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Independent Review of FY 2008 Proposed Rates

D.C. Water and Sewer Authority Public Hearing June 13, 2007. Independent Review of FY 2008 Proposed Rates. Objectives of Independent Review. Review assumptions and confirm accuracy of computations Affirm adherence to Board rate-setting policy Ensure consistency with industry practice

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Independent Review of FY 2008 Proposed Rates

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  1. D.C. Water and Sewer Authority Public Hearing June 13, 2007 Independent Review of FY 2008 Proposed Rates

  2. Objectives of Independent Review • Review assumptions and confirm accuracy of computations • Affirm adherence to Board rate-setting policy • Ensure consistency with industry practice • Review sensitivity of the proposed plan to potential changes in assumptions • Identify extent of flexibility available to the Board within the 10-year financial plan

  3. PB Evaluation • Recently completed Cost of Service Study (November 2006) • Revenue Certification (February 2007) • 2007 Bond Feasibility Analysis (May 2007)

  4. Proposed Rate Increase • WASA proposes 7.5% rate increase for FY 2008 Monthly water and sewer charges for average residential customer change from $44.41 to $47.58 (w/ $2.01 Metering Fee added). • WASA also proposes to increase the PILOT/ROW fee due to the DC government from $0.44 per Ccf to $0.47 per Ccf to fully recover the amount due to the DC Government. When the District ROW and District Stormwater fees are included the total monthly bill for average residential customers changes from $48.66 to $52.08.

  5. CHANGE IN SOURCES OF CASH $13.7 M in additional retail rate revenue with 7.5% rate increase $2.3 M more in other revenue sources (wholesale, interest, PILOT/ROW fee, etc.) $15.3 M more in rate stabilization reserve fund draws Comparison of FY 2008 and FY 2007 Sources and Uses of Cash

  6. Comparison of FY 2008 and FY 2007 Sources and Uses of Cash CHANGE IN USES OF CASH • $15.4 M for higher debt service • $7.9 M for higher O&M costs • $9.4 M less for PAYGO capital costs ($11.7M in FY 2007 as compared to $2.2M in FY2008) • $2.5 M lower federal and wholesale settlements

  7. Board Policy Requirements and Key Ten-Year Plan Criteria • Rate stabilization fund draws of $17.8M reduces balance from $56.0M to $38.2 million; consistent with prior plans. • Cash reserves forecast meets 180-day policy target of $115.4M. • Debt service coverage of 2.35x on senior debt exceeds 1.40x Board requirement. • 10-year financial plan currently requires average rate increases of 7.5% to 9.5% per year through FY 2015. The proposed FY 2008 rate increase is within this long-term range and is consistent with the Board’s policy for gradual, predictable rate increases.

  8. ROW and PILOT Rate • In June 2002, before an agreement with the District was reached, WASA established a rate of $.36 per CCF to collect the then forecasted Public Right of Way Occupancy Permit Fee (ROW) requirement of $14.4 million. • The District charges the ROW fee for water and sewer conduits within the District. The District also imposes a payment in lieu of taxes fee (PILOT). Per the agreement, the ROW fee is fixed, but PILOT payments increase annually by the annual retail rate increase. Both of these fees are a direct pass through to WASA’s customers. • The ROW/PILOT will increase to a projected $18.4 million in FY2008. A rate of $.47 per CCF fully recovers the projected ROW/PILOT costs for FY 2008. • WASA will need to periodically adjust the rate to fully recover PILOT obligations. • If PILOT costs are shared with wholesale customers, per staff calculations the retail rates would be reduced by 1.5%.

  9. Key Current Issues Affecting Rate Decisions • Operating Cash Receipts & Disbursements • FY 2007 cash receipts are tracking budget • Capital Projects Receipts & Disbursements • FY 2007 disbursements are lower than budget however the capital program is growing • FY 2008 debt service $4M less than projected due to 2007 bond issuance cost is less than planned • Future Capital Requirements • By FY 2015 debt service projected at over $171M from FY 2007 levels of approximately $59M • The 10-year financial plan includes $299M for the lead service replacement program from FY2008 to FY2015 • LTCP CSO schedule extends 20 years – cost estimates could potentially change in later part of the schedule due to its size and complexity, and changing regulations • A court ruling on the Total Maximum Daily Load (TMDL) expression could cause increased costs for the CSO LTCP • NPDES Permit modification requirements for total nitrogen reduction will require an additional estimated $800 million in capital improvements at Blue Plains • Assumed the District will pay for the relocation of WASA facilities related to the construction of the new baseball stadium

  10. Conclusion • WASA’s proposed retail rate projection has been reasonably developed, accurately reflects revenue requirements, adheres to Board policy, and is comparable to other utilities. • The ROW/PILOT fee needs to increase to keep pace with payments due to the District. • FY 2007 capital spending is less than budgeted and 2007 bond issue cost is less than planned. Thus, WASA’s Board of Directors may have some flexibility in considering the FY 2008 rate increase while still meeting all policy criteria. • Under current cash flow projections if the Board adopts a lower rate increase in 2008, future rate increases may need to be higher than currently projected or the rate stabilization fund tapped sooner.

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