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AWU and ASU 2012 Budgets

AWU and ASU 2012 Budgets. September 8, 2011 Assembly Enterprise Committee. Board Financial Goals. Board Resolutions 2008-7(s) and 2008-16(s) established both short term and long range financial management goals for AWWU

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AWU and ASU 2012 Budgets

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  1. AWU and ASU 2012 Budgets September 8, 2011 Assembly Enterprise Committee

  2. Board Financial Goals Board Resolutions 2008-7(s) and 2008-16(s) established both short term and long range financial management goals for AWWU Manage both utilities to maintain Debt to Equity ratios (calculated to exclude unspent debt proceeds) within range of 75/25 to 65/35 Achieve all bond covenants Maintain 45 days of operating cash Earn net income for each utility at a level consistent with other similar sized utilities (public and private) Annually review the capital project priority rating system to ensure criteria reflect utility goals Pursue maximum grant funding for both utilities

  3. 2012 Budget Process to Date • Board Finance Committee met multiple times from May thru July to review budget • Board Finance Committee met with Mayor and staff on July 14 • 2012 Budget was introduced to the full Board on August 3 • Board to approve budget after public hearing in September

  4. 2012 Budget Assumptions • No new positions added in 2012 • 3.5% vacancy factor (actual is <3%) • Labor and benefit rate increases from MOA OMB and arbitrator’s report for Plumbers • Programmed leave – 1 week shutdown (Christmas) • Non-labor increases based on trend analyses of actual expenses • Phased funding for Asplund water purchases to replace failing wells beginning in 2012

  5. 2012 Rate Increases • 2012 calculated draft RRS rate increases: • AWU and ASU 14% to 20% • 2012 rate increases required to meet policies and assumptions are: • AWU 6% • ASU 11%

  6. Regulated Ratemaking • Two primary components of ratemaking • Revenue Requirements Study = how much • Cost of Service Study = who • Revenue Requirements Study: • Test year operating expenses • +/- known and measurable adjustments • + Rate base x return • = Revenue requirement • Revenue requirements studies filed with RCA • RAPA intervenes and reviews AWWU records looking for inappropriate or disallowed costs • RCA reviews record, holds hearing and rules on the appropriateness of requested rates

  7. Rate Request History • AWWU has requested rates less than supported by RRS

  8. AWU 2012 Budget

  9. AWU 2012 Budget Increase

  10. ASU 2012 Budget

  11. ASU 2012 Budget Increase

  12. 2012 Total Budgets

  13. Construction Impacts on Budget • Changes to CIP will take 1 - 2 years to impact budgets and rates. The 2012 budget is based on previously completed projects. • Capital Construction drives the following • Depreciation • Interest • MUSA • Previous CIP reductions • 2008 – AWU 15% - 20%, ASU 22% reductions • 2009 – AWU and ASU delayed 5% from 2010 to 2011 • 2010 – 5% across the board reduction

  14. Examples of Recently Completed Projects Knik View Wtr - $2.0M G St. Wtr - $661K Aircraft Dr Wtr - $673K Girdwood Swr – $1.05M AWWU Replacement Value is $7.9 Billion (2011 Dollars)

  15. AWWU’s Capital Program Planning isa Structured, Interactive Process • Identified needs are prioritized from: • Master Plans, • Asset Management Plans, • Coordination with other agencies • Funding constrained by Board action determining Financial Management Goals • The result is a balance between business risks, financial integrity, and service to the Customer

  16. Parallel Tasks Have Been Part of the Structured Process Projects prioritized in accordance with the 10 specific criteria Business tools assess risk Economic evaluation part of BCE’s for large projects Board Financial Management Goals Balance: Customer rates Maintaining infrastructure Maintaining service levels Board establishes Long Range Financial Plan (LRFP) Capital structure Level of capital funding Bonding Issuance Retirement Equity preservation Rates Other financial indicators

  17. Board Approved LRFP leads to the 2012-17 CIP spending limits LRFP sets the “cut-line”

  18. 2012 CIB Is to Take Care of What We Own

  19. MOA 2011 CIB AWWU Capital Funding vs MOA Capital Funding • AWWU 2012 CIB • WATER • 95% Debt or Equity • 5%Grants/Contributions • 17% General Obligation Bonds • 13% Other Sources • 70% State/Federal Grants • SEWER • 97% Debt or Equity • 3%Grants/Contributions

  20. At this Rate of Reinvestment • Sewer mains replacement- 321 year cycle • Water mains replacement- 175 year cycle This is 2 to 4 times the expected service life of these pipes.

  21. Replacement Needs Reflect an Echo of Construction Wave

  22. We Are Only Chipping Away at the Coming Needs for Reinvestment: CIP/LRFP Budgets

  23. Policy Questions for the Future • Where are AWWU’s real liabilities and risks? • What is appropriate level of “spend” vs. Nessie Curve? • Future Service Levels • Future Rate Structure

  24. Summary • Capital Planning is a Structured Process • Continual evaluation • Annual cycle • It Blends Competing Needs of … • Rehabilitation and Replacement • Regulatory Compliance • System Expansion • Other Agency Projects • Financial Planning & Management Goals • Customer Satisfaction – or Not • Governance Direction • It is Dynamic

  25. Next Steps • 2012 Budget approved by Board at September meeting and submitted to OMB • Assembly review and approval of rate increase request • Assembly review and approval of budgets • Revenue Requirements Studies submitted to RCA by November 4 for rate increases effective January 1, 2012

  26. Questions?

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