Session Objective. Topics. Financial Capacity and Rates!

Transcription

1 Financial Capacity and Rates! Jeff Hughes, Annalee Harkins, Shadi Eskaf UNC School of Government Environmental Finance Center, February 6, 2018 Chapel Hill, NC Session Objective Share experiences and practices prevalent among participants and utilities throughout the state Topics Rate setting environment Headline stories and issues Outside rates Affordability Transfers Outreach/communication Dashboard Preview Research on the State of Rates and rate practices in NC What is biggest challenge to setting rates in your utility? (2017 participants) 1. Falling consumption trends/difficulty with projections 2. Governing board s unwillingness to raise rates 3. Communities ability to pay more for water and wastewater service 4. Pressure to keep rates comparable to other water utilities 5. Rising cost of other governmental taxes and fees 5% 33% 38% 19% 5% 0% 6. Other?

2 Anticipated rate increase request for next year (2016 Participants) 1. No change 2. 0 to 2.99% 3. 3 to 5.99 Headline Stories and Issues 4. 6 to or above Rates Continue to be Scrutinized The Future of Rate Setting and Revenue Monitoring? Status Quo State incentives or disincentives (Eligibility for state grants) Statutory prohibitions (stormwater fees) Statutory limits and thresholds Third party oversight (investor owned utilities) Required processes (System Development Fees) Adherence to more consistent practices

3 Rates In addition to municipalities, 10 other utilities (Sanitary Districts, Metropolitan District, and Counties) also charge outside rates differentials. Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

4 Not all Transfers are Created Equal Reimbursements to cover services/indirect costs Loan repayments for general fund loan Payment of rate of return for investments Payment in lieu of taxes (PILOT) Undocumented and used to coverall general fund shortfalls Unknown Preliminary Results of Utility Management Survey on Transfers Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

5 Your First View of the NC Water & Wastewater Rates Dashboard Displaying January 2018 rates Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory) Thanks to the Division of Water Infrastructure of the NC Department of Environmental Quality for funding and providing this resource to NC utilities. Your Sneak Peak into The State of Rates in NC in 2018

6 NC Water and Wastewater Rates Survey Joint annual surveys since survey: 495 utilities included (95%) Rates Dashboard just released! Tables and summary report to be distributed in coming weeks at and Resources for utilities provided and funded by the Division of Water Infrastructure of the NC Department of Environmental Quality Picture Source: Indio Water Authority NC local government utilities collected more than $2.86 billion* in water and wastewater operating revenues in FY2017 * Not including ~80 municipalities with missing data at the time of this presentation, probably pushing the total to $3.0 billion Charlotte Water collected $402 million in water and wastewater operating revenues in FY2017 Highest in North Carolina Picture Source: Charlotte Water Town of Whitsett collected $17,957 in water operating revenues in FY2017 (no wastewater system) Lowest in North Carolina Picture Source: Google Maps Streetview

7 If this was Charlotte Water s revenues Then this was Whitsett s revenues (actually this is larger!) Half of the utilities charge residential customers more than $74.37 for combined water and wastewater per month $34.00 for water $42.00 for wastewater For inside residential customers using 5,000 gallons/month

8 Picture Source: Wikimedia Commons The Average North Carolinian pays 83% of NC s municipalities charge different rates outside city limits Half of the municipalities charge 1.83x higher for water and 1.93x higher for wastewater than they do for inside customers $72.13/month for 5,000 gallons of water and wastewater, combined. Accounting for service populations and inside/outside rates. For residential customers using 5,000 gallons/month

9 Water Rate Increases Among the Same 179 Utilities Since 2006 Water rates in 40% of rate structures and Wastewater rates in 43% of rate structures were raised last year Out of 433 water & 364 wastewater rate structures since last year Half of the rate increases were greater than 4.0% for water and 4.0% for wastewater At 5,000 gallons/month Do Rates Cover Costs? Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

10 Do Rates Cover Costs? Do Rates Cover Costs? In recent history, about 20% of utilities did not generate enough operating revenues to cover O&M expenditures + debt service Small utilities face greater challenges Number of water # of water utilities service connections with data < 1, ,000 10, > 10, Statewide 341 FY2017 data. About 80 local governments data not yet available. Operating revenues less than O&M expenditures O&M expenditures + debt service 16% 24% 3% 15% 0% 2% 8% 17% Utility Planning Efforts in 2017 Percent of utilities responding Data Source: Ongoing 2017 NC Water and Wastewater Utility Management Survey (funded by the North Carolina Policy Collaboratory)

11 2018 by the Numbers - Inside Rates NC Rate-Setting Resources Monthly water base charge Monthly wastewater base charge Monthly combined water & wastewater base charge Highest volumetric rate per 1,000 gallons at 5,000 gallons/month Median percentage of customer bill due to base charge at 5,000 Min non zero: $3.16 (Cary) Median: $16.13 Max: $42.00 (Martin County) Unique sections in 4 utilities charge more, up to $ Min non zero: $1.00 (Laurel Park) Median: $18.00 Max: $80.44 (Oak Island inc gallons) Currituck County charges $ in Moyock Commons Min non zero: $6.32 (Cary) Median: $34.00 Max: $ (Oak Island) $13.00/1000 gallons Water (Washington County) $25.00/1000 gallons Wastewater (Walstonburg) Yadkin County charges $19.50/1000 gallons for water in its Jonesville service area (Jonesville outside rates) 47% Water 43% Wastewater Call the EFC / SOG Guide to Billing and Collecting Public Enterprise Utility Fees for Water, Wastewater, and Solid Waste Services (by Kara Millonzi, SOG) EFC website ( offers: o NC Rates Dashboard o Do it yourself Excel tools for rate scenarios and capital planning o Designing Rate Structures that Support Your Objectives guide o 2010 NCLM/EFC Financial Practices & Policies Survey o Additional Data, guidelines, reports, and tools o Blog: LGC Fiscal Analysis Dashboard Painful Art of Rate Setting article in Popular Government AWWA M1 Manual, EPA Rate Setting workbooks, etc. COGs, RWA, SERCAP, Consultants, etc. FY 2017 rates vs. FY 2017 Operating Ratios Additional Slides Utilities with very high rates but still not recovering costs

12 When did utilities last increase rates? (January 2018 rates) Rate increases in the last year Median increase to monthly bill for 5,000 gallons: $1.32 water, $1.50 wastewater Half of the rate increases were for more than 4.0% (water) and more than 4.0% (wastewater) Utilities that raise rates frequently have lower rate increases each time But they also accumulate greater rate increases in the long-run Average rate adjustment by frequency of raising rates Average 5 year cumulative rate increase by frequency of rate adjustments Reported in Defining a Resilient Business Model for Water Utilities, Water Research Foundation Report #4366. Reported in Defining a Resilient Business Model for Water Utilities, Water Research Foundation Report #4366.

13 Most customers are on increasing block water rates and uniform wastewater rates The first block usually ends under 6,000 gallons/month Water Wastewater Rate structures applicable to residential customers for consumption up to 15,000 gallons/month only Monthly base charges What happens to your residential customers water bill when they reduce their use from 10,000 to 5,000 gallons/month? Low bills for low consumption amount vs. Revenue stability

14 Pricing different services 31% use separate rate structures for non residential customers 14% use separate rate structure for residential irrigation water Outside rates are typically 1.5-2x higher than inside rates for municipalities ~61% of utilities (83% of municipalities) have different outside rates Median combined bill for 5,000 gallons: Inside $80.60 Outside $ PRELIMINARY RESULTS Final results will be published in the forthcoming 2017 NCLM/EFC North Carolina Water & Wastewater Rates Survey Report Subscribe to Keep Up-to-Date with the Environmental Finance Blog Examples of relevant blog posts: Declining demands in NC Increasing rates in NC Operating ratios in NC Water debt in NC What s wrong with %MHI Financial strategies And much more!