tips for assessing and improving the fiscal health of small … small... · 2015. 12. 18. · jeff...
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Tips for Assessing and Improving the Fiscal Health of Small Regulated Water Utilities
in Arizona
December 17, 2015Webinar by the Environmental Finance Center Network, sponsored by the U.S. Environmental Protection Agency
Smart Management for Small Water Systems
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Jeff Hughes Environmental Finance Center School of Government University of North Carolina at Chapel Hill 919-843-4956 [email protected]
Tips for Assessing and Improving the Fiscal Health of Small Regulated Water Utilities in Arizona
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1. Overview of key financial issues facing regulated small water systems.
2. Overview of rate adjustment processes and best practices
3. Strategies for improving financial health
4. Resources
Session Objectives
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PollingQues5on#1• Ifyouareau5lity,whatisyourservicepopula5on(es5matednumberofpeople)?– Lessthan100– 101-1,000– 1,001to3,000– 3,000to10,000– Greaterthan10,000
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PollingQues5on#2
• Whenwasyourlastrateadjustment?– 2014or2015– 2010to2013– 2005to2009– Priorto2005
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InWhatCalendarYearweretheCurrent(April2015)RateStructuresFirstInstated?(n=290)
Source:hJp://www.efc.sog.unc.edu/project/arizona-water-and-wastewater-rates-and-rate-structures
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PollingQues5on#3
• Howwouldyoudescribeyourfinancialhealth?– Extremelyfit– Fit– Outofshapebutge_nghealthier– Outofshapeandpu_ngonthepounds– Onarespirator
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PollingQues5on#4
• Whatisthemostchallengingpartofpu_ngtogetheraratecase?– Documenta5on/recordkeeping– Costtodeveloptheapplica5on– Customerpushback– Other
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RatesTrendsInArizona
Source:hJp://www.efc.sog.unc.edu/project/arizona-water-and-wastewater-rates-and-rate-structures
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WaterRateStructures WastewaterRateStructures
Total
NumberofStructures
MedianMonthlyBillat5,000gal/mo.
TotalNumberofStructures
MedianMonthlyBillat5,000gal/mo.
AllRateStructures 349 $32.25 132 $33.78ByServicePopula5on*1–999 159 $35.80 14 $33.291,000–2,499 57 $31.00 15 $29.502,500–4,999 34 $29.36 13 $34.005,000–9,999 22 $30.50 10 $33.4110,000–24,999 27 $28.76 15 $29.9725,000+ 35 $24.10 31 $31.00
Source:hJp://www.efc.sog.unc.edu/project/arizona-water-and-wastewater-rates-and-rate-structures
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WaterRateStructures WastewaterRateStructures
Total
NumberofStructures
MedianMonthlyBillat5,000gal/
mo.
TotalNumberofStructures
MedianMonthlyBillat5,000gal/mo.
AllRateStructures 349 $32.25 132 $33.78ByU5lityType Municipality 69 $26.45 73 $29.50County/District 43 $41.13 11 $37.50Authority 1 $28.00 1 $14.82Not-For-Profit 19 $36.35 0 --For-Profit 217 $32.50 38 $42.00SanitaryDistrict 0 -- 9 $25.00
Source:hJp://www.efc.sog.unc.edu/project/arizona-water-and-wastewater-rates-and-rate-structures
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Source:hJp://www.efc.sog.unc.edu/project/arizona-water-and-wastewater-rates-and-rate-structures
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PollingQues5on#5
• WhatwouldyouaskSantatobringyouforChristmastoimproveyourfinancialcondi5on?– Arateincrease– ACPA/Bookkeeper– Alowinterestloanforcapitalinvestment– Lotsofnewcustomers– Someonewillingtopurchasemysystem
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Jim Armstrong, CPA Arizona Corporation Commission (602) 542-0743 [email protected] Darron Carlson Arizona Corporation Commission [email protected]
Tips for Assessing and Improving the Fiscal Health of Small Regulated Water Utilities in Arizona
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ArizonaCorpora5onCommission• TheACChastheresponsibilityforreviewingandapprovingthestructureofrateschargedbypublicservicecorpora5onsopera5nginArizona.
• TheACCalsoapprovesfinancingapplica5ons,andCC&Napprovalrequests.
• TheACCalsoapprovesfinancingapplica5ons,andCC&Napprovalrequests.
• AllfilingsarereviewedbymembersoftheFinance&RegulatoryAnalysisSec5onoftheU5li5esDivision
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ACCWebsite• LinkstocontactsattheACCandalsocontainslinkstomanyhelpfulformsthatcanbeu5lizedbywaterandwastewateru5li5es.
• Formsarefoundundertheheading“U5li5esDivision”
• Formsinclude:WaterandWastewaterRules,variousRateApplica5onforms,andotherhelpfulinforma5onsuchasBestManagementProgramtemplates,andtheformforsubmi_ngrequiredAnnualReports
hJp://www.azcc.gov/divisions/u5li5es/water.asp
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ArizonaAdministra5veCode• Sec5onsapplyingtoratecasefilingsarefoundinTitle14,Chapter2,Sec5onR14-2-103
• Sec5onsapplyingtoWaterU5li5esarefoundinR14-2-4
• Sec5onsapplyingtoWastewaterU5li5esarefoundinR14-2-6
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Arizona Corporation Commission UBlityClassificaBons
Effec5ve1/16/2015
ClassA ClassB ClassC ClassD ClassE
ElectricandGas Exceeding$10,000,000$3,000,000to$10,000,000 $1,000,000to$2,999,999
$250,000to$999,999 Lessthan$250,000
WaterandSewer Exceeding$10,000,000
$3,000,000to$10,000,000 $1,000,000to$2,999,999
$250,000to$999,999 Lessthan$250,000
Telephone Exceeding$10,000,000$3,000,000to$10,000,000 $1,000,000to$2,999,999
$250,000to$999,999 Lessthan$250,000
FilingScheduleFromSufficiencyDate(30Days)
ClassA ClassB ClassC ClassD ClassECommissionOrder 360days 360days 270days 180days 120daysStaffReport 180days 180days 135days 75days 60daysReview 165days 165days 120days 60days 45daysEngineeringandConsumerServices 120days 120days 90days 40days 30days
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RateCaseFilingIssues• Developingandprocessingafullratecasefilingcanappeartobeverychallengingandcostly.
• ManysmallACC-regulatedu5li5eshavenotfiledratecasesinthepast10or15yearsandtheseu5li5esstruggletopaybillsandmaintaintheirsystems,andfacethelargestopposi5onfromcustomerswhenratesarefinallyadjusted.
• TheCommissionencouragessmallu5li5estofileforapprovalofnewratesonaperiodicbasistopromoteratechangegradualism,andtohelpkeepsmallu5li5esinaposi5ontobeabletopaybillsandproperlymaintaintheirsystems.
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AnnualReportsreflectaccoun5ngshortcomings
• 35%ofAnnualReportsreceivedfromsmallwaterandwastewatercompaniesshowsignificantaccoun5ngshortcomings.
• Genera5ngcompleteandaccurateAnnualReportsisthekeytodevelopingandprocessingratecasefilingssincemuchoftheinforma5onintheannualreportscanbeusedtosupportrateincreaserequests.
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RateCaseFilings-ExpenditureDocumenta5on
• Maintaininggooddocumenta5onisamust.• Beingposi5onedtoprovideStaffwithsupportforincurredcostsisamust.
• An5cipa5ngwhatStaffisgoingtowanttoseeduringtheprocessingofaratecaseisamust.
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ProcessingRateCaseFilingstoSuccess• YouwillreceivedatarequestsfromStaff.• Respondingtosuchrequestsforinforma5onisyouropportunitytosupportthereasonablenessofyourrateincreaserequest.
• Staffwillworkwithyouifyoudonotunderstandsomeques5onsoryouarenotsurehowtorespond.
• Ifyouneedtoretaintheservicesofaratemakingexpert,areasonablelevelofsuchcostscanberecoveredinthestructureofyournewrates.
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Ray L. Jones, P.E. Executive Director 623-341-4771 [email protected]
Water Utilities Association of Arizona (WUAA)
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• Arizona’s largest association of investor-owned water and wastewater utilities – Members range from very small to the largest in
Arizona
• Mission – Member education on regulatory issues
• ACC, ADWR, ADEQ, CAP, CAGRD – Regulatory Support for Members – Regulatory Improvement and Reform
WUAA
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• Rate Design (Revenue Stability) • Small Company Risk (Higher ROE or
Operating Margin) • Rate Case Process (Simplification/
Settlements) • Regulatory Lag (Adjustor Mechanisms)
WUAA’s Small Water Company Priorities
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• Agree with ACC Staff – Rate cases are challenging – but necessary – More often is better – but not always possible – Accurate accounting records and accurate
Annual Reports = Successful Rate Case – Documentation is vital (contracts/invoices/
etc.) • Capital Expenditures – Back to last rate case • Operational Expenditures – Last 3 to 4 years • Ops Data – Pumping/Sales/Customer Counts • Accurate and complete billing records
Industry Perspective - Rate Case
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• Short Form Application – Allowed up to $999,999 in revenue – Simplified filing that can be done without
using a consultant – However, not everything you need to know
about your filing is determined with the Short Form Application
• Long Form Application – Almost always requires a consultant
Industry Perspective – Rate Case
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• Do I have all required accounting records and documentation?
• Can I determine – – my company’s rate base? – my company’s rate of return on rate base? – my company’s operating margin?
• Do I know – with certainty – – that my revenue matches my customer billings? – that my accumulated depreciation balance is correct? – that I have correctly accounted for and amortized developer
funds (AIAC & CIAC)?
Do I Need a Consultant?
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• Does my water company share facilities, personnel or expenses with another of my businesses? – Particularly problematic if regulated water company
shares with nonregulated businesses or pays for use of owner’s personal assets.
• Does my water company pay any of my personal expenses or other nonutility expenses?
• Does anyone get paid for other than hours worked at market rates?
Special Circumstances that may Require a Consultant
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Additional Strategies for Improving Financial Condition • Cost reduction
– Water purchases – Energy purchases
• Financial Planning/Forecasting – Predicting water sales – Incorporating future
capital needs
• Consolidation – Understanding and
increasing the value of your utility
• Strategic capital investment/access to capital
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AllRoadsSeemtoLeadtoRates…ExcerptfromWIFACapabilityReviewandFinancial
AssistanceRequirementsforNon-GovernmentalEn55es
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PollingQues5on#6• Whichofthefollowingtypesofassistancewouldbemosthelpful?– In-persontrainingcourseonfinancialmanagement
– Abilitytoshareideasandprac5ceswithothersmallsystems(peertopeerworkshop)
– 8hoursofon-sitebookkeeping/advisingassistance
– 8hoursofassistancepu_ngtogetherfundingorratese_ngapplica5on
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Resources
• WUAA• ACC• WIFA• DEQ• EPA• EFCNSmallSystems hJp://www.efc.sog.unc.edu/project/arizona-
water-and-wastewater-rates-and-rate-structures
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Ques5ons/Comments???