for its initial CPC application.

4.2 Request for Increase of Tariff and/or Renewal of CPC

Other instances when the tariff model will be used are:

1. When the WU (all categories) applies for a tariff increase (without renewal of CPC) 2. When the WU (all categories) applies for extension of service (without renewal of CPC) 3. When the WU (all categories) applies for the renewal of CPC, whether with a tariff

increase and/or extension of service 4. During the operations and financial review of the Category A and B WU after five years of

operations.


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2 Average Income of Low-Income Household

This assumption is used in determining the affordability of the minimum charge to a low-income household. The minimum charge should not exceed 5% of the monthly household income. The average household monthly income varies from one locality to another. The data is available from the Philippine Statistics Authority (PSA) website (http://web0.psa.gov.ph/). The household income is adjusted to the current year by applying the escalation factor also available in the website. Table 6-1 shows how this appears in the Assumptions Sheet.

Table 6-1 Average Income of Low-Income Household

Balance Sheet Accounts Assumptions

3 Cash Balance

The cash balance is expressed as the number of months of annual operating expenses that cash can cover. The industry standard is two to three months equivalent of annual operating expenses.

4 Collection Period

The collection period determines the ending balance of accounts receivable from water sales. The shorter the collection period, the better for the WU. This indicates that water bills are paid on time, resulting to a higher cash balance. This indicator is considered critical as it affects the liquidity of the WU. The assumption is expressed as the equivalent number of days of annual water revenues. It is computed as follows: = Accounts Receivable from Water Revenues x 365 days Water Revenues

5 Prepaid Expenses

The prepaid expenses are stated as the equivalent number of days of the annual operating expenses.

6 Inventory

The inventory level is stated as the equivalent number of months of the annual direct costs for chemicals and maintenance materials.

7 Accounts Payable

The accounts payable is stated as number of months of the annual operating expenses.

8 Notes Payable

This assumption represents the interest rate charged on notes payable.


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Table 6-2 shows how these Balance Sheet assumptions appear in the Assumptions Sheet.

Table 6-2 Balance Sheet Assumptions

` Income Statement Accounts Assumptions

9 Interest Earned

Under the model, all cash in excess of the determined cash position are invested in short-term deposits. This assumption determines the interest income (based on market rate) that will be earned from the Special Time Deposit which is a repository of cash in excess of the cash requirement.

10 Number of Employees

This assumption affects the Personnel costs of the WU and is stated as the number of employees at year-end. This number includes all types of employees, whether they are permanent, casual or temporary employees.

11 Salary Rate Increase

This assumption is another determinant of Personnel cost. This represents the real increase in salary rate. This is not the inflation rate since the financial projection is done in constant prices. If the WU has specific plans of a general increase in salaries other than inflation, this is the place where this general increase should be encoded.

12 Management Fees

This assumption determines the amount of management fees planned to be contracted by the WU. The figure inputted is the projected real increase (no inflation) in management fees compared to the previous years.

13 Power Cost

This is the unit rate of power cost per cubic meter of water produced. If there are no changes in the way water is extracted and delivered to the customers or the type of equipment used, this unit rate remains constant during the projection period.

14 Chemical Cost

This is the unit rate of chemical cost per cubic meter of water produced. If there are no changes in the way water is treated or the type of equipment used, this unit rate remains constant during the projection period.


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15 Repairs and Maintenance

This is used to calculate repairs and maintenance for the year based on the net book value of assets of the WU. The assumption is expressed as a percentage of net assets. Historical data may not be a reliable basis because the WU previous maintenance regime may have been limited by the availability of funds. A more reliable basis would be the WU’s Asset Management Plan and the industry average for this expense account.

16 Bad Debts

This assumption determines the amount of bad debts to be declared as an expense in the projected income statement. This assumption is expressed as a percentage of water revenues. This percentage may be based on historical data. It may also come from the WU’s best estimate based on its plans to clean up its receivables and write-off uncollectible accounts.

17 General and Administrative Expenses

This assumption is expressed as a percentage of personnel costs and management fees. Historical data may be considered in making this assumption, as well as the industry average.

18 Annual Water Charge per Water Source

This is based on the amount assessed by NWRB on the allocated volume granted in the water permit, whether for a deep well or a spring. If there is more than one water source, the average water charge for all these should be declared in the Assumptions sheet.

19 Supervision and Regulation Fee

Supervision and regulation fee, paid annually to NWRB, is calculated at P0.50 per P100.00 Capital Stock subscribed or paid or if no shares have been issued, of the capital invested, or of the property and equipment, whichever is higher.

20 Average Depreciation Rate

This is the assumed aggregate depreciation rate of all property and equipment (excluding land).

21 Franchise Tax

The franchise tax is expressed as a percentage of total water revenues after deducting bad debts.

22 Value-Added Tax (VAT) Rate

This assumption is in anticipation of the inclusion of water utilities in the payment of the VAT.

23 Income Tax Rate

The assumption is the percentage of income tax the WU has to pay. Table 6-3 shows how these Income Statement assumptions appear in the Assumptions Sheet.


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Table 6-3 Income Statement Assumptions to change table

Supply and Demand Assumptions

24 Total Number of Deepwells/Springs

This assumption gives an indication of the production capacity. It also determines the amount of annual water charges to be projected. This assumption should be based on the WU’s Business Plan.

25 Installed Production Capacity

This assumption determines the sufficiency of the WU’s own water production to meet water demand. It should be based on the WU’s Business Plan. It is used in checking whether there will be a water shortage or surplus. It is expressed in liters per second (lps).

26 Volume Produced

The volume produced for the last historical year is required to be inputted in the tariff model. If no additional water production capacity is planned, this will be the basis of projected water production. This data comes from the WU’s production data for the whole year, expressed in cubic meters (m3).

27 % Volume Pumped

This percentage is used in calculating power costs. This excludes volume extracted by gravity.

28 Bulk Water Purchases

If the WU supplements its water production with bulk water purchases, the volume of such purchases for a year, in cubic meters, is inputted in the tariff model. This assumption is for WUs that purchase water in bulk from Maynilad Water Services, Inc. (MWSI), Manila Water Company, Inc. (MWCI), a water district, or from other sources.


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29 Volume Sold

The total volume sold is used to calculate actual average monthly consumption per connection. The total volume sold or billed for the last historical year is inputted in the Assumptions sheet.

30 Non-Revenue Water (%)

The percentage of non-revenue water for the historical year is computed based on the total volume produced and purchased, if any. For the projection years, the rates are based on the WUs business plan. NRW is computed as follows: = (Volume Produced + Water Purchased – Volume Sold) x 100 (Volume Produced + Water Purchased)

31 Average Persons per Household

This assumption is used to calculate population served in the service area. This assumption may come from a survey of households in the WU’s service area, or from census data for the locality of the WU.

32 Population in Service Area

This assumption is used to determine population served. This data may come from census data from the government, or if the WU is serving a housing complex, data can be taken from the homeowner’s association.

33 Population Growth Rate

The population growth rate may be taken from the PSA or from census data from the local government. Table 6-4 shows how these Supply and Demand assumptions appear in the Assumptions Sheet.

Table 6-4 Supply and Demand Assumptions

34 New Connections

New connections need to be specified by type of consumer and meter size, for the historical years and for the projection years. These should come from the WU’s Business Plan. For ease of comparison between the years, these are inputted in the Assumptions sheet, and picked up in the Tariff Design sheet to calculate the annual revenues. Residential and institutional connections are charged the same rates. Residential/commercial connections refer to customers who also use their residence in their business activities (e.g., grocery store).


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Table 6-5 shows how the New Connections assumptions appear in the Assumptions Sheet.

Table 6-5 New Connections Assumptions

35 Total Connections

Total connections for each consumer category sum up the number of connections for the previous year and the new connections for the year. The overall Total Connections is the sum of all connections of all the consumer categories. Total connections for the first historical year need to be broken down by type of consumer and meter size in the yellow cells in the Assumptions sheet. Total connections for subsequent years add the new connections inputted to the total connections of the previous year. The model allows for five historical years of data, but the WU can start from a shorter period based on available data. These inputs of Total Connections are picked up in the Tariff Design sheet. Table 6-6 shows how the Total Connections assumptions appear in the Assumptions Sheet.


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Table 6-6 Total Connections Assumption

36 Average Consumption per Connection per Month

Average consumption per connection has also to be specified by type of consumer and meter size from the historical years to the projection years. Average consumption is expressed in cubic meters. Average consumption per connection per month is computed as follows: = Total Volume Sold / Total Connections / 12 Months

Table 6-7 shows how the Average Consumption assumptions appear in the Assumptions Sheet.

Table 6-7 Average Consumption Assumptions

Other Assumptions


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37 Connection Fee and Increase

The connection fee is taken from WU data. Any plans to increase the connection fee during the projection period should be reflected in the worksheet.

38 New Connection Cost (materials)

This is the cost to the WU for installing new connections and is part of the WU data to be provided, if available.

39 Customer’s Deposit

Some WU requires customers to make a deposit when applying for new connection. The amount is returned to the customer when it decides to cut his connection.

40 Membership Fee

Imposed by some WU (e.g., cooperatives, homeowners association) to new customers.

41 Evaluation

If the WU is submitting for an evaluation, the cell should be inputted by “Y” for yes.

42 Projection Period (year)

The period in years of the financial projection submitted by the WU.

43 Rate of Return

Indicate whether the WU will require a rate of return or not, by typing “Y” if a return is required. Category A WUs require a rate of return. Category B WUs are not motivated by profit, and do not require a rate of return. Table 6-8 shows how the other assumptions appear in the Assumptions Sheet

Table 6-8 Other Assumptions


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6.2.2 Historical Income Statement and Balance Sheet

For WUs that have other lines of business other than water supply services, encode only those accounts related to water supply operations. For WUs that are not yet operational, leave this sheet blank. Encode the following data:

1 Name of the water utility

2 Address of the water utility

Items 1 and 2 above are picked up as headings in all the sheets in the tariff model so that there is no need to copy these headings to the other sheets.

3 Last historical year

This is the year of the latest historical data inputted. This year is picked up in the column headings of other sheets.

4 Earliest historical year

This is the year of the earliest historical data inputted. Table 6-9 below shows how these inputs appear in the tariff model.

Table 6-9 Basic Inputs in Historical Data

5 Income Statement

The accounts appearing in the WU’s Income Statement may need to be reclassified to conform to the classification in this sheet. This is required for uniformity of account classification among WUs and to streamline the number of OPEX accounts. Income statement accounts not appearing on the sheet may be lumped together under the account “Other General and Administrative Expenses”. Table 6-10 shows the income statement portion as well as the other inputs mentioned above.


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Table 6-10 Income Statement Input Sheet

6 Balance Sheet

Like the income statement, balance sheet accounts have been standardized so that the tariff model may be used by almost any WU. Only balance sheet accounts that are directly linked to the water supply operations are shown individually. Other insignificant accounts may be grouped together in the “Other” accounts. For WUs that have other lines of business other than water supply services, where the Balance Sheet accounts reflect the financial condition of all these lines of business, the accounts pertaining to water supply operations only must be provided, so as to enable the tariff model to project a balance sheet for the WU. The total assets should be equal to the sum of the total liabilities and equity for every year. Table 6-11 shows the Balance Sheet portion.


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Table 6-11 Balance Sheet Input Sheet

6.2.3 Existing Assets

The Existing Assets sheet contains information related to the WU’s property and equipment used to supply water. Details of the WU’s assets (i.e., description, useful life in years, acquisition date, and acquisition amount) are inputted here. Indicate in column “E” whether the asset is entitled to return or not by typing “N” if the asset is not entitled to return. The amount of these assets, including the practical useful life and the asset condition, are determined by the NWRB technical staff. In general, all assets are entitled to return, except:

1. Assets not in service, such as those that have outlived their useful life and are no longer used in water supply operations; and

2. Assets donated or funded by grants. Data to be inputted in this sheet come from the itemized list of assets required to be submitted by the applicant WU, as enumerated in Section 5-Documents Needed. The sum of all the existing property and equipment should tally with the amount in the balance sheet as of the latest historical year. This sheet also calculates the value of recovered assets, unrecovered assets and not recoverable assets.


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Figure 6-1 illustrates how portions of the assets are classified into the above-mentioned categories. This methodology also applies to new assets which is shown as “New Investment” in Figure 6-1. Recovered assets represent the value of the assets entitled to return before the planning period which is equivalent to the depreciation amount before the planning period (left column). Unrecovered assets represent the value of the assets used in service and entitled to return during the planning period which is equivalent to the depreciation amount during the planning period (middle column). Not recoverable assets are the value of the assets entitled to return that goes beyond the planning period (right column).

The value of the assets that are considered in the computation of the tariff are those that fall within the planning period (unrecovered). This is computed by taking the total value of the assets (bars labeled “Existing Asset 1” + “Existing Asset 2” + “Investment 1” + “Investment 2”) less the value of the recovered assets that falls before the planning period (left column), less the value of the not to be recovered assets that falls after the planning period (right column).

Figure 6-1 Recovered, Unrecovered and Not Recoverable Assets

Unrecovered assets, columns H to J of Table 6-12, are computed by the tariff model and the amount is picked up in year 1 (outflow) of the Project Cash Flow sheet. The amount is treated similar to a new investment which will be recovered through the water tariff.


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Not recoverable assets, columns K and L of Table 6-12, are computed and the amount is picked up in year 10 (inflow) of the Project Cash Flow sheet. By placing the amount as part of the inflow, the amount is treated similar to withdrawing an investment. By adding the unrecovered assets (equivalent to the net book value of assets at the start of the projection period) and subtracting the not recoverable assets (equivalent to the net book value of assets at the end of the projection period) in the project cash flow, the tariff model actually allows the depreciation of the existing assets during the projection period to be recovered through the tariff rate, but with the timing of investment considered. Table 6-12 shows the Existing Assets sheet.

Table 6-12 Existing Asset Sheet

6.2.4 New Investments in Constant Prices

The new investments are taken from the disbursement schedule of the Performance Improvement Plan (PIP) developed by the WU. Since the PIP may vary from one WU to another, this sheet, New Cap Inv-Constant, is not protected to allow the user to copy the investments manually into this sheet. Each type of investment should have a separate row for the year of investment. The details of the WU’s proposed investments (i.e., description, useful life in years, and acquisition amount) are inputted here. It is recommended that the investments be classified according to the


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NWRB prescribed useful life contained in the Depreciation Table sheet, to facilitate encoding into the tariff model. The amount of the investment should be inputted under the year that the investment is to be made. The calculation of the “unrecovered assets” and the “not recoverable assets” follows the procedure discussed Section 6.2.3-Existing Assets. This sheet contains two major sections.

1. The upper section contains the physical investments classified according to major works or activities, with the cost distributed over the years that they will be implemented. Physical investments entitled and not entitled to return should be inputted separately. Assets not entitled to return are those funded by a loan or acquired through donation.

2. The lower section is the non-physical investments which include the soft component (i.e.,

capacity building, feasibility studies, etc.). The total amount in this section is passed on to the “General and Administrative Expenses” of the OPEX sheet.

An illustration of this sheet can be seen in Table 6-13 below.


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Table 6-13 New Investments

6.2.5 Loans

This sheet contains a summary of all the existing and proposed loans of the WU. For each loan account, input the needed data from the following source documents (Table 6-14):

Table 6-14 Loan Source Documents

Data to be Inputted Source Document

Existing Loans Loan number Annual principal payment Annual interest payment Arrears in principal and interest

Loan agreement Amortization schedule Amortization schedule Latest statement of account


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Data to be Inputted Source Document

New Loans Loan number Loan disbursements Loan terms (i.e., repayment period, grace period

and interest rate) Principal repayment Interest repayment

Loan agreement Loan agreement Loan agreement Amortization schedule Amortization schedule

If the WU has more than one outstanding loan account, distribute the Loans Payable and Interest Payable to the appropriate Outstanding Loan sections (Table 6-15).

Table 6-15 Loans

6.2.6 Evaluation

Evaluation of the financial performance of the WU during the last period is done using the Evaluation sheet. Figure 6.2 illustrates the basis for the evaluation of the WU.


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Financial Projection for Years 6 to 10 To complete the 10-year projection period, projected figures from years 6 to 10 used in the previous planning period are inputted into the yellow cells of the Evaluation sheet (see Table 6-17). These projected figures are different from the projection figures used for the next planning period. This will allow for the comparison of the actual financial performance of the WU with that of the projected performance during the previous planning period.

Table 6-17 Financial Projection for Years 6 to 10

Financial Adjustments Actual inflation rates and the rate of return used during the previous planning period are used in the evaluation sheet. The model will compute for the net present value of the net cash flow in constant prices with year 1 as base year. Then, the model will compute for the equivalent net present value by year 6. The resulting amount is the adjustment for the previous period. If the resulting net present value is negative, this means that the WU has under charged in the previous period. And if it is positive, the WU has over charged in the previous period. The net present value figure is an input into the Project Cash Flow sheet (cell G14) for the next planning period. See Table 6-18.

Table 6-18 Adjustments on Previous Planning Period

Rewards and Penalties Pending the development of a rewards and penalties framework, NWRB shall use its existing method of adjustments related to non-revenue water (NRW).


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6.3 COMPUTATION SHEET

Computation sheets are those that contain mostly formulas with a few or no input cells. The following are the computation sheets:

6.3.1 Supply, Demand and Revenue

The Supply-Demand-Revenue sheet is all computations, with no yellow or input cells. The supply section shows whether there is a water surplus or shortage, depending on the total production capacity as against the total production requirement. The demand section shows the new connection, total connections, average person per household, percent population served, average consumption per connection, and projected volume sold. Table 6-19 shows how this appears in the tariff model.

Table 6-19 Supply and Demand Section

The revenue section includes the average annual revenue (derived from the annual year-end revenue of the Tariff Design sheet). It also includes the new connection fees, other operating revenues and non-operating income. This section of the tariff model is shown in Table 6-20.


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Table 6-20 Revenues

6.3.2 Operating Expenses

The OPEX sheet computes the projected operating expenses of the WU.

1 Personnel

Personnel cost is based on the personnel cost per employee per year and the number of employees. This section of the OPEX sheet also shows the employees to connection ratio expressed as employees per 1000 connections and connections per employee that can be used to benchmark the WU’s performance with that of the previous year or with the performance of similar WU.

2 Management Fees

If the WU has an existing management contract, or plans to enter into one during the next five years, or plans to terminate its contract within the next five years, this is the section where these data are to be reflected. This expense account is computed based on the previous year’s level by multiplying the amount of fees of the previous year with the assessed annual rate increase in the Assumptions sheet. If there are no previous management fees yet, then the initial amount of the fees may be inputted in the “Management Fees” row.

3 Power

Power cost is projected by first calculating the historical unit power cost per m3 produced. Then this unit cost is multiplied by the projected volume to be produced calculated in the Supply-Demand-Revenue sheet. If the WU only pumps a portion of its production, the percentage pumped will be inputted to arrive at the volume pumped.

4 Chemicals

Annual chemical cost is computed by multiplying the chemical unit cost per m3 produced with the projected volume of water to be produced.


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5 Bulk Water Purchases

This account applies to water utilities that purchase bulk water to augment its own production to be able to serve its customers. This is calculated by multiplying the volume to be purchased (from the Supply-Demand-Revenue sheet) by the cost of bulk water per m3.

6 Repairs and Maintenance

This account is calculated by multiplying the net book value of assets by the assumed maintenance cost as a percentage of net assets in the Assumptions sheet.

7 Bad Debts

Bad debts expense is calculated by multiplying the water revenues by the bad debts percentage assumed in the Assumptions sheet.

8 Annual Water Charge

This is computed by multiplying the number of deep wells operated by the WU by the water charge per well as declared in the Assumptions sheet.

9 Supervision and Regulation Fee

This fee is computed as 0.5% of the Property and Equipment in Service or Paid-up Capital, whichever is higher.

10 General and Administrative Expenses

This expense account is projected by multiplying the total personnel cost and management fees by the percentage declared in the Assumptions sheet. Should there be recurring expenses in the 5-year PIP, these are included in this account.

11 Depreciation

Depreciation is projected by multiplying property and equipment (excluding land) by the aggregate average depreciation rate if no details of the property and equipment are available, otherwise the Existing Assets sheet will compute for the annual depreciation. Table 6-21 shows the format in the tariff model.


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Table 6-21 Operating Expense


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6.3.3 Project Cash Flow

The Project Cash Flow sheet contains the cash inflow, cash outflow, net cash flow and cumulative net cash flow, as shown in Table 6-22 below. It also shows the computation of the payback period. Payback period is the period of time to recoup the funds expended in an investment or to reach break-even point.

Table 6-22 Project Cash Flow

Not recoverable assets/investments in the cash inflow are valued using their net book value at the end of the planning period. Unrecovered investments in the cash outflow are valued using their net book value at the start of the planning period. These are all calculated in the Existing Assets and New Cap Inv-Constant sheets. Adjustments on the previous period come from the Evaluation sheet.

6.3.4 Tariff Design

This sheet contains the existing/proposed tariff structure of the WU. From these data, the annual year-end water revenues are computed and passed on to the Supply-Demand-Revenue sheet which computes for the average annual water revenues (sum of previous annual year-end revenue and current annual year-end revenue, and divided by two)5. This information will be passed on to the Highlights sheet that computes for the rate of return. Inputs to this sheet have been done in the Assumptions sheet. These are the number of connections and average monthly consumption by customer category and pipe size.

5 Averaging is done to avoid over estimating the projected annual revenues.


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Table 6-23 illustrates how water revenues are calculated for every consumption block.

Table 6-23 Computation of Water Revenues

The equivalent revenue (ER) is the product of the equivalent volume (EV) of water sold and base tariff. The details of the computation are as follows:

a. Compute water tariff per pipe size and consumption block.

= base tariff X pipe size factor X consumption block factor

b. Compute the annual volume sold per pipe size and consumption block.

= consumption per month (per block6) in m3 X Number of connections X 12 months

c. Compute the ER.

= water tariff (per pipe size and consumption block) X annual volume sold

The sum of all the ER from the different customer categories is called the annual year-end revenue. It is considered as year-end revenues since it was based on the number of connections at year-end. This data is passed on to the Supply-Demand-Revenue sheet.

6.3.5 Basic Tariff

The Basic Tariff sheet summarizes the tariff structure and rates in constant prices computed in the Tariff Design sheet. If the existing rates have been in effect for less than three years, the proposed rates must not result to an increase higher than 80% of the existing tariff.

6 This is done for each consumption block.


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For simplicity of implementation, the tariff rates are rounded to the nearest ten centavos. The rates will be passed on to the CPI Adjusted Tariff sheet for computation of the inflated tariff rates applicable for the next five years. Table 6-24 shows how this report appears in the tariff model.

Table 6-24 Basic Average Tariff in Constant Prices

6.3.6 Balance Sheet Movements

This sheet contains the movements of each balance sheet account to assist the user in analyzing them. There are very few inputs required in this sheet. These are in the accounts with yellow cells, as follows:

▪ Disposal of assets – value of assets disposed ▪ Other Current Liabilities – additions and payments ▪ Other Liabilities – increase or decrease ▪ Capital Reserves – increase or decrease

6.4 OUTPUT SHEETS

The tariff model output sheets generate reports needed for the evaluation of the results of the projections and the proposed tariff. They contain almost no input cells.


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6.4.1 Highlights

The Highlights sheet can be divided into three sections: 1. Key performance indicators and some assumptions used 2. Investments and funding sources 3. Calculation of base tariff to result to an acceptable rate of return

1 Key Performance Indicators and Assumptions Some assumptions are inputted in the Highlights sheet to facilitate revising them and immediately see the improved key performance indicators. See Table 6-25 for the details of this section. Critical results to watch out for when revising the assumptions are the following:

1. Population served does not exceed 100%. 2. There is no water shortage. 3. Water bill is affordable to the lowest income household. 4. These ratios are within acceptable limits:

a. Personnel ratio b. Net income ratio c. Operating ratio d. Debt Service Ratio

Table 6-25 Key Performance Indicators and Assumptions

2 Investments and Funding Sources Investments and funding sources are shown in the Highlights sheet to easily see financing gaps and how to resolve them. See Table 6-26 for the details of this section. Financing gaps may be addressed by any or a combination of the following:


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a. Fine-tuning of Assumptions

The WU may review the assumptions it initially made to change the variables that have a major impact on the operations of a WU. Some of these variables are shown in the upper portion of the Highlights sheet. Inputs for non-revenue water and collection period are done here, instead of the Assumptions sheet.

b. Additional Equity Needed

The cells in this line should be equal to zero. If this line shows any amount, the amount represents a financing gap. The WU has several options in eliminating the financing gap. To fill the financing gap, the WU can use the depreciation reserve fund, provide additional capital, secure a loan, or solicit donations. For water cooperatives, capital contributions of members may also be tapped as a source of fund. All the options should be based on the WU’s Business Plan for the next five years, or the Business Plan should be revised if the results in the tariff model show that the Business Plan is not giving satisfactory results.

c. Short-Term Deposits, Cumulative

This line shows the cumulative balance of short-term deposits at the end of the year. It is assumed that cash in excess of the assumed balance is invested by the WU in short-term deposits that can be used for future investment requirements.

d. Depreciation Reserve Fund, Usage

The depreciation reserve fund comes from the annual depreciation allowance set aside by the WU to finance future replacement of old/ dilapidated assets. It is important that the WU diligently maintain this depreciation reserve fund. The fund can be used to fill any funding gap to cover capital investment during the 10-year period. It is sensible to leave something in the fund for unforeseen events that may arise in the succeeding years.

e. Modification of Capital Investments

The WU may modify its capital investments by adjusting the timing where it can finance the capital costs. It may also modify the amount of the capital investments to be made in a given year. These modifications should be reflected in the WU’s Business Plan.


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Table 6-26 Investments and Funding Sources

3 Calculation of Base Tariff The calculation of the base tariff is shown in the Highlights sheet to readily see the effects of the base tariff on the total operations of the WU and to readily adjust the assumptions and funding sources until results are acceptable. Initially, the net cash flow is calculated in the Project Cash Flow sheet (Table 6-22). Then the rate of return or ROR (the discount rate where the present value of the inflow and the present value of the outflow are equal) is computed in the lower portion of the Highlights sheet (Table 6-27). The resulting ROR is then compared to the allowable ROR. If the ROR is less than the allowable ROR, the basic tariff (water tariff for a pipe size factor of 1 and for a consumption block factor of 1) is adjusted upwards by inputting a higher amount in the yellow cell (Cell G50). If the ROR is greater than the allowable ROR, the basic tariff is adjusted downwards by inputting a lower amount in the yellow cell. To fine tune the result, click the blue icon in the Highlights sheet. This will trigger the automatic7 inputting of the basic tariff in the yellow cell until the ROR is equal to the allowable ROR. Aside from comparing the ROR and the allowable ROR, another way is to check if the net present value, purple cell (G48), approximates zero.

7 Macro must be enabled in order to use this feature.


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Table 6-27 Calculation of Base Tariff

Figure 6-3 below is the diagram of the relationship between the four sheets which directly contribute to the computation of the ROR. The Project Cash Flow sheet computes the net cash flow of the WU. The Highlights sheet computes the rate of return of the net cash flow and the assumed basic tariff. This basic tariff is passed on to the Tariff Design sheet to compute for the annual year-end revenues, which are then passed on to the Supply-Demand-Revenue sheet. The Supply-Demand-Revenue sheet computes for the average annual revenue and these values are passed on to the Project Cash Flow sheet, then back to the Highlights sheet to compute for the ROR.

Figure 6-3 Rate of Return Computation Flow

6.4.2 CPI Adjusted Tariff

Tariff rates computed from the Basic Tariff sheet are adjusted in the CPI Adjusted Tariff sheet for inflation based on the rates established by the NWRB, as illustrated in Table 6-28. No inputs are needed for this table.


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Table 6-28 CPI Adjusted Tariff

Then the resulting tariff rates are fine-tuned for the gaps between consumption blocks and consumer categories to reflect the amount of subsidy between different customer categories and between low-volume and high-volume water consumers. This is done through the Consumption Block Factor (Table 6-29). For each customer category and consumption block, input the consumption block factor. Although the consumption block factors are used in computations in the Tariff Design sheet, the inputs are made in the CPI Adjusted Tariff sheet to fine tune the tariff structure for implementation.

Table 6-29 Consumption Block Factor

The tariff structure based on the CPI adjusted tariff, and fine-tuned with the consumption block factors will be the proposed tariff for implementation and will be applied in the next five years starting from the year of application/ review. See Table 6-30 for illustration.


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Table 6-30 Proposed Tariff for Approval

After the water tariffs have been determined, the tariff model proceeds to evaluate the affordability of the minimum charge to the low-income household. Based on industry standards, the water charge for the lifeline water consumption should not exceed about 5% of the household income of a low-income household in the service area of the WU. Lifeline consumption is the assumed volume of water used by a household for basic needs, like drinking, cooking, bathing and washing. In the absence of a study determining this lifeline consumption for the WU, a consumption of 10 m3 (for a household composed of 5 persons) may be used. This is done in the tariff model by comparing the monthly charge for 10 m3 consumption with the 5% of the household income. See Table 6-31. Should the monthly charge be excessively higher than the monthly household income, the user may adjust the consumption block factor (i.e., lower factor for water consumption of 10 m3 and below) in the Tariff Design sheet until the result becomes acceptable.

Table 6-31 Affordability Test


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6.4.3 Reports

The Reports sheet contains the financial reports that are to be printed to support the WU’s request for tariff approval. The reports are presented in constant prices.

1 Levels of Service

The levels of service discussed and agreed with customers in general include non-revenue water, service coverage, water pressure, continuity of water service, water quality standards, and emergency provisions of water supply. It may also include response to complaints, requests for new connections, and repair of leaking pipes. Some of these agreements are converted into the numerical data and are considered by the tariff model in determining the proposed water rates. Table 6-32 shows the content of this section.

Table 6-32 Levels of Service

2 Key Performance Indicators

The second part of this sheet shows key performance indicators (KPI) based on past and projected performance of the WU. These KPIs will be used by NWRB to develop benchmarks of performance of the WU. Table 6-33 shows the contents of this part of the sheet.

Table 6-33 Key Performance Indicators

3 Income Statement

The Income Statement reflects the actual and forecasted result of operations of the WU based on inputs made in various other sheets. It only contains accounts related to water supply operations. Table 6-34 shows how this appears in the tariff model.


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Table 6-34 Income Statement

4 Flow of Funds Statement

The Flow of Funds Statement shows the internal cash generation, changes in the balance sheet between the previous year and the current year, uses of funds to cover debt service payments and capital investment requirements, and other sources of funds not coming from operations, such as loan proceeds, donated funds, or additional equity contributions. The ending cash balance reflects the assumption given in the Assumptions sheet, based on how many months of cash equivalent can cover operating expenses. Any cash surplus is deposited in a special time deposit account (i.e., purchase of deposits). Should there be a cash deficit in any given year, funds from the special time deposit are first used (i.e., sale of deposits), before resorting to other fund sources. Table 6-35 shows how this appears in the tariff model.


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Table 6-35 Flow of Funds Statement


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5 Balance Sheet Statement

The Balance Sheet reflects the financial condition of the WU at the end of each year. Only significant balance sheet accounts are shown separately. The other accounts are combined in the “Other” accounts. Table 6-36 shows how this appears in the tariff model.

Table 6-36 Balance Sheet


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7 Tariff Model for Category C Water Utilities

7.1 GUIDE SHEETS

There are three guide sheets in this tariff model: Contents sheet listing the description of each sheet in the tariff model; Flowchart sheet showing the map of the sheets used in the tariff model; and Depreciation Table sheet containing the NWRB prescribed depreciation rates.

7.2 INPUT SHEETS

7.2.1 Existing Assets

For WUs with no detailed data of their assets, this sheet is not used. The Existing Assets sheet (Table 7-1) contains information related to the WU’s property and equipment used for water supply operation. This sheet computes the annual depreciation amount to be included in the computation of the basic tariff. This sheet also differentiates assets funded by loan or not. Assets funded by loan are excluded in the computation of the basic tariff since the “required revenue” computation also includes amortization of the loan. For assets funded by loan, input “Y” under the column “Classification if Funded by Loan or Not”. Inputted here are details of the WU’s assets (i.e., asset description, useful life in years, acquisition year, and acquisition amount). The depreciation amount calculated in this sheet is passed on to the Basic Average Tariff sheet.

Table 7-1 Existing Assets


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7.2.2 Supply, Demand and Revenue

For WU with no detailed data on water supply and demand, this sheet is not used. This sheet contains these sections:

1. Water supply section contains the water supply production capacity of the WU, bulk water purchases, if any, non-revenue water, volume required to be produced, and the status if there is a water surplus or shortage. The following water supply production data are inputted (in yellow cells): installed production capacity, bulk purchases and non-revenue water as a % of production (Table 7-2).

Table 7-2 Water Supply

`

2. Water demand/sold data inputted here are: average number of persons per household and population in the service area. For the previous (actual) year, the following data are also inputted: actual number of connections per consumer category and actual total volume sold for the year. For the current year, water demand data are inputted in the Tariff Design sheet (Table 7-3).

Table 7-3 Water Demand/Sold

3. Water revenue data inputted here are: average annual water revenues of the past (actual) year (see Table 7-4). The targeted revenue data (2014 in this example) is derived from Basic Average Tariff sheet.


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Table 7-4 Water Revenues

7.2.3 Operating Expense

For WU with no detailed data on operating expenses, this sheet is not used. The OPEX sheet contains the operating expenses data. The following are inputted in this sheet:

1. Personnel cost (number of employees and annual cost per employee) 2. Management fees, if any 3. Power (% of volume produced that is pumped and power unit cost) 4. Chemical costs (chemical unit cost per cubic meter of volume produced) 5. Bulk water purchases (bulk water unit cost per m3) 6. Repairs and maintenance (cost as % of net assets) 7. Bad debts 8. Annual water charge (number of wells and water charge per well) 9. Paid-up Capital, used as basis for calculating the Supervision and Regulation Fee 10. Franchise tax (tax rate) 11. General and administrative expenses (cost as % of personnel and management fee)

In addition to the above, a working capital representing two months of the total operating expenses is added to the total revenue requirements used in calculating the Basic Average Tariff. The sum of all these expenses is passed on to the Basic Average Tariff sheet. Table 7-5 shows how these are represented in the model.


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Table 7-5 Operating Expenses


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7.2.4 Loans

For WU with no detailed data on loan terms, this sheet is not used. The Loans sheet (Table 7-6) contains the interest and principal payments of the WU for its loan. The amortization amount (interest plus principal) is passed on to the Basic Average Tariff sheet.

Table 7-6 Loan Amortization

7.2.5 Tariff Design

For WU with only one tariff rate for all customer categories, this sheet is not used. The Tariff Design sheet has these sections:

1. Tariff Structure. This section shows for each type of consumer, the pipe size, pipe size factor and the consumption block factor are provided by NWRB8 (see Table 7-7). These are inputted in this section for each type of consumer:

a. Number of connections for each pipe size b. Average consumption of connections for each pipe size

8 The same as LWUA’s standards.


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Table 7-7 Tariff Design Sheet

2. Consumption and Connections Summary. This section summarizes the average monthly consumption and the total connections (see Table 7-8). From these data, the total volume sold (TVS) and total equivalent volume (TEV)9 are computed and passed on to the Basic Average Tariff sheet. Inputted in this section is the base tariff copied from Cell H13 (copy the value of this cell) of the CPI Adjusted Tariff sheet, as shown in Table 7-9.

9 TVS multiplied by the pipe size factor and consumption block factor for each customer category.


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Table 7-8 Consumption and Connections Summary

3. Affordability Test. The last section of this sheet calculates the affordability of the tariff, as illustrated in Table 7-9 below. The monthly tariff collected from the first 10 m3 consumption should not exceed 5% of the household income of a low-income household. If the result is within 5%, the result is considered “Acceptable”. Inputted in this section is the household income of a low –income household. This can be obtained from the City/Municipal Planning and Development Officer where the WU is located.

Table 7-9 Affordability Test

7.3 COMPUTATION SHEETS

7.3.1 Basic Average Tariff

The Basic Average Tariff sheet computes for the basic average tariff, whether the WU uses a flat tariff or tariff based on consumption blocks. If the WU does not have details for the different input sheets (i.e., Existing Assets, Tariff Design, Loans, Supply-Demand-Revenue and OPEX), the WU needs only to input directly in the Basic Average Tariff sheet the following:

1. Total operating expenses, which includes the 2-months working capital provision 2. Amortization (interest plus principal payment) 3. Depreciation 4. Total volume sold

When using the tariff model to compute for the basic average tariff, input in cell “B18” of the Basic Average Tariff sheet (Table 7-10):

“y” if the WU uses consumption blocks or “n” if the WU uses a flat tariff.


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Table 7-10 Basic Average Tariff

Manual Computation of Basic Average Tariff Alternatively, the WU can compute the basic average tariff manually using the following formula: A. For WU using consumption blocks

1. Compute the total annual required revenue (TARR). = operating expenses + amortization + depreciation

2. Compute the total equivalent volume (TEV) for the year. = consumption per month in m3 (per customer category and per block10) X pipe size factor X consumption block factor X number of connections X 12 months

3. Compute the basic average tariff. = TARR / TEV

B. For WU using flat tariff

1. Compute the total annual required revenue (TARR). = operating expenses + amortization + depreciation

2. Compute the total volume sold (TVS) for the year.

= consumption per month (per customer category) in m3 X number of connections X 12 months

10 This is done for each consumption block for each customer category.


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3. Compute the basic average tariff. = TARR / TVS

7.3.2 CPI Adjusted Tariff

When using the tariff model to compute for the CPI adjusted tariff, input the following in the CPI Adjusted Tariff sheet:

1. Projected inflation rates as provided by NWRB; and 2. Projected volume sold for the next four years prior to the next review (2016 to 2019 in

the example Table 7-11 below).

Table 7-11 CPI Adjusted Tariff – Flat Tariff

If the WU uses a flat tariff for all customer categories, the figure in cell “H13” is the tariff rate to be charged to customers until the next review period (Table 7-11). If the WU would like to use consumption blocks, copy the contents (value format) of cell “H13” as illustrated above to cell “G46” in the Tariff Design sheet, as illustrated in Table 7-8. The resulting CPI adjusted tariff is passed on to the CPI Adjusted Tariff-Block sheet. Manual Calculation of CPI Adjusted Tariff To compute the CPI adjusted tariff11, using the data in Table 7-10, the steps and formulas are used: 1. Compute the inflation factor for each of the projection years.

a. Compute the inflation factor for 2016 (2015 as base year with inflation factor = 1).

= 1 X (1 + inflation rate in 2016) or = 1 X (1 + 3%)

b. Compute the inflator for 2017. = inflation factor for 2016 X (1 + inflation rate in 2017) or = 1 X (1 + 3%) X (1 + 3.5%)

11 Inflation rates will come from NWRB.


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c. Compute the inflator for 2018.

= inflation factor for 2017 X (1 + inflation rate in 2018) or = 1 X (1 + 3%) X (1 + 3.5%) X (1 + 3.5%)

d. Compute the inflator for 2019.

= inflation factor for 2018 X (1 + inflation rate in 2019) or = 1 X (1 + 3%) X (1 + 3.5%) X (1 + 3.5%) X (1 + 4%)

2. Compute the CPI adjusted revenues.

2016 CPI adjusted revenue: = inflation factor for 2016 X (2015 revenue) or = 1.030 X (1,001,900) = 1,031,957 2017 CPI adjusted revenue: = inflation factor for 2017 X (2015 revenue) or = 1.066 X (1,001,900) = 1,068,076 2018 CPI adjusted revenue: = inflation factor for 2018 X (2015 revenue) or = 1.103 X (1,001,900) = 1,105,458 2019 CPI adjusted revenue: = inflation factor for 2019 X (2015 revenue) or = 1.147 X (1,001,900) = 1,149,677


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3. Compute the sum of CPI adjusted revenues and the base year revenue: = revenue for 2015 + revenue for 2016 + revenue for 2017 + revenue for 2018 + revenue for 2019

4. Compute the sum of annual volume of water sold: = volume sold for 2015 + volume sold for 2016 + volume sold for 2017 + volume sold for 2018 + volume sold for 2019

5. Compute the CPI adjusted tariff:

= total revenues / total volume sold

For WU using flat tariff for all customers, the CPI adjusted tariff is the applicable tariff rate until the next review period.

7.3.3 CPI Adjusted Tariff-Block

This sheet has two sections: A. Consumption Block Factor Section

The factors (in yellow cells) in Table 7-12 for each consumer type and consumption block may be changed until the water utility is satisfied with the gap between the tariff for each consumption block for the different customer types.


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Table 7-12 Consumption Block Factor

B. Proposed Tariff Structure Section

This section displays the proposed tariff structure based on consumption blocks for the next five years prior to the next tariff review (Table 7-13).

Table 7-13 CPI Adjusted Tariff – Consumption Block


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Manual Calculations of Tariff Structure Using Consumption Blocks For WU using consumption blocks, the CPI adjusted tariff should be multiplied by the corresponding pipe size factor (from Tariff Design sheet) and consumption block factor (CPI Adjusted Tariff-Block sheet) to arrive at the rate for each customer category. Sample calculations are shown below. Example 1 CPI Adjusted tariff: 10.98 Customer category: Residential Pipe size: ½” Pipe size factor: 1.0 Monthly consumption: 15 m3 Consumption block factor: (0-5m3) is 1.0; (6-10m3) is 1.25; (11-20m3) is 1.5 Tariff rate (0-5m3)

= CPI Adjusted Tariff X pipe size factor X consumption block factor Or = 10.98 X 1.0 X 1.0 = 10.98, or 11.00, rounded to the nearest ten centavos

Tariff rate (6-10m3)

= 10.98 X 1.0 X 1.25 = 13.725, or 13.70, rounded to the nearest ten centavos

Tariff rate (11-20m3) = 10.98 X 1.0 X 1.5 = 16.47, or 16.50, rounded to the nearest ten centavos

Example 2 CPI Adjusted tariff: 10.98 Customer category: Commercial Pipe size: ½” Pipe size factor: 2.0 Monthly consumption: 35 m3


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Consumption block factor: (0-15m3) is 2.0; (16-30m3) is 2.5; (31-500m3) is 3.0 Tariff rate (0-15m3)

= CPI Adjusted Tariff X pipe size factor X consumption block factor Or = 10.98 X 2.0 X 2.0 = 43.92, or 43.90, rounded to the nearest ten centavos

Tariff rate (16-30m3) = 10.98 X 2.0 X 2.5 = 54.90

Tariff rate (31-500m3) = 10.98 X 2.0 X 3.0 = 65.88, or 65.90, rounded to the nearest ten centavos

TARIFF MODEL FOR REGULATED WATER UTILITIES USER S … · MWCI Manila Water Company, Inc. MWSI...

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