feasibility study for the development of a regional …€¦ · the study and results outlined in...

FINAL REPORT

FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY

Summary Report

BLACK & VEATCH PROJECT NO. 184920

PREPARED FOR

Central Iowa Regional Drinking Water Commission

21 JULY 2015

®

®

©Black & Veatch Holding Company 2013. A

ll rights reserved.

CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY

BLACK & VEATCH | Table of Contents i

Table of Contents

1 ExecutiveSummary.........................................................................................................1

1.1 Purpose......................................................................................................................................1

1.2 SpecialNotice..........................................................................................................................1

1.3 Scope...........................................................................................................................................2

1.4 StakeholderInputandSWOTAnalysis........................................................................2

1.4.1 StakeholderInput........................................................................................................2

1.4.2 SWOTAnalysis..............................................................................................................3

1.5 ValuationEstimate................................................................................................................4

1.5.1 AssetInventory............................................................................................................5

1.5.2 EstimatedRangeofValue.........................................................................................6

1.6 FinancialAnalysis..................................................................................................................7

1.6.1 NetValueAnalysis.......................................................................................................7

1.6.2 DevelopmentofFiveYearFinancialProjection..............................................9

1.6.3 AnalysisofEffectiveRate......................................................................................10

1.6.4 FutureConsiderations............................................................................................11

1.7 Governance...........................................................................................................................12

1.7.1 PotentialInitiatingPrinciples..............................................................................12

1.7.2 KeyGovernanceIssues...........................................................................................12

1.7.3 GovernanceAlternatives.......................................................................................13

1.8 Conclusion.............................................................................................................................14

2 Introduction....................................................................................................................16

2.1 Participants...........................................................................................................................16

2.2 ScopeofWork......................................................................................................................17

3 StakeholderInputandSWOTAnalysis..................................................................18

3.1 StakeholderInput...............................................................................................................18

3.1.1 Input...............................................................................................................................18

3.1.2 GeneralTakeaways..................................................................................................19

3.2 SWOTAnalysis....................................................................................................................20

3.2.1 InputIntoFeasibilityStudy..................................................................................23

4 ValuationEstimate........................................................................................................25

4.1 DevelopmentofAssetInventory.................................................................................25

4.1.1 AssetInventory.........................................................................................................26

4.1.2 AssetInspection........................................................................................................31

4.1.3 AssetReview...............................................................................................................31

4.2 EstimationofOriginalCostLessDepreciation(OCLD)......................................32


BLACK & VEATCH | Table of Contents ii

4.2.1 OriginalCost...............................................................................................................33

4.2.2 AccumulatedDepreciation...................................................................................33

4.2.3 OCLDResults..............................................................................................................34

4.3 EstimationofReplacementCostLessDepreciation(RCLD)............................36

4.3.1 ReplacementCost.....................................................................................................37

4.3.2 AccumulatedDepreciation...................................................................................37

4.3.3 RCLDResults..............................................................................................................38

4.4 CombinedEstimateofValuation.................................................................................40

4.5 EstimateofPurchasedCapacityValue......................................................................41

4.6 OtherContributedDMWWAssets...............................................................................43

4.6.1 JointEastSideProject.............................................................................................43

4.6.2 PolkCityFeederMain.............................................................................................43

4.6.3 AnkenyContributiontoSWTPFeederMain.................................................43

4.6.4 WDMWW98thStreetElevatedStorageTank................................................44

4.6.5 L.P.MoonStorageandBoosterStation...........................................................44

4.7 ValuationConclusion........................................................................................................44

5 FinancialAnalysis..........................................................................................................45

5.1 NetValueAnalysis.............................................................................................................45

5.1.1 SummaryofEstimatedValueandNetValueperMGD.............................45

5.1.2 AlignmentofNetValuebyEntity.......................................................................48

5.1.3 SummaryofNetValueAnalysis..........................................................................50

5.2 DevelopmentofFiveYearFinancialProjection....................................................51

5.2.1 OperationandMaintenanceExpense...............................................................52

5.2.2 AnnualRenewalandReplacement....................................................................53

5.2.3 MajorCapitalImprovementCosts.....................................................................53

5.2.4 RepaymentofOutstandingPurchaseCapacityDebt.................................54

5.2.5 AdjustmenttoDesMoinesWaterWorks’NetValue.................................54

5.2.6 MajorCapitalImprovementFinancing............................................................54

5.2.7 ProjectionofAnnualRevenueRequirementsandEffectiveRate ..........................................................................................................................................55

5.2.8 Financingalternatives............................................................................................58

5.2.9 EffectiveRatesensitivity.......................................................................................59

5.3 AnalysisofEffectiveRate................................................................................................60

5.3.1 FutureConsiderations............................................................................................61

5.3.2 CommunitiesThatOptOut...................................................................................63

5.4 FinancialAnalysisConclusion.......................................................................................63

6 Governance......................................................................................................................64

6.1 PotentialInitiatingPrinciples.......................................................................................64


BLACK & VEATCH | Table of Contents iii

6.2 KeyGovernanceIssues....................................................................................................65

6.2.1 VotingRights..............................................................................................................65

6.2.2 BoardMakeup............................................................................................................66

6.3 GovernanceAlternatives.................................................................................................68

6.3.1 TraditionalMunicipalGovernance....................................................................68

6.3.2 ModificationofCurrentGovernanceArrangement....................................70

6.3.3 PublicPrivatePartnership....................................................................................71

7 NextSteps.........................................................................................................................73

7.1.1 ShortTerm..................................................................................................................73

7.1.2 LongTerm...................................................................................................................74

AppendixA..................................................................................................................................A

AppendixB..................................................................................................................................B

AppendixC...................................................................................................................................C


BLACK & VEATCH | Table of Contents iv

LIST OF TABLES Table1‐1SummaryofTotalCapacityandFirmCapacity......................................................5

Table1‐2SummaryofEstimatedValuation.................................................................................6

Table1‐3SummaryofNetValueperMGDbyEntity...............................................................7

Table1‐4SummaryofAlignmentofNetValueperMGDbyEntity....................................8

Table1‐5BreakdownofTotalMidRangeValue........................................................................9

Table1‐6EstimateofProjectedRevenueRequirements........................................................9

Table1‐7‐EstimatedEffectiveRate.............................................................................................10

Table1‐8‐EffectiveRateComparison.........................................................................................10

Table1‐9FutureExpansionExample...........................................................................................11

Table2‐1FullServiceandWholesaleCustomersofDMWW..............................................16

Table4‐1TotalSourceandSupplyAssetsforRegionalUtility..........................................29

Table4‐2DistributionSystemStorageandPumpStationAssets.....................................30

Table4‐3DesMoinesWaterWorksTransmissionMainAssets.......................................31

Table4‐4TreatmentAssetStrengthsandWeaknessesReview........................................32

Table4‐5EstimatedOCLDValueofDMWWAssets................................................................35

Table4‐6EstimatedOCLDValueforWDMWWAssets.........................................................36

Table4‐7EstimatedOCLDValueforUrbandaleWW,Altoona,andAnkeny................36

Table4‐8RCLDResultsforDMWW.............................................................................................39

Table4‐9RCLDResultsforWDMWW.........................................................................................40

Table4‐10RCLDResultsforUrbandaleWaterWorks,Ankeny,andAltoona............40

Table4‐11CombinedEstimateofValuation............................................................................41

Table4‐12SummaryofCurrentPurchasedCapacityAmountsandOriginalContribution.....................................................................................................................42

Table4‐13EstimatedRangeofPurchasedCapacityValueforWholesaleCustomers.........................................................................................................................43

Table5‐1SummaryofTotalCapacity,Value,andNetValuebyEntity(MidRangeValue)....................................................................................................................46

Table5‐2PurchasedCapacityMidRangeValuebyCustomer..........................................47

Table5‐3AlignmentofNetValueperTotalCapacitybyEntity........................................49

Table5‐4SummaryofAlignmentofNetValueandTotalCapacity................................50

Table5‐5SummaryofNetValueorEquity...............................................................................51

Table5‐6ProposedOperation&MaintenanceExpense......................................................52

Table5‐7ProjectedRenewalandReplacement......................................................................53

Table5‐8MajorCapitalImprovementProgram.....................................................................54

Table5‐9EstimatedCapitalFinancingPlan..............................................................................55

Table5‐10SummaryofRevenueRequirementsandUnitCostDevelopment...........56

Table5‐11ProjectedBilledWaterUsage...................................................................................57


BLACK & VEATCH | Table of Contents v

Table5‐12AlternativeRevenueRequirementsandUnitCostDevelopment.............59

Table5‐13RateSensitivityComparison....................................................................................60

Table5‐14EffectiveRateComparison........................................................................................61

Table5‐15FutureExpansionExample........................................................................................62

Table6‐1HypotheticalWeightedVoteBasedon%ofNetValue....................................66

LIST OF FIGURES Figure1SWOTAnalysisMatrix.......................................................................................................21


BLACK & VEATCH | Executive Summary 1

1 Executive Summary

1.1 PURPOSE Black&VeatchCorporation(Black&Veatch)anditssubconsultantHRGreen,Inc.(HRGreen)wereretainedbytheCentralIowaRegionalDrinkingWaterCommission(CIRDWC)toassessthefeasibilityofformingaregionalwaterproductionutility(RegionalProductionUtility)fortheGreaterDesMoines,Iowaregion.Thefeasibilitystudy(Study)outlinedinthisreport(Report)includesthefollowingspecificelements:

ReceiptofinputfromCIRDWCmemberswithrespecttothecurrentmethodofregionalwatersupply,aswellasinputrelatedtothemeritsanddrawbacksofformingaRegionalProductionUtility.

ConductofaStrengths,Weaknesses,Opportunities,andThreatsanalysistocomparethebenefitsanddrawbacksofprovidingregionalwaterserviceunderthecurrentmethod,versusprovidingwaterserviceviaaRegionalProductionUtility.

Estimationoffairmarketvalueofassetsthatwouldcomprisetheregionalwaterproductionentity.

AnalysisofthefinancialimpactoncustomersofmovingtoaRegionalProductionUtility.

AnalysisofelementsrelatedtogovernanceoftheRegionalProductionUtilityandassessmentofpotentialgovernancealternatives.

TheStudyandresultsoutlinedinthisReportdidnotincludealegalassessmentofthefeasibilityofformingaregionalwaterproductionentity.TheStudyprovidesabasefeasibilityassessmentthatincludesanestimateofthefinancialimpactoncustomerscomparedtotheircurrentwholesaleservicearrangementswithDesMoinesWaterWorks(DMWW).Fromthisbasefeasibilityassessment,CIRDWCmemberscanthendeterminewhetheritisintheirinteresttofurtherpursueaRegionalProductionUtility.IfaRegionalProductionUtilityispursuedbyCIRDWCmembersbeyondthisStudy,itisanticipatedthatadditionalfinancial,legal,andengineeringanalysiswouldbenecessary.

1.2 SPECIAL NOTICE Inconductingthisstudy,Black&Veatchrevieweddocuments,records,agreements,capitalimprovementprograms,andfinancialinformationforCIRDWCmembersasdeemednecessary.WhileBlack&Veatchconsiderssuchdocuments,records,andprojectionstobereliable,theaccuracyofthesedocumentshasnotbeenverified.

TherecommendationssetforthinthisReportbelowinclude“forward‐lookingstatements”.Informulatingtheseprojectionsand/orrecommendations,Black&Veatchhasmadecertainassumptionswithrespecttoconditions,events,andcircumstanceswhichmayormaynotoccurinthefuture.Themethodologyusedinperformingtheanalysesfollowsgenerallyacceptedpracticesforsuchprojections.Suchassumptionsandmethodologiesarereasonableandappropriateforthepurposeforwhichtheyareused.WhileBlack&Veatchbelievestheassumptionsarereasonableandtheprojectionmethodologyvalid,actualresultsmaydiffermateriallyfromthoseprojectedasinfluencedbytheconditions,events,andcircumstanceswhichactuallyoccur.Suchfactorsmay



include(1)theabilityofCIRDWCmemberstoexecutetheirfinancialandcapitalimprovementprogramsasscheduledandwithinbudget,(2)regionalclimateandweatherconditionsaffectingwateruse,and(3)adverselegislative,regulatoryorlegaldecisions(includingenvironmentallawsandregulations)affectingtheirabilitytomanagetheirsystemstomeetwaterqualityrequirements,orotherregulatoryrequirements.

1.3 SCOPE TheStudywasconductedpertheScopeofWorkoutlinedintheConsultingServicesAgreementbetweenBlack&VeatchandCIRDWCdatedJune27,2014.ThegeneralelementsoftheScopeofWorksareasfollows:

Collectandreviewdatarelatedtofinancial,operational,andassetinformationtogainanunderstandingofthecurrentmethodologyusedtoprovidedrinkingwaterservicetotheGreaterDesMoinesregion.

ConductstakeholderinputsessionswithCIRDWCmemberstogainanunderstandingoftheircurrentoperations,aswellastoreceivetheirinputwithrespecttotheStudyandtheformationofapotentialregionalwaterproductionentity.

ConductSWOTanalysiswithCIRDWCmemberstounderstandthebenefitsanddrawbacksofformingaRegionalProductionUtilityversusthecurrentwholesaleservicearrangement.

PerformestimateoffairmarketvalueofassetsthatwouldcomprisetheRegionalProductionUtilityusingtheCostApproachmethodologyofvaluation.

PerformafinancialanalysistodeterminethepotentialimpactonwholesalecustomerratesunderaRegionalProductionUtility.

Evaluatethreepotentialgovernancealternatives,includingissuesofpotentialboardcomposition,votingrights,andresponsibilities.

1.4 STAKEHOLDER INPUT AND SWOT ANALYSIS

1.4.1 Stakeholder Input

Black&VeatchinterviewedCIRDWCmembersoverseveraldaysinJuly2014.AquestionnairewaspreparedbyBlack&Veatchthatfocusedonquestionsandissuesrelatedto1)generalcharacteristicsofcommunityandwaterutility;2)localstrategywithrespecttoanticipatedgrowthandfuturewaterneeds;3)inputonbenefitsanddrawbacksofformingaRegionalProductionUtility;4)financialandrateissuesformember’swaterutility;and5)generalinputwithrespecttotheStudy.AppendixApresentsacopyofthequestionnaireprovidedtoCIRDWCmembers.

Keytakeawaysfromthestakeholderinputsessionsinclude:

ThemajorityofmembersthatcurrentlyreceivetheirwaterservicefromDMWWareexpectingsteadygrowthinpopulationoverthecomingyears.

TherearemultipleplanninginitiativesforgrowthandeconomicdevelopmentbeingconductedthroughouttheDesMoinesmetroarea.WhilecommunicationbetweenDMWWandregionalcommunitiesdoesoccurwithrespecttowaterissues,thereisnocoordinated,regionalplanningwithrespecttodevelopingfuturewatersupplytomeetprojecteddemands.



CurrentwholesalecustomersareveryinterestedinhavingmorerepresentationinthefuturedevelopmentandprovisionofwaterserviceintheGreaterDesMoinesregion.

Generally,membersindicatedthatgovernancewithproportionaterepresentationwouldbeacceptableinanynewregionalwaterproductionentity.Therewereasmallnumberofparticipantsthatadvocatedforaonemember,onevoteapproachtogovernance.

CurrentwholesalecustomersexpressedfrustrationwithDMWW’scostofservicestudyandratesettingapproach,however,therewasnotanoverarchingviewthattheyarereceivingpoorvalue.Inseveralinstances,wholesalecustomersindicatedtheyarereceivinggoodvalueatthecurrentrate.

MembersindicatedthatdealingwithDMWWonoperationalissuesisveryeasyandprofessional. MembersindicatedthatthefinishedwaterqualitytheyreceivefromDMWWisgenerallyverygood.

Membersindicatedthatthereisaconcernabouthowfuturewatersupplyandadditionalcapacitywillbedevelopedunderthecurrentframework.

1.4.2 SWOT Analysis

TheSWOTAnalysiswasconductedonSeptember12,2014attheDesMoinesBotanicalGarden.TheSWOTAnalysiswasledbyBlack&VeatchandconsistedofapproximatelytwomembersfromeachCIRDWCcommunity/utility.Amorningsessionfocusedonthestrengths,weaknesses,opportunities,andthreatsoftheexistingmethodforprovidingregionalwaterservice.ThecurrentmethodincludesthemajorityofsourceofsupplyandtreatmentprovidedbyDMWWwithwholesalepurchasedcapacityagreementsorfullserviceagreementswiththesurroundingcommunities.Theafternoonsessionfocusedonthestrengths,weaknesses,opportunities,andthreatsofprovidingwaterservicetotheGreaterDesMoinesregionfromnewRegionalProductionUtility.Uponcompletionoftheafternoonsession,Black&VeatchreviewedindividualgroupresultstoderiveaconsolidatedsummarythatwasreviewedbyCIRDWCmembers.ThefollowingTablespresentthecombinedresultsoftheSWOTAnalysis.AppendixBpresentsacopyofthepresentationmaterialsusedduringtheSWOTanalysis.

STRENGTHS

Current

DMWW Staff Responsible and Knowledgeable

Reliability of finished water Currently finished water quality is good Redundancy Multiple sources of supply

Ability of customer communities to make

independent decisions

Opportunity to choose level of service Knowledge of defined capacity limits for each

community

Regional Production Utility

More equal representation with regards to

governance, planning, and rates

More political influence at regulatory level

More political stability on governing board

Potential long‐term cost efficiencies (direct and

indirect)

Regional planning Provide relative savings – slow the rate of increase



WEAKNESSES

Current

Autocratic governance of water supply and production

No current Board representation of customer

communities

No accountability to customer communities for how

resources are spent or decisions made

Source water quality Source water quantity Competing priorities for responding to regional

growth

Availability of purchased capacity to meet growth


Size of governing body Source water quality and quantity are still issues Change in workforce impacting level of service

Cost versus investment – long term change over

short term pain

Buy‐in costs Conflict between growth and reinvestment

Right now we know who to blame

OPPORTUNITIES

Current

Improve current processes

Individual communities continue to make


More inclusive governance and geographic diversity

of Board

Ability to improve watershed management


Ability to influence quality and quantity Long term bonding capability

Predictability on revenue and costs Better control over resources Consistent message communicated with customers

Input into regional economic development

THREATS

Current

Competing interests for same source water

Division/breakup of current customer configuration

Availability of capacity to meet customer community

needs

Nonpoint source pollution impact on source water

Climate issues


Initial cost of buy‐in Less than 100% participation from communities

Perception of reduction in work force Loss of local control Failure to meet customer expectations


Climate issues

1.5 VALUATION ESTIMATE TheformationofaRegionalProductionUtilityseparatefromDMWWwouldlikelyincludeatransactionthattransfersassetsfromDMWWandseveralotherentitiestothenewRegionalProductionUtility.Therefore,anestimateofthevalueofthoseassetsisneededtounderstandthelevelofvaluebroughtbyparticipantstothenewRegionalProductionUtility.Black&VeatchperformedavaluationtoestimatethepotentialfairmarketvalueofassetsusingtheCostApproachmethodofvaluation.ThisconsistsofdeterminingtheOriginalCostLessDepreciation(OCLD)andReplacementCostLessDepreciation(RCLD)toderivearangeofvalue.TheCostApproachprovidesareasonablerangeoffairmarketvalueforpurposesofthisStudy.



1.5.1 Asset Inventory

Black&VeatchreliedoninformationprovidedbyCIRDWCmemberstounderstandwhatpotentialwaterserviceassetswouldbetransferredtotheRegionalProductionUtility.AfterreviewinginformationanddiscussingwithCIRDWCmembers,Black&Veatchgenerallyselectedassetsthat1)currentlyservemorethanoneutilityorcommunity;or2)havethefuturepotentialofservingorsupportingtheservicetomorethanoneutilityorcommunityintheregion.AmapshowingtheGreaterDesMoinesregionandsignificantwaterproductionassetsisincludedinAppendixC.Thefollowingprovidesabriefdescriptionoftheidentifiedassets:

CorenetworkassetsofDMWWincludingsourceofsupply,treatmentfacilities(Fleur,McMullen,andSaylorvillewatertreatmentplants(WTP)),aswellastheassociatedcorenetworktransmissionmains,pumpstations,andstoragetanks.

SourceofsupplyandtreatmentfacilitiesofWestDesMoinesWaterWorks(WDMWW),aswellasthe98thStreetelevatedstoragetank.

WellsandtreatmentplantsownedandoperatedbytheCityofAltoona.

AquiferStorageandRecovery(ASR)wellsownedandoperatedbytheCityofAnkeny.

RawwaterquarriesownedbytheUrbandaleWaterWorks.

Alongwiththeassetinventory,Black&Veatchreviewedinformationrelatedtotheseassetstounderstandtheircapabilitieswithrespecttomeetingpeakdaywaterdemands.Basedonareviewofinformationanddiscussionswithstaffthatoperatetheseassets,theestimatedtotalandfirmcapacitiesoftheseassetsispresentedinTable1‐1.

Table 1‐1 Summary of Total Capacity and Firm Capacity

LINE

NO. PHYSICAL ASSET

TOTAL

CAPACITY/

DEMAND,

MGD

FIRM

CAPACITY/

DEMAND,

MGD

WTP and ASR Supply Facility Capacity

1 City of Altoona Treatment Plants 3.90 0.58

2 City of Ankeny ASR Wells 4.32 0.00

3 DMWW Treatment Plants and ASR Wells 116.00 86.70

4 WDMWW Treatment Plant 9.90 6.90

5 Total WTP and ASR Capacity(a) 134.12 118.6

(a) The value of 118.6 mgd is not a summation. Total firm capacity considers all production facilities in operation with one of the seven WTPs (McMullen WTP) limited to firm capacity and one 3.0 mgd ASR well out of service to account for equipment being offline for maintenance and/or repair.

Theidentifiedassetsarecurrentlynotdesignedtoworkincoordination,andBlack&VeatchandHRGreendidnotundertakedetailedmodelingoranalysistoassesstheoverallperformanceofthesystemsasacombinedRegionalProductionUtility.Basedonareviewofavailableinformation,areasonable,highlevelestimateoftheregionalpeakdaydemandisapproximately115mgd.This



reflectsthatregionaldemandsarealreadyclosetofirmcapacitylimitsandapproachingtotalcapacitylimits.Assumingsteadygrowthintheregion,itappearsreasonabletoassumethatexpansionofregionalproductionassetswillbenecessaryinthecomingyears.

1.5.2 Estimated Range of Value

Table1‐2presentstheresultsoftheCostApproachmethodofvaluation.Ingeneral,Black&Veatchreliedonassetinformationandotherdataprovidedbytheentitiesthatwouldcontributesourceofsupply,treatment,andtransmissionassetstotheRegionalProductionUtility.Incertaininstances,Black&VeatchdevelopedReplacementCostestimatesforspecificassetsusingengineeringjudgment.Black&VeatchusedcosttrendindicesfromtheHandy‐WhitmanBulletinNo.180:CostTrendsofWaterUtilityConstruction(Handy‐WhitmanIndex)toderivetheReplacementCostorOriginalCostoftheassets.TheOriginalCostandReplacementCostvaluesareadjustedforaccumulateddepreciationtorecognizethatovertime,thevalueofanassetdecreasesduetofactorssuchaswearandtear,actionoftheelements,orotherfactors.AccumulateddepreciationwasdeterminedonastraightlinebasisusingservicelifeestimatesdevelopedbyBlack&Veatch,aswellastheknownageoftheasset.Theestimatedvaluationrangesfromapproximately$234millionto$413million,withamidrangevalueof$323million.

Table 1‐2 Summary of Estimated Valuation

1.5.2.1 Estimated Value of Purchased Capacity and Other Contributions

DMWWmaintainsWholesaleWaterServiceMasterAgreementswithapproximately12communitiesintheGreaterDesMoinesregion.TheseagreementsprovidedamechanismforwholesalecustomerstocontributefundstoDMWWinexchangeforacommitmentbyDMWWtosupplyaspecificamountofpeakdaywater,orcapacity.Basedonareviewoftheagreementsandotherinformation,Black&VeatchdeterminedthatfundscontributedbythesecustomerswereprimarilyusedtoconstructDMWW’sMcMullenWTP(includingrawwaterassets),SaylorvilleWTP(includingrawwaterassets),SaylorvilleWTPFeederMain,andtwoASRwells.Therangeofvaluefortheseassetsisapproximately$71,791,000to$95,177,300,withamidrangevalueof$83,484,200.

Additionally,itwasdeterminedthatarecentprojecttoenhancewatersupplytotheeasternportionoftheregionalsystemwascontributedbythreecommunities.Theestimatedvalueofthisprojectrangesfromapproximately$12,422,200to$13,455,600,withamidrangevalueof$12,939,000.

Replacement

Original Cost Cost

Line Original Replacement Accumulated Accumulated

No. Description Cost Cost Depreciation Depreciation OCLD RCLD

1 Des Moines Water Works $288,395,300 $692,556,400 $78,733,700 $327,320,800 $209,661,600 $365,235,600

2 West Des Moines Water Works $27,060,600 $61,177,000 $9,900,400 $27,349,700 $17,160,200 $33,827,300

3 City of Altoona $8,145,700 $23,050,800 $3,857,400 $13,600,700 $4,288,300 $9,450,100

4 City of Ankeny $2,279,800 $3,310,400 $468,600 $729,700 $1,811,200 $2,580,700

5 Urbandale Water Works $870,900 $1,680,000 $0 $0 $870,900 $1,680,000

6 Estimated Valuation $326,752,300 $781,774,600 $92,960,100 $369,000,900 $233,792,200 $412,773,700

7 Mid Range Estimate $323,283,100



TherewerealsocontributionsidentifiedforassetssuchasthePolkCityfeedermainandWDMWW’s98thStreetElevatedStorageTankwhichwereincorporatedintotheStudy.

WithintheFinancialAnalysisportionofthisReport,thesevaluesaredeductedfromtheapplicableentity’soverallvalue,andappliedtotheindividualutilitiesorcommunitiesthatmadethecontribution.ThenetmidrangevalueapplicabletoDMWWisapproximately$196.5million.

1.6 FINANCIAL ANALYSIS Afinancialanalysiswasconductedto1)defineanapproachforhowregionalparticipantscouldformaRegionalProductionUtilityonanequalbasis;and2)determinetheestimatedeffectiverateper1,000gallonsthatwouldapplytoparticipantsforwaterservicefromtheRegionalProductionUtility.AsignificantassumptioninthefinancialanalysisisthatallcurrentpurchasedcapacitycustomersandDMWWwouldparticipateinthenewRegionalProductionUtility.

1.6.1 Net Value Analysis

TheNetValueanalysisreflectsthevaluebroughttothetablebypotentialparticipantsintheRegionalProductionUtility.Thenetvalueperentityreflectstheirrespectivevalue,offsetbyoutstandingnetdebtservicethatisheldbyDMWW,primarilyrelatedtopurchasedcapacitycontributions.ThefollowingTablepresentsthenetvaluebyentitybasedonthemidrangeestimateofvaluedeterminedintheValuationEstimatesectionofthisReport.

Table 1‐3 Summary of Net Value per MGD by Entity

AsisseeninColumns1and2ofTable1‐3above,theentitieshavevaryinglevelsofclaimsonthetotalcapacityoftheregionalsystem.ThepurchasedcapacitycustomershavetheiramountsthathavebeencontractuallyagreedtowithDMWW.Inadditiontopurchasedcapacityamounts,WDMWW,Altoona,andAnkenyretainthecapacityrelatedtotheirtreatmentandASRfacilitiesthatwouldbetransferredtotheRegionalProductionUtility.DMWWretainsthetotalcapacityoftheDMWWsystem,lessthepurchasedcapacityamountspreviouslymentioned(approximately116mgd–56.137mgd=59.86mgd).

(1) (2) (3) (4) (5) (6) (7) (8)

Estimated Estimated

% Estimated DMWW DMWW % Net

Line Total Total Mid Range Outstanding Debt Service Net Net Value

No. Description Capacity Capacity Value Debt Reserve Value Value per mgd

mgd =(3)+(4)+(5) =(6)/(1)

Contributing Entities

1 Des Moines Water Works 59.86 44.63% $196,459,400 ($5,996,800) $703,400 $191,166,000 65.17% $3,193,400

2 Polk Co. (SE and Unincorporated) 1.95 1.45% $3,895,200 ($679,800) $0 $3,215,400 1.10% $1,648,900

3 Berwick Water Association 0.25 0.19% $371,800 ($56,300) $45,100 $360,600 0.12% $1,442,400

4 Urbandale Water Works 15.30 11.41% $24,028,800 ($11,204,700) $1,609,000 $14,433,100 4.92% $943,300

5 West Des Moines Water Works 18.87 14.07% $36,457,400 ($4,541,500) $708,100 $32,624,000 11.12% $1,728,600

6 Ankeny 12.60 9.39% $15,339,900 ($9,983,100) $959,500 $6,316,300 2.15% $501,300

7 Clive 6.98 5.20% $11,967,400 $0 $0 $11,967,400 4.08% $1,714,500

8 Waukee 3.69 2.75% $6,287,100 ($805,100) $171,000 $5,653,000 1.93% $1,530,300

9 Warren Rural Water 3.25 2.42% $4,827,300 $0 $0 $4,827,300 1.65% $1,487,200

10 Xenia Rural Water 2.95 2.20% $4,385,700 $0 $0 $4,385,700 1.50% $1,487,200

11 Norwalk 1.97 1.47% $2,922,200 ($412,400) $146,500 $2,656,300 0.91% $1,351,800

12 Bondurant 1.20 0.89% $1,784,600 ($684,800) $77,800 $1,177,600 0.40% $981,300

13 Altoona 4.90 3.65% $12,337,600 $0 $0 $12,337,600 4.21% $2,517,900

14 Polk City 0.35 0.26% $2,218,700 $0 $0 $2,218,700 0.76% $6,339,100

15 Total 134.12 100.00% $323,283,100 ($34,364,500) $4,420,400 $293,339,000 100.00% $2,187,100



ThenetvaluebyentityisreflectedinColumn6,alongwiththeassociatedpercentageoftotalnetvalueinColumn7.ThenetvaluepermgdoftotalcapacityisreflectedinColumn8andshowsthatindividualentitiesarecontributingadifferentnetvaluepermgdtotheRegionalProductionUtility.

AlignmentofnetvaluepermgdbyentityprovidesfortheformationoftheRegionalProductionUtilitywithparticipantsonanequalbasis.Toachievethisalignment,Black&Veatchusedatwo‐stepprocess.First,acashpaymenttoDMWWwasassumedtoreduceitsoverallnetvaluepermgdtoalevelclosertotheotherentities.Second,thecontributionbyentitythatwouldbringallparticipantsintoalignmentonanetvaluepermgdbasiswasdetermined.Table1‐4presentsthealignmentofnetvaluepermgdbyentity.

Table 1‐4 Summary of Alignment of Net Value per MGD by Entity

Ascanbeseen,thecashpaymentof$100milliontoDMWWinLine1resultsinanadjustednetvaluepermgdofapproximately$1,522,900.Black&VeatchthenmadetheadjustmentsseeninColumn3toaligneachentitywithDMWWatanetvalueof$1,522,900permgdoftotalcapacity.PositivevaluesinColumn3reflectcontributionsthatwouldhavetobemadebyentitiestothenewRegionalProductionUtility,whilenegativevaluesreflectcontributionsthatwouldhavetobemadetotheentities.Asforregionalcommunitiesthatcurrentlydonothavepurchasedcapacityagreements,thenetvaluepermgdamountof$1,522,900,multipliedbyneededcapacity,couldprovidethebuyinvaluenecessaryforachievingmembership.

OneimpacttotheRegionalProductionUtilitywouldbethelikelyneedtoissuedebttoperformthecashpaymentstoDMWW.Thisincludesthepaymenttoretiredebtrelatedtothecorenetwork,andthe$100millioncashpaymentnotedabove.Table1‐5presentsasummaryofthetotalmidrangevalue,andresultingnetvaluefortheRegionalProductionUtility.

(1) (2) (3) (4) (5) (6)

Net Adjusted

Cash Payment Contributions Adjusted Restated Net

Line Net Des Moines (To)/From Net Total Value

No. Description Value Water Works Other Entities Value Capacity per mgd

(1)+(2)+(3) (4) / (5)


1 Des Moines Water Works $191,166,000 ($100,000,000) $91,166,000 59.86 $1,522,900

2 Polk Co. (SE and Unincorporated) $3,215,400 ($245,800) $2,969,600 1.95 $1,522,900

3 Berwick Water Association $360,600 $20,200 $380,800 0.25 $1,522,900

4 Urbandale Water Works $14,433,100 $8,867,400 $23,300,500 15.30 $1,522,900

5 West Des Moines Water Works $32,624,000 ($3,882,200) $28,741,800 18.87 $1,522,900

6 Ankeny $6,316,300 $12,872,400 $19,188,700 12.60 $1,522,900

7 Clive $11,967,400 ($1,337,400) $10,630,000 6.98 $1,522,900

8 Waukee $5,653,000 ($27,300) $5,625,700 3.69 $1,522,900

9 Warren Rural Water $4,827,300 $116,100 $4,943,400 3.25 $1,522,900

10 Xenia Rural Water $4,385,700 $105,500 $4,491,200 2.95 $1,522,900

11 Norwalk $2,656,300 $336,200 $2,992,500 1.97 $1,522,900

12 Bondurant $1,177,600 $649,900 $1,827,500 1.20 $1,522,900

13 Altoona $12,337,600 ($4,875,300) $7,462,300 4.90 $1,522,900

14 Polk City $2,218,700 ($1,685,700) $533,000 0.35 $1,522,900

15 Total $293,339,000 ($100,000,000) $10,914,000 $204,253,000 134.12 $1,522,900



Table 1‐5 Breakdown of Total Mid Range Value

1.6.2 Development of Five Year Financial Projection

ThesecondpartofthefinancialanalysisistodevelopanestimatedfiveyearfinancialprojectioniftheRegionalProductionUtilityweretobeformed,aswellastheresultingeffectiverateonaper1,000gallonbasis.

1.6.2.1 Revenue Requirements

Forpurposesofthefinancialanalysis,Black&Veatchdevelopedafiveyearprojectionofrevenuerequirementsthatinclude1)operationandmaintenance(O&M)expense;2)anydebtserviceonoutstandingbondissues;3)annualprovisionforrenewalandreplacementcapitalofthesystem;4)othercashfundedcapital.

AsummaryoftherevenuerequirementscanbeseeninthefollowingTable1‐6.AscanbeseenonLine5,areasonableprojectionoftherevenuerequirementsfortheRegionalProductionUtilitystartsatapproximately$44.9millionin2016,andincreasestoapproximately$49.9millionby2020.

Table 1‐6 Estimate of Projected Revenue Requirements

1.6.2.2 Projected Billed Usage and Effective Rate

Todeterminetheeffectiverateper1,000gallons,itisnecessarytoestimatetheprojectedbilledusagethattheRegionalProductionUtilitywouldusetorecoverrevenue.Black&VeatchutilizedhistoricalbilledusageprovidedbyDMWWforthemajorityofentities.AdditionalbilledusagerelatedtoWDMWWandAltoonacustomersthatareservedbythoseentitieswasalsoincludedtoderiveatotalestimateofregionalbilledusage.Forprojectionpurposes,Black&VeatchassumedthatDMWWbilledusagedoesnotgrowoverthefiveyears.Forallotherbilledusage,itisestimated

Line Breakdown

No. Description of Value

1 Total Value Estimate ‐ Mid Range $323,283,100

2 Cash Payment to DMWW ($100,000,000)

3 Net Cash Payment to DMWW for Debt ($29,944,100)

4 Contributions From Participants $22,967,700

5 Contributions To Participants ($12,053,700)

6 Total Net Value (Equity) $204,253,000

Line

No. Description 2016 2017 2018 2019 2020

1 Operation & Maintenance Expense $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000

2 Debt Service $8,241,000 $8,241,000 $8,241,000 $8,241,000 $8,241,000

3 Cash Financed Major Capital $0 $0 $500,000 $0 $3,000,000

4 Capital Renewals & Replacements $11,616,000 $11,289,000 $11,164,000 $11,616,000 $11,616,000

5 Total Revenue Requirements $44,929,700 $45,354,800 $45,392,800 $46,109,400 $49,897,000



thattheannualgrowthwillbe1.5percent.Thisresultsinaneffectivegrowthrateof1.0percentannually.ThefollowingTable1‐7presentstheprojectofbilledusageandannualrevenuerequirements.Theeffectiveratebyyearisshownonaper1,000gallonsbasis.

Table 1‐7 ‐ Estimated Effective Rate

LINE NO. DESCRIPTION 2016 2017 2018 2019 2020

1 Annual Revenue Requirements $44,929,700 $45,354,800 $45,392,800 $46,109,400 $49,897,000

2 Projected Billed Usage (1,000 gal.) 17,857,100 18,010,100 18,165,300 18,322,900 18,482,900

3 Estimated Effective Rate ($/1,000 gal.) $2.52 $2.52 $2.50 $2.52 $2.70

1.6.3 Analysis of Effective Rate

Forcomparisonpurposes,Black&VeatchlookedatthecurrentratepaidbyseveralpurchasedcapacitycustomerstoDMWWunderthecurrentwholesalearrangement.DMWWrecentlyapprovedapurchasedcapacityrateof$1.53per1,000gallons.Forcomparisontothefiveyearprojection,Black&Veatchassumesthatthiswillincreaseto$1.59per1,000gallons.InadditiontothepurchasedcapacityratepaidtoDMWW,entitiesmustalsopaydebtservicerelatedtotheirpurchasedcapacitycontributiontoDMWW.Black&Veatchderivedanestimateofthiscostper1,000gallonsbytakingtheannualprincipalandinterestforeachentityanddividingitbytheirrespectivebilledusage.TheestimatedeffectiverateforWDMWW,CityofAnkeny,UrbandaleWaterWorks,andtheCityofWaukeeispresentedinLine2ofTable1‐8.ThecompleteTablepresentsacomparisonoftheeffectiverateunderaRegionalProductionUtilitytotheestimatedeffectiverateunderthecurrentwholesalearrangement.

Table 1‐8 ‐ Effective Rate Comparison

LINE NO. DESCRIPTION

CITY OF ANKENY

URBANDALE WATER WORKS

CITY OF WAUKEE

WEST DES MOINES WATER WORKS

1 2016 Effective Rate – Regional Production Utility ($/1,000 gal.) $2.52 $2.52 $2.52 $2.52

2 Current Effective Rate ($/1,000 gal.) $2.15 $2.27 $2.37 $2.00

3 % Difference (Regional to Current) $17.2% $11% 6.3% 26.0%

Ascanbeseen,theestimatedeffectiveratefortheRegionalProductionUtilitywouldlikelybehighercomparedtothecurrenteffectiveratefortheabovecommunities.Whiletheabovecomparisonprovidesanindicationofthecurrentcomparison,Black&VeatchrecommendsthateachentityundertakeitsownseparateanalysisaseachentityisfamiliarwiththecostsitmayhaveincurredtopurchasecapacityorcontributetoDMWWovertheyears.Ingeneraltheestimatedeffectiverateisnotcompletelyoutoflinewithcurrentratespaidbyregionalentities.



1.6.4 Future Considerations

WhilethecomparisonoftheeffectiverateunderaRegionalProductionUtilitycomparedtothecurrentwholesalearrangementprovidesvaluableinformationtoseehowcurrentcostsmightchange,itisalsoimportanttoconsiderthevalueofpotentialchangestomeetingfuturegrowthdemands.

Underthecurrentwholesalearrangement,autilitythatneedsadditionalcapacitymorethanlikelymustobtainitfromDMWW.Black&VeatchunderstandsthatDMWWwillidentifythecostofthenecessaryimprovementstoaddthecapacity,andthenpassthatcostsolelyalongtotheutilitythatrequiresthecapacity.ThisapproachbyDMWWisnotuncommonandisdonetoprotectexistingcustomersfrombeingoverlyburdenedwithcostsforadditionalcapacitythatmaynotbenefitthem.

OnepotentialoptioncouldbefortheRegionalProductionUtilitytoshareintheoverallcostsforexpandingthecapacityofthesystem.ThesharingofexpansioncostsunderthisoptionwouldbeconsistentwiththenetvalueapproachoutlinedinthisReportthatbringsparticipantsintotheRegionalProductionUtilityonanequalbasis(netvaluepermgd).

Table1‐9providesahypotheticalexampleforconsideration.Underthecurrentsituation,thefourutilitiesrequireanadditional5.0mgdofcapacityeach.Thehypotheticalprojectcostof$60millionwouldbesplitbetweentheutilitiesonanequalbasis.Theassociatedbondissueresultsinannualprincipalandinterestpaymentsof$867,000peryear,andthesepaymentsarepassedonbyDMWWtotheutilities.Thisresultsinvaryingcostper1,000gallonsbasedontheirrespectivebilledusageforrecoveringthecost.

Thealternativeoptionreflectsthesharingofsystemexpansioncostsof20.0mgdamongallregionalparticipants.Theunitcostunderthisoptionis$0.20per1,000gallons.ForUtilityNo.2,thiswouldresultinannualsavingsofapproximately$375,000(($0.35‐$0.20)X2,500,000).

Table 1‐9 Future Expansion Example

LINE NO. UTILITY

CAPACITY NEEDED (MGD)

ANNUAL PRINCIPAL

AND INTEREST (1)

BILLED USAGE

(1,000 GAL.)COST PER 1,000 GAL.

CURRENT SITUATION

1 Utility No. 1 5.0 $867,000 1,200,000 $0.72

2 Utility No. 2 5.0 $867,000 2,500,000 $0.35

3 Utility No. 3 5.0 $867,000 1,400,000 $0.62

4 Utility No. 4 5.0 $867,000 500,000 $1.73

POTENTIAL OPTION – REGIONAL PRODUCTION UTILITY

5 Total Regional Utility 20.0 $3,470,000 17,557,917 $0.20

Note: Hypothetical analysis for illustration purposes only.

(1) Estimated based on hypothetical project cost of $60M, 30‐year bond using 4.0% annual interest rate.



Existingutilitiesand/orcommunitiesthatarecustomersofDMWW,andthatarenotanticipatinggrowthmaybalkattheoptionofaregionalwaterutilitysharingexpansioncostsamongallregionalentities.However,theseentitiesmustconsiderthepotentialofgrowthcommunitiespursuingtheirfuturewaterneedseitherindividually,orasagroupseparatefromDMWW.OvertimethelossofrevenuefromanycustomerthatleavesDMWWcouldresultinrateincreasestocustomersthatremain,asfixedcostsoftheDMWWsystemarespreadoverasmallerbilledusagebase.

1.7 GOVERNANCE ThecreationofanewRegionalProductionUtilitywouldbeasignificantchangefromthecurrentarrangementthathasseenDMWWasthekeyplayerinthedevelopmentofthecurrentregionalwatersystem.GovernanceoftheprovisionofwatertothesurroundingcommunitiesviathecorenetworkisprimarilyadministeredbytheDMWWBoardofDirectors.ThisBoardiscurrentlyresponsiblefortheestablishmentofratesandcharges,systemplanning,capitalfinancing,andothermiscellaneousresponsibilitiesthatmustbehandledonadaytodaybasis.

1.7.1 Potential Initiating Principles

AsCIRDWCmembersconsiderwhethertoestablishaRegionalProductionUtility,thereareseveralitemsorprinciplesderivedfromthestakeholderinputandSWOTanalysisthatwereimportanttomembers.TheseitemswerenotedbyBlack&Veatchasbeingimportanttooneorseveralmembers,andcouldprovidethebasisforafoundingdocumentcreatingtheRegionalProductionUtility.Theyareprovidedhereforconsideration:

FutureSourceofSupply–Memberswouldneedtoagreenottoindependentlydeveloptheirownsourceofsupply,unlessapprovedbytheRegionalProductionUtility.

FuturePurchaseofFinishedWater–Memberswouldneedtoagreetopurchaseallfuture,finishedwaterfromtheRegionalProductionUtility.

WaterQuality–MemberswouldneedtoagreetosupportallapprovedinitiativesbytheRegionalProductionUtilityrelatedtosourceandfinishedwaterquality.

SystemPlanningandExpansion–Memberswouldneedtoagreetoparticipateinregionalwatersystemplanningtobenefittheentireregion.

OutstandingDebt–MemberswouldneedtoagreethatalldebtrelatedtotheirindividualsystemsorpreviousrelationshipwithDMWWremainseparatefromtheRegionalProductionUtility.

RatesandCharges‐Memberswouldneedtoagreetoestablishsufficientratesandchargesthatsupportandmaintaintheexistingcorenetwork,aswellasexpandthecorenetworktomeetfutureregionaldemand.

1.7.2 Key Governance Issues

ThisStudyaddressesseveralkeyaspectofgovernancethatwillneedtobeaddressedbytheregionalentities.

BoardMakeup–DuringthestakeholderinputandSWOTanalysis,are‐occurringthemefromCIRDWCmemberswastheirdesiretohaveaseatatthetablewithrespecttogovernanceissues,includingestablishmentofratesandchargesandsystemplanning.ThiswillrequirealargeBoard



thatwillneedtoaccommodatevaryingviewpointsongovernanceandregionalwaterissues.CIRDWCmembersdidstatethatthelargeWRABoardfunctionseffectively.

InBlack&Veatch’sexperience,aneffectiveBoardmakeupwouldincludememberswhoareappointedbythegoverningbodiesoftheirrespectivecommunities.TheappointmentofBoardmembersispreferabletoaBoardthatismadeupofelectedmembers.

AprofessionalstaffwouldlikelybenecessarytoassisttheBoardinthedaytodayoperationoftheRegionalProductionUtility.StaffwouldincludeaGeneralManagerorExecutive,FinancialOfficer,ChiefEngineer,HumanResourceManager,andLegalManager.

BasedonfeedbackfromCIRDWCmembersandBlack&Veatch’sexperience,importantcommitteeswouldlikelyinclude:

● ExecutiveCommittee

● Planning/TechnicalCommittee

● FinanceCommittee

VotingRights–DuringthestakeholderinputphaseoftheStudy,amajorityofmembersagreedthatitwouldbereasonabletoassignagreaterweightintermsofvotingandgovernancetolarger(intermsofpopulation,usage,orotherwater‐relatedfactors)communities.WiththeNetValueanalysisaligningmembersonanequalbasisintermsofnetvaluepermgd,itcouldbepossibletoapportionvotesinseveralwaysasagreedtoatthefoundingoftheRegionalProductionUtility.Examplesincludeusingthetotalnetvaluecontributedbymembersorpopulation.

GrowthofRegionalSystem–Growingtheregionalwatersysteminanefficientmannertothebenefitofallmemberswillbeanimportantconsiderationformembers.Thisincludesissuessuchasratesandcharges,financingofexpansionimprovements,andserviceissues.Intermsoffinancinggrowth,memberswillneedtodecideonwhethertoadoptan“allin”approachwhereallmembershelpwithexpandingthecoresystemtothebenefitoftheregion,orwhethertofinanceexpansionprojectsthatarerecoveredonlyfromentitiesthatrequiretheexpansion.

1.7.3 Governance Alternatives

DuringthestakeholderinputphaseoftheStudy,manyoftheCIRDWCmembersstatedthatthecurrentgovernancestructureoftheDesMoinesMetropolitanWastewaterReclamationAuthority(WRA)waseffective.MostoftheCIRDWCmembersparticipateasmembersoftheWRABoardthatoverseestheoperationoftheregionalwastewatersystem.Black&VeatchevaluatedseveralgovernancealternativesthatcouldbeconsideredbyCIRDWCmembers.Thesealternativesarediscussedbelow:

TraditionalAuthority–ThisalternativeismostcommoninBlack&Veatch’sexperienceandisalsosimilartothefamiliarWRAmodel.Inthisalternative,theBoardhasresponsibilityforthecorefunctionsoftheutility,includingfinancial,operational,planning,andregulatoryfunctions.Membersaretypicallyappointedbygoverningbodiesofthecommunitiesthatareservedbytheutility.Aprofessionalstaffmanagesthedaytodayoperationoftheutility.

ModificationofCurrentGovernanceArrangement–OnealternativetomovingfullytoaRegionalProductionUtilitycouldbeamodificationofthecurrentregionalwaterservicearrangement.Currently,managementofregionalwaterproductionandtransmission,financeandrates,and



otherimportantfunctionsareoverseenbytheDMWWBoardofDirectors.Modificationstothisarrangementcouldbemadetoallowregionalentitiesmoreinputintotheoverallgovernanceoftheregionalwatersystem.

PublicPrivatePartnership–ThisalternativegovernanceoptioncouldtaketheformofaleasearrangementbetweenDMWWandaprivateorinvestor‐ownedutility.Theadvantagesofthisalternativegovernanceoptioncouldinclude1)retainownershipofassets;2)leasepaymentstoDMWWandpurchasedcapacitycustomers;3)potentialoperationalcostsavings;and4)mitigationofpoliticaldifferencebetweenregionalentities.Thepotentialdrawbackstothisgovernancealternativeare1)lossofcontrolinregionalwatersupplydecisions;2)potentialhigherratesduetorequiredhigherreturnoninvestment;and3)minimalinputintoregionalplanning.

1.8 CONCLUSION Black&VeatchwasretainedbyCIRDWCtostudyseveralimportantaspectswithrespecttopotentiallyformingaRegionalWaterProductionUtilityfortheGreaterDesMoinesregion.InitialtasksfocusedonreceivinginputfromCIRDWCmembersandincludedstakeholderinputandaSWOTanalysis.Anestimatedvaluationandfiveyearprojectionofpotentialrevenuerequirementswasderivedtodevelopaneffectivewaterrateper1,000gallonsformemberstocomparewiththeircurrentrate.GovernanceparameterswereanalyzedtounderstandissuesthatmemberswillhavetoagreetobeforeformingtheRegionalProductionUtility.

FromBlack&Veatch’sperspective,thisfirststepatevaluatingthepotentialforformingaRegionalProductionUtilityhasprovidedvaluableinformationforCIRDWCmembers.Thisinformationincludes:

ConsolidatedCIRDWCmemberinputintothepositiveandnegativeaspectsofformingaRegionalProductionUtilityversusthecurrentregionalarrangement.

Anestimatedvaluationofregionalproductionassets.

ANetValueanalysisthatestablishesmemberscomingintotheRegionalProductionUtilityonanequalbasis.

AnestimatedeffectivewatertreatmentandtransmissionrateforCIRDWCmemberstocomparetotheirexistingrates,aswellasfuturefinancialconsiderationsforbothgrowthandnon‐growthentities.

Considerationofgovernancecriteriasuchasboardresponsibilities,potentialcommittees,andpotentialweightedvotingoptions.Additionallyconsideredgovernancealternativestothecurrentregionalmethodforsupplyingwatertotheregion.

FromBlack&Veatch’sperspective,noneoftheinformationderivedduringthisStudyappearstobea“dealbreaker.”However,werealizethatCIRDWCmemberswillneedtodigesttheinformationandconsiderthebestpathforwardfortheircommunities.IfCIRDWCmembersdeterminethattheresultsofthisStudyarefavorableformovingforward,Black&Veatchwouldrecommendthefollowing:



AdditionalevaluationanddiscussionofissuesraisedinthisStudybysub‐committeesoftheCIRDWCBoard.Thiscouldincludesub‐committeesfocusedonStudyelementssuchasfinancial,technical,andgovernanceissuesshouldCIRDWCmembersdecidetocontinuemovingforward.

Futurestepscouldincludeadditionalfinancialandlegalduediligencetoprovideamoredetailedfeasibilityassessment;draftingofmemorandumofunderstandingthatoutlineskeyprinciplesofaRegionalProductionUtility;andpublicinput.


BLACK & VEATCH | Introduction 16

2 Introduction

2.1 PARTICIPANTS DesMoinesWaterWorks(DMWW)provideswatertoapproximatelytwenty‐twosuburbancommunitiesandwaterdistrictsintheGreaterDesMoinesregion.Table1‐1isalistofthesecommunitiesandthecurrenttypeofserviceand/oragreementeachcommunityhaswithDMWW.EachofthecommunitiesshowninTable2‐1hastheopportunitytoparticipateinthenewRegionalProductionUtility.ThelastcolumninthetableindicatescommunitiesthathaveexpressedpotentialinterestinjoiningaRegionalProductionUtilityviaparticipationinthisStudyforCIRDWC.

Table 2‐1 Full Service and Wholesale Customers of DMWW

COMMUNITY

TOTAL

SERVICE

AGREEMENT WHOLESALE

PURCHASED

CAPACITY

REGIONAL

UTILITY

PARTICIPANT(a)

Alleman

Altoona

Ankeny

Berwick

Bondurant

Clive

Cumming

Greenfield Plaza

Johnston

Norwalk

Pleasant Hill

Polk City

Polk County Benefited Water District

Polk County RWD 1 (b)

Runnells

Unincorporated Warren County

Urbandale

Warren Rural Water

Waukee

West Des Moines

Windsor Heights

Xenia (b) (a) Des Moines Water Works is a CIRDWC member and participant in this Study.


BLACK & VEATCH | Introduction 17

(b) Polk County RWD has reached an agreement to sell its purchased capacity to Xenia. As of the date of this report, the transaction has not been approved by the DMWW Board of Trustees.

Forcommunitiesthathaveatotalserviceagreement,DMWWprovidesservicessuchasdistributionsystemoperation,maintenanceandreplacementofmainsandcustomerservice.ItisassumedthatDMWWwouldcontinuetoprovidetheseservicestothesecommunitiesifaRegionalProductionUtilitywasformed.Wholesalecustomersaresuppliedwaterthroughoneormoremastermeters.WholesalecustomershadtheoptioninthepasttopurchasecapacityinDMWW’ssystem.Thisupfrontinvestmentininfrastructureessentially“buysdown”thecommunity’srateforwholesalewaterbyeliminatingthereturnoninvestedcapitalcomponentoftheDMWWwholesalerate.Table2‐1indicateswhichwholesalecustomerscurrentlyhavepurchasedcapacityfromDMWW.IfaRegionalProductionUtilityisformed,thisStudyassumesthatthesepurchasedcapacitycontractswillbeeliminatedandwaterwillbeprovidedbythenewRegionalProductionUtility.ForcommunitiesthatdidnotparticipateinthisStudysponsoredbyCIRDWC,thisStudyassumestheywillcontinuetoreceivetheirwaterfromDMWWviathenewRegionalProductionUtility.

2.2 SCOPE OF WORK TheStudywasconductedpertheScopeofWorkoutlinedintheConsultingServicesAgreementbetweenBlack&VeatchandCIRDWCdatedJune27,2014.ThegeneralelementsoftheScopeofWorksareasfollows:

Collectandreviewdatarelatedtofinancial,operational,andassetinformationtogainanunderstandingofthecurrentmethodologyusedtoprovidedrinkingwaterservicetotheGreaterDesMoinesregion.

ConductstakeholderinputsessionswithCIRDWCmemberstogainanunderstandingoftheircurrentoperations,aswellastoreceivetheirinputwithrespecttotheStudyandtheformationofapotentialregionalwaterproductionentity.

ConductSWOTanalysiswithCIRDWCmemberstounderstandthebenefitsanddrawbacksofformingaRegionalProductionUtilityversusthecurrentwholesaleservicearrangement.

PerformestimateoffairmarketvalueofassetsthatwouldcomprisetheRegionalProductionUtilityusingtheCostApproachmethodologyofvaluation.

PerformafinancialanalysistodeterminethepotentialimpactonwholesalecustomerratesunderaRegionalProductionUtility.

Evaluatethreepotentialgovernancealternatives,includingissuesofpotentialboardcomposition,votingrights,andresponsibilities.

AttendCIRDWCmeetingstobriefCIRDWCmembersonprogressoftheStudy.


BLACK & VEATCH | Stakeholder Input and SWOT Analysis 18

3 Stakeholder Input and SWOT Analysis

3.1 STAKEHOLDER INPUT InJulyof2014,Black&VeatchmetwithCIRDWCmemberstobetterunderstandissuessurroundingthepotentialdevelopmentofaRegionalProductionUtility,andtoallowmemberstheopportunitytoprovideinputintothedevelopmentoftheStudy.TheinputfromCIRDWCmemberswasalsovaluableforpreparingandconductingtheStrengths,Weaknesses,Opportunities,andThreats(SWOT)Analysisthatwillbediscussedsubsequently.Thefollowingprovidesalistofthecommunitiesand/ororganizationsthatBlack&Veatchmetwithtoreceivestakeholderinput:

WestDesMoinesWaterWorksandCityofWestDesMoines DesMoinesWaterWorksandCityofDesMoines PolkCounty CityofJohnston CityofWaukee CityofPleasantHill XeniaRuralWater UrbandaleWaterWorksandCityofUrbandale CityofNorwalk WarrenCountyRuralWater CityofBondurant CityofAltoona CityofAnkeny CityofPolkCity CityofWindsorHeights CityofClive

3.1.1 Input

PriortomeetingwithCIRDWCmemberstoreceivetheirinput,Black&Veatchpreparedaquestionnairetoallowmemberstoconsidercertainissues,aswellastoprovidebasicinformationontheirrespectivecommunitiesand/orutilities.ThequestionnaireisprovidedforreferenceinAppendixA.Keyelementsofthequestionnaireincludedunderstandingthecharacteristicsofeachcommunityorutility.Thesecharacteristicsincludeditemssuchas1)currentandgeneralconfigurationofindividualentity’swatersystem;2)numberoftypesofwaterutilitycustomers;3)annualandpeakwaterusage;4)numberofemployees;and5)annualbudget.ThisinformationwasimportantasitallowedBlack&VeatchtounderstandthescopeandsizeofmembersthatrequirewaterserviceintheGreaterDesMoinesregion.

Thenextcomponentofthequestionnairewasrelatedtounderstandingeachentity’sstrategy,particularlyrelatedtoprovidingwaterservice.Itemsinthissectionofthequestionnairefocusedonunderstandingwhetherthecommunityinquestionhadastrategicplan;estimatedgrowthtounderstandpotentialfuturewaterneeds;plansformeetingfuturewaterneeds;andgeneralinputrelatedtothecurrentquantityandqualityofthewatersuppliedtocustomers.

TheRegionalizationsectionofthequestionnaireprimarilyfocusedonreceivinginputaboutthebenefitsanddrawbacksofapotentialRegionalProductionUtility.Thus,memberswereaskedto



providetheiropinionastowhatwouldbethreebenefitstoformingaRegionalProductionUtility;andconversely,whatwouldbethreefearsordrawbackstoformingaRegionalProductionUtility.Additionally,memberswereaskedtoprovidetheir“bestcase”scenarioforprovidingwaterservicetotheregion.

ThenextsectionofthequestionnairefocusedongovernanceofthepotentialRegionalProductionUtility.Memberswereaskedtoprovideinputonseveralgovernanceparametersincluding1)generalstructureofgoverningBoard;2)levelofdaytodayinputoftheentityinthepotentialgoverningBoard;3)numberofmembers,professionalbackground,andgeographicalrepresentation;4)keyfocusareasandresponsibilitiesofpotentialBoard;and5)frequencyofpotentialBoard’smeetings.

Thequestionnairealsoincludedasectiononwatersupplytounderstandeachmember’sconcernsandinputrelativetothecurrentmethodofsupplyingwater.Questionsinthissectionfocusedonthestabilityofthecurrentwatersupply;themember’sabilitytocontributetotheregionalwatersupply;theprosandconsofthecurrentwatersupplysituation;thepotentialbenefitswithrespecttosupplyfromformingaRegionalProductionUtility.

TherewasalsoasectiononFinancialandRateissuesforeachmembertoprovideinput.ThepurposeofthissectionwastounderstandthecurrentratesthatmemberspaytoDMWWforwaterservice,aswellasunderstandingtheratesthateachmemberchargesitsowncustomersforoverallwaterservice.Additionally,memberswereaskedtheiropinionofthevalueofwaterserviceprovidedbyDMWW,aswellastheiropinionontransferringtheirwaterproductionassets,ifany,toanewproductionentity.

AsectionrelatedtoPublic/StakeholderinputwasincludedinthequestionnairetoreceivefeedbackrelatedtowhateachmemberwouldhavetodointermsofpublicoutreachshouldaRegionalProductionUtilitybepursued.Thisincludedunderstandingtheprocessforeducatingcitizens,andwhatstepswouldberequiredforamembertoreceivethenecessarypermissiontojoinanewRegionalProductionUtility.Aquestionwasalsoaskedtogaugewhethermembersarealreadyparticipatinginotherregionalinitiatives.

Finally,memberswereprovidedaperiodoftheinterviewtoprovidetheirowninputifnotalreadycoveredaspartofthequestions.Thisallowedmemberstoeitherre‐emphasizeimportantelementsoftheStudy,oraddnewitemstodiscusswithBlack&VeatchrelativetotheStudy.

3.1.2 General Takeaways

Basedonthefeedbackreceivedfrommembersaspartofthestakeholderinput,thefollowingaregeneraltakeawaysderivedbyBlack&Veatchfromtheinterviews.Itshouldbenotedthatthetakeawaysbelowdonotnecessarilyreflectaunanimousopinionofallmembers,butaregeneraltakeawaysthatarederivedfromfeedbackfromseveralmembersduringourinterviews.

ThemajorityofmembersthatcurrentlyreceivetheirwaterservicefromDMWWareexpectingsteadygrowthinpopulationoverthecomingyears.

TherearemultipleplanninginitiativesforgrowthandeconomicdevelopmentbeingconductedthroughouttheDesMoinesmetroarea.WhilecommunicationbetweenDMWWandregional



communitiesdoesoccurwithrespecttowaterissues,thereisnocoordinated,regionalplanningwithrespecttodevelopingfuturewatersupplytomeetprojecteddemands.

CurrentwholesalecustomersareveryinterestedinhavingmoreofasayinthefuturedevelopmentandprovisionofwaterserviceinthegreaterDesMoinesregion.

Generally,membersindicatedthatgovernancewithproportionaterepresentationwouldbeacceptableinanynewregionalwaterproductionentity.Therewereasmallnumberofparticipantsthatadvocatedforaonemember,onevoteapproachtogovernance.

CurrentwholesalecustomersexpressedfrustrationwithDMWW’scostofservicestudyandratesettingapproach;however,therewasnotanoverarchingviewthattheyarereceivingpoorvalue.Inseveralinstances,wholesalecustomersindicatedtheyarereceivinggoodvalueatthecurrentrate.

MembersindicatedthatdealingwithDMWWonoperationalissuesisveryeasyandprofessional.

MembersindicatedthatthefinishedwaterqualitytheyreceivefromDMWWisgenerallyverygood.

Membersindicatedthatthereisaconcernabouthowfuturewatersupplyandadditionalcapacitywillbedevelopedunderthecurrentframework.

TheinputfromCIRDWCmembersalsoprovidedissuestobefurtherassessedduringaStrengths,Weaknesses,Opportunities,andThreats(SWOT)analysistobeconductedaspartoftheStudy.Basedonthestakeholderinput,severalimportantquestionswereidentifiedbyBlack&Veatch:

WouldagovernancemodelthatissimilartothatusedtoprovidewastewaterservicetothegreaterDesMoinesareabeappropriateorapplicableforapotentialregionalwaterproductionentity?

Wouldthelevelofrepresentationchangeovertimedependingonchangestowaterusage,numberofcustomers,etc.?

Howcanthecurrentcostofserviceandrateprocessbeimproved?

WhatisthebeststructureforaddressingfuturewaterqualityandquantityissuesforthegreaterDesMoinesregion?

3.2 SWOT ANALYSIS AspartoftheStudy,SWOTanalysiswasperformedwiththeCIRDWCmembers.TheSWOTanalysiswasconductedonSeptember12,2014attheDesMoinesBotanicalGarden.CIRDWCmemberswerenotifiedoftheSWOTworkshopinadvanceandtherewasattendancefromamajorityofCIRDWCmembersparticipatingintheStudy.AsummaryofthepresentationmaterialsisincludedinAppendixB.

ASWOTanalysisisastructuredplanningmethodusedtoevaluatethestrengths,weaknesses,opportunities,andthreatsinvolvedinaprojectorinabusinessventure,inthisinstanceapotentialbusinessventurerelatedtoaregionalwaterproductionentity.ASWOTexerciseprovidesthestructuretoallowallparticipantstovoicetheirthoughts,opinionsandconcernsrelatedtopotentialbusinessventure.Italsoinvolvesidentifyingtheinternalandexternalfactorsthatarefavorableandunfavorabletoachievetheobjectiveofthebusinessventure.



Figure1providesavisualdepictionforassessingapotentialbusinessventure.ThefollowingaregeneraldefinitionsrelatedtotheSWOTcomponents:

Strengthsareinternalcharacteristicsorissuesthatgivetheprojectorbusinessventureadvantageoverothers

Weaknessesareinternalcharacteristicsorissuesthatplacetheprojectorbusinessventureatadisadvantage

Opportunitiesareexternalcharacteristicsorissuesthatgivetheprojectorbusinessventureadvantageoverothers

Threatsareexternalcharacteristicsorissuesthatplacetheprojectorbusinessventureatadisadvantage

Figure 1 SWOT Analysis Matrix

CIRDWCmembersweredividedintofourseparategroupsofapproximatelyeighttoninemembers.Ingeneral,Black&VeatchrequestednomorethantwoparticipantsfromeachCIRDWCmembertoprovideforabalancedandcandiddiscussion.Thefourseparategroupswerealsogenerallymixedtoprovidebalancedgroupsthatreflectthevariousentitiesthatcomprisethecurrentarrangementforprovidingregionalwater,i.e.,DMWW,wholesalecustomers,andtotalservicecustomers.Black&VeatchandHRGreenservedasfacilitatorsforthefourgroups,andanoverallfacilitatorfromBlack&Veatchmovedfromgrouptogrouptoresolveanyquestionsandkeepthegroupsonschedule.

Themorningportionofthedaylongsessionfocusedongeneratingthestrengths,weaknesses,opportunities,andthreatsofprovidingwaterunderthecurrentsituation.Thegroupsfocusedongeneratingfiveideasand/orconceptsforeachSWOTmatrixoption.Theafternoonsessionfocusedongeneratingthestrengths,weaknesses,opportunities,andthreatsofprovidingwaterunderapotentialRegionalProductionUtility.Aswiththemorningsession,thegroupswereaskedto

Strengths Weaknesses

Opportunities Threats

Helpful Harmful

Internal

External



generateapproximatelyfiveideaand/orconceptsforeachSWOTmatrixoptionunderthisscenario.

BasedontheideasandconceptsgeneratedforeachSWOTmatrixoption,andforeachscenario,Black&Veatchcompiledtheresultsandassessedcommonthemesthatarosefromthesmallgroupsessions,comparingthethemesbetweenbothscenarios(currentscenariowherewaterisprovidedbyDMWWtowholesaleandretailcustomersvs.waterprovidedbyanewRegionalProductionUtility).Thesecommonthemeswerepresentedtotheentiregroupattheendofthedayforreview,clarification,anddiscussion.Asummaryofthethemesbyscenarioispresentedbelow:

STRENGTHS

Current

Staff Responsible and Knowledgeable Reliability of finished water Currently finished water quality is good Redundancy Multiple sources of supply

Ability of customer communities to make


Opportunity to choose level of service Knowledge of defined capacity limits for each

community


More equal representation with regards to

governance, planning, and rates

More political influence at regulatory level

More political stability on governing board

Potential long‐term cost efficiencies (direct and

indirect)

Regional planning Provide relative savings – slow the rate of increase

ThecurrentstrengthsreflectthatDMWWstaffareknowledgeableandprovidereliableandqualityservice.ThecurrentsituationalsoallowsforwholesalecustomerstomakeindependentdecisionsunderthedefinedcapacitylimitsthattheyhaveestablishedwithDMWW.ThestrengthsrelatedtoapotentialRegionalProductionUtilityreflectgreaterrepresentationfromaregionalperspectiveforgovernance,planning,andrateissues.Additionalstrengthsincludegreaterpoliticalstabilitywithrespecttogovernance,andgreaterpoliticalinfluencewithrespecttoregulatoryandpoliticalissuesthatmayimpactregionalwaterissues.

WEAKNESSES

Current

Autocratic governance of water supply and production

No current Board representation of customer

communities

No accountability to customer communities for how

resources are spent or decisions made

Source water quality Source water quantity Competing priorities for responding to regional

growth

Availability of purchased capacity to meet growth


Size of governing body Source water quality and quantity are still issues Change in workforce impacting level of service

Cost versus investment – long term change over

short term pain

Buy‐in costs Conflict between growth and reinvestment

Right now we know who to blame



Forthecurrentsituation,weaknesseswereidentifiedaslackofregionalrepresentationwithrespecttogovernanceandplanningissues.Additionalweaknessesincludepollutantsimpactingthesourcewater,lessthanrobustsourcewaterquantityduringpeakdemandperiods,anduncertaintywithrespecttomeetingfuturedemandswithaninabilitytopurchasemorecapacityfromDMWW.TheweaknessesrelatedtoaRegionalProductionUtilitycouldincludeamorediversegoverningbodythatmaypresentchallengeswithbuildingconsensus.Additionally,theremaybeupfrontcostsrelatedtothetransactionthatcouldmakeserviceviaaRegionalProductionUtilitycostprohibitive.

OPPORTUNITIES

Current

Improve current processes

Individual communities continue to make


More inclusive governance and geographic diversity

of Board

Ability to improve watershed management


Ability to influence quality and quantity Long term bonding capability

Predictability on revenue and costs Better control over resources Consistent message communicated with customers

Input into regional economic development

Underthecurrentsituation,membersindicatedthatthereareopportunitiesforimprovingcurrentprocesses,e.g.,ratemethodology.However,theopportunitieswouldbepursuedviamultiplegoverningBoardsactingindependently.ForthepotentialRegionalProductionUtility,membersviewedopportunitiesasbeingamorecoordinatedapproachtocontrollingwaterproductioncostsandassociatedrates.Theyalsoviewedamorecoordinatedapproachtoaddressorinfluencewaterquantityandqualityissuesfacingtheregion.

THREATS

Current

Competing interests for same source water

Division/breakup of current customer configuration

Availability of capacity to meet customer community

needs


Climate issues


Initial cost of buy‐in Less than 100% participation from communities

Perception of reduction in work force Loss of local control Failure to meet customer expectations


Climate issues

ThemainthreatsfacingthegreaterDesMoinesregionunderthecurrentsituationconsistsofevengreatercompetitionforaccesstotheregion’ssourcewater.Thisisinadditiontononpointsourcepollutionandclimateissuesthattheregionisfacingthatlimittheavailabilityandqualityofsourcewater.FromaRegionalProductionUtilityperspective,thenonpointsourcepollutionandclimateissuesremain,however,otherthreatsconsistofthebreakupofthecurrentcustomerconfigurationwhichcouldimpacttherevenuesandexpensesofvariousmembersinanegativemanner.

3.2.1 Input Into Feasibility Study

TheSWOTanalysisprovidedmemberstheabilitytovoicetheirconcernsandopinionsastomovingfromthecurrentmethodofprovidingwaterproductionservicetoonewherewaterserviceispotentiallygovernedandperformedviaaRegionalProductionUtility.Forpurposesofthisstudy,Black&Veatchwasalsoaskedtoperformafinancialanalysistoderiveanestimateoftheuniform



ratethatwouldbeapplicabletoallCIRDWCmembersshouldapotentialRegionalProductionUtilitybeformed.Black&VeatchwasalsoaskedtoevaluatethreeseparategovernancealternativesthatcouldbeusedbythepotentialRegionalProductionUtility.Inperformingthesetasks,Black&VeatchusedtheSWOTanalysisasabasisforunderstandingwhetherouranalysis1)sustainedstrengthsormitigatedcurrentweaknessesidentifiedbythemembers,and2)enhancedordidnotpreventthemembersfromtakingadvantageofregionalopportunitiesormitigatingexternalthreats.

Additionally,thesummaryoftheSWOTanalysisispresentedinthisreportasareferencepointforthemembersastheycontinuetheirdiscussionsaroundaRegionalProductionUtility.WhilethisStudyprovidesanimportantfirststepindeterminingthemeritsofaRegionalProductionUtility,additionalworkanddiscussionbetweenthememberswillhavetobeperformedshouldthemembersdecidetocontinuedownthepathtowardaRegionalProductionUtility.TheissuesraisedduringthisSWOTanalysisprovideabasisforfuturediscussionsand/ordocuments.


BLACK & VEATCH | Valuation Estimate 25

4 Valuation Estimate WhenassessingthefeasibilityofcreatingaRegionalProductionUtility,considerationmustbegiventotheestimatedvalueofwaterproductionandtransmissionassetsthatwouldcomprisethenewentity.Astherearemultipleutilitiesthatwouldpotentiallycontributeassetstothenewentity,thescopeofworkforthisengagementwascraftedtoprovideCIRDWCwithanestimatedvaluebasedontheCostApproachmethodologyofutilityvaluation.TheCostApproachprovidesanindicationofassetvaluebasedon1)theoriginalcostofinvestmentmadebycurrentownerstoconstructthecurrentsystem,and2)thereplacementcostthatapotentialbuyerwouldhavetoinvesttoconstructanessentiallysimilarwaterproductionsystem.Inbothinstances,Black&Veatchfactorsinestimateddepreciationtorecognizethatovertime,assetsdecreaseinvaluebasedonfactorssuchaswearandtear,actionoftheelements,andobsolescence.InBlack&Veatch’sexperience,areasonableestimateoffairmarketvaluebetweenawillingbuyerandsellerwouldfallsomewherebetweentherangeoforiginalcostlessdepreciation(OCLD)andreplacementcostlessdepreciation(RCLD).OthervaluationapproachessuchastheIncomeApproachandMarketApproachwerenotfactoredintothevaluationestimateduetocostconstraintsofthestudy.InBlack&Veatch’sexperience,theIncomeApproachandMarketApproachwouldgenerallyhelptobetterrefinetheoverallvaluewithintheOCLDandRCLDrange.Anappraisaloflandisalsonotincludedinthevaluationestimate.

Thefollowingsectionsoutlinetheapproachtoderivethevaluationestimate.Thegeneralapproachwasto1)definethepotentialassetstobetransferredfromcurrentutilitiestothenewRegionalProductionUtility;2)determineOCLD;and3)determineRCLD.ThisapproachprovidesCIRDWCwithanestimatedrangeofvalueforregionalwaterproductionassets,alsoprovidesvaluableinputforconductingthefinancialanalysisdescribedlaterinthisReport.

4.1 DEVELOPMENT OF ASSET INVENTORY Black&VeatchworkedwithCIRDWCmemberstoidentifywatersystemassetsthatwouldtransfertoaregionalwaterproductionutility.Assetswouldincludeallsourcesofsupply,watertreatmentplants(WTP),transmissionmains,pumpingfacilities,andstoragetanksforsupplyingfinishedwatertotheindividualentities.

Oneofthegoalsofregionalizationistohaveaconsolidatedapproachfordevelopingrawwatersourcesandprovidingtreatedwater.Productionfacilitiesforallmemberswouldbeincludedintheregionalentityandwerethereforeincludedaspotentialassets.Productionfacilitiesweredeterminedtoincludetreatmentfacilitiesandaquiferstorageandrecovery(ASR)wells.ASRwellswereincludedduetothebasisthattheyfunctiontoprovidefinishedwaterintothesystemandoffsetdemandfromothertreatmentfacilitiesduringpeakdemandperiods.

Generally,transmissionmainsandstorageassetsweredeemedtobeeligibleforinclusionintotheregionalutilityifthatassetserved(orhadtheabilitytoserve)morethanoneentity.DMWWhaspreviouslyidentifiedaCoreNetworkoftransmissionmains,storagetanks,andpumpingfacilitieswhichitusestosupplyfinishedwaterthroughouttheGreaterDesMoinesregion.TheseCoreNetworkfacilitieswereidentifiedasassetsthatwouldbetransferredtotheRegionalProductionUtility.However,individualcommunitydistributionsystemsthatprovidemoredirectservicetocustomers,includingpumpstations,distributionmains,andstoragetanks,werenotincludedaspotentialassets.



4.1.1 Asset Inventory

AssetsgenerallyincludedinthevaluationareshownonthemapinAppendixCandsummarizedinTables4‐1through4‐3below.ThesephysicalassetsweredeterminedbasedonpreliminarydiscussionswithCIRDWCmembers.IndividualrawwatersourcesarenotidentifiedintheTables,butthesesourceswouldbeincludedaspotentialassetsandareincludedaspartofeachrespectivetreatmentfacility.Thefollowingsectionsprovideabriefoverviewoftheassets.

4.1.1.1 City of Altoona

TheCityofAltoona(Altoona)haspurchasedcapacityfromDMWWbutdoesnotcurrentlyutilizetheinterconnection.Instead,AltoonameetsallitsdemandsusingthreeWTPs,eachwithsimilarsourceandtreatmentcomponents.FourdeepJordanaquiferwellssupplythewatertotheWTPs.Treatmentconsistsofaeration,pressurefiltration,ionexchangesoftening,andchlorination.WTPNo.1isfedfromWellNo.1andWellNo.2;WTPNo.2andWTPNo.3areeachsuppliedfromasinglewell.Theionexchangeprocessremovescalciumandmagnesiumionstoprovidesofteningbutdoesnotremovetotaldissolvedsolids(TDS)andsulfates.TDSandsulfatesdonothaveanyprimarydrinkingwaterlimits,butdohavesecondarylimitsassociatedwithtasteandodors(aesthetics).

Altoona’sWTPsarenotcurrentlylocatedadjacenttoanyCoreNetworkpiping.However,basedonthe2013WaterSystemMasterPlanconductedbyBlack&Veatch,theWTPsarenearcapacityandarethereforenotlikelytohaveasignificantamountofadditionalcapacitytosupplywateroutsideAltoona’sdistributionsystem.However,itisrecognizedthatduringpeakdemandperiodsfortheregion,theseWTPssupplyasignificantamountofwaterthatotherwisewouldlikelyhavetobesuppliedbyDMWW.

ThetotaltreatmentproductioncapacitiesofAltoona’sthreeWTPsareshowninTable4‐1below.

4.1.1.2 City of Ankeny

TheCityofAnkeny(Ankeny)haspurchasescapacityfromDMWWandusesthistomeetthemajorityofitsdemands.AnkenyalsohastwodeepJordanaquiferwellsthatareusedasASRwellstomeetseasonalpeakdemands.ThetwoASRwellsareincludedasapotentialassettotheregionalutility.NeitherwellislocatedadjacenttotheCoreNetworkpipingandthesupplyfromthesewellswouldmostlikelybeusedexclusivelyintheAnkenydistributionsystem.However,itisrecognizedthatduringpeakdemandperiodsfortheregion,theseASRssupplyasignificantamountofwaterthatotherwisewouldlikelyhavetobesuppliedbyDMWW.

ThetotalproductioncapacityoftheASRwellsisshowninTable4‐1below.

4.1.1.3 Des Moines Water Works

4.1.1.3.1 Source of Supply and Treatment Assets

DesMoinesWaterWorks(DMWW)ownsandoperatesthreeWTPfacilitiesandtwoASRwellstosupplywaterthroughouttheGreaterDesMoinesregion.

ThethreeWTPfacilitiesconsistoftheFleurWTP,L.D.McMullenWTP(McMullenWTP),andtheSaylorvilleWTP.Sourceofsupplyforallthreefacilitiesconsistsofdirectsurfacewaterandgroundwaterunderthedirectinfluenceofsurfacewater.TheFleurandMcMullenWTPsutilize



lime/sodaashsofteningwithconventionalfiltrationanddisinfectionfortreatment.TheSaylorvilleWTPutilizesultra‐filtration(UF)membranefiltersandreverseosmosis(RO)membranesoftening.

TheFleurWTPutilizestworiverintakesalongtheRaccoonRiverandDesMoinesRiver,witheachintakecapableofsupplyingupto100mgdinrawwatertotheWTP.TheFleurWTPalsoutilizesariverbankstyleinfiltrationgalleryalongtheRaccoonRiverwhichpullswaterfromtheriverandprovidesriverbankfiltrationtolimitturbidityandothersuspendedsolids,whilesimultaneouslyprovidingsomedenitrification.Thecapacityoftheinfiltrationgalleryvariesfromapproximately10mgdto20mgddependingontheriverlevel.Rawwaterfromthetworiversourcestypicallypassesthroughpresedimentationforturbidityandtotalorganiccarbon(TOC)removal.DMWWcanalsobypasspresedimentationandsendflowdirectlytothesofteningbasins.ThetotalcapacityoftheFleurWTPisapproximately75mgd,whichislimitedbythefiltrationcapacity.Firmcapacityisapproximately70mgd,whichislimitedbyfiltrationandsofteningcapacity.

TheMcMullenWTPcurrentlyusesradialandhorizontalalluvialwellsandtwosurfacewatersources(CrystalLakeandMaffittReservoir).Allrawwateristreatedthroughsolids‐contactsofteningbasinsandfiltration.TotaltreatmentcapacityoftheMcMullenWTPis25mgdandfirmcapacityis12.5mgdwithoneofthetwosofteningbasinsoutofservice.

TheSaylorvilleWTPusestworadialcollectorwellstosupplyrawwatertotheWTP.Thesmallerofthetwowellsisratedforapproximately5mgd.TotaltreatmentcapacityoftheSaylorvilleWTPis10mgd.ThetreatmentefficiencyoftheUFandROmembranesisapproximately83percent,whichresultsinafirmcapacityofapproximately4.2mgd,whichislimitedbythesourcewatercapacity.

DMWWpurchasedapproximately3.235billiongallonsofstoragecapacityintheSaylorvilleReservoirfromtheArmyCorpsofEngineersintheearly1980’s.ThisstoragevolumeservesasabackupwatersupplyduringperiodsofdroughtandcanbereleasedfromthereservoirandcollectedbytheDesMoinesRiverintakedownstreamoftheSaylorvilleReservoir.

ThetotalproductioncapacityofDMWW’streatmentfacilitiesareshowninTable4‐1below.Thesecapacitiesarebasedonsourcewaterandtreatmentcomponents.DMWWisintheprocessofmakingimprovementstoincreasesourcewatercapacityattheMcMullensite,whichisanticipatedtoincreaseproductiontothetotaldesigncapacityof25mgdduringlowriverlevels.Inaddition,theUFmembranesattheSaylorvilleWTPfacilityareneartheendoftheirusefullifeandDMWWisintheprocessofreplacingthesemembranes.Oncereplaced,thenewUFmembranesareanticipatedtorestoretheoperatingcapacityoftheSaylorvilleWTPbacktoitsdesigncapacity.

DMWWoperatestwoASRwellsduringthehighsummerseasonaldemandperiod.TheASRwellsarelocatedattheMcMullenWTPsiteandtheL.P.Moonstorageandpumpstationsite.

4.1.1.3.2 Transmission Mains, Pumping, and Storage Assets

DMWWalsooperatestheCoreNetworktotransportanddeliverwateracrossthemetroarea.Theseincludetwogroundstoragereservoirs,threestandpipes,twoelevatedstoragetanks,fivepumpstationfacilities,andapproximately134milesoftransmissionmainsranginginsizefrom12‐inchto60‐inchindiameter.ThesefacilitiesareshowninTables4‐2and4‐3below.Thestorageandpumpingfacilitieswereincludedaspotentialassetsbasedontheiroperationalfunctionalityofservingmultipleentities.



TheDMWWCoreNetworktransmissionandpumpingassetsconsideredfortheregionalutilitycurrentlyoperatewithfivepressurezonesasdescribedbelow.Thesepressurezonesonlyincludethosethatwouldservetheregionalutility;additionalpressurezonesexisttoserveindividualentities.Thenumberingconventionusedbelowisonlyforthecontextofthisstudy.1. PressureZone1:SupplybyFleurandMcMullenWTPsandservedbyAllenHazenTowerand

PumpStation,Nollen,Tenny,andWilchinskiStandpipes.ThesystemnormallyfloatsoffthewaterlevelintheTennyandWilchinskiStandpipes.Thesystemhydraulicgradeline(HGL)normallyoperatesabovetheleveloftheAllenHazenTowerandNollenStandpipe.

2. PressureZone2:SupplybySaylorvilleWTPandPolkCountyPumpStation.ThePolkCountyGroundStoragefacilityisfilledbyPressureZone1andre‐pumpedtoserveAnkeny(throughPressureZone2)andruralPolkCounty(separatepressurezone).

3. PressureZone3:SupplybyNollenStandpipethroughPressureZone1.NollenPumpStationre‐pumpstoserveportionsoftheDMWWandBondurantsystems.

4. PressureZone4:SupplythroughPressureZone1andre‐pumpedthroughEastsidePumpStationintoSharedEastsideTower.ServesPleasantHill,Altoona,andPolkCountyRWDsystems.

5. PressureZone5:SupplythroughPressureZone1andLPMoonASR.LPMoonGroundStorageandPumpStationutilizestwosetsofpumpstoservei)WDMWW’s98thStreetTowerthatservestheWDMWW,Clive,andWaukeesystems,andii)UrbandaleandXeniasystems.

FromdiscussionswithDMWW,dischargepressuresfromtheFleurWTPregularlyexceed100poundspersquareinch(psi)andcanapproach120psibasedonthedemandlocationandpointsofentryintotheCoreNetworkpiping.DMWWrecentlyinstalledacontrolvalveontheinfluenttotheWilchinskiStandpipeinordertothrottleflowintothestoragetankanddivertwaterfromtheFleurWTPtothenorthandwesternportionsoftheCoreNetworksystem.

4.1.1.4 Urbandale Water Works

TheCityofUrbandalehaspurchasedabandonedquarrypitslocatedalongtheDesMoinesRiverthatcouldbedevelopedintoarawwatersource.Theestimatedcurrentcapacityofthequarrypitsisapproximately725milliongallons.UrbandalealsoobtainedawithdrawalratepermitfromtheIowaDepartmentofNaturalResourcestoallowwithdrawalupto30mgddirectlyfromtheDesMoinesRiver.Atthetimeofthisreport,themaximumfeasiblewithdrawallimitfromthequarrypit/DesMoinesRiversourceisnotknown,butisassumedthatthewithdrawalpermitcanbeusedtorechargethequarryasneeded.

4.1.1.5 West Des Moines Water Works

WestDesMoinesWaterWorks(WDMWW)ownsandoperatesoneWTPfacility,theA.C.WardWTP.GroundwaterwellsfortheWTPconsistofthreedeepJordanaquiferwellsand18totalshallowalluvialwells.Thewellfieldtotalcapacityisapproximately9.9mgdandislimitedtoafirmcapacityofapproximately6.9mgdwithtwoofthethreeJordanwellsinoperation.ThelimesofteningprocesscannotremoveTDSandsulfatesthatarenaturallyoccurringintheJordanaquifer,whichcanresultintasteandodorissueswiththefinishedwater.



TheWTPconsistsofaeration,lime/sodaashsoftening,filtration,anddisinfection.ThetotaltreatmentcapacityoftheA.C.WardWTPis12mgdandthefirmtreatmentcapacityis9mgdwithoneofthesolids‐contactsofteningbasinsoutofservice.TheWTPiscurrentlylimitedbyrawwatersourcecapacity.TheproductioncapacityofWDMWW’streatmentfacilitiesareshowninTable4‐1below.WDMWW’ssystem‐widedemandinWDMWW’sserviceareacanexceedthecapacityoftheA.C.WardWTP,withtheremainingwatersuppliedbyDMWW.

TheA.C.WardWTPisnotlocatedalonganyCoreNetworkpiping.ItisassumedforthepurposesofthisstudythatallwaterproducedbytheA.C.WardWTPwillremaininWDMWW’sdistributionsystemandnotsuppliedbackintotheCoreNetwork.

WDMWWownsanelevatedstoragetankalong98thStreetthatcurrentlyservestheWDMWW,Clive,andWaukeesystems;allthreeentitiesprovidedinitialcapitalandongoingmaintenancecostsforthestoragetank.The98thStreetESTisfedbytheLPMoonpumpstationandisoperatedbyDMWW.

Table 4‐1 Total Source and Supply Assets for Regional Utility

PHYSICAL ASSET

TOTAL CAPACITY/

DEMAND, MGD

FIRM CAPACITY/

DEMAND, MGD

WTP and ASR Supply Facility Capacity

Altoona ‐ WTP No. 1 1.30 0.58



Ankeny ‐ ASR No. 1 1.44 0.00

Ankeny ‐ ASR No. 2 2.88 0.00

DMWW ‐ Fleur WTP 75.00 70.00

DMWW ‐ LP Moon ASR 3.00 0.00

DMWW – L.D. McMullen WTP 25.00 12.50

DMWW ‐ McMullen ASR 3.00 0.00

DMWW ‐ Saylorville WTP 10.00 4.20

WDMWW – A.C. Ward WTP 9.90 6.90

Total WTP and ASR Capacity(a) 134.12 118.60

2012 Maximum Day Finished Water Demands(b)

Altoona 3.90

Ankeny 4.30

DMWW 96.60

WDMWW 9.90

Total 2012 Maximum Day Finished Water Demand 114.70

2012 Remaining Capacity 19.42 3.90



(a) The value of 118.6 mgd is not a summation. Total estimated firm capacity considers all production facilities in operation with one of the seven WTPs (McMullen WTP) limited to firm capacity and one 3.0 mgd ASR well out of service to account for equipment being offline for maintenance and/or repair. (b) DMWW recorded a peak day usage of 96.6 mgd during the summer months of 2012. For the purposes of this report, it was assumed that the other production facilities in the metro operated by Altoona, Ankeny, and West Des Moines were operating near full capacity.

Table 4‐2 Distribution System Storage and Pump Station Assets

PHYSICAL ASSET

TOTAL CAPACITY, MG/MGD

DMWW ‐ Allen Hazen Tower and Pump Station 2.0 MG – EST

18.5 MGD – PS

DMWW ‐ Eastside Tower and Pump Station 2.0 MG – EST

11.5 MGD – PS

DMWW ‐ LP Moon Ground Storage and Pump Station 6.0 MG – GST

21.5 MGD – PS

DMWW ‐ Nollen Standpipe and Pump Station 4.0 MG – SP

20.0 MGD – PS

DMWW ‐ Polk County Ground Storage and Pump Station

5.0 MG – GST

10.0 MGD – PS

DMWW ‐ Tenny Standpipe 4.0 MG – SP

DMWW ‐ Wilchinski Standpipe 2.4 MG – SP

WDMWW – 98th Street Tower 2.5 MG ‐ EST

TOTAL GROUND STORAGE 17.0 MG

TOTAL ELEVATED STORAGE 10.9 MG

TOTAL PUMP STATION 81.5 MGD

(a) EST = Elevated Storage Tank: Allen Hazen tower effectively operates below the hydraulic grade line of the Pressure Zone 1 and therefore its capacity is considered to be ground storage capacity under normal operating conditions. (b) SP = Standpipe: Tenny and Wilchinski standpipes effectively operate as elevated storage and are therefore considered to be included in the total elevated storage capacity calculation. However, due to their standpipe configuration their total effective capacity is significantly lower than the total capacity identified. (c) PS = Pump Station



Table 4‐3 Des Moines Water Works Transmission Main Assets

PHYSICAL ASSET

TOTAL

LENGTH, FT

12‐INCH 40

14‐INCH 20,220

16‐INCH 104,960

18‐INCH 300

20‐INCH 81,260

24‐INCH 206,950

30‐INCH 120,180

36‐INCH 122,210

42‐INCH 15,160

48‐INCH 34,280

60‐INCH 890

TOTAL 706,450

4.1.2 Asset Inspection

Black&VeatchandHRGreenconductedinspectionsofalltheproposedassetstoidentifytherelativeconditionofthefacilitiesincomparisontotheirrespectiveage.InspectionswereconductedinOctoberandNovemberof2014withtheassistanceoftheowner’sstaff.Inspectionsweremadeoftreatment/productionfacilitiesforAltoona,DMWW,andWDMWWandDMWW’sstorageandpumpstationsassignedtotheCoreNetwork.

4.1.3 Asset Review

Areviewoftheassetswasgenerallybasedontherelativeage,condition,andtypeofmaterialfortreatment,supply,storage,andpumpingfacilities.Ingeneral,theconditionofallfacilitiesappearedtobecommensuratewiththeageofthefacility.Theageandmaterialsofconstructionwereusedtoassignanticipatedlifeexpectancy,whichfactorsintothecostdepreciationasdiscussedbelow.

Itshouldbenotedthatforthepurposesofthisstudy,noinspection,review,orhydraulicmodelingwasprovidedforthewatertransmissionmainsassociatedwithDMWW’sCoreNetworkpiping.Additionalhydraulicmodelingisrecommendedtodetermineifadditionalimprovementsarerequired.DMWWnotedthathighdistributionsystempressuresattheFleurWTPsometimescurrentlylimitthepumpingrateduringhighdemandperiodsinordertopreventwatermainbreaksonolderwatermainsduetohighpressures.

Asummaryofthestrengthsandweaknessesfortheindividualtreatment/supplyfacilitiesareincludedinTable4‐4.



Table 4‐4 Treatment Asset Strengths and Weaknesses Review

FACILITY STRENGTHS WEAKNESSES

Altoona WTPs

Reliableandconsistentsource Distributedfacilitiesresultinbetterhydraulicperformanceofthedistributionsystem

Softenedwater

SinglewellperWTPfacility ResidualTDSandsulfatescanresultintasteandodorissues

Ankeny ASRs

Consistentsourceoffinishedwatertoseasonallyoffsethighfinishedwaterdemandperiods

ASRrechargeiscontingentuponadequatefinishedwaterquality

Onlyavailableseasonally

DMWW Fleur WTP

Threesourcesofsupply(infiltrationgalleryandtworiversources)

Limesofteningprocess Multipleandflexibletreatmentsystems

Ageandcondition Limitedhypochloriteandferricchemicalstorage

Nofilter‐to‐waste Waterqualityconcernsw/DBPs

Limitedmechanicalnitrateremovalcapabilities

Locatedinfloodplain

DMWW McMullen WTP and ASR

Limesofteningprocess ASRlocatedon‐site Treatmentcapacityexpandable

Currentlylimitedbysourcewaterquantity

Nomechanicalnitrateremovalcapabilities

DMWW Saylorville WTP

UF/ROtreatmentprovidesconsistentfinishedwaterquality

Treatmentcapacityexpandable Fullcapacitymechanicalnitrateremoval


Treatmentcapacityimpactedbyrawwatertemperatureandhardness

Unprovenadequacyofpretreatmentforsuccessfullong‐termUFmembranelife

WDMWW A.C. Ward WTP

Reliableandconsistentsource Limesofteningprocess


ResidualTDSandsulfatescanresultintasteandodorissues

4.2 ESTIMATION OF ORIGINAL COST LESS DEPRECIATION (OCLD) Asnotedabove,theassetinventorywasderivedtounderstandtheassetsthatwouldbetransferredtoanewRegionalProductionUtility.Black&VeatchrequestedinformationfromCIRDWCmembersrelatedtotheseassets,includinginformationsuchastheoriginalcostinvestedtoconstructtheassets,ifavailable.Informationwasalsorequestedwithrespecttocurrentunitcostsforitemssuch



asmains,meters,andotherassets.Thisdatawasusedtoderiveanestimateoftheoriginalcostforvariousassettypes.AdditionalexplanationofthedevelopmentofOCLDforassetscontributedbyindividualutilitiesisprovidedinthefollowingsections.

4.2.1 Original Cost

TheassetinventoryaboveprovidesageneraloverviewofthemajorassetsrecognizedbyBlack&VeatchasbeingnecessaryforanewRegionalProductionUtility.Generally,theseassetsincludedsourceofsupply,treatment,pumpstations,storage,transmissionmains(includingappurtenances),andwholesalemeters.

Formajorfacilitytypeassets,e.g.,wells,intakes,treatmentplants,pumpstations,etc.,Black&Veatchprimarilyusedoriginalcostinformationprovidedbytheutilitiesasabasisfortheoriginalcostestimatefortheirrespectiveassets.Forassetsinstalledmorerecently,thecostandscaleoftheassetwasreviewedforreasonableness,andingeneralBlack&VeatchutilizedthesevaluesasitsestimatefororiginalcostofmajorabovegroundfacilitiesforDMWWandWDMWW.ForAltoonaandAnkeny’sassets,theoriginalcostwasdeterminedbyestimatingthecurrentreplacementcostvalueoftheassets,andthentrendingthevaluesbacktotheirdateofinstallationusingHandy‐WhitmanBulletinNo.180:CostTrendsofWaterUtilityConstruction(Handy‐WhitmanIndex).ThetrendfactorforAnkeny’sASRwellsandAltoona’streatmentplantsisthetrendindexvaluefortheyearofinstallation,dividedbythetrendindexvalueforthecurrentyearforeachassettype.

FortransmissionmainsthatprimarilyareownedbyDMWW,availabledataconsistedofGeographicInformationSystem(GIS)datarelatedtocorenetworkmainsprovidedbyDMWW.Originalcostdatawasnotassociatedwiththisdata,therefore,Black&Veatchhadtoestimatetheoriginalcostoftransmissionmains.Todothis,anestimateofreplacementcostperfootofmainwasprovidedbyDMWWandmultipliedbythelengthofeachmainsegmenttoderivetheestimatedreplacementcostpersegmentofmainprovidedintheGIS.TheoriginalcostforeachsegmentwasthendeterminedbytrendingbackthereplacementcosttotheyearofinstallationnotedintheGISusingtrendindicesfromtheHandy‐WhitmanIndex.Thetrendfactorfortransmissionmainsisthetrendindexvaluefortheyearofinstallation,dividedbythetrendindexvalueforthecurrentyearforeachassettype.Asimilarapproachwasalsousedtoderivetheoriginalcostforwholesalemeters.

FortherawwaterquarriesownedbyUrbandaleWaterWorks,Black&VeatchprimarilyreliedonthevaluepaidbyUrbandaleWaterWorksforthequarriesandadjacentparcelsbasedoninvoicesprovidedbyUrbandaleWaterWorks.

4.2.2 Accumulated Depreciation

AccumulatedDepreciationprovidesanestimateofthedecreaseinvalueduetofactorssuchaswearandtear,actionoftheelements,andobsolescence.ForthisStudy,Black&Veatchutilizedthestraightlinemethodfordeterminingaccumulateddepreciationforassets.

Therearetwokeyelementsneededfordeterminingstraightlinedepreciation.Thefirstistheageoftheasset.Thisdatapointwasgenerallyderivedfromassetdataprovidedbytheutilities.Theotherdatapointneededistheestimatedservicelifeforeachasset.Black&VeatchandHRGreendevelopedgeneral,estimatedservicelivesforvariousassetclasses.Thefollowingprovidesanoverviewofestimatedservicelivesformajorassets:



Structures&Improvements–75years Wells&Springs–50years ElectricPumpingEquipment–25years LargeTreatmentPlantEquipment–30years ElevatedSteelTanks–75years ConcreteStorageReservoirs–75years Pre‐stressedConcreteTransmissionMains–100years PolyvinylChloride(PVC)TransmissionMains–50years DuctileIronTransmissionMains–75years CommunicationEquipmentandSCADA–20years LaboratoryEquipment–10years WholesaleMeters–20years

ThesegeneralservicelifeestimateswerethenreviewedforindividualassetsbasedonthesitevisitsconductedbyBlack&Veatch.IfbasedonthesitevisitBlack&Veatchdeterminedthatanalternateservicelifewasapplicable,theservicelifewasadjustedhigherorlowertoreflectourjudgmentoftheservicelifeofanindividualasset.Theaccumulateddepreciationfactortobeappliedtotheoriginalcostwasdeterminedbycomparingtheageoftheassettoitsestimatedservicelife.Theaccumulateddepreciationfactor,multipliedbytheassetoriginalcostprovidedtheestimatedaccumulateddepreciationforeachasset.

4.2.3 OCLD Results

ThefollowingTablespresenttheresultsoftheOCLDforassetsthatpotentiallycouldbeconveyedtoanewRegionalProductionUtility.

4.2.3.1 DMWW OCLD Results

AscanbeseenonTable4‐5,theOCLDforDMWWassetsisapproximately$210.3million.ThistotalestimatedOCLDisbrokenoutbymajorassetclass,includingsourceofsupply,treatment,boostersandstorage,transmissionmains,andmiscellaneousassets.IncludedinthemiscellaneousOCLDvalueisanestimateofgoingconcern.Goingconcerngenerallyrecognizesthatabuyerofassetswouldalsopurchasethebusinessprocesses,vendorrelationships,andotherbusiness‐relateditemsthatallowthesellertoefficientlyconductbusinessonadaytodaybasis.ForDMWW,Black&Veatchutilizedahighlevelestimateofgoingconcernofapproximately$6.2millionderivedfromDMWW’s2013operatingincome.TheMiscellaneouslineitemalsoincludesconstructionworkinprogress(CWIP)estimatetorecognizevalueincorenetworkassetsthatarealreadyunderconstructionandlikelytobeinserviceatthedateofanytransaction.



Table 4‐5 Estimated OCLD Value of DMWW Assets

4.2.3.2 WDMWW OCLD Results

AspresentedinTable4‐6,theestimatedOCLDvalueforWDMWWassetsisapproximately$17.1million.ThisincludesOCLDvalueprimarilyforwells,treatmentplant,andthe98thStreetstoragereservoirasnotedaboveintheassetinventorysection.SimilartoDMWW,highlevelestimateofgoingconcernisprovidedforWDMWWinLine6ofapproximately$979,000andisbasedonWDMWW’s2013NetOperatingIncome.

Original Cost

Line Original Accumulated

No. Description Cost Depreciation OCLD

Source of Supply

1 Des Moine River Intake $9,165,000 $4,409,100 $4,755,900

2 Fleur Infiltration Gallery $1,296,300 $937,800 $358,500

3 Maffitt Raw Water $10,307,600 $1,955,800 $8,351,800

4 Maffitt Reservoir $1,172,300 $679,800 $492,500

5 Saylorville Lake Storage $3,033,500 $0 $3,033,500

6 Saylorville WTP Raw Water $8,616,600 $448,300 $8,168,300

Treatment

7 Fleur WTP $51,413,900 $25,290,000 $26,123,900

8 Fleur Nitrate Facility $4,185,500 $2,417,600 $1,767,900

9 Fleur Laboratory $534,900 $446,500 $88,400

10 McMullen WTP $29,975,700 $9,402,100 $20,573,600

11 Saylorville WTP $27,405,900 $3,561,700 $23,844,200

Boosters and Storage

12 Hazen Storage $1,655,000 $1,001,200 $653,800

13 East Side Tower $4,597,200 $198,900 $4,398,300

14 LP Moon Booster and Storage $8,838,200 $2,825,200 $6,013,000

15 Polk Co. Storage $2,177,200 $945,600 $1,231,600

16 Polk Co. Booster $1,751,700 $1,189,000 $562,700

17 Standpipes $2,731,400 $1,536,800 $1,194,600

18 ASR Wells $6,558,400 $900,400 $5,658,000

Transmission Mains

19 Mains $88,559,700 $17,826,300 $70,733,400

20 SWTP Feeder Main ‐ Purch. Cap. $5,411,600 $216,500 $5,195,100

21 Wholesale Meters $210,000 $84,000 $126,000

Miscellaneous

22 General Office $3,750,200 $999,000 $2,751,200

23 Other $1,677,500 $1,462,100 $215,400

24 Miscellaneous $13,370,000 $0 $13,370,000

25 Total DMWW Assets $288,395,300 $78,733,700 $209,661,600



Table 4‐6 Estimated OCLD Value for WDMWW Assets

4.2.3.3 Other OCLD Results

Table4‐7providestheestimatedOCLDvalueforassetscontributedbyAltoona,Ankeny,andUrbandaleWaterWorks.TheseassetsareconsolidatedonthesameTableastheirnumberofassetitemsislimitedcomparedtoDMWWandWDMWW.Noestimateofgoingconcernwasdeterminedfortheseassets.

Table 4‐7 Estimated OCLD Value for Urbandale WW, Altoona, and Ankeny

4.3 ESTIMATION OF REPLACEMENT COST LESS DEPRECIATION (RCLD) Thereplacementcostlessdepreciation(RCLD)providesanindicationoftheupperrangeofvaluerelatedtotheassetsthatwouldcomprisethepotentialRegionalProductionUtility.Replacementcostreflectsanestimateofwhatapotentialbuyerwouldhavetopaytoconstructtheregionalproductionassetsatpresentvalue.AswiththeOCLDanalysis,accumulateddepreciationisderivedandsubtractedfromthereplacementcosttoreflectthatvaluediminishesovertimeduetofactorssuchaswearandtear,actionoftheelements,andobsolescence.ThedeterminationoftheRCLD

Original Cost



Source of Supply

1 Wells and Equipment $4,543,400 $1,582,200 $2,961,200

Treatment

2 Plant Structures and Buildings $9,730,700 $3,385,700 $6,345,000

3 Treatment Equipment $7,987,200 $4,389,400 $3,597,800

Mains

4 Raw and Finished Water $604,200 $157,600 $446,600

Storage

5 98th Street Tower $3,216,100 $385,500 $2,830,600

6 Miscellaneous $979,000 $0 $979,000

7 Total WDMWW Assets $27,060,600 $9,900,400 $17,160,200

Original Cost



Urbrandale

1 Raw Water Quarries $870,900 $0 $870,900

Ankeny

2 ASR Wells $2,279,800 $468,600 $1,811,200

Altoona

3 Wells and Treatment Facilities $8,145,700 $3,857,400 $4,288,300

4 Total Other $11,296,400 $4,326,000 $6,970,400



valuefortheassetsthatwouldcomprisetheRegionalProductionUtilityisdiscussedinthefollowingsections.

4.3.1 Replacement Cost

ForthisStudy,ReplacementCostreflectstheestimatedpresentdayvaluethatapotentialbuyerwouldhavetoinvesttoconstructaregionalproductionsystemsimilartothatconstructedbyDMWW,WDMWW,Altoona,Ankeny,andUrbandaleWaterWorks.Thereplacementcostisgenerallydesignedtoreflectwhatitwouldtakeapotentialbuyertoconstructassetsofsimilarscaleandtechnology.

Aswiththeoriginalcostdeterminationabove,Black&Veatchreliedondataprovidedbytheutilitiesthatincludedtheoriginalcostoftheassetandtheyearofinstallation.ForDMWWandWDMWW,thisincludedassetschedulesthatincludedoriginalcost,yearofinstallation,andadescriptionoftheassetforabovegroundassetssuchaswells,treatmentplants,storagetanks,pumpstations,andothersimilarabovegroundassets.TheoriginalcostfortheseassetswastrendedtotheirrespectivereplacementcostvalueusingtheHandy‐WhitmanIndex.Thetrendindexforthecurrentyear(2014),dividedbythetrendindexfortheyearofinstallationbyassettypeprovidedthetrendfactor.Thetrendfactor,multipliedbytheoriginalcostprovidedthereplacementcostestimate.Black&VeatchandHRGreenalsoevaluatedtheresultingreplacementcostestimateforreasonablenessusingourknowledgeofsimilarconstructionprojects.Ifthereplacementcostderivedviatrendingwasviewedtobetoohighortoolow,Black&Veatchadjustedthereplacementcosttoreflectareasonablereplacementcostvaluebasedonourknowledgeandexperience.

ThereplacementcostforthecorenetworktransmissionmainsownedbyDMWWwasderivedinthesamemannerasnotedaboveinthedescriptionofthedevelopmentoforiginalcost.Theestimatedreplacementcostperfootofmainwasmultipliedbytheapplicabletransmissionmainsegmentlengthtoderivethereplacementcostestimate.

FortheASR,treatmentplant,andsourceofsupplyquarriesownedbyAnkeny,Altoona,andUrbandaleWaterWorks,respectively,Black&Veatchderivedestimatedreplacementcostestimatesusingengineeringjudgmentandexperience.Theseestimateswerecomparedtoknownprojectsofsimilarscopeandsizetoassessforreasonableness.

4.3.2 Accumulated Depreciation

AswiththeOCLDanalysis,accumulateddepreciationwasderivedtoreflectthatovertime,thereplacementcostvaluewoulddiminishduetofactorssuchaswearandtear,actionoftheelements,andobsolescence.Black&Veatchusedthesamegeneralservicelifevalues,whichareshownasfollows,astheoriginalcostanalysis.

Structures&Improvements–75years Wells&Springs–50years ElectricPumpingEquipment–25years LargeTreatmentPlantEquipment–30years ElevatedSteelTanks–75years ConcreteStorageReservoirs–75years



Pre‐stressedConcreteTransmissionMains–100years PolyvinylChloride(PVC)TransmissionMains–50years DuctileIronTransmissionMains–75years CommunicationEquipmentandSCADA–20years LaboratoryEquipment–10years WholesaleMeters–20years

Similartothedeterminationofaccumulateddepreciationfortheoriginalcostanalysis,ifBlack&Veatchfeltthatbasedonsitevisits,amorereflectiveservicelifeshouldbeused,thentheservicelifewasadjustedtobemorereflectiveoftheobservedcondition.

Straightlinedepreciationwasusedtodeterminetheaccumulateddepreciationusingthefollowingformula:

AccumulatedDepreciation=((Age/ServiceLife)xReplacementCost)

Iftheageoftheassetwasgreaterthantheservicelife,theaccumulateddepreciationwassetequaltothereplacementcost.TheaccumulateddepreciationwasthensubtractedfromthereplacementcosttoderivetheestimatedReplacementCostLessDepreciationorRCLD.

4.3.3 RCLD Results

ThefollowingTablespresenttheresultsoftheOCLDforassetsthatpotentiallycouldbeconveyedtoanewRegionalProductionUtility.

4.3.3.1 DMWW RCLD Results

Table4‐8presentsasummaryoftheestimatedRCLDresultsforthecorenetworkassetsofDMWW.Ascanbeseen,theRCLDvalueforDMWWassetsisapproximately$365million.Thisincludesassetsrelatedtothesourceofsupplyintakes,collectorwells,treatmentplants,transmissionmains,pumpstations,andstoragefacilitiesofDMWW.AswiththeOCLDanalysis,italsoincludesahighlevelmiscellaneousvalueestimateforgoingconcernandaprovisionforCWIP.

4.3.3.2 WDMWW RCLD Results

Table4‐9presentsasummaryoftheestimatedRCLDresultsforWDMWW.Thisincludeswells,theA.C.WardWTP,98thStreetelevatedstoragetank,andmiscellaneousrawandfinishedwatermains.AswiththeOCLDanalysis,ahighlevelestimateforgoingconcernisincludedintheRCLDvalueforWDMWW.

4.3.3.3 Other RCLD Results

Table4‐10presentstheestimatedRCLDforthewaterassetscurrentlyownedbyUrbandaleWaterWorks,Ankeny,andAltoona.



Table 4‐8 RCLD Results for DMWW

Line Replacement Accumulated

No. Description Cost Depreciation RCLD

Source of Supply

1 Des Moine River Intake $26,442,500 $12,929,400 $13,513,100

2 Fleur Infiltration Gallery $16,715,000 $14,795,500 $1,919,500

3 Maffitt Raw Water $16,569,800 $3,377,000 $13,192,800

4 Maffitt Reservoir $15,864,400 $11,211,700 $4,652,700

5 Saylorville Lake Storage $7,257,300 $0 $7,257,300

6 Saylorville WTP Raw Water $9,754,800 $505,300 $9,249,500

Treatment

7 Fleur WTP $208,435,800 $147,560,200 $60,875,600

8 Fleur Nitrate Facility $9,167,600 $5,356,900 $3,810,700

9 Fleur Laboratory $923,700 $830,500 $93,200

10 McMullen WTP $51,015,200 $15,924,900 $35,090,300

11 Saylorville WTP $30,448,200 $3,967,400 $26,480,800

Boosters and Storage

12 Hazen Storage $7,020,100 $6,682,500 $337,600

13 East Side Tower $4,826,000 $209,200 $4,616,800

14 LP Moon Booster and Storage $11,326,300 $3,623,700 $7,702,600

15 Polk Co. Storage $3,827,100 $1,661,900 $2,165,200

16 Polk Co. Booster $3,775,800 $2,764,000 $1,011,800

17 Standpipes $15,414,600 $10,858,800 $4,555,800

18 ASR Wells $5,500,000 $777,300 $4,722,700

Transmission Mains

19 Mains $216,318,000 $78,141,100 $138,176,900

20 SWTP Feeder Main ‐ Purch. Cap. $6,709,600 $268,400 $6,441,200

21 Wholesale Meters $322,700 $129,100 $193,600

Miscellaneous

22 General Office $7,337,900 $2,038,500 $5,299,400

23 Other $4,214,000 $3,707,500 $506,500

24 Miscellaneous $13,370,000 $0 $13,370,000

25 Total DMWW Assets $692,556,400 $327,320,800 $365,235,600



Table 4‐9 RCLD Results for WDMWW

Table 4‐10 RCLD Results for Urbandale Water Works, Ankeny, and Altoona

4.4 COMBINED ESTIMATE OF VALUATION ThecombinedestimateofvaluationreflectsthecombinedvalueofassetscontributedbytheutilitiesofDMWW,WDMWW,Altoona,Ankeny,andUrbandaleWaterWorks.ThecombinedestimateofvaluereflectstherangeofvaluethatprovidesareasonablebasisforestablishingthefairmarketvalueofwaterutilityassetsthatcouldbetransferredtoanewRegionalProductionUtility.AsisseeninTable4‐11,thecombinedestimatedrangeofvaluationisapproximately$234millionto$413million.ThelowrangevaluerepresentsthesumofOCLDvaluesforTables4‐5through4‐7,whilethehighrangevaluerepresentsthesumofRCLDvaluesforTables4‐8through4‐10.Themidrangerepresentsthemedianbetweenthelowandhighrange.

Repl. Cost



Source of Supply

1 Wells and Equipment $8,957,900 $3,291,900 $5,666,000

Treatment

2 Plant Structures and Buildings $30,636,700 $15,343,700 $15,293,000

3 Treatment Equipment $13,388,500 $7,648,300 $5,740,200

Mains

4 Raw and Finished Water $1,414,900 $370,500 $1,044,400

Storage

5 98th Street Tower $5,800,000 $695,300 $5,104,700

6 Miscellaneous $979,000 $0 $979,000

7 Total WDMWW Assets $61,177,000 $27,349,700 $33,827,300



Urbrandale

1 Raw Water Quarries $1,680,000 $0 $1,680,000

Ankeny

2 ASR Wells $3,310,400 $729,700 $2,580,700

Altoona

3 Wells and Treatment Facilities $23,050,800 $13,600,700 $9,450,100

4 Total Other $28,041,200 $14,330,400 $13,710,800



Table 4‐11 Combined Estimate of Valuation

4.5 ESTIMATE OF PURCHASED CAPACITY VALUE Beginninginapproximately1996,DMWWbeganenteringintowholesalewatercontractswithsurroundingcommunitiesthatwereexperiencingcustomergrowth,andasaresult,neededadditionalwaterfromDMWW.ThesewholesalewatercontractsarecommonlyreferredtoasWholesaleWaterServiceMasterAgreementsorPurchasedCapacityAgreements.Inapproximately2006,DMWWenteredintoanewWholesaleWaterServiceMasterAgreement(2006Agreement)withtheoriginal1996communitiesandseveralothercommunitiesthatwerealsoseekingaccesstoadditionalwaterfromDMWW.The2006agreementsupersededthe1996agreements.

Ingeneral,thecommunitiesseekingwaterfromDMWWcontributedanupfrontamountofcapitaltohelpDMWWbuildthenecessarytreatmentfacilitiesthatwouldprovideadditionalwatertothegreaterDesMoinesregion.The2006purchasedcapacityamountwas$1.90pergallonperdayofcapacity.CommunitiescouldelecttoeitherpayDMWWupfrontfortheirpurchasedcapacity,ortheycouldelecttohaveDMWWissuerevenuebondsfortheprojects,andthecommunitywouldpaytheirapplicableshareoftheprincipalandinterestdueeachyear.

DMWWprovidedBlack&Veatchwithasummaryoftheoriginalcontributedamountsbyentityandtheirassociatedcurrentpurchasedcapacityamounts.AsisseeninTable4‐12,theamountcontributedbythecommunitiestotalsapproximately$79million.Sincethe2006AgreementindicatesthatthepurchasedcapacityamountsweretobeusedtoconstructtreatmentandASRfacilities,Black&VeatchcomparedtheoriginalcontributionamountinTable4‐12totheoriginalcostamountsinTable4‐5.ThefacilitiesrelatedtoMaffittRawWater,SaylorvilleWTPRawWater,McMullenWaterTreatmentPlant,SaylorvilleWaterTreatmentPlant,SaylorvilleWTPFeederMain,andASRWellsreflectanoriginalcostofapproximately$88,275,800,whichcomparescloselytotheoriginalcontributionamount.AsitappearsthattheseDMWWassetswereprimarilyconstructedusingpurchasedcapacitycontributions,Black&VeatchutilizedtheOCLDandRCLDamountsfortheseassetstoderiveanestimateofthepurchasedcapacityvaluefortherespectiveentitiesthatenteredintotheWholesaleWaterServiceMasterAgreementwithDMWW.Table4‐13presentstheestimatedrangeofpurchasedcapacityvalueforthecommunitiesand/orutilitiesthatpurchasedcapacityfromDMWW.ThisrangerepresentsBlack&Veatch’sestimateofthepurchasedcapacityvaluecontributedbythewholesalecustomersofDMWW.ThispurchasedcapacityvalueisnotinadditiontotheestimatedvalueofDMWWassets.ThepurchasedcapacityvaluereflectstheportionoftheDMWWvalueestimatethatwascontributedbythewholesalecustomers,andisusedintheNetValuedeterminationdiscussedinsubsequentsectionsofthisReport.

Total

Line Value

No. Description Estimate

1 Low Range (OCLD) $233,792,200

2 Mid Range $323,283,100

3 High Range (RCLD) $412,773,700



Table 4‐12 Summary of Current Purchased Capacity Amounts and Original Contribution

Community/Utility

Current

Purchased

Capacity

(mgd)

Original Capital

Contribution

Polk Co. (SE and Unincorporated) 1.950 $1,937,500

Berwick Water Association 0.250 $310,000

Urbandale Water Works 15.300 $22,584,000

West Des Moines Water Works 8.973 $11,564,100

Ankeny 8.280 $12,365,000

Clive 6.980 $11,400,000

Waukee 3.694 $4,105,000

Warren Rural Water 3.246 $3,343,000

Xenia Rural Water 2.949 $3,623,400

Norwalk1 1.965 $2,353,800

Bondurant2 1.200 $2,940,000

Altoona 1.000 $1,900,000

Polk City 0.350 $665,000

Total 56.137 $79,090,800

1 Includes original purchased capacity contribution from the City of Cumming, which was subsequently purchased by Norwalk. 2 Includes original purchased capacity contribution from the City of Pleasant Hill, which was subsequently purchased by the City of Bondurant.



Table 4‐13 Estimated Range of Purchased Capacity Value for Wholesale Customers

4.6 OTHER CONTRIBUTED DMWW ASSETS

4.6.1 Joint East Side Project

DuringthecourseofthisStudy,Black&VeatchwasalsoabletodeterminethattheJointEastSideprojectwascontributedbyseveralwholesalecustomersandafullservicecustomerofDMWW.TheJointEastSideprojectgenerallyconsistsofapumpstation,transmissionmain,andanelevated2.0mgdstoragetank.TheprojectwasdesignedtoprimarilyservethecustomersofAltoona,PleasantHill,andPolkCounty.FrominformationprovidedbyDMWW,itisestimatedthattheprojectcostisapproximately$13million.TheassetsarerelativelynewandBlack&VeatchdevelopedanestimatedOCLDandRCLDvalueof$12,422,000and$13,456,000,respectively.

InformationprovidedbyDMWWreflectsthattheprojectwassplitbetweenthethreecommunitiesasfollows:

PleasantHill–61.54% Altoona–30.77% PolkCounty–7.69%

ThisestimatedvalueisassignedtothesecommunitiesintheNetValuedeterminationinsubsequentsectionsofthisReport.

4.6.2 Polk City Feeder Main

DMWWindicatedthatafeedermainrunsnorthalongthewestsideofAnkenytosupplywatertoPolkCity.PolkCitycontributedapproximately$1,579,520tocompletethisprojectwhichisownedbyDMWW.Theestimatedvalueforthiscontributionis$1,516,339(OCLD)to$1,880,056(RCLD),withamidrangevalueof$1,698,197.

4.6.3 Ankeny Contribution to SWTP Feeder Main

DMWWindicatedthatAnkenycontributedapproximately$772,350towardtheconstructionofthenorthfeedermainrelatedtotheSWTP.Theestimatedvalueforthiscontributionis$741,456(OCLD)to$919,305(RCLD),withamidrangevalueof$830,381.

Replacement

Original Cost Cost

Line Original Replacement Accumulated Accumulated

No. Description Cost Cost Depreciation Depreciation OCLD RCLD

1 Maffitt Raw Water $10,307,600 $16,569,800 $1,955,800 $3,377,000 $8,351,800 $13,192,800

2 Saylorville WTP Raw Water $8,616,600 $9,754,800 $448,300 $505,300 $8,168,300 $9,249,500

3 McMullen WTP $29,975,700 $51,015,200 $9,402,100 $15,924,900 $20,573,600 $35,090,300

4 Saylorville WTP $27,405,900 $30,448,200 $3,561,700 $3,967,400 $23,844,200 $26,480,800

5 ASR Wells $6,558,400 $5,500,000 $900,400 $777,300 $5,658,000 $4,722,700

6 SWTP Feeder Main $5,411,600 $6,709,600 $216,500 $268,400 $5,195,100 $6,441,200

7 Purchased Capacity Estimate $88,275,800 $119,997,600 $16,484,800 $24,820,300 $71,791,000 $95,177,300

8 Mid Range Estimate $83,484,200



4.6.4 WDMWW 98th Street Elevated Storage Tank

InformationprovidedbyWDMWWindicatesthatits98thStreetElevatedStorageTankincludesanagreementwithCliveandWaukee.ThesetwoentitiescontributedtotheconstructionofthisassetwhichisownedbyWDMWW.Thefollowingpresentsthepercentagesplitoftheassetbetweenthecommunities:

WDMWW–40% Clive–40% Waukee–20%

ThisestimatedvalueisassignedtothesecommunitiesintheNetValuedeterminationinsubsequentsectionsofthisReport.

4.6.5 L.P. Moon Storage and Booster Station

DMWWindicatedthattheconstructionoftheL.P.MoonStorageandBoosterstationwascompletedwithcontributionsfromseveralentities.DMWWstaffreviewedtheagreementsrelatedtothisproject,andindicatedthatmoreworkwouldneedtobedonetoreadilydeterminetheamountofcontributionfromseveraldifferententities.ForpurposesofthisStudy,anydeterminedcontributionforthisassetwouldbeassignedtotheappropriateentityforpurposesofdeterminingtheirrespectiveNetValuethatisdiscussedinthefollowingsectionsofthisReport.

4.7 VALUATION CONCLUSION ThepurposeoftheestimatedvaluationistoderiveanestimatedrangeofvaluethatCIRDWCmemberscanuseasabasisforcontemplatingthemeritsofformingaRegionalProductionUtility.TheformationofaRegionalProductionUtilitywillrequireatransferofassets.Therefore,understandingtheestimatedvaluetoutilitiesthatcontributewaterproductionassetsisnecessarytounderstandthepotentialupfrontcostsofanytransaction.

Itshouldbenotedthatthevaluationestimatedoesnotincludeanappraisedvalueoflandownedbyanycontributingutility.TheestimatedvalueisbasedoninformationavailabletoBlack&VeatchandreflectsBlack&Veatch’sopinionofareasonableestimatebasedontheCostApproachmethodologyofvaluationonly.TheuseoftheIncomeApproachandMarketApproachwerebeyondthescopeofthisStudy,butcouldhelprefineorestablishavalueestimatethatismateriallydifferentthantherangeoutlinedherein.

TheestimatedvaluationprovidesabasisforconductingtheFinancialAnalysisdiscussedsubsequentlyinthisReport.ForpurposesoftheFinancialAnalysis,Black&Veatchhaschosentoselectthemidrangeofthetotalvaluationestimate,orapproximately$323,283,100.


BLACK & VEATCH | Financial Analysis 45

5 Financial Analysis ThenextstepintheStudywastoassessthefinancialimpactonCIRDWCmembersshouldaRegionalProductionUtilitybeformed.Ingeneral,Black&VeatchutilizedathreestepprocesstoderivethepotentialimpactonCIRDWCmemberscomparedtothecurrentprocessthatutilizestheWholesaleWaterServiceMasterAgreements.

Step1:DeterminetheNetValueorEquitythatwouldbecontributedbymemberstothepotentialRegionalProductionUtility.

Step2:Determinetheestimatedrevenuerequirements(includingtransactionpayments)thatthepotentialRegionalProductionUtilitywouldneedduringthefirstfiveyearsofoperation.

Step3:DetermineaneffectiveuniformratethatwouldapplytomembersofthepotentialRegionalProductionUtilityandcomparetothecurrentwholesalerate.

Thefinancialanalysisincorporatesthefindingsofthevaluationestimateintoafiveyearfinancialprojection,allowingpotentialparticipantstoevaluatethefinancialimpactofregionalizationofjoiningtheRegionalProductionUtility.Thefinancialprojectionincludesdevelopingtherevenuerequirementsforthenewentity.Thesecosts,appliedtotheestimatedbilledusage,deriveanestimatedeffectiveunitcostper1,000gal.

5.1 NET VALUE ANALYSIS TheNetValueAnalysisprovidesonepathforwardfortransitioningfromthecurrentmethodofprovidingwatertoapotentialRegionalProductionUtility.ThemainobjectiveoftheNetValueanalysisistobringpotentialparticipantsintotheRegionalProductionUtilityonanequalbasis.ThisincludesdeterminingtheNetValue,orequity,contributionofparticipantsonapermgdofcapacitybasis,andperforminganynecessaryadjustmentstoalignparticipantswiththesamenetvaluepermgdofcapacity.AkeyassumptionforthisanalysisisthatDMWW,andallentitiesthathaveaPurchasedCapacityAgreementwithDMWW,willjointheRegionalProductionUtility.

ForpurposesofthisNetValueAnalysis,Black&usedthemidrangevalueestimate,orapproximately$323,283,100.

5.1.1 Summary of Estimated Value and Net Value per MGD

ThefirstpartoftheNetValueanalysisistodeterminethenetvaluepermgdofeachentity.NetvalueisreflectedonapermgdbasisasDMWWandthesurroundingutilitieshaveprimarilydesignedthecorenetworktoserveatotalcapacitythatincludestheneedsofDMWWandutilitiesthathavea2006AgreementforpurchasedcapacitywithDMWW.ThefollowingTablepresentsasummaryofthecurrentnetvaluebyentity.

5.1.1.1 Total Capacity

TheTotalCapacitypresentedinTable5‐1,Column1andColumn2includesthefollowing:

TotalcapacityoftheDMWWsystemof116mgd,including56.137mgdofpurchasedcapacityrelatedtothe2006Agreements.ThenettotalcapacityapplicabletoDMWWis59.86mgd.

Additionaltotalcapacitycontributedbyutilitieswithproductionassets.ThisincludesWDMWW(9.9mgd);Altoona(3.9mgd);andAnkeny(4.32mgd).



Table 5‐1 Summary of Total Capacity, Value, and Net Value by Entity (Mid Range Value)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Estimated

Estimated

%Estimated

DMWW

DMWW

%Net

Line

Total

Total

Mid Range

Outstanding

Debt Service

Net

Net

Value

No.

Description

Capacity

Capacity

Value

Debt

Reserve

Value

Value

per mgd

mgd

=(3)+(4)+(5)

=(6)/(1)


1Des Moines Water Works

59.86

44.63%

$196,459,400

($5,996,800)

$703,400

$191,166,000

65.17%

$3,193,400

2Polk Co. (SE and Unincorporated)

1.95

1.45%

$3,895,200

($679,800)

$0$3,215,400

1.10%

$1,648,900

3Berw

ick Water Association

0.25

0.19%

$371,800

($56,300)

$45,100

$360,600

0.12%

$1,442,400

4Urbandale W

ater Works

15.30

11.41%

$24,028,800

($11,204,700)

$1,609,000

$14,433,100

4.92%

$943,300

5West Des Moines Water Works

18.87

14.07%

$36,457,400

($4,541,500)

$708,100

$32,624,000

11.12%

$1,728,600

6Ankeny

12.60

9.39%

$15,339,900

($9,983,100)

$959,500

$6,316,300

2.15%

$501,300

7Clive

6.98

5.20%

$11,967,400

$0$0

$11,967,400

4.08%

$1,714,500

8Waukee

3.69

2.75%

$6,287,100

($805,100)

$171,000

$5,653,000

1.93%

$1,530,300

9Warren Rural W

ater

3.25

2.42%

$4,827,300

$0$0

$4,827,300

1.65%

$1,487,200

10Xenia Rural W

ater

2.95

2.20%

$4,385,700

$0$0

$4,385,700

1.50%

$1,487,200

11Norw

alk

1.97

1.47%

$2,922,200

($412,400)

$146,500

$2,656,300

0.91%

$1,351,800

12Bondurant

1.20

0.89%

$1,784,600

($684,800)

$77,800

$1,177,600

0.40%

$981,300

13Altoona

4.90

3.65%

$12,337,600

$0$0

$12,337,600

4.21%

$2,517,900

14Polk City

0.35

0.26%

$2,218,700

$0$0

$2,218,700

0.76%

$6,339,100

15Total

134.12

100.00%

$323,283,100

($34,364,500)

$4,420,400

$293,339,000

100.00%

$2,187,100



5.1.1.2 Estimated Total Value by Entity

Table5‐1,Column3presentsthemidrangevaluebyentityandincludesthefollowing:

Purchasedcapacityvalueforentitiesthathavea2006AgreementforpurchasedcapacitywithDMWW.TheestimatedvaluefortheseentitiesisreflectedinTable5‐2.Themidrangepurchasedcapacityvalueof$83,484,200isdistributedtothepurchasedcapacitycustomersonthebasisoftheirpurchasedcapacityamounts.

Table 5‐2 Purchased Capacity Mid Range Value by Customer

ValueofcontributedassetsfromentitiesotherthanDMWW.ThisincludessupplyandtreatmentassetsfromWDMWW,Altoona,UrbandaleWaterWorks,andAnkeny.Forexample,thetotalvalueforWDMWWshowninColumn3ofTable5‐1reflectsitspurchasedcapacityvalue,pluscontributedmidrangevalueofassets($36,457,400=$13,344,200+$23,113,200).

OthersignificantcontributionssuchasthePolkCityfeedermainandJointEastSideprojectforCityofPleasantHill(includedinDMWWasfullservicecustomer),PolkCo.,andAltoona.Oncedetermined,thecontributionbyentitiesrelatedtotheL.P.Moonstorageandpumpingstationwouldalsobeincluded.

5.1.1.3 Net Outstanding Debt

Table5‐1,Columns4and5primarilypresentstheestimatedoutstandingdebtheldbyDMWWrelatedtocorenetwork,offsetbyapplicabledebtservicereserveamounts.ThisoutstandingdebtisprimarilydebtthatwasissuedbyDMWWonbehalfofpurchasedcapacitycustomers.WithanytransferofassetsfromDMWWtoanewRegionalProductionUtility,theoutstandingdebtheldbyDMWWwouldneedtobeaddressed.ForpurposesofthisStudyandReport,Black&Veatchhasassumedthatatthetimeofanytransaction,DMWWwouldbecompensatedbythenewRegional

%

Line Purchased Purchased Estimated

No. Purchased Capacity Holder Capacity Capacity Value

mgd

1 Polk Co. (SE and Unincorporated) 1.950 3.47% $2,899,900

2 Berwick Water Association 0.250 0.45% $371,800

3 Urbandale Water Works 15.300 27.25% $22,753,400

4 West Des Moines Water Works 8.973 15.98% $13,344,200

5 Ankeny 8.280 14.75% $12,313,600

6 Clive 6.980 12.43% $10,380,300

7 Waukee 3.694 6.58% $5,493,500

8 Warren Rural Water 3.246 5.78% $4,827,300

9 Xenia Rural Water 2.949 5.25% $4,385,700

10 Norwalk 1.965 3.50% $2,922,200

11 Bondurant 1.200 2.14% $1,784,600

12 Altoona 1.000 1.78% $1,487,100

13 Polk City 0.350 0.62% $520,500

14 Total 56.137 100.00% $83,484,200



ProductionUtilitytoretiretheoutstandingdebt,lessoutstandingdebtservicereserveamounts.Additionallegalandfinancialanalysisshouldbeundertakenbeforeanypotentialtransactiontodeterminewhetherthisisfeasibleornot.

Black&VeatchwasalsoabletodeterminethatAnkenyhassomeoutstandingdebtrelatedtoitsASRwells.Thisamountisapproximately$1,545,000andisincludedinTable5‐1,Column4,Line6.

Black&Veatchalsorecognizesthatsomeentitiesmayhaveoutstandingdebtrelatedtotheir2006Agreements.Forpurposesofthisstudy,Black&Veatchassumesthatthoseentitieswouldcontinuetopaytheprincipalandinterestpaymentsrelatedtothatdebtafteranypotentialtransaction.

5.1.1.4 Estimated Net Value by Entity

Table5‐1,Column6presentsthenetvaluebyentity.ItisderivedbysubtractingthenetoutstandingdebtheldbyDMWWfromthetotalvaluerelatedtothecorenetwork.ThepercentageofnetvaluebyentityispresentedinTable5‐11,Column7.

Table5‐1,Column8presentsthenetvaluepermgdofcapacitybyentity.ItisderivedbydividingColumn6byColumn1.Ascanbeseen,thenetvaluepermgdbyentityisnotuniform.DMWWwiththecontributionofamajorityofassetsreflectsthehighestnetvaluepermgd,whileAnkenyreflectsthelowestnetvaluepermgd.ThelowernetvaluepermgdvalueforAnkenyisprimarilyrelatedtothefactthatitscontributionforthe2006AgreementwasprimarilyfinancedthroughdebtissuedbyDMWW.ThereisalsosomeoutstandingdebtrelatedtoAnkeny’sASRwellsofapproximately$1,545,000thatwouldlikelyneedtoberetiredatthetimeofthetransaction.

5.1.2 Alignment of Net Value by Entity

Asindicatedabove,theentitiescontributedvaryinglevelsofnetvalueonapermgdbasis.TobringeachentityintothepotentialRegionalProductionUtilityonanequalbasis,Black&Veatchperformedatwo‐stepprocesstoalignthenetvalueofeachentityonapermgdbasis.ThefirststepincludesbuyingdownthenetvalueofDMWWtoalevelmoreconsistentwiththeotherentities.Thisresultsinanew,lowernetvaluepermgdforDMWW.Thesecondstepincludesaligningthenetvalueofallotherstothenew,lowernetvalueofDMWW.Table5‐3presentsthealignmentofcustomersonanetvaluepertotalcapacitybasis.Table5‐3,Column1restatestheNetValuebyentityasreflectedonTable5‐1.

5.1.2.1 Cash Payment to DMWW

ThecashpaymenttoDMWWisthefirststepinaligningthenetvaluepertotalcapacityoftheentitiesandisshowninTable5‐3,Column2.Black&Veatchusedanestimatedcashpaymentof$100million.ItisassumedfortheStudyandthisReportthatthecashpaymentwouldbefundedfromdebtissuedbytheRegionalProductionUtility.Theprincipalandinterestrelatedtothispaymentwouldbeincludedintheannualrevenuerequirementsofthenewentityandpayableaspartofitsuniformratewhichisdiscussedlaterinthisreport.

ThecashpaymenttoDMWWresultsinanewnetvalueofapproximately$91,166,000.WhendividedbythetotalcapacityapplicabletoDMWWtheresultis$1,522,900permgdoftotalcapacity.



Table 5‐3 Alignment of Net Value per Total Capacity by Entity

(1)

(2)

(3)

(4)

(5)

(6)

Net

Adjusted

Cash Payment

Contributions

Adjusted

Restated

Net

Line

Net

Des Moines

(To)/From

Net

Total

Value

No.

Description

Value

Water Works

Other Entities

Value

Capacity

per mgd

(1)+(2)+(3)

(4) / (5)



$191,166,000

($100,000,000)

$91,166,000

59.86

$1,522,900


$3,215,400

($245,800)

$2,969,600

1.95

$1,522,900

3Berw


$360,600

$20,200

$380,800

0.25

$1,522,900

4Urbandale W

ater Works

$14,433,100

$8,867,400

$23,300,500

15.30

$1,522,900


$32,624,000

($3,882,200)

$28,741,800

18.87

$1,522,900

6Ankeny

$6,316,300

$12,872,400

$19,188,700

12.60

$1,522,900

7Clive

$11,967,400

($1,337,400)

$10,630,000

6.98

$1,522,900

8Waukee

$5,653,000

($27,300)

$5,625,700

3.69

$1,522,900

9Warren Rural W

ater

$4,827,300

$116,100

$4,943,400

3.25

$1,522,900

10Xenia Rural W

ater

$4,385,700

$105,500

$4,491,200

2.95

$1,522,900

11Norw

alk

$2,656,300

$336,200

$2,992,500

1.97

$1,522,900

12Bondurant

$1,177,600

$649,900

$1,827,500

1.20

$1,522,900

13Altoona

$12,337,600

($4,875,300)

$7,462,300

4.90

$1,522,900

14Polk City

$2,218,700

($1,685,700)

$533,000

0.35

$1,522,900

15Total

$293,339,000

($100,000,000)

$10,914,000

$204,253,000

134.12

$1,522,900



5.1.2.2 Alignment of Net Value per MGD of Other Entities

Oncethenewnetvaluepertotalcapacityof$1,522,900forDMWWwasestablished,Black&Veatchderivedtheestimatedcontributionthatwouldbemadeby,ormadetotheotherentitiestoachievealignmentwithDMWW.ThiscontributionisreflectedinTable5‐3,Column3.Negativevaluesreflectcashpaymentstoentitiestoaligntheirnetvaluepertotalcapacityat$1,522,900permgd.PositivevaluesreflectcashpaymentsfromtherespectiveentitiestothenewRegionalProductionUtilitytoaligntheirnetvaluepertotalcapacityat$1,522,900permgd.Table5‐3,Column4reflectsthenewadjustednetvaluepermgdbyentitypostcontribution.Table5‐3,Column5restatesthetotalcapacitybyentity.TheColumn4adjustednetvalueisdividedbythistotalcapacitytoreflecttheadjustednetvaluepermgdinColumn6.Ascanbeseen,thecashpaymenttoDMWW,combinedwithcontributionsbothtoandfromtheentities,alignsallparticipantsonthesamebasis.

5.1.3 Summary of Net Value Analysis

TheNetValueanalysisalignseachofthepotentialmembersoftheRegionalProductionUtilityonanequalbasis.Thisalignmentiskeyforseveralreasons.Firstitestablisheseachcommunityonanequalbasisintermsoftheirrespectivecontribution,ornetvalue,tothenewRegionalProductionUtility.Thisalignmenthelpsexplaintopolicymakersandthepublicthatthecommunitiesarecomingintotheendeavoronanequalbasis.Second,thealignmentpavesthewayforjustificationofuniformrates,whichwasadesirefrommanyCIRDWCmembersduringtheStakeholderInputphaseoftheStudy.AsisseeninTable5‐4,thealignmentachievesequalfootingforparticipantsbothintermsofnetvalueandtheirrespectivepercentageoftotalcapacity.

Table 5‐4 Summary of Alignment of Net Value and Total Capacity

TheNetValueanalysisresultsincashpaymenttoDMWW.ThecashpaymentsarerelatedtotheretirementofoutstandingdebtheldbyDMWW,andalsoacashpaymenttolowerDMWW’snet

Adjusted % Adjusted

Line Net Net Total % Total

No. Description Value Value Capacity Capacity


1 Des Moines Water Works $91,166,000 44.63% 59.86 44.63%

2 Polk Co. (SE and Unincorporated) $2,969,600 1.45% 1.95 1.45%

3 Berwick Water Association $380,800 0.19% 0.25 0.19%

4 Urbandale Water Works $23,300,500 11.41% 15.30 11.41%

5 West Des Moines Water Works $28,741,800 14.07% 18.87 14.07%

6 Ankeny $19,188,700 9.39% 12.60 9.40%

7 Clive $10,630,000 5.20% 6.98 5.20%

8 Waukee $5,625,700 2.75% 3.69 2.75%

9 Warren Rural Water $4,943,400 2.42% 3.25 2.42%

10 Xenia Rural Water $4,491,200 2.20% 2.95 2.20%

11 Norwalk $2,992,500 1.47% 1.97 1.47%

12 Bondurant $1,827,500 0.89% 1.20 0.90%

13 Altoona $7,462,300 3.65% 4.90 3.65%

14 Polk City $533,000 0.26% 0.35 0.26%

15 Total $204,253,000 100.00% 134.12 100.00%



valuetoalevelclosertotheotherentities.ForpurposesofthisStudy,thecashpaymentswouldbemadebythenewRegionalProductionUtilitymostlikelythroughtheissuanceofdebtthatwouldthenbepaidbackbyallmembers.Table5‐5presentsasummaryofthemidrangevalueandderivationofthenetvalue,orequityofthepotentialRegionalProductionUtility.

Table 5‐5 Summary of Net Value or Equity

AsTable5‐5shows,thenetvalueequatestoapproximately$204millionandconsistsofthetotalvalue,offsetbycashpaymentstoDMWWandnetcontributionsfromotherentities.Thenetvalueisapproximately63percentofthetotalmidrangevalue.TheamountsforthecashpaymentstoDMWWtoreduceDMWW’snetvalueanddefeaseDMWWdebtwillbeincludedinthefollowingsections.

5.1.3.1 Potential Buy In Amount for Non‐Members

ThereareseveralcommunitiesthatreceivetheircompletewaterservicefromDMWW.ForpurposesofthisStudy,theircapacityisincludedintheDMWWlineitem.ThereisalsotheCityofJohnston,whichisawholesalecustomerofDMWWthatdidnotenterintoaPurchasedCapacityAgreement.Thus,thequestionwasposedtoBlack&Veatch:“whatwouldJohnstonhavetocontributetogainparticipationinthenewRegionalProductionUtility?”TheNetValueanalysisprovidesabasisforacceptingnewmemberstotheRegionalProductionUtility.

FortheCityofJohnston,itscurrentpeakdaywaterneedmultipliedbythenetvaluepermgdseenaboveinTable5‐3couldprovidecontributionnecessary.Black&VeatchutilizedanestimatedpeakdaydemandfortheCityofJohnstonof7.0mgd.Thispeakdaydemand,multipliedby$1,522,900equals$10,660,300,andcouldserveasonecontributionbasisforacceptingnewparticipants.

Additionally,shouldtheCIRDWCmembersdeterminetopursuetheRegionalProductionUtility,asimilarmethodcouldbeusedforfullservicecustomersservedbyDMWW.ConsiderationwillneedtobegiventothedistributionoftotalcapacitycomparedtoDMWW.Asmentionedpreviously,thedemandfortheCityofJohnstonandfullservicecustomersofDMWWisincludedinthetotalDMWWcapacityof59.86mgd.

5.2 DEVELOPMENT OF FIVE YEAR FINANCIAL PROJECTION Forpurposesofthefinancialanalysis,Black&Veatchdevelopedafiveyearprojectionofrevenuerequirementsthatinclude:(1)operationandmaintenance(O&M)expense,(2)annualrenewalandreplacementcosts,(3)debtserviceand/orcashfinancingofmajorcapitalimprovements,(4)debt

Line Breakdown

No. Description of Value

1 Total Value Estimate ‐ Mid Range $323,283,100

2 Cash Payment to DMWW ($100,000,000)

3 Net Cash Payment to DMWW for Debt ($29,944,100)

4 Contributions From Participants $22,967,700

5 Contributions To Participants ($12,053,700)

6 Total Net Value (Equity) $204,253,000



serviceand/orcashfinancingoftherepaymentofoutstandingdebtcurrentlyheldbyDMWWrelatedtoPurchasedCapacityAgreementsortheconstructionofthecorenetwork,and(5)debtserviceand/orcashfinancingofthepaymenttoDMWWtoachievealignmentbetweensystemcapacityandnetvalue.

5.2.1 Operation and Maintenance Expense

TheoperatingbudgetsforDMWW,WDMWW,andAltoonawereutilizedtodevelopaprojectedoperatingbudgetfortheassetstobecontributedbytheseentitiestotheRegionalProductionUtility.Theelementsofoperationandmaintenanceexpenseincludetheannualexpenseassociatedwithsourceofsupply,treatment,pumpstation,storage,andtransmissionmainsassociatedwiththecontributedassetsaswellasadministrativecostsassociatedwiththenewRegionalProductionUtility.

AsummaryofproposedoperationandmaintenanceexpenseispresentedinTable5‐6.TheprojectedoperationandmaintenanceexpensereflectsDMWW2015proposedbudgetforWaterProductionwhichincludeslaborandnon‐laborexpensesassociatedwiththemaintenance,energyandchemicalsforthethreeWTPs,storageandpumping,laboratory,facilityandvehiclemaintenance,communicationsystem,andHVAC.TheexpensesassociatedwithDesMoinesRemoteStoragehasbeenexcludedsinceO&MforthesefacilitieswillremainwithDMWW.Inaddition,anallowancehasbeenmadeforO&MassociatedwithDMWW’scorenetworktransmissionsystem.

ProjectedoperationandmaintenanceexpenseforWDMWWreflectsitsdraft2015budgetamountsforWaterTreatmentPlantexcludingthecostsassociatedwithpurchasedwater,aswellasagrantforanaeratorretrofit.The2015budgetfortheCityofAnkeny’stwoASRwellsisbasedonapercentageofDMWW’sbudgetforL.P.MoonPumpingandMaintenance.TheCityofAltoona’s2015proposedbudgetforWaterOperationswasthebasisforprojectedoperationexpenseassociatedwiththeCity’streatmentplantsandwells.

Table 5‐6 Proposed Operation & Maintenance Expense

Line Budget

No. Description 2015 2016 2017 2018 2019 2020

Des Moines Water Works

1 Production $15,122,500 $15,576,200 $16,043,500 $16,524,800 $17,020,500 $17,531,100

2 Core Network Distribution System 1,536,000 1,582,100 1,629,600 1,678,500 1,728,900 1,780,800

West Des Moines Water Works

3 Production 2,647,164 2,726,600 2,808,400 2,892,700 2,979,500 3,068,900

City of Ankeny

4 ASR Wells 127,207 131,000 134,900 138,900 143,100 147,400

City of Altoona

5 Production 852,392 878,000 904,300 931,400 959,300 988,100

New Authority

6 Administration 4,178,800 4,304,100 4,433,300 4,566,300 4,703,300

7 Estimated Savings (1,111,800) (1,145,200) (1,179,600)

8 Total $20,285,263 $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000



InadditiontotheO&Midentifiedaboveassociatedwiththecontributedassets,administrativecostsassociatedwiththenewRegionalProductionUtilityneedtobeconsidered.Thesecostsincludepersonnel,materials,andsuppliesassociatedwithhumanresources,finance,informationtechnology,engineering,andmanagementofthenewentity.BasedonpreviousefficiencystudiesperformedbyBlack&Veatch,areasonableestimateofadministrativeexpensesassociatedwiththenewentityisapproximately20percentofthetotalofallotherexpenses.ThisamountisshownonLine6ofTable5‐6.

ItisanticipatedthatthenewRegionalProductionUtilitywilleventuallyexperiencesavingsassociatedwithareductionintheduplicationofservicesandtheconsolidatedpurchasingofmaterialsandsupplies.EstimatedsavingsareprojectedtoimpactO&MassociatedwithchemicalandenergycostsassociatedwithDMWW’sandWDMWW’swatertreatmentplants.AdditionalsavingscouldberealizedbycoordinatingO&Mactivitiesrelatedtofacilitymaintenance,vehiclemaintenance,communicationsystem,andHVACO&MbetweenDMWW,WDMWW,andAltoona.Thesesavingsareestimatedtobeginin2018andareshownonLine7ofTable5‐6.

O&Mexpenseprojectionsfortheyears2016through2020arebasedonbudgeted2015expenseamountsadjustedtoincludeanallowanceforinflation,estimatedat3percentannually.AsshowninTable5‐6,O&Mexpenseisprojectedtoincreasefrom$25,072,700in2016to$27,040,000by2020.

5.2.2 Annual Renewal and Replacement

Annualrenewalandreplacementexpendituresincludethosecostswhichtendtoberoutinelyincurredeachyearfornormalreplacements,extensions,andminorimprovements.Projectedrenewalandreplacementcostswereestimatedusingthereplacementcostandaverageservicelifefromthevaluationanalysisabove,aswellaslookingatthehistoricalcapitalspendforDMWW.ProjectedrenewalandreplacementcostsaredeterminedaspresentedinTable5‐7.

Table 5‐7 Projected Renewal and Replacement

5.2.3 Major Capital Improvement Costs

ProjectedexpendituresformajorcapitalimprovementsconsistofprojectsassociatedwiththecontributedassetsprovidedbyDMWW,WDMWW,andAltoona.BasedonDMWW’scapitalbudget,improvementsduringthe2016‐2020studyperiodconsistsofprojectsassociatedwithFacilityMaintenance,RawWaterMaffitt,theFleurDriveTreatmentPlant,andtheMcMullenTreatmentPlant.

Line

No. Description 2016 2017 2018 2019 2020

1 Des Moines Water Works $9,700,000 $9,700,000 $9,700,000 $9,700,000 $9,700,000

2 West Des Moines Water Works 1,390,000 1,063,000 938,000 1,390,000 1,390,000

3 City of Ankeny 66,000 66,000 66,000 66,000 66,000

4 City of Altoona 460,000 460,000 460,000 460,000 460,000

5 Total $11,616,000 $11,289,000 $11,164,000 $11,616,000 $11,616,000



AnticipatedprojectsforWDMWW’sproductionassetsconsistofrepaintinggroundstoragetanksNo.1andNo.2,andreplacementofthelimeslakerattheA.C.WardWTP.Tomeetfuturewaterdemandsbeyondtheyear2020,projectsrelatedtoAltoona’sproductionassetsincludeconstructionofanewwellatWaterTreatmentPlantNo.1toreplaceWellNo.2,andreplacementofmajorequipmentcomponentsatWaterTreatmentPlantNo.1.Thefive‐yearmajorcapitalimprovementprogramcostsareestimatedtototal$15,615,400andareshowninTable5‐8.

Table 5‐8 Major Capital Improvement Program

5.2.4 Repayment of Outstanding Purchase Capacity Debt

AsmentionedintheNetValueAnalysissection,Black&Veatchhasassumedthatatthetimeofanytransaction,DMWWwouldbecompensatedbythenewRegionalProductionUtilitytoretireoutstandingdebtissuedbyDMWWonbehalfofpurchasedcapacitycustomers.Thisamount,asshowninTable5‐1,Column4totals$34,364,000.ItisassumedthatthedebtservicereserveseeninTable5‐1,Column5willoffsettheoutstandingdebtservice.Thisresultsinanetoutstandingdebtpaymentof$29,944,000.

5.2.5 Adjustment to Des Moines Water Works’ Net Value

AsdiscussedintheNetValueAnalysissectionofthisReport,inordertobringeachentityintothepotentialRegionalProductionUtilityonanequalbasis,atwo‐stepprocesswasusedtoalignthenetvalueofeachentityonapermgdbasis.ThefirststepwastobuydownthenetvalueofDMWWtoalevelmoreconsistentwithotherentitiesusingacashpaymentof$100,000,000.Thesecondstep,whichinvolvesanestimatedcontributionthatwouldbemadeby,ormadetotheotherentities,wouldalignthenetvalueofallotherstothenew,lowernetvalueofDMWW.Thisvalue,asshowninColumn3ofTable5‐3is$10,914,000.Thenetcashpaymentof$89,086,000consistsofthecashpaymenttoDMWW,offsetbythecontributionstoandfromtheentities.

5.2.6 Major Capital Improvement Financing

Table5‐9presentsthecapitalimprovementfinancingplanwhichsummarizestheprojectedsourceandapplicationoffundsoverthefive‐yearstudyperiod.Thisplananticipatesthatproposedcapitalimprovementswillbefinancedfromacombinationofbondproceedsandannualoperatingrevenue;however,otheralternativescanbeconsideredandarediscussedlaterinthissection.

Line

No. Description 2016 2017 2018 2019 2020

1 Des Moines Water Works $6,198,700 $5,639,300 $0 $0 $0

2 West Des Moines Water Works 0 327,000 452,000 0 0

3 City of Altoona 0 0 0 0 2,998,400

4 Total 6,198,700$ $5,966,300 $452,000 $0 $2,998,400



Table 5‐9 Estimated Capital Financing Plan

Line1indicatesthattheRegionalProductionUtilitywillbegin2016withnounencumberedcashorinvestmentsavailabletofundcapitalcost.Anoptionwouldbetousesomeorallofthecontributionsfromotherentitiestoinitiallyfundtheconstructionfund,however,thatoptionisnotpresentedinthisReport.Arevenuebondissueintheamountof$142,500,000in2016isprojectedandshownonLine2ofTable5‐9.Theproceedsofthisissuancewillfundallcapitalrelatedcostsin2016and2017.Theamountsandyearsofeachloanaredevelopedconsideringcapitalprogramneedsandothersourcesofcapitalimprovementfinancing.

Cashfinancingofcapitalimprovementsfromannualrevenuesisexpectedtototal$3,500,000forthestudyperiodasindicatedonLine3ofTable5‐9.Interestincomeonthecapitalfunds,whichisshownonLine4,reflectsanassumed1.0percentannualinterestrate.Line5showsthetotalofallfundsavailabletofinancethecapitalimprovementprogram.

Theapplicationoffundsshowthat$15,615,400majorcapitalimprovementsexpendituresareprojectedovertheplanningperiodasshownonLine6.Line7showsthenetrepaymentofoutstandingdebtcurrentlyheldbyDMWWrelatedtothecorenetworkandpurchasedcapacity.ThenetcashpaymenttoDMWWtoachievealignmentbetweenthesystemcapacityandnetvalueispresentedonLine8.Line9ofTable5‐9showsthedebtissuancecostsassociatedwiththeprojectedbondissuance.Thiscostisestimatedtobe2.0percentofthetotalissuanceamount.Line10reflectstheestimateddebtservicereserverequirementwhichisequaltoannualprincipalandinterest.Theissuancecostanddebtservicereserveamountsareassumedtobefundedfromthebondproceeds.

Line11showsthetotalofallfundapplications.TheendofyearbalanceisshownonLine12,andreflectsLine11subtractedfromLine5.

5.2.7 Projection of Annual Revenue Requirements and Effective Rate

Table5‐10showstheprojectedfinancialobligationsforthenewRegionalProductionUtilityfortheperiod2016through2020.ThistablesummarizesO&Mexpense,debtservicerequirementson

Line

No. Description 2016 2017 2018 2019 2020

Construction Funds Available

1 Beginning Balance ‐$ 6,242,500$ 338,900$ 392,800$ 396,700$

2 Revenue Bond Proceeds 142,500,000 0 0 0 0

3 Transfer from Operating Fund (Cash Financing) 0 0 500,000 0 3,000,000

4 Interest Income 62,200 62,700 5,900 3,900 19,100

5 Total Funds Available 142,562,200$ 6,305,200$ 844,800$ 396,700$ 3,415,800$

Construction Funds Used

6 Major Capital Improvements 6,198,700$ 5,966,300$ 452,000$ ‐$ 2,998,400$

7 Repayment of Outstanding DMWW Debt 29,944,000 0 0 0 0

8 Net Cash Payment to DMWW 89,086,000 0 0 0 0

9 Revenue Bond Issuance Expense 2,850,000 0 0 0 0

10 Revenue Bond Debt Service Reserve Requirement 8,241,000 0 0 0 0

11 Total Funds Utilized 136,319,700$ 5,966,300$ 452,000$ ‐$ 2,998,400$

12 Ending Balance 6,242,500$ 338,900$ 392,800$ 396,700$ 417,400$



proposedbonds,thetransferofoperatingfundsformajorcapitalimprovementfinancing,andcapitalrenewalandreplacementcosts.

O&Mexpense,previouslyprojectedinTable5‐6,isshownonLine1.EstimateddebtservicerequirementsonrevenuebondsprojectedtobeissuedtohelpfinancemajorcapitalprogramexpendituresandothercapitalrequirementsareshownonLines2and3.Revenuebondsindicatedtobeissuedduringthestudyperiodareassumedtobe30year,4.0percentfixedinterestbondswithequalannualpaymentsofprincipalandinterest.Line4reflectstheprojectedtransferoffundsfromoperationstoassistinmajorcapitalfinancing.CapitaloutlayforrenewalsandreplacementsisshownonLine5ofTable5‐10.Line6indicatesthetotalrevenuerequirementsforthefiveyearperiod.

Table 5‐10 Summary of Revenue Requirements and Unit Cost Development

Todeterminetheeffectiveunitcostper1,000gallonsofbilledwaterconsumption,usagefromeachofthe14contributingentitieswasprojectedbasedonhistoricalbilledusageprovidedbyDMWW.AsummaryofhistoricalandprojectedwaterusageispresentedinTable5‐11.Projectedquantitiesarebasedon(1)recognitionofhistoricalusagequantitiesandtrends,(2)totalwaterconsumptionbythecontributingentities,and(3)projectedgrowthratesinthecustomerbase.

Line

No. Description 2016 2017 2018 2019 2020

1 Operating Expense $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000

Debt Service

2 Projected Future Bonds 8,241,000 8,241,000 8,241,000 8,241,000 8,241,000

3 Total Debt Service on Bonds 8,241,000 8,241,000 8,241,000 8,241,000 8,241,000

4 Cash Financing of Major Capital 0 0 500,000 0 3,000,000

5 Renewals & Replacement 11,616,000 11,289,000 11,164,000 11,616,000 11,616,000


7 Projected Usage ‐ 1,000 gal. 17,857,100 18,010,100 18,165,300 18,322,900 18,482,900

8 Unit Cost ‐ $/1,000 gal. $2.52 $2.52 $2.50 $2.52 $2.70



Table 5‐11 Projected Billed Water Usage

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

Line

2‐year

Projection

No.

Description

2013

2014

Average

Base

2016

2017

2018

2019

2020

1,000 gal.

1,000 gal.

1,000 gal.

1,000 gal.

1,000 gal.

1,000 gal.

1,000 gal.

1,000 gal.

1,000 gal.



7,931,336

7,387,434

7,659,385

7,659,385

7,659,385

7,659,385

7,659,385

7,659,385

7,659,385


693,540

640,478

667,009

667,009

687,169

697,477

707,939

718,558

729,336

3Berw


29,449

32,930

31,189

31,189

32,132

32,614

33,103

33,599

34,103

4Urbandale W

ater Works

1,668,940

1,415,742

1,542,341

1,542,341

1,588,958

1,612,793

1,636,985

1,661,539

1,686,462


899,201

739,937

819,569

2,469,969

2,544,624

2,582,793

2,621,535

2,660,858

2,700,771

6Ankeny

1,716,937

1,531,156

1,624,046

1,624,046

1,673,133

1,698,230

1,723,703

1,749,559

1,775,802

7Clive

659,958

584,555

622,256

622,256

641,064

650,680

660,440

670,346

680,402

8Waukee

437,206

395,094

416,150

416,150

428,728

435,159

441,686

448,312

455,036

9Warren Rural W

ater

670,806

557,656

614,231

614,231

632,796

642,288

651,922

661,701

671,627

10Xenia Rural W

ater

513,240

612,208

562,724

562,724

579,732

588,428

597,255

606,214

615,307

11Norw

alk

254,975

239,462

247,219

247,219

254,691

258,512

262,389

266,325

270,320

12Bondurant

118,588

148,747

133,667

133,667

137,707

139,773

141,869

143,997

146,157

13Altoona

150

22

86876,000

902,477

916,014

929,754

943,701

957,856

14Polk City

99,447

84,015

91,731

91,731

94,504

95,921

97,360

98,820

100,303

15Total

15,693,772

14,369,436

15,031,603

17,557,917

17,857,100

18,010,066

18,165,326

18,322,915

18,482,868



BasedonhistoricaldataprovidedbyDMWW,itwasdeterminedthatusagein2013and2014reflectstypicalweatherconditionsandwaterusage,therefore,theaverageof2013and2014wasusedasthebasisforprojectedwaterusage.ThehistoricalwaterconsumptionforWestDesMoinesWaterWorksandtheCityofAltoonadoesnotreflectwaterproducedbythewatertreatmentplantscurrentlyownedandoperatedbythoseentities.UndertheRegionalProductionUtility,theseplantswouldbeincludedintheassetspurchased.Therefore,thewaterprovidedbytheseplantstoservetheCitiesofWestDesMoinesandAltoonaisincludedintheprojectionbaseforthenewRegionalProductionUtility,andisshowninColumn6ofTable5‐11.Projectedusagethrough2020reflects0.0percentgrowthfortheDesMoinesWaterWorksserviceareaand1.5percentgrowthforallotherentities.Thisreflectsconservativeestimatesbasedonhistoricalgrowthandassumedfuturegrowthasprovidedbyeachentity.Salesvolumesforthisperiodareprojectedtoincreaseatanaveragerateofabout1.0percentannually.

Line8ofTable5‐10showstheprojectedunitcostforwaterpurchasedfromthenewentityper1,000gallonsbasedontherevenuerequirementsonLine6dividedbytheprojectedbilledusageshownonLine7.

5.2.8 Financing alternatives

Theunitcostsdeterminedintheprevioussectionarebasedonfinancingallcapitalrelatedcostsin2016and2017withtheissuanceofarevenuebond.Asanalternative,ifthenewRegionalProductionUtilitycouldreachagreementonarepaymentscheduledirectlywithDMWW,thenasmallerrevenuebondcouldbeissuedfortheremainingcapitalcostsandthenewRegionalProductionUtilitywouldpaylessinbondissuancecostsanddebtservicereserve.Table5‐12reflectstheproposedrevenuerequirementsandunitcostforthisscenario.ProposeddebtserviceonLine2reflectsarevenuebondissueintheamountof$51,000,000whichwouldbeusedtofundtherepaymentofoutstandingDMWWdebtandmajorcapitalprojectsin2016and2017.Line4showstheestimatedannualpaymentsthenewRegionalProductionUtilitywouldmakedirectlytoDMWWaspaymenttoachievealignmentbetweenthesystemcapitalandnetvalue.Thesepaymentsarebasedona40‐yeartermand5percentinterest.Line9indicatesthatthisfinancingoptionwouldhaveafavorableimpactontheproposedunitcostswhencomparedtodebtfinancingallinitialcapitalcosts.



Table 5‐12 Alternative Revenue Requirements and Unit Cost Development

5.2.9 Effective Rate sensitivity

Inanefforttodeterminehowmuchtheunitcostswillfluctuateasaresultofchangesinassumptions,aratesensitivityanalysiswasperformedcomparingtheinitialbaserun(Table5‐10)against3alternatives.TheresultsaresummarizedinTable5‐13.Line1ofTable5‐13reflectsthesameunitcostsshowninTable5‐10.

Thefirstvariabletobeconsideredwastheestimatedfairmarketvalueforthecontributedassets.TheinitialbaserunshowninTables5and6isbasedonthemid‐rangevalueofassets;however,therevenuerequirementswerealsodeterminedusingthelow‐rangevalueofassets.TheresultingunitcostsarepresentedinLine4ofTable5‐13andreflectadecreaseofapproximately4percent.

Thesecondvariableconsideredwastheestimatedrenewalandreplacementcosts.Theestimatedrenewalandreplacementcostsreflectahighlevel,conservativeestimate.However,additionalplanningandengineeringcouldresultinalower,actualamount.Therefore,theestimatedrenewalandreplacementcostswerereducedby15percent.Lines2and5inTable5‐13reflectthereducedunitcostsforthemid‐rangeandlow‐rangevaluation,respectively.

Line

No. Description 2016 2017 2018 2019 2020

1 Operating Expense $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000

Debt Service

2 Projected Future Bonds 2,660,000 2,660,000 2,660,000 2,660,000 2,660,000

3 Total Debt Service on Bonds 2,660,000 2,660,000 2,660,000 2,660,000 2,660,000

4 Net Cash Payment to DMWW 5,192,000 5,192,000 5,192,000 5,192,000 5,192,000

5 Cash Financing of Major Capital 0 0 500,000 0 3,000,000

6 Renewals & Replacement 11,616,000 11,289,000 11,164,000 11,616,000 11,616,000


8 Projected Usage ‐ Mgal 17,857,100 18,010,100 18,165,300 18,322,900 18,482,900

9 Unit Cost ‐ $/Mgal $2.49 $2.50 $2.48 $2.50 $2.68



Table 5‐13 Rate Sensitivity Comparison

Thethirdvariableconsideredforthesensitivityanalysiswasthegrowthrateofprojectedbilledwaterusage.Thegrowthassumptionsusedintheinitialbaserunreflectaconservativeoverallannualgrowthrateof1.0percent.TheunitcostsshowninLines3and4ofTable5‐13reflectaslightlyhigherannualgrowthrateof1.5percent.Theunitcostsdecreasebyapproximately1.5percent.

5.3 ANALYSIS OF EFFECTIVE RATE InanefforttoprovideacomparisonbetweentheeffectiveratespresentedinthisReportandDMWW’sexistingwholesalerates,itisusefultotakeintoconsiderationtheeffectiveratethatcontributingentitiesarecurrentlypayingforpurchasedwater.ThecurrenteffectiveratetakesintoconsiderationthepurchasedcapacityratechargedbyDMWW,aswellastheoutstandingdebtservicerelatedtoPurchasedCapacityAgreements.

DMWWissueddebtforeachofthefourentitiesshownonLines1through4ofTable5‐14forpurchasedcapacity,andeachentityreimbursesDMWWfortheannualprincipalandinterestpayment.Theannualprincipalandinterestpaymentduein2016foreachcommunityisshowninColumn4.Theunitcostper1,000gallonsfordebtserviceisdeterminedbydividingtheannualprincipalandinterestpaymentinColumn4bytheprojectedbilledusagefor2016,showninColumn3.TheresultingunitcostfordebtservicerelatedtopurchasecapacityisshowninColumn5.

DMWW’spurchasecapacityratewillincreasefrom$1.46per1,000gallonsto$1.53per1,000gallonseffectiveApril1,2015;anincreaseof4.8percent.Forcomparisonpurposes,itisassumedthattheratewillincreaseanother4.0percentin2016to$1.59per1,000gallonsasshowninColumn7ofTable5‐14.TheeffectiverateforthefourentitiesidentifiedinTable5‐14isdeterminedbyaddingtheunitcostfordebtservice(Column5)andtheestimated2016purchasedcapacityrate(Column7)andisshowninColumn8.ThecalculatedcurrenteffectiveratefromTable5‐14isgenerallylowerthanthepotentialeffectiveratefortheRegionalProductionUtilityshowninTable5‐10.Whenthelowrangeportionofthevaluationestimateisusedinthefinancialanalysis,

Line

No. Description 2016 2017 2018 2019 2020

$/1,000 gal. $/1,000 gal. $/1,000 gal. $/1,000 gal. $/1,000 gal.

Mid‐Range Valuation

1 Conservative Base Run $2.52 $2.52 $2.50 $2.52 $2.70

2 Reduction in R&R $2.42 $2.42 $2.41 $2.42 $2.61

3 Higher Usage Projection $2.49 $2.48 $2.44 $2.44 $2.61

Low‐Range Valuation

4 Conservative Base Run $2.40 $2.41 $2.39 $2.41 $2.59

5 Reduction in R&R $2.31 $2.31 $2.30 $2.31 $2.50

6 Higher Usage Projection $2.38 $2.37 $2.33 $2.34 $2.50



theresultingeffectiverate(Table5‐13,Line4)ismorecomparabletothederived,currenteffectiverateinTable5‐14.

Table 5‐14 Effective Rate Comparison

Whiletheabovecomparisonprovidesanindicationofthecurrentcomparison,Black&Veatchrecommendsthateachentityundertakeitsownseparateanalysis,aseachentityisfamiliarwiththecostsitmayhaveincurredtopurchasecapacityorcontributetoDMWWovertheyears.Ingeneral,theestimatedeffectiverateisnotcompletelyoutoflinewithcurrenteffectiveratespaidbyregionalutilities.

ItisalsoimportanttonotethattheeffectiverateunderthepotentialRegionalProductionUtilityofapproximately$2.52per1,000gal.islessthanDMWW’scurrent“WithStorage”rateforwholesalecustomers.The“WithStorage”rateincludesthefullyloaded,wholesaleratethatrecoversO&M,depreciation,andreturnoninvestmentfromwholesalecustomers.

5.3.1 Future Considerations

WhilethecomparisonoftheeffectiverateunderaRegionalProductionUtilitycomparedtothecurrentwholesalearrangementprovidesvaluableinformationtoseehowcurrentcostsmightchange,itisalsoimportanttoconsiderthevalueofpotentialchangestomeetingfuturegrowthdemands.

Underthecurrentwholesalearrangement,autilitythatneedsadditionalcapacitymorethanlikelymustobtainitfromDMWW.Black&VeatchunderstandsthatDMWWwillidentifythecostofthenecessaryimprovementstoaddtothecapacity,andthenpassthatcostsolelyalongtotheutilitythatrequiresthecapacity.ThisapproachbyDMWWisnotuncommonandisdonetoprotectexistingcustomersbeingoverlyburdenedoncostsforadditionalcapacitythatmaynotbenefitthem.

(1) (2) (3) (4) (5) (6) (7) (8)

Estimated

2016 2015 2016 Estimated

Line 2016 Annual P&I per Purch Cap Purch Cap 2016 Effective

No. Description Usage P&I 1,000 gal. Rate (a) Rate Rate

1,000 gal. (4) / (3) (6) x 104% (5) + (7)

1 City of Ankeny 1,673,133 $939,828 $0.56 $1.53 $1.59 $2.15

2 City of Urbandale 1,588,958 $1,072,853 $0.68 $1.53 $1.59 $2.27

3 City of Waukee 428,728 $333,566 $0.78 $1.53 $1.59 $2.37

4 West Des Moines Water Works 739,937 $301,794 $0.41 $1.53 $1.59 $2.00

Des Moines Water Works ‐ Wholesale (a)

5 Purchased Capacity $1.53

6 With Storage $3.33

7 Off Peak $1.72

(a) Effective April 1, 2015.



OnepotentialoptioncouldbefortheRegionalProductionUtilitytoshareintheoverallcostsforexpandingthecapacityofthesystem.ThesharingofexpansioncostsunderthisoptionwouldbeconsistentwiththenetvalueapproachoutlinedinthisReportthatbringsparticipantsintotheRegionalProductionUtilityonanequalbasis(netvaluepermgd).

Table5‐15providesahypotheticalexampleforconsideration.Inthisexample,itisassumedthatanadditional20mgdofcapacityisrequiredtoserve4customers.Thehypotheticalprojectcostofthisadditionalcapacityis$60,000,000andwillbefinancedwitha30yearrevenuebondwith4percentinterest.Theannualprincipalandinterestpaymentwillbe$3,470,000.Underthecurrentorganizationalstructure,thefourcommunitiesallocatetheannualprincipalandinterestpaymentbasedontheallocationofthenewcapacity.Eachcommunity’scostofdebtper1,000gallonsisbasedontheirshareoftheannualdebtserviceallocatedtotheirannualusage,whichresultsinunitcostsrangingfrom$0.35per1,000gallonsto$1.73,asshowninTable5‐15.

Thealternativeoptionreflectsthesharingofsystemexpansioncostsof20.0mgdamongallregionalparticipants.AsshownonLine5,theunitcostofdebtper1,000gallonsisbasedontheannualdebtserviceallocatedtothetotalregionalbilledwaterusageandresultsin$0.20per1,000gallons.Theannualsavingsthateachofthefourcommunitieswouldrealizeundertheregionalentityscenariorangesfrom$379,000to$785,000.

Table 5‐15 Future Expansion Example

Existingutilitiesand/orcommunitiesthatarecustomersofDMWW,andthatarenotanticipatinggrowthmaybalkattheoptionofaregionalwaterutilitysharingexpansioncostsamongallregionalentities.However,theseentitiesmustconsiderthepotentialofgrowthcommunitiespursuingtheirfuturewaterneedseitherindividually,orasagroupseparatefromDMWW.Overtime,thelossofrevenuefromanycustomerthatleavesDMWWcouldresultinincreasestocustomersthatremainasfixedcostsoftheDMWWsystemarespreadoverasmallerbilkedusagebase.

LINE NO. UTILITY

CAPACITY NEEDED (MGD)

ANNUAL PRINCIPAL

AND INTEREST (1)

BILLED USAGE

(1,000 GAL.)COST PER 1,000 GAL.

CURRENT SITUATION

1 Utility No. 1 5.0 $867,000 1,200,000 $0.72

2 Utility No. 2 5.0 $867,000 2,500,000 $0.35

3 Utility No. 3 5.0 $867,000 1,400,000 $0.62

4 Utility No. 4 5.0 $867,000 500,000 $1.73

POTENTIAL OPTION – REGIONAL PRODUCTION UTILITY

5 Total Regional Utility 20.0 $3,470,000 17,557,917 $0.20



5.3.2 Communities That Opt Out

AnotherquestionisrelatedtotheimpactofthisStudyshouldoneormoreentitiesdecidenottojointheRegionalProductionUtility.With14differententitiesincludedintheNetValueanalysisabove,analyzingthemultiplescenariosthatcouldmaterializeisbeyondthescopeofthisStudy.Therearehowever,severalitemstoconsider.

First,iftheentitythatoptsoutcontinuestoreceiveitswaterfromtheRegionalProductionUtility,theimpacttotheeffectiverateinTable5‐10wouldlikelybenegligible.ThisisbecausetheprojectedcostsoftheRegionalProductionUtilitywouldbespreadoverthebilledusagewhichwouldincludetheentitythatoptsout.

Second,iftheentitythatoptsoutdecidestopurchaseorproducewaterseparatefromtheRegionalProductionUtility,thenthepotentialimpacttotheeffectiverateinTable5‐10wouldbenegative.Thisisparticularlythecaseiftheentityisalargeruserofwater.ThebilledusagedeductedfromthetotalregionalbilledusagewouldresultinahighereffectiveratefortheRegionalProductionUtility.

Finally,ifoneormoreentitiesdecidetooptout,thenthepercentageofadjustednetvalue(seeTable5‐4)wouldchange.EachoftheentitiesthatjointheRegionalProductionUtilitywouldreceivealargershareofnetvalue,orequityintheorganization.

5.4 FINANCIAL ANALYSIS CONCLUSION ForpurposesofthisStudy,Black&VeatchdeterminedanestimatedrangeofvaluefortheassetsthatcouldbetransferredtoanewRegionalProductionUtility.ShouldCIRDWCmembersdecidetomoveforwardwithformingtheRegionalProductionUtility,therangeofvalueestimateprovidesabasisforconsiderationandnegotiation.

TheNetValueanalysisalsoprovidesamethodforbringingregionalparticipantsintotheRegionalProductionUtilityonanequalbasis.Itisachievedbyassessingthenetvaluethateachentitybringstothetable,andthenadjustingeachentitytothesamenetvaluepermgdofcapacityusingcontributionsandacashpaymenttoDMWW.Becauseeachparticipantcomesintotheendeavoronanequalbasis,auniformrateispossible,alongwiththesharingofbothongoingmaintenancecostsandexpansionofthesystem.

Black&VeatchalsodevelopedaprojectionofrevenuerequirementsforthefirstfiveyearsoftheRegionalProductionUtility.Thisresultedinanestimatedeffectiverateof$2.52per1,000gallons.ThiseffectiverateappearstobehigherthanthecurrenteffectiveratesforWDMWW,UrbandaleWaterWorks,Ankeny,andWaukeebyabout6.0percentto26.0percent.However,thishighercostprovidesentitieswithparticipationinthegovernanceoftheRegionalProductionUtility.Itshouldalsobeevaluatedinthecontextofhoweachentitywillfinancefutureimprovementsforadditionalwatersupply.


BLACK & VEATCH | Governance 64

6 Governance

6.1 POTENTIAL INITIATING PRINCIPLES DuringthefirstphaseofthisStudy,CIRDWCmembersprovidedfeedbacktoBlack&VeatchwithrespecttotheirreasonsforpotentiallycreatingaRegionalProductionUtility,aswellaspotentialconcernsthatmightarisefromcreatingandjoiningaRegionalProductionUtility.BasedonfeedbackfromthestakeholderinputandSWOTAnalysismentionedabove,thefollowingsectionsoutlinepotentialinitiatingprinciplesthatparticipantscouldincludeinafoundingdocumentfortheRegionalProductionUtility.ThepurposeoftheseprincipleswouldbetoprovideanorganizationalframeworkforoversightoftheRegionalProductionUtilityandallowfortheregionalgrowthandexpansionofthewatersystem.

FutureSourceofSupply–Memberswouldneedtoagreetoberestrictedfromindependentlydevelopingtheirownsourceofsupply,unlessapprovedbytheRegionalProductionUtility.Thisprinciplebalancestheregionalneedforwatertosupportgrowingcommunitieswithaconcernthatcommunitiesactingindependentlyonsourceofsupplyissuescouldcreateaninefficientregionalsystemforwaterdelivery.Forexample,ifacurrentwholesalecustomerofDMWWdevelopsitsownsourceofsupplyandleavesDMWWasacustomer,thecurrentDMWWcorenetworkcouldoperateinanunder‐utilizedmanner.Thiswouldleavefixedcostsforthecorenetworktobelargelybornbycustomersthatdonotutilizeasignificantportionofthecorenetwork.

FuturePurchaseofFinishedWater–Memberswouldneedtoagreetopurchaseallfuture,finishedwaterfromtheRegionalProductionUtility.ThisprinciplebalancestheneedtodevelopaRegionalProductionUtilitythatisdedicatedtoservingtheregion,withthepotentialnegativeimpactthatcouldariseifmembersoftheRegionalProductionUtilitydeveloptheirownsourceofsupplies,orenterintoseparateagreementsforwaterfromotherentities.Anadvantageofhavingtotalcommitmentfromallmembersisthatexistingandfuturecostsofthecorenetworkwouldbecoveredbyagrowingbasedofbilledusageand/orcustomers.

WaterQuality–MemberswouldneedtoagreetosupporttheapprovedinitiativesoftheRegionalProductionUtilityrelatedtosourceandfinishedwaterquality.DuringthestakeholderinputandSWOTAnalysis,CIRDWCmembersindicatedthatsourcewaterandfinishedwaterqualitywasimportanttothem.ThisprinciplestatesthatparticipantsintheRegionalProductionUtilitywouldcommittoapprovedinitiativesdesignedtoimprovebothsourceandfinishedwaterquality.

SystemPlanningandExpansion–Memberswouldneedtoagreetoparticipateinregionalwatersystemplanningtobenefittheentireregion.Thisprinciplepromotestheefficientplanningofthecorenetworksystem.Thisprinciplewouldbalancethedesireofgrowingcommunitiestodevelopasystemthatmeetsfuturedemand,withthedesireofnon‐growthcommunitiestoconductresponsibleplanningthatexpandstheregionalwatersystemefficiently.

OutstandingDebt–MemberswouldneedtoagreethatalldebtrelatedtotheirindividualsystemsorpreviousrelationshipwithDMWWremainseparatefromtheRegionalProductionUtility.ThisprincipleprotectstheRegionalProductionUtilityfromanynegativefinancialimpactsofdebtrelatedtothepotentialmembers.ThisdoesnotincludetheoutstandingdebtcurrentlyheldbyDMWWforthecorenetworkand/orpurchasedcapacityfinancedforwholesalecustomers.As



describedintheFinancialAnalysissectionofthisReport,thatdebtcouldbepaidoffbytheRegionalProductionUtility,orretiredinanotheracceptablemanner.Futurelegalandfinancialadvicewouldneedtobeundertakentodeterminethebestmannerforaddressingthatdebt.

RatesandCharges‐Memberswouldneedtoagreetoestablishsufficientratesandchargesthatsupportandmaintaintheexistingcorenetwork,aswellasexpandthecorenetworktomeetfutureregionaldemand.Thisprinciplewouldrequirethatfutureratesandchargeswillprovidecapitalforoperatingandmaintainingthecurrentcorenetworksystem,aswellasexpandingtheregionalsystemtomeetfuturedemand.

6.2 KEY GOVERNANCE ISSUES

6.2.1 Voting Rights

AnunderlyingpurposeforthisStudywasthedesireofregionalcommunitiestohaveavoiceintheplanningandprovisionofwatertotheregion.Thisincludesplanningtoaddresssourceofsupplyissuesandfuturedemands,aswellastheestablishmentofratesandcharges.DuringthestakeholderinputportionoftheStudy,CIRDWCmemberswereaskedtheiropinionwithrespecttohowtheyviewedgovernanceandvotingrights.MostoftheCIRDWCmembersrespondedthataweightingofvotingrightstoreflecttherelativesizeofregionalcommunitiesappearedappropriate.

TheNetValueanalysisportionoftheStudyprovidesamechanismwhereeachoftheparticipantswouldbeabletoparticipateintheRegionalProductionUtilityonthesamebasisintermsofthenetvaluepermgdofcapacityneededfromtheRegionalProductionUtility.BybringingthesamenetvaluepermgdtotheRegionalProductionUtility,Black&Veatchbelievesthisprovidesparticipantswiththeabilitytoestablishvotingrightsinseveraldifferentways.

Thefirstexamplethatcouldbeacceptableweightsaparticipant’svoteonthebasisofthenetvaluecontributedtotheRegionalProductionUtility.ThenetvaluereflectstheresultsofTable5‐4above,wherethenetvaluecontributedbyparticipantsequalstheirpercentageofthesystemtotalcapacity.ThefollowingTablereflectsahypotheticalexampleofaweightedvotebasedonthenetvaluecontributedbyparticipants.Ascanbeseen,anissuebroughtbeforetheRegionalProductionUtilityforconsiderationwouldbevotedonbyonememberforeachparticipant.EachvotewouldbeweightedbasedonthepercentageofnetvaluecontributedbyeachparticipanttotheRegionalProductionUtility.Inthishypotheticalexample,“yes”votesforfourparticipantscomparedto“no”votesfor10participants,resultsinoverallapprovalofthehypotheticalmeasure.



Table 6‐1 Hypothetical Weighted Vote Based on % of Net Value

6.2.1.1 Other Voting Rights Options

TheuseofnetvaluepermgdisoneoptionforestablishingvotingrightsformembersoftheRegionalProductionUtility.Anotheroptionwouldbetoweightthevoteusingthepopulationnumbersforeachparticipant.ThiswouldbesimilartothemethodologyusedbyWRA,whichassignsanadditionalrepresentativetomembersforeachpopulationincrementof25,000persons.WithrespecttotheRegionalProductionUtility,theuseofpopulationincrementscouldbeused,ordeterminingthetotalpopulationofparticipantsandusingtheresultingweightedpercentagecouldbeanotheralternative.

6.2.2 Board Makeup

DuringthestakeholderinputandSWOTanalysis,are‐occurringthemefromCIRDWCmemberswastheirdesiretohaverepresentationwithrespecttogovernanceissues,includingestablishmentofratesandchargesandsystemplanning.ThiswillrequirealargeBoardthatwillneedtoaccommodatevaryingviewpointsongovernanceandregionalwaterissues.CIRDWCmembersdidstatethatthelargeWRABoardfunctionseffectively.

Aneffectiveboardmakeupwouldincludememberswhoareappointedbythegoverningbodiesoftheirrespectivecommunities.Theappointmentofboardmembersispreferabletoaboardthatismadeupofdirectlyelectedmembers.BasedonourdiscussionswithotherregionalwaterentitiesacrosstheU.S.,boardmembersthataredirectlyelectedtotheirpositionprovidesanadditionallayerofwaterpoliticsthatcaninterferewithaneffectivedecision‐makingprocess.Thiscanalsoresultinthepoliticizationofregionalwaterissuesandabreakdownofcooperationbetweencommunities.Thealternativeofgoverningthroughappointedmembersretainsaccountabilityofgoverningmemberstotheirrespectivecommunities,whileallowingappointedmemberstoworkonregionalwaterissuesinalesspoliticalenvironment.

Line (1) (2) (3) (4) (5) (6)

No. Description % Net Value Factor YES NO YES NO

=(1)x(2)x(3) =(1)x(2)x(4)

1 Des Moines Water Works 44.63% 100 1 44.63 0

2 Polk Co. (SE and Unincorporated) 1.45% 100 1 1.45 0

3 Berwick Water Association 0.19% 100 1 0 0.19

4 Urbandale Water Works 11.41% 100 1 0 11.41

5 West Des Moines Water Works 14.07% 100 1 0 14.07

6 Ankeny 9.40% 100 1 9.4 0

7 Clive 5.20% 100 1 5.2 0

8 Waukee 2.75% 100 1 0 2.75

9 Warren Rural Water 2.42% 100 1 0 2.42

10 Xenia Rural Water 2.20% 100 1 0 2.2

11 Norwalk 1.47% 100 1 0 1.47

12 Bondurant 0.90% 100 1 0 0.9

13 Altoona 3.65% 100 1 0 3.65

14 Polk City 0.26% 100 1 0 0.26

15 Total 100.00% 4 10 60.68 39.32



AprofessionalstaffwouldlikelybenecessarytoassisttheBoardinthedaytodayoperationoftheRegionalProductionUtility.StaffwouldincludeaGeneralManagerorExecutive,FinancialOfficer,ChiefEngineer,HumanResourceManager,andLegalManager.BasedonfeedbackfromCIRDWCmembersandBlack&Veatch’sexperience,importantcommitteeswouldlikelyinclude:

ExecutiveCommittee–ThiswouldbeimportantforalargeboardcontemplatedfortheDesMoinesregion.TheExecutiveCommitteeprovidesguidanceandfeedbacktotheprofessionalstaffasnecessaryandmayconsistofapproximatelythreemembers.Typically,theExecutiveCommitteewouldincludeaChair,ViceChair,andSecretary.TheExecutiveCommitteewouldbenominatedandappointedbytheboardatthebeginningofeachyear.

Planning/TechnicalCommittee–Thiswouldbeanimportantcommitteethatplansforthefutureexpansionoftheregionalwatersystem,aswellasplanningfortraditionalprojectssuchascapitalmaintenanceandwaterqualityenhancement.

FinanceCommittee–ThiswouldbeimportantformanagingtheoverallfinancesoftheRegionalProductionUtility,aswellastheestablishmentofratesandcharges.

6.2.2.1 Staff

DuringthestakeholderinputportionoftheStudy,severalCIRDWCmembersnotedthatWRAcontractsoutoperationofthewastewatersystemtotheCityofDesMoines.Black&VeatchrealizesthatcontractingoutallorsomeoftheoperationsoftheRegionalProductionUtilitytoanotherentitycouldbeanoption.Nevertheless,itisalsolikelythattheRegionalProductionUtilitywouldwanttohaveaprofessionalstafftohandlemanagementandpolicyissuesrelatedtotheutility.Ingeneral,theprofessionalstaffwouldtypicallyconsistofthefollowingpositions:

ChiefExecutiveorGeneralManager–TheChiefExecutiveorGeneralManagerwouldberesponsiblefortheoveralloperationandmanagementoftheRegionalProductionUtility.Thisincludesresponsibilitiessuchasoversightofoperationstoensurewaterisproducedinsufficientquantitiesandofaqualitynecessaryfortheregion;planningtoensuretheabilityoftheRegionalProductionUtilitytomeetfuturedemand;financialmanagement;anddevelopmentandimplementationofBoardpoliciesandprocedures.TheChiefExecutiveorGeneralManagerwouldalsoretaintheauthoritytosignandexecutelegaldocumentsonbehalfoftheRegionalProductionUtility.

ChiefEngineer–TheChiefEngineerwouldoverseetheplanningandconstructionofanyimprovementsandwouldleadthedevelopmentofregionalplanningtoensurethewatersystemmeetstheneedsoftheregionandutilityparticipants.TheChiefEngineerwouldworkwiththeBoardTechnicalCommitteetoderiveanoverallplanforexpandingtheregionalwatersystemtomeetfuturedemand,aswellasperformingtheappropriateassetmanagementtoensuretheexistingsystemisingoodworkingorder.

ChiefFinancialOfficer–TheChiefFinancialOfficerwouldoverseeallfinancialaffairsoftheorganization.Thispositionwouldleadthedevelopmentoftheannualbudgetandauditprocesses,aswellasthedevelopmentofannualratesandchargestobeassessedbytheRegionalProductionUtility.TheChiefFinancialOfficerwouldworkcloselywiththeBoardFinanceCommitteetodevelopappropriatepoliciesandproceduresformaintainingappropriatefinancialcontrolswithrespecttothevariousfundsmaintainedbytheRegionalProductionUtility.



HumanResourcesManager–AHumanResourcesmanagerwouldberequirediftheRegionalProductionUtilityinheritsorhiresemployeesthatrunthedaytodayoperationsoftheutility.Thismanagerwouldoverseehiringpractices,training,disciplineissues,andotherpersonnel‐relatedissues.TheHumanResourcesmanagerwouldworkwiththeChiefFinancialOfficeronemployeebenefitissuessuchasannualpay,benefits,andretirementplanningissues.IftheRegionalProductionUtilitywerehireacontractoperator,theHumanResourcesManagermightnotberequired.Alternatively,itisfeasibletooutsourceHumanResourcefunctions.

Legal–ALegalmanagerorGeneralCounselwouldprovidetheBoardandstaffwithlegaldirectiononutilityissues.Additionally,thismanagercouldoverseeriskmanagementissues

6.3 GOVERNANCE ALTERNATIVES

6.3.1 Traditional Municipal Governance

ThefirstalternativeevaluatedbyBlack&Veatchconsistsofatraditionalmunicipalutilitygovernancemodelonaregionalbasis.DuringthestakeholderinputphaseofthisStudy,CIRDWCmembersgenerallyindicatedthattheDesMoinesMetropolitanWastewaterReclamationAuthority(WRA)wassuccessfulmodelforregionalgovernance.Black&VeatchreviewedtheAmendedandRestatedAgreementfortheDesMoinesMetropolitanWastewaterReclamationAuthoritythatoriginatedin2004.TheAgreementincludesprovisionsthatoutlineissuessuchas1)votingrights;2)organizationandpowersoftheboard;3)acquisitionandtransferofwastewaterassets;4)constructionoffutureimprovements;5)operationandmaintenanceofthewastewatersystem;and5)financialissuessuchasbudgeting,audits,andissuanceofbonds.Ingeneral,theAgreementprovidesagoodexampleofcomponentsthatwouldneedtobeaddressedshouldCIRDWCmembersdeterminetomoveforwardwithcreatingaRegionalProductionUtility.

Thereareseveralother,similarexamplesthathavebeencreatedacrosstheU.S.,albeitwithvariationsinthenumberofmembers,howtheyareelectedorappointed,orothergovernancematters.Thetraditionalmunicipalgovernancemodelconsistsofboardmembersthatareelectedorappointedbythecommunitiestheyrepresent,andthatexercisetheirauthorityunderstatestatutestoprovideapublicneed.Inthiscase,theprovisionofdrinkingwateronaregionalbasistothecommunitiesthatcomprisetheGreaterDesMoinesregion.ItshouldbenotedthatthisStudydoesnotincludealegalanalysisofformingaregionalwaterutility,oralegalanalysisastotheappropriateresponsibilitiesofaregionalwaterutility.ThatanalysiswillneedtobeundertakenbyCIRDWConaseparatebasisfromthisStudy.

ThereareseveralexamplesofcommunitiesacrosstheU.S.thathavecometogethertoaddresswaterneedsonaregionalbasis.Thefollowingprovidesabriefdescriptionofseveralutilitiesthatusetraditionalmunicipalgovernance:

CentralArizonaProject–TheCentralArizonaProject(CAP)isamulti‐countymunicipalcorporationgovernedbymembersrepresentingMaricopa,Pima,andPinalcounties.TheCAPprovidesapproximately1.5millionacre‐feetofwaterperyeartocentralArizona.TheCAPconsistsofasecure,open‐airwatercanalthatoriginatesatLakeHavasuandstretchesapproximately336milestotheCityofTucson.Therawwaterissuppliedformunicipal,agricultural,andtribaluse.ThemissionoftheCAPistobethestewardofcentralArizona'sColoradoRiverwaterentitlementandacollaborativeleaderinArizona'swatercommunity.



Governanceisconductedbya15‐memberBoardofDirectorsthatarepopularlyelectedfromMaricopa,Pima,andPinalcounties.Boardmembersservestaggeredsixyearterms.ThenumberofBoardmembersisgenerallybasedonthepopulationsofthecountiesrepresented.Thereare10membersfromMaricopaCounty;fourfromPimaCounty;andonefromPinalCounty.KeypowersincludetheresponsibilityformanagingthebusinessofCAP,executingallnecessarycontractsandinstrumentsfortheCAP,employingthestaffthatmanageandoperateCAP,receivingandinvestingmoniesforCAP,andestablishingrevenuebondingprogram.EstablishedBoardcommitteesconsistofanExecutiveCommittee,CentralArizonaGroundwaterReplenishmentDistrictCommittee,FinanceandAuditCommittee,andPublicPolicyCommittee.

TheBoardmanagesthedaytodayoperationsofCAPwithaGeneralManagerassociatedstafftotalingapproximately400employees.

TampaBayWater–TampaBayWater(TBW)isaregionalwatersupplyentitythatprovideswholesaledrinkingwatertotheFloridacommunitiesofHillsboroughCounty,PascoCounty,PinellasCounty,NewPortRichey,St.PetersburgandTampa.Thepopulationofthisregionisapproximately2.3million.ThemissionofTBWistoreliablyprovideclean,safewatertotheTampaBayregionnowandforfuturegenerations.Tomeettheneedsoftheregion,TBWderivesrawwaterfromgroundwater,surfacewater,andseawatersources.Themajorityofsupplyissuppliedfromwellfields,butissupplementedfromwatertreatedatsurfacewateranddesalinationtreatmentplants.ThehistoryofTBWdatesbacktothemid‐1990swhenthecommunitiesoftheregiondecidedtoformTBWtocooperateregionallyonwatersupplyandplanningissues.

GovernanceisconductedbyaninememberBoardofDirectorsconsistingofelectedpersonsappointedbytheirrespectivecommunities.TherearetwomembersrepresentingHillsboroughCounty;twomembersrepresentingPinellasCounty;twomembersrepresentingPascoCounty;onememberrepresentingtheCityofTampa;onememberrepresentingtheCityofSt.Petersburg;andonememberrepresentingtheCityofNewPortRichey.EachBoardmemberhasonevoteandapprovalofactionsbeforetheBoardrequiressixvotesoutofnine.

TBWhasanInterlocalagreementthatoutlinesthedutiesandresponsibilitiesofTBWandtheBoard.Ofsignificantnoteistheemphasisonwatermasterplanning,andexclusivityprovisionsrecognizingTBWastheprimarysupplierofregionaldrinkingwater.Therearecurrently125fulltimeemployeeswithaGeneralManagerthatoverseesthedaytodayoperationsonbehalfoftheBoard.

Thetwoorganizationsabovewerecreatedtoaddresswatersupplyissuesorotherregionalissuesthatareuniquetotheirownrespectiveregions.IntheinstanceoftheCAP,theregionalentitywasformedtomanagetheoperationofafederallyconstructedprojecttoensuresufficientwatersupplytoregionalstakeholders.TBWwasformedtocoordinatethemanagementofwatersupplyandtreatmentservicetoseveralregionalstakeholders.Bothhavedevelopedtheiruniquegovernancestructures,butcommonalitiesincludeboardsthatdeveloppoliciesandprovideoversighttoensuremanagementofwaterissuesonaregionalbasis.InBlack&Veatch’sopinion,asimilargovernancestructurecouldbecreatedtoaddressregionalwatersupply,treatment,andtransmissionissuesfortheGreaterDesMoinesregion.



6.3.2 Modification of Current Governance Arrangement

Underthecurrentarrangement,DMWWcontrolstheproductionandtransmissionofdrinkingwatertotheGreaterDesMoinesregion.ThisincludesconductingtheplanningandsettingratesandchargestofundcapitalinvestmentandO&M.Onepotentialalternativewouldbetograntregionalcommunitiesgreaterinputintofutureregionalplanningandratesettingdecisions.Onemechanismforachievingthiswouldbetore‐negotiateexistingpurchasedcapacityagreementstoaddprovisionsrelatedtogovernanceoftheregionalutility.Thefollowingprovidesseveralaspectsthatcouldbeaddressedinare‐negotiatedpurchasedcapacityagreement.

FinancialPlanningandRateConsiderations–AconsistentthemefromCIRDWCmembersthatreceiveservicefromDMWWwasthattheratesettingprocesswasdifficulttounderstand.TherewasdiscussionaboutthedifficultyofunderstandingDMWW’srateprocess,aswellastheplanningandnotificationprocessforestablishingratesfromyeartoyear.Thiscouldbeoneareathatpurchasedcapacitycustomersre‐negotiateaspartoftheirexistingWholesaleServiceMasterAgreement.Potentialitemstoincludewouldhavetobenegotiated,however,negotiationpointscouldinclude:

● EstablishingafinancialplanningandratesettingcommitteethatconsistsofbothfullservicecustomersofDMWWandcustomerswithpurchasedcapacityagreements.Whilethecommitteewouldnothavefinalsayinthedeterminationofrates,itcouldserveasavenueforcustomerstoprovideinputtoDMWW,understandhowcostsareallocated,andratesdetermined.

● CostofServiceDetermination–Thecurrentcostofserviceandrateprocessisconductedinhouse.ApotentialsolutiontoderivemoreconfidencefromDMWWcustomerswouldbetojointlyhireaconsultingfirmtoperformacostofservicestudytoderivetheallocationofcoststoDMWWcustomers.

● RateProcess–Thiscouldincludeamoredetaileddescriptionthatcouldbeincludedinagreementsthatoutlinesthecostofserviceandrateprocess.Therateprocesscouldincludeadescriptionofcoststhatwouldbeincludedinpurchasedcapacityrates,etc.Therecouldbeadetailedexampleofthecostallocationprocessincludedintheagreementsforfutureunderstanding.Thegoalwouldbetoestablishanupfrontunderstandingofhowcostofserviceandratesareestablished.

WaterSystemPlanning–CommunicationonwatersystemplanningappearstoprimarilyoccurbetweenDMWWandindividualcommunities.OnewaytoexpandthistoamoreregionalbasiswouldbetocreateatechnicalorplanningadvisorycommitteetoassistDMWWwithunderstandingwaterneedsonbothanindividualcommunityandregionalbasis.Thiscommitteecouldalsofocusontrackingandmeetingregularlytodiscusspeakdayandpeakhourdemands,aswellasstrategiestomeetfuturedemands.Additionaltopicscouldincludesourcewaterqualityandfinishedwaterqualitytorepresenttheseissuesfromamoreregionalbasis.

Other–Theitemsabovearejustsomeexamplesofissuesthatcouldbere‐negotiatedbetweenDMWWanditsWholesaleMasterServiceAgreementcustomers.Otherimportantitemscouldadditionallybeadded,however,theyshouldgenerallyreflectissuesthatfurthergreaterregionalcooperation.



Intermsofgovernance,themodificationofthecurrentgovernancearrangementwillstillleavetheDMWWBoardofDirectorswithafinalsayinmattersimportanttoregionalcommunitiesandutilities.ThesuccessofthisalternativewouldbedependentontheabilityofDMWWandtheregionalcommunitiestoworktogethercollaborativelytobuildtrustandfurtherregionalcooperation.

6.3.3 Public Private Partnership

PublicPrivatePartnerships(PPPs)withinthewaterindustryrepresentcooperationbetweenmunicipalandprivateentitiesintheareaofpublicwatersupply.Ingeneral,theuseofPPPsformajorU.S.watersystemshasbeenlimited,however,thereareseveralexampleswheremajormunicipalitiesutilizeprivateentitiesinsomeformtoassistwithprovidingwaterorwastewaterservicetocustomers.Severalexamplesinclude:

CityofBuffalo,NewYork–BuffaloWaterutilizesVeoliaWaterNorthAmericatooperateandmaintainitswatersupplyanddistributionsystem.BuffaloWaterretainsratesettingresponsibilityandoverallownershipofthewaterassets.

Indianapolis,IN–Intheearly2000s,theCityofIndianapolisutilizedPPPsinseveralinstancestoassistwiththeprovisionofwaterandwastewaterservice.Inapproximately2001,theDepartmentofWaterworkscontractedwithVeoliaWaterNorthAmericatooperateandmaintainthewatersystemassets,includingsupply,treatment,transmission,anddistributionassets.TheBoardofWaterworksmaintainedownershipoftheassets,aswellasresponsibilityfordevelopmentofpoliciesandstrategicdirectionoftheutility.TheCityofIndianapoliscontractedwithUnitedWatertooperateandmaintainthewastewatersystem.Thisincludedtheliftstations,collectionsystem,andtreatmentplantsownedbytheCity.Aswiththewatersystem,theCitymaintainedownershipofthewastewaterassets.In2011,boththewaterandwastewaterassetswerepurchasedbyCitizensEnergyGroup,alocalenergyutility.CitizensEnergyGroupnolongerusesVeoliatooperateandmaintainthewatersystem,butdoesutilizeUnitedWatertooperateandmaintainthewastewatersystem.

ThereareseveralotherexampleswherePPPsareutilizedbymunicipalitiesforwaterandwastewaterservicetocustomers.Ingeneral,PPPscanbeusedtofocusonareaswheremunicipalitiesmaylackexperienceortoachievecostsavingsinwaterorwastewaterservice.WithrespecttoregionalwaterservicefortheGreaterDesMoinesregion,CIRDWCmembersdidnotindicatethattheyviewedaPPPasapotentialsolution.However,Black&VeatchhasincludedthisalternativeinthisStudyasmeansofconsideringalternativegovernanceoptions.

ThereareseveralpotentialoptionsforaPPP.Thefollowingisprovidedasareasonableexample;however,theremaybeothermorepreferablePPParrangementsthatwouldhavetobeinvestigatedifCIRDWCbelievesthistobeapotentialalternative.

LongTermLease–Underalongtermleasearrangement,thecurrentownerofthecorenetworkwouldlikelyreceiveanupfrontpayment.Inexchange,theprivateentitywouldmanage,operate,andmaintainthesystemunderaleaseagreement.Theleaseagreementwouldhavetobenegotiatedtoreflectkeyprovisionsdesiredbyregionalparticipants,includingitemssuchaswaterqualityexpectations,ratesandcharges,sharingofcostsavings,andotherimportantitems.Theprivateentitywouldprovidekeygovernancerolesfortheutilityduringthetermofthelease.



Thisincludessettingpoliciesandprocedures,establishingratesandcharges,andotherpolicy‐relateditems.Itistypicalwithinotherstatesforastateregulatorybodytooverseeratesandchargesforinvestor‐ownedutilities.Considerationofhowratesandchargeswouldbeimplementedwouldbeakeycomponentoftheleaseagreement.ConsiderationwouldalsoneedtobegiventowhatroletheIowaUtilitiesBoardwouldplay,ifany.

ThepotentialbenefitsofthisarrangementincludepotentialO&Mcostsavings.Thesecostsavingscouldbesharedbetweentheprivateentityandtheratepayers.Othernon‐costbenefitscouldincludegovernanceanddecision‐makingfromanunbiasedperspective.Intheory,aprivateentitywouldmakeregionalwaterdecisionswithlessconcernforindividualcommunityneeds.Capitalinvestment,bothforupkeepoftheexistingsystemandexpansiontomeetfuturedemand,wouldbemadetoderiveanefficientregionalsystem.Finally,aleasearrangementhasanexpirationdate,albeitlongerterm,forendingtheleaseshouldcustomersbeunhappy.

Thepotentialdrawbacksofthisarrangementareevidentinthatregionalcommunitieswouldhavelimitedsayinthegovernanceoftheregionalprovisionofwater.ThedesireforhavingasayinthegovernanceofaRegionalProductionUtilitywasakeyreasonforCIRDWCimplementingthisStudy.Additionally,implementationofcapitalprojectsistypicallymoreexpensiveforprivateorinvestor‐ownedutilities.Municipalutilitieshavetheabilitytoissuetax‐exemptdebtandcanissuerevenuebondsatcompetitiveinterestrates.Privateorinvestor‐ownedentitiesgenerallycannotissuetax‐exemptdebtandrequireahigherrateofreturnoninvestmentfortheirownersorshareholders.

OtherModifications–Asindicatedabove,thereareotherPPPalternativesthatCIRDWCcouldexplore.Asakeydrawbacktothelongtermsystemleasewasthelackofgovernanceforregionalcommunities,amodificationtotheleasearrangementwouldbetoallowsomeformofgovernancebyregionalcommunities.Thiscouldincludeprovidingoversightonkeyitemssuchasratesandcharges,systemplanning,waterquality,andotheritems.Thisgovernancemodificationandtheinteractionwiththeprivateorinvestor‐ownedentitywouldhavetobecarefullyconsideredanddocumentedtoensuresuccessbothfortheregionalcommunitiesandfortheprivateorinvestor‐ownedentity.


BLACK & VEATCH | Next Steps 73

7 Next Steps ThecompletionofthisStudyisCIRDWC’sfirststeptowardevaluatingwhethertoformaRegionalProductionUtility.ThisStudyhasprovidedvaluableinformation,includinganestimateofvalueofassetsthatcouldbetransferred,aprojectedfiveyearscheduleofrevenuerequirements,andanestimatedeffectiverateforcomparingtothecurrentcostofwaterfromDMWW.Additionally,CIRDWCmembersevaluatedthestrengths,weaknesses,opportunities,andthreatsofthecurrentmethodforprovidingwater,versustheregionalalternative.ThenextstepsmustcontinuetodriveCIRDWCmembersclosertoultimatelydeterminingwhethertoformtheRegionalProductionUtility.Thefollowingsectionsincludebothshortandlongertermtaskstocontinuemovingtowardafinaldetermination.

7.1.1 Short Term

WithrespecttothisStudy,thereareseveralissuesthatshouldbeconsideredfurtherbyCIRDWCmembers.Thisfurtherconsiderationcanbecompletedintheshortterm,whichisapproximately4to6monthsafterthecompletionofthisStudy.Onemethodforconsideringissueswouldbetoformsub‐committeestomoreefficientlyreviewelementsofthisStudyandfutureissuestoberesolved.Thegoalofeachsub‐committeewouldbetoconsiderelementsofthisStudy,assesswhetheranydealbreakersexist;assesswhethertherearebetteroptionsforcreatingaRegionalProductionUtility;anddevelopconclusionsandrecommendationsthatcanbepresentedtothefullCIRDWCboard.ThefollowingaresomeitemsthatCIRDWCmembersmaywanttoconsiderfurther:

Financial–ThefinancialreviewwouldconsistofreviewingtheestimatedvaluationforthisStudy,aswellastheNetValueanalysisandderivationoftheeffectivefortheRegionalProductionUtility.AhigherorlowervaluationestimateimpactsthecashpaymenttoDMWWaswellascontributionstoandfromindividualentities.Questionstoconsiderinclude:Doesthevaluationestimateappearreasonable?Ifnot,whatisabetterestimate?DoestheNetValueanalysisappeareffectiveforbringingregionalparticipantsintotheutilityonanequalbasis?HowshouldoutstandingdebtheldbyDMWWbehandled?CanthecashpaymenttoDMWWbereduced?Istheresultingeffectiverateanon‐startercomparedtotheexistingrate?

Theanswerstothesequestionscanvary,however,bydiscussingtheseissuesamongCIRDWCmembers,greaterclarityandacommonunderstandingacrossCIRDWCcandevelop.

Technical–ThetechnicalreviewwouldconsistoffocusingonthetechnicalaspectsoftheRegionalProductionUtility.Questionstobeconsideredcouldinclude:ShouldanyotherregionalassetsbeincludedintheStudy?ShouldanyoftheregionalassetsincludedintheStudybeexcluded?Howwouldoperationsbeperformed?HowwouldtheRegionalProductionUtilitybemanaged?

Governance–Thegovernancereviewcouldfocusonquestionssuchas:Shouldboardmembersbeelectedorappointed?Whatcommitteesshouldbeestablished?Howwouldvotingrightsbeweighted?Whatwouldbegeneraldutiesandresponsibilitiesofboard?Howwouldnewmembersjoin?

Theaboveprovidejustsomeexamplesofareasthatsub‐committeescouldconsider.Oncetheseissueshavebeenaddressedinsub‐committee,aconsolidatedsetofconclusionsandfindingscanbedevelopedbythefullCIRDWCboard.Atthispoint,conclusionsandfindingscanbediscussedwith


BLACK & VEATCH | Next Steps 74

politicalandutilitygoverningbodiestoobtainadditionalinputandfeedback.CIRDWCcanthendeterminewhethertocontinuemovingforwardintheprocess.

7.1.2 Long Term

ForpurposesofthisReport,longtermreflectsanadditionalperiodbeyondthe4to6monthshorttermperiodmentionedabove.ThiscouldlastanadditionalsixmonthsorlongerbeyondtheshorttermperiodandisonlynecessaryifCIRDWCdeterminestocontinuemovingforward.

7.1.2.1 Additional Due Diligence

Atthispoint,itisenvisionedthatfurtherduediligencewouldbeneeded,includinglegalandfinancialanalysisofhowtheRegionalProductionUtilitywouldbeformed,transferofassets,establishingfinancialstatements,staffandmanagementplanning,andotherimportantmatters.Technicalduediligencecouldalsobedonetofocusinondevelopinginitialplansformaintainingthecorenetworkandproceedingwiththeinitialexpansion,includingpotentialprojectsandtiming.

Additionally,CIRDWCmaywanttobegindraftingamemorandumofunderstandingthatwouldformthebasisofaregionalagreement.Importantcomponentswouldlikelyincludeinitiatingprinciples,boardmakeupandresponsibilities,sharingofcosts,andotherareasimportanttopotentialparticipants.Thisadditionalduediligence,plusadraftmemorandumofunderstandingcanthenbepresentedtothefullCIRDWCboardforconsideration.

7.1.2.2 Public Input

Shouldtheboarddeterminetomoveforward,itwouldlikelythenbeappropriatetobeginpublichearings.ThepublichearingscouldbeheldineachcommunitytopresentthemeritsofaRegionalProductionUtilitycomparedtothecurrentarrangement.Thiswillallowthepublictoconsidertheimpactofdeal,andprovideinputtotheultimatedecision‐makers.


BLACK & VEATCH | Appendix A A

Appendix A

CENTRAL IOWA REGIONAL DRINKING WATER COMMISSION

BLACK & VEATCH | Central Iowa Regional Drinking Water Commission 1

Central Iowa Regional Drinking Water Commission

QUESTIONNAIRE FOR FEASIBILITY OF REGIONAL WATER PRODUCTION ENTITY

1. Entity Characteristics

a. NameofEntitytobeInterviewed

b. InterviewParticipantsw/Titles

c. CurrentandGeneralSystemConfiguration/Service

Sourceofsupply Treatment Transmission Distributionsystem CustomerCare

d. NumberofAccounts/Customers

Types–Residential/Commercial/Industrial

e. Whatcurrentsystemassetsdoyouownorhaveownershipin?

Whatvaluewouldyouplaceonyourassets? Howdidyoudeterminethatvalue?

f. AverageAnnualWaterUsage

g. PeakUsage

Howdoyoumeasure? Howdoyoumeetrequirements?

h. NumberofEmployees

Management Operations Administrative/Support

i. EstimatedAnnualBudget

Operating Capital

2. Entity Strategy

a. Doyouhaveastrategicplan?

b. Doyoucoordinatewithlocalchamber/economicdevelopment/Council/Commission?

c. Whatisyouranticipatedsystemgrowth?,i.e.,annualpercentagegrowthrateofnewcustomers.



d. Inyouropinion,doesthecurrentregionalwatersituationhinderorpromoteeconomicdevelopmentintheregion?

e. Donewcustomerspayanup‐frontcapitalchargeforjoiningthesystem?

f. Doyouhaveadequatesupplyforanticipatedgrowth?

g. Howdoyouplanonaddressingincreasedwaterdemand?

h. Howwouldyouclassifythequantityandqualityofyourwater?

3. Regionalization

a. Whatarethreeitemsthatyourentityseeswouldbebeneficialfromapotentialregionalproductionauthority?

b. Whatarethreeitemsthatyoufearfromapotentialregionalproductionauthority?

c. Whatwouldbethe“best”scenariofortheregion?

d. Doyouhaveconcernsabouttheimpactofaregionalwaterproductionentityonyourcurrentstaff?

4. Governance

a. Whatisyourgeneralconceptofwhatthegovernancestructureofanewregionalwaterproductionentityshouldbe?

b. Howimportantisitforyourentitytohavearoleintheday‐to‐daygovernanceofanewregionalwaterproductionentity?

c. WithrespecttoanewBoardthatoverseesapotentialregionalproductionentity,whatisyouropinionoftheidealcomposition?

NumberofMembers GeographicalRepresentation ProfessionalBackground

d. Inyouropinion,whatshouldbethekeyfocusorresponsibilitiesoftheBoard?

e.g.,Planning,Finance,Budget,Operations,Policy

e. Inyouropinion,howfrequentlyshouldtheBoardofapotentialregionalproductionentitymeet?,e.g.,monthly,bimonthly,quarterly

5. Water Supply

a. Inyouropinion,howstableistheregionalwatersupply?

b. Doesyourentityhaveasignificantsourceofsupplythatcouldcontributetothepotentialregionalproductionentity?

c. Doesyourentityforeseesignificantpopulationand/oreconomicgrowthinthecomingyears?

d. Whereisyourcurrentsupplyderivedfrom?

e. Doyouhaveacontractforwatersupply?ifso,whoisthecontractwith?



f. Whataretheprosandconsofthecurrentwatersupplysituation?

g. Howcanapotentialregionalproductionauthorityalleviateorimprovethecurrentsituation?

6. Financial and Rate Stability

a. Whatistheratethatyourentitypayscurrentlyforwater?

b. Whoestablishestheratepaidbyyourentity?

c. Inyouropinion,doesthecurrentrateprovideyourcommunitywithgoodvalue?

d. Inyouropinion,howshouldnewproductionandwatersupplyprojectsbefunded?

e. Whatisyouropinionwithrespecttotransferringcommunitywaterproductionassetstoanewregionalwaterproductionentity?

7. Public / Stakeholder Input

a. Howawareareyourcitizens/customersofcurrentwatersituation?

Dotheyknowwhatyoursourceofsupplyis?

Dotheyunderstandyourcoststructure?

b. Inyouropinion,whatwouldbethegeneralreactionofyourcommunity’scitizenstotheformationofanewregionalwaterproductionentity?,e.g.,positive,negative,indifferent?

c. Inyouropinion,whatarekey,publicengagementcomponentsthatwouldbenecessaryleadingtotheformationofaregionalproductionauthority?

d. Whatisthegeneralpoliticalprocessthatyourcommunitywouldberequiredtoundertaketoapprovetheformationofaregionalproductionentity?

e. Isyourcommunityconservation‐minded?

f. Doyoushareanyserviceswithyourneighboringcommunities?

Police/Fire/Parks/School/Library/PublicWorks

8. Open Discussion / Topics


BLACK & VEATCH | Appendix B B

Appendix B

12 September 2014

CEN

TRAL IOWA REG

IONAL DRINKING W

ATER

COMMISSION

SWOT ANALYSIS FO

R THE FEASIBILITY

OF A REG

IONAL WATER PRODUCTION

ENTITY

AGEN

DA

Definition

Process

Expected Outcomes

2

WHAT IS A

SWOT ANALYSIS

3

DEFINITION OF SWOT

•A SWOT an

alysis is a structured planning method used to

evaluate the strengths, weaknesses, opportunities, and

threats involved in

a project or in a business venture

•The feasibility of creating a regional water production entity

is the project or business venture

•To

days’ exercise will provide the structure to allow all

participants to voice their thoughts, opinions and concerns

•Th

e analysis involves identifying the internal and

external factors that are favorable and unfavorable to

achieve the objective of the business venture or project

•The objective is to provide sustainable water supply to m

eet

the strategic needs of the Greater Des M

oines area

DEFINE SW

OT

16 September 2014

4

Black & Veatch

DEFINITION OF SWOT

SWOT MATR

IX

16 September 2014

5

Black & Veatch

Strengths

Weaknesses

Opportunities

Threats

Helpful

Harmful

Internal External

DEFINITION OF SWOT

•Strengths

•Internalcharacteristics or issues that give the project

or business venture advantage

over others

•Weaknesses

•Internalcharacteristics or issues that place the project

or business venture at a disad

vantage

•Opportunities

•Externalcharacteristics or issues that give the project

or business venture advantage

over others

•Th

reats

•Externalcharacteristics or issues that place the project

or business venture at a disad

vantage

SWOT MATR

IX

16 September 2014

6

Black & Veatch

DEFINITION OF SWOT

Keepanopenmindandpositiveattitude

•Destructive

•Dominating

•Rushing

•Withdrawing

•Discounting

•Digressing

•Blocking

•Constructive

•Cooperative

•Clarifying

•Inspiring

•Harmonizing

•Risk Taking

•Process Checking

BEH

AVIORS

Black & Veatch

7

16 September 2014

WORKSH

OP

PROCESS

8

WORKSHOP PROCESS

•Schedule

•Team

s

•Procedure

ELEM

ENTS

16 September 2014

9

Black & Veatch

WORKSHOP PROCESS

•9:00 –4:00

•2 Breaks

•Networking

•Phone calls / emails /

texting / facebook

•Please return promptly

•Lunch hour

•3:00 –Summary

•Combine sm

all group

analysis

•Prioritize

SCHED

ULE

Black & Veatch

10

16 September 2014

Agenda

9:00 am – 4:00 pm

9:00 – Presentation of Feed

back from one‐on‐one interviews

9:30 – SW

OT Analysis Briefing

Process

Expected

Outcomes

10:00 – Break

10:30 – SWOT – Analysis of continuation of curren

t situation

10:50

–

strengths

11:10

–

weaknesses

11:30

–

opportunities

11:50

–

threats

12:00 – Lunch

1:00 – SWOT – Analysis of Regional Production Entity

1:00 –

strengths

1:20 –

weaknesses

1:40 –

opportunities

2:00 –

threats

2:30 – Break

3:00 – summary – findings of the tw

o analyses are combined

and outcomes are

prioritized

3:30 – 3:45 – W

orkshop concludes

WORKSHOP PROCESS

•SW

OT Analysis

•2 small‐group sessions

•Morning –Curren

t Situation

•Afternoon –Regional Entity

•Each session budgeted 1 hour 20 m

inutes for activity

•Aim

for approximately 20 m

inutes per m

atrix

componen

t

•5 –10 ideas, concepts, issues characteristics for each

element of the SWOT matrix for each option

•Summary

•Full group activity ‐Participation and input from all

members

•Combine and analyze the findings of the tw

o sessions

SCHED

ULE

16 September 2014

11

Black & Veatch

WORKSHOP PROCESS

•4 Team

s Designated

•Diversified

Groups

•Optimal group size is 8 –9 participan

ts

•Ground Rules

•Everyone turn off your cell phones

•We begin/end on tim

e

•Inform

ation shared

in the room stays in

the room

•Activities

•Determine critical issues

•Write responses for each of the 4 four boxes

•Be prepared

to discuss with the larger group

TEAMS

16 September 2014

12

Black & Veatch

12

WORKSHOP PROCESS

•Questions as thought starters:

•Internal Stren

gths: W

hat skills, services and resources

distinguish us?

•Internal W

eaknesses: W

hat do our customers think we

could do better? W

here could we be more efficient?

•External Opportunities: W

hat influen

ces, partnerships

and resources could be tapped

to help us move forw

ard?

•External Threats: W

hat forces, trends, technology

changes, governmen

tal policy, and social patterns could

limit our ability to m

eet our goals?

PROCED

URES

16 September 2014

13

Black & Veatch

EXPEC

TED

OUTC

OMES

14

EXPECTED OUTCOMES

•Expected Outcomes for Current Situation vs.

Regional Production Entity

•Identify common themes which create a platform

to

move forw

ard

•Identify common themes which create significan

t barriers or incentives to m

ove forw

ard

COMBINED

GROUP

16 September 2014

15

Black & Veatch

EXPECTED OUTCOMES

•What critical action items need to be addressed in

order to m

ove forw

ard?

•What hap

pens if we do nothing to address these

issues? Is this acceptable?

•If chan

ge can

be achieved, w

hat are the positive

outcomes that result?

GOING FORWARD

16 September 2014

16

Black & Veatch

QUESTIONS?

www.bv.com

12 September 2014

CEN

TRAL IOWA REG

IONAL DRINKING W

ATER

COMMISSION

INTERVIEW FEEDBACK

FEASIBILITY OF A REG

IONAL WATER

PRODUCTION ENTITY

•Weeks of July 14than

d July 21stone‐on‐one

interviews were conducted with participating

entities

•Interviews lasted 1 –2 hours

•Form

al questions

•Open

tim

e for discussion

•Data Collected

•Hard data on community specifics

•Opinions and concerns about curren

t situation and

impact of regional entity

•Purpose

•Provide inform

ation for the SW

OT Analysis

ACTIVITIES

12 September 2014

•Altoona

•Ankeny

•Bondurant

•Clive

•Cumming

•Des Moines

•Johnston

•Norw

alk

•Pleasan

t Hill

•Polk City

•Polk County

•Urban

dale

•Warren County

•Wau

kee

•West Des

Moines

•Windsor

Heights

•Xenia

PARTICIPANTS

12 September 2014

Black & Veatch

3

•Governan

ce

•Tran

sparency

•Cap

acity

GEN

ERAL TH

EMES

12 September 2014

4

Black & Veatch

•Th

emes

•Proportionate rep

resentation

•Future “say in water issues”

•Issues to consider during SW

OT

•Is Des M

oines W

astewater governance m

odel

appropriate?

•Size and rep

resentation

•Would level of representation change over time? If so,

how?

GOVER

NANCE

12 September 2014

5

Black & Veatch

TRANSPAREN

CY

12 September 2014

6

Black & Veatch

•Th

emes

•Cost of Service and Rate Study

•Developmen

t of volume charge

•Capacity Buy in

•Capacity Projects vs. Internal DMWW Projects

•Operations


OT

•How can

the curren

t cost of service and rate process

be im

proved?

CAPACITY

12 September 2014

7

Black & Veatch

•Th

emes

•Adeq

uate capacity for future needs

•Sustainable Growth

•Quality

•Finished

vs. Source


OT

•What is the best structure for addressing future

quantity and quality needs?

SWOT TEAMS

Team

ATeam

BTeam

CTeam

D

Facilitator: M

ike Borchers

Facilitator: Anna White

Facilitator: Heath

Picken

Facilitator: Peggy Howe

Jeff W

alters

Tim Hoskins

E.J. Giovannetti

Dan

Lovett

Karen

Novak‐Sw

alwell

Dale Acheson

DianaWilson

Tom Hadden

Mark Lindem

an

SkipCronkling

Karen

Oppelt

Shane Kinsey

Graham

Gillette

Mike Schultze

John M

cCune

Mark Wandro

Casey

Harvey

Pat Collison

Rachel Swisher

John Gibson

Merrill Heemstra

Randy Beavers

GaryBen

jamin

Ken

Plager

Betty Glover

Jason Van

Essen

Len M

urray

Bill Stowe

Bart Weller

Amy Kahler

Jaki Livingston

Madeline Sturm

s

Jim M

cKen

na

Jean

Lare

Scott Cirksen

a

www.bv.com

12 September 2014

CEN

TRAL IOWA REG

IONAL DRINKING W

ATER

COMMISSION

SWOT SU

MMARY

CURRENT VS. REGIONAL PRODUCTION ENTITY


•More equal rep

resentation with

regards to governance, planning, and

rates

•More political influen

ce at regulatory

level

•More political stability on governing

board

•Potential long‐term

cost efficiencies

(direct and indirect)

•Regional planning

•Provide relative savings –slow the

rate of increase

Current

•Staff Responsible and Knowledgeable

•Reliability of finished

water

•Curren

tly finished

water quality is

good

•Red

undancy

•Multiple sources of supply

•Ability of customer communities to

make indep

enden

t decisions

•Opportunity to choose level of service

•Knowledge of defined

capacity lim

its

for each community

STREN

GTH

S

2

12 September 2014



•Size of governing body

•Source water quality and

quantity are still issues

•Change in

workforce im

pacting

level of service

•Cost versus investmen

t –long

term

change over short term

pain

•Buy‐in costs

•Conflict between growth and

reinvestmen

t

•Right now we know who to

blame

Current

•Autocratic governance of water

supply and production

•No curren

t Board rep

resentation

of customer communities

•No accountability to customer

communities for how resources

are spen

t or decisions made

•Source water quality

•Source water quantity

•Competing priorities for

responding to regional growth

•Availability of purchased

capacity to m

eet growth

WEA

KNESSES

3

12 September 2014



•Ability to influen

ce quality and

quantity

•Long term

bonding capability

•Predictability on reven

ue and

costs

•Better control over resources

•Consisten

t message

communicated

with customers

•Input into regional economic

developmen

t

Current

•Im

prove curren

t processes

•Individual communities continue

to m

ake indep

enden

t decisions

•More inclusive governance and

geographic diversity of Board

•Ability to im

prove watershed

managem

ent

OPPORTU

NITIES

4

12 September 2014



•Initial cost of buy‐in

•Less than

100% participation

from communities

•Perception of reduction in

work

force

•Loss of local control

•Failure to m

eet customer

expectations

•Nonpoint source pollution

impact on source water

•Clim

ate issues

Current

•Competing interests for same

source water

•Division/breakup of curren

t customer configuration

•Availability of capacity to m

eet

customer community needs

•Nonpoint source pollution

impact on source water

•Clim

ate issues

THREA

TS

5

12 September 2014

www.bv.com


BLACK & VEATCH | Appendix C C

Appendix C

Strat

ford W

ater T

reatm

ent P

lant

43 M

iles t

o the

Nor

th

Urba

ndale

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and P

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ation

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d Low

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ond

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tation

Urba

ndale

WTP

Site P

rope

rty

DM R

IVER

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KE

GROU

ND ST

ORAG

EAN

D PO

LK C

OPU

MPIN

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N

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ANDP

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MPIN

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AND

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98TH

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ST D

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SST

ORAG

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K

SHAR

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AVE

(5420

) SE P

OLK

PUMP

ING

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ION

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KIST

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IPE

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W A.

C. W

ardMu

nicipa

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,an

d Well

Field

(Sha

llow

Alluv

ialan

d Dee

p Jor

dan)

Polk

City

WTP a

ndSh

allow

Well

s

ASR

#1An

keny

ASR

#2An

keny

WTP #

1Al

toona

and

Deep

Well

WTP #

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toona

and

Deep

Well

WTP #

3Al

toona

and

Deep

Well

DMWW

-Fle

ur W

TP

DMWW

- McM

ullen

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ASR,

Coll

ector

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, and

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ter Su

pply

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kes)

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lorvil

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Colle

ctor W

ells

Xenia

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terDi

strict

Woo

dward

Water

Trea

tmen

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sri, H

ERE,

DeLo

rme,

TomT

om, In

terma

p, inc

remen

t P C

orp., G

EBCO

, USG

S, FA

O, N

PS, N

RCAN

, Geo

Base

, IGN,

Kada

ster N

L,Or

dnan

ce Su

rvey,

Esri J

apan

, MET

I, Esri

Chin

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ng Ko

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feasibility study for the development of a regional …€¦ · the study and results outlined in...

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