Date: April 4, 2013 To: Regional Committees From Inland Empire Utilities Agency Subject: Fiscal Year 2013/14 Preliminary Regional Wastewater, Recycled Water and Recharge Water Programs Budget and Ten Year Capital Improvement Plan RECOMMENDATION This is an informational item for preliminary review of the FY 2013/14 proposed budget for the Agency’s Regional Wastewater, Recycled Water and Recharge Water Programs and the FYs 2013/14 – 2022/23 Ten Year Capital Improvement Fund (TYCIP). BACKGROUND Since the end of the recession in December 2009, the economic recovery has not followed the patterns set by prior recoveries. Instead recovery has seen weak growth in the economy’s potential with labor force, capital stock and productivity growing less rapidly than expected. Still to be determined will be the fiscal impact to California, and by default local agencies, of the recent federal sequestration targeting cuts of $1.2 trillion over a 10-year period. The potential cuts to defense related jobs could damper California’s fragile economic recovery and may ultimately impact funding sources of regional and local agencies. Nonetheless, improved economic conditions are noticeable throughout the Agency’s service area. One example is the number of new EDU (equivalent dwelling units) connections, which have outpaced budgeted projections in prior and current fiscal years. As of February 2013, the reported number of new EDU connections of 1,300 had already exceeded the 1,100 units budgeted in FY 2012/13, and are projected to reach 1,700 through the end of the fiscal year. Property values are also on the rise, as indicated by the San Bernardino County Tax Assessor’s estimated assessment roll increase of 1.25% for FY 2012/13; a slight improvement from 0.08% for the current fiscal year. FY 2013/14 Key Budget Assumptions The proposed FY 2013/14 budget and the FY 2013/14-2022/23 TYCIP are based on cautious optimism of continual progressive economic recovery and growth throughout the region, the Agency’s Levels of Services (LOS), and its enduring commitment to cost containment. Reflective of the Agency’s mission and vision, the LOS are the Agency’s commitment to deliver
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Date: April 4, 2013
To: Regional Committees
From Inland Empire Utilities Agency
Subject: Fiscal Year 2013/14 Preliminary Regional Wastewater, Recycled Water
and Recharge Water Programs Budget and Ten Year Capital Improvement
Plan
RECOMMENDATION
This is an informational item for preliminary review of the FY 2013/14 proposed budget for the
Agency’s Regional Wastewater, Recycled Water and Recharge Water Programs and the FYs
2013/14 – 2022/23 Ten Year Capital Improvement Fund (TYCIP).
BACKGROUND
Since the end of the recession in December 2009, the economic recovery has not followed the
patterns set by prior recoveries. Instead recovery has seen weak growth in the economy’s
potential with labor force, capital stock and productivity growing less rapidly than expected.
Still to be determined will be the fiscal impact to California, and by default local agencies, of the
recent federal sequestration targeting cuts of $1.2 trillion over a 10-year period. The potential
cuts to defense related jobs could damper California’s fragile economic recovery and may
ultimately impact funding sources of regional and local agencies.
Nonetheless, improved economic conditions are noticeable throughout the Agency’s service
area. One example is the number of new EDU (equivalent dwelling units) connections, which
have outpaced budgeted projections in prior and current fiscal years. As of February 2013, the
reported number of new EDU connections of 1,300 had already exceeded the 1,100 units
budgeted in FY 2012/13, and are projected to reach 1,700 through the end of the fiscal year.
Property values are also on the rise, as indicated by the San Bernardino County Tax Assessor’s
estimated assessment roll increase of 1.25% for FY 2012/13; a slight improvement from 0.08%
for the current fiscal year.
FY 2013/14 Key Budget Assumptions
The proposed FY 2013/14 budget and the FY 2013/14-2022/23 TYCIP are based on cautious
optimism of continual progressive economic recovery and growth throughout the region, the
Agency’s Levels of Services (LOS), and its enduring commitment to cost containment.
Reflective of the Agency’s mission and vision, the LOS are the Agency’s commitment to deliver
FY 2013/14 Preliminary Budget and TYCIP
April 4, 2013
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high quality, reliable services to our customers in a regional, cost effective manner through
prudent financial planning and strategic resource management. As part of the broader Agency’s
Asset Management Plan, the LOS aligns O&M and capital decisions to the Agency’s values and
customer expectations. A significant component of the proposed budget and TYCIP is the
reinstatement of Repair and Replacement (R&R) projects previously deferred as part of the
Agency’s cost containment plan, as well as future expansion and improvement of existing
facilities in preparation of the future anticipated growth and increased service demand.
Additionally, the proposed budget for the Regional Wastewater and Recycled Water programs is
based on the multi-year rates adopted by Agency’s Board of Directors (Board) in February 2012,
for Fiscal Years (FYs) 2012/13 – 2014/15. A listing of adopted rates is provided in Exhibit A.
Regional Wastewater Capital Improvement (RC) Fund
A major revenue source for the RC fund is the fees levied for new connections to its regional
wastewater system, referred to as new EDU connections fees. Pursuant to the Regional Sewage
Service Contract (Regional Contract), member agencies collect and hold these funds in a trust
account until they are “called” (requested) by the Agency to support Regional capital
expenditures. Following the 2008 economic downturn, the number of new EDU connections
plummeted from an annual average of 5,400 units over the preceding ten fiscal years (FY
1998/99 – FY 2007/08) to 1,318 units in FY 2008/09 and 1,116 units in FY 2010/11.
As mentioned above, a spur of new development increased new EDU connections to 1,614 units
FY 2011/12. As of February 2013, the number of new EDU connections year to date of 1,300
units have already exceed the FY 2012/13 budget of 1,100 EDUs. Total new EDU connections
are projected to reach 1,700 units by end of the fiscal year. As indicated in Table 1 below,
assuming the current growth trend continues in the ensuing year, 1,800 new EDU connections
are budgeted for FY 2013/14.
Table 1: FY 2013/14 RC Fund Major Revenue & Other Sources of Funds
Fund
Major
Revenue Category
Amount
$Millions Key Assumptions
Regional
Wastewater
Capital (RC)
New EDU Connections Fees $9.0 1,800 new EDUs connections
compared to 1,700 units projected for
FY 2013/14. New EDU connection
fee to increase from $4,909 per EDU
to $5,007/EDU effective 7/1/13.
Property Tax Receipts $21.7 Assumes a 1% increase in FY
2013/14. Allocation of 65% of total
property tax receipts to RC fund are
designated for debt service costs in
FY 2013/14.
Proceeds from Sale of Asset $2.3 Second and final installments due
from the sale of the former composter
land site.
FY 2013/14 Preliminary Budget and TYCIP
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Property tax receipts are another major funding source for the RC fund. In accordance with the
Regional Contract, property tax receipts collected from Improvement District “C” (IDC) are
fully allocated to the RC fund. IDC tax receipts represent 65%, or approximately $21.7 million
of total property tax receipts. A 1% increase in total property tax receipts is assumed for FY
2013/14, based on the San Bernardino County Tax Assessor estimate of a 1.25% increase in
assessed values. Property tax receipts of $21.7 million are budgeted in the RC fund for FY
2013/14 and are fully designated to support debt service costs of $22 million.
Table 2: FY 2013/14 RC Fund Major Expenses & Other Uses of Funds
Fund
Major
Expenses Category
Budget
$Millions Key Assumptions
Regional
Wastewater
Capital (RC)
Operating Expenses $5.5 Administrative costs for support of
the Regional program.
Debt Service Costs $22.0 Includes principal & interest for
2005A, 2008A, 2008B and 2010A
bonds and SRF loan for RP-1
Dewatering Expansion Facility.
Also included is the $5.5M inter-
fund loan to the Recycled Water
program to support capital
expenditures.
Capital Project Costs $7.4 See Table 3 for summary of major
capital projects.
Inter-Fund Transfers $4.4 Capital and debt service cost
support to the Administrative (GG),
Recycled Water (WC), and the
Recharge Water (RW) funds.
As indicated in Table 2, included in debt service costs of $22.0 million is an inter-fund loan of
$5.5 million to the Recycled Water (WC) fund to support capital expenditures that are not funded
by SRF loans or grants. This additional inter-fund loan increases the amount due to the RC fund
from the WC fund to $8.5 million ($3 million loaned in FY 2008/09). Repayment is projected to
begin in FY 2017/18.
In addition to debt service costs, the other major expenditure in the RC fund is capital
expenditures. A total of $7.4 million in capital project costs is budgeted in FY 2013/14, which
accounts for nearly 12% of the proposed $62 million capital improvement plan (CIP) for FY
2013/14. Some of the key drivers for the proposed CIP, consistent with the Agency’s LOS,
include; regulatory compliance, reliability, and enhanced efficiencies. Some of the major
projects for FY 2013/14 are listed on Table 3.
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Table 3: FY 2013/14 RC Fund Major Capital Projects
Project Name
Total Project Budget
$Thousands
FY 13/14 Budget
$Thousands
RP-1 Headworks
Rehabilitation
$10,725 $725
RP-1/RP-2 Flare
Replacement
$1,600 $600
HVAC & Server
Room Fire
Suppression
Improvements
$2,100 $1,200
RP-1 Aeration
Ducting
$848 $848
TP-1 Disinfection
Pump Improvements
$531 $531
Regional Wastewater O&M (RO) Fund
The Regional Wastewater Operations & Maintenance (RO) fund accounts for the revenue and
operating cost directly related to the domestic sewage treatment service and organic management
activities, including employment costs to operate and support the Inland Empire Regional
Composting Authority (IERCA) composter. Over 90%, or $43.5 million, of the operating
revenue is generated from monthly EDU volumetric fees charged to the Agency’s contracting
member agencies for collection and treatment of domestic sewage. The remaining 10%, or $7.3
million, is primarily comprised of property tax receipts in the amount of $7.3 million and
reimbursement from the IERCA of approximately $3.2 million. (See in Table 4)
Table 4: FY 2013/14 RO Fund Major Revenue & Other Sources of Funds
Fund
Major
Revenue Category
Budget
$Millions Key Assumptions
Regional
Wastewater
Operations &
Maintenance (RO)
Monthly Volumetric
Charges
$43.5 Projected growth of 0.50% in the
number of over billable EDUs
compared to FY 2012/13 adopted
budget. EDU Volumetric rate to
increase from $12.39/EDU to
$13.39/EDU effective 7/1/13.
Property Tax Receipts $7.3 Assumes a 1% increase in FY
2013/14. Allocation of 22% of total
property tax receipts to RO Fund are
designated to support debt service and
capital investment.
Contract Reimbursement $3.2 Reimbursement of employment costs
from the IERCA
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Effective July 1, 2013, the Monthly EDU Volumetric fee will increase from $12.39 per EDU to
$13.39 in accordance with the multi-year rates adopted by the Board in February 2012, (Exhibit
A). Based on a growth assumption of 0.50% in the number of billable EDU’s for FY 2013/14,
the $1 per EDU increase and the projected growth in EDU units is expected to provide an
additional $3.4 million in FY 2013/14.
As indicated in Table 4, the RO fund is allocated 22% of total property tax receipts. The
allocation amount will be reinstated to 27% in FY 2014/15, when the temporary 5% allocation to
the Recycled Water program is remove set to expire. In FY 2013/14, property tax receipts for
the RO fund are budgeted at $7.3 million and are fully designated to support R&R project costs
budgeted at $9.8 million.
Total operating costs of $48.7 million budgeted in FY 2013/14 show a slight increase of $1.5
million compared to the FY 2012/13 amended budget of $47.2 million and an increase of $5.1
million compared to FY 2012/13 projected actuals of $43.6 million. The projected lower costs in
FY 2012/13 are primarily due to lower employment, chemical, and utility costs primarily due to;
a higher than budgeted vacancy factor (currently above 8% compared to a budget of 5%), and
delayed start-up of the Dewatering and Fuel Cell facilities at RP-1. Utilities and chemical costs
are projected to align back to budgeted amounts in FY 2013/14 with the Fuel Cell and RP-1
Dewatering facilities in full operation the entire fiscal year. Employment costs may also be
subject to change with the expiration of the current Memorandums of Understanding (MOUs)
and initiation of labor negotiations. Table 5 is a summary of the major expense categories and
key assumptions.
Table 5: FY 2013/14 RO Fund Major Expense Categories
Fund
Major
Expense Category
Budget
$Millions Key Assumptions
Regional
Wastewater
Operations &
Maintenance (RO)
Employment $25.3 No change in the 295 Full Time
Equivalent (FTE) authorized
positions, maintains a vacancy factor
or up to 5%, includes 1% merit
increase, higher benefit costs,
including 5% increase in CalPERS
employer contribution rate. (Subject
to change from upcoming labor
negotiations).
Utilities $6.8 No change in total consumption as
budged in current FY, $0.12 kWh
electricity rate for direct access;
renewal energy rates based PPA
contracts and annual CPI increase.
Chemicals $4.3 Higher dosage of polymer due to RP-
1 Dewatering centrifuge, and ferric
chloride to maintain digester gas H2S
concentration compliance.
Bio Solids $3.4 Reduced costs due to process
efficiency gains with RP-1
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Dewatering centrifuges.
Contract Work/Special
Projects
$2.0 Special (O&M) projects include:
Digester cleaning,
Bio-filer media replacement for RP-1
Headworks and RP-5, Asset
Management Master Plan, Asset
Management Condition Assessments,
and Blower analysis for various
facilities.
Maintenance, repair, and replacement of aging equipment and facilities are critical elements of
the proposed TYCIP. Beginning in FY 2008/09, the Agency implemented a cost reduction
initiative in response to economic downturn. As part of the cost containment effort, R&R
projects deemed to be non-critical at that time were deferred. Since then, there has been an
increase in the number of failures and emergency repairs. Considering the age and condition of
the Agency’s facilities and infrastructure, appropriate funding of R&R and routine preventive
maintenance costs is critical to ensuring the reliability and quality of the services the Agency is
committed to provide to its customers.
Over the next ten years, $115 million in R&R projects have been budgeted in the RO fund to
uphold the operational reliability of the Agency’s regional facilities as committed under the
Agency’s LOS. Of the $115 million, $9.8 million is budgeted in FY 2013/14. Table 6 is a list of
the major R&R projects budget in FY 2013/14:
Table 6: FY 2013/14 RO Fund Major Capital Projects
Project Name
Total Project
Budget
$Thousands
FY 13/14 Budget
$Thousands
SCADA Enterprise
System Upgrade
$9,850 $850
RP-1 Secondary
Clarifier Asset Rehab
$5,300 $800
Montclair Lift Station
Upgrades
$2,184 $1,600
RP-2 Dome
Replacement
$1,800 $1,800
CCWR Secondary
Clarifier Rehab
$650 $650
RP-1 Asset
Replacement
$500 $500
Recycled Water (WC) Fund
A key initiative for the Agency is to optimize the beneficial reuse of recycled water and provide
a cost effective and reliable alternative to imported water for the region, as specified in the
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Recycled Water Three Year Business Plan (TYBP) adopted in December 2007. Since the
adoption of the TYBP, projected recycled water deliveries have been reduced significantly.
Originally, total connected demand was projected to reach 50,000 acre feet per year (AFY) by
FY 2010/11; 33,000 AFY direct deliveries and 17,000 AFY recharge water deliveries.
The 50,000 AFY goal has been revised due to a combination of factors including; delayed
construction of major construction projects and a stagnation in the number of direct use
connections. Two key projects that have been delayed include the Southern Area and
Central/Wineville Area projects, which were originally planned for completion in FY 2009/10
and FY 2010/11, respectively. Construction for both projects is currently targeted for
completion in 2014; Southern Area in August and Central/Wineville Area in December. Based
on the current project plan, the 50,000 AFY goal is now projected to be achieved by FY 2019/20,
or nine years later than originally planned.
Total recycled water deliveries are not anticipated to increase significantly in FY 2013/14. As
reported in Table 7, direct deliveries are anticipated to increase by 1,400 acre feet (AF) to 21,400
AF compared to 20,000 AF projected for the current fiscal year. Absent of additional recharge
capacity, recharge deliveries of 10,000 AF are budgeted at the same level as the current fiscal
year, resulting in a budget of 31,400 AF in total recycled water deliveries for FY 2013/14.
Based on the multi-year rates adopted by the Board in February 2012 (Exhibit A), total recycled
water sales are budgeted at $7.2 million; $4.6 million direct sales and $2.6 million for recharge
sales. The Metropolitan Water District of Southern California Local Project Program (MWD
LPP) rebate of $2.1 million is another key operating revenue source. This annual rebate is set to
expire on June 2017.
Table 7: FY 2013/14 WC Fund Major Revenue & Other Sources of Funds
Program
Major
Revenue Category
Budget
$Millions Key Assumptions
Recycled Water
(WC)
Direct Sales $4.6 21,400 AF, an increase of 1,400 AF
compared to FY 2012/13 adopted
budget. Rate to increase from $155 per
Acre Foot (AF) to $215/AF effective
7/1/13.
Recharge Sales $2.6 10,000 AF, same as FY 2012/13
adopted budget. Rate to increase from
$195/AF to $255/AF.
MWD LPP Rebate $2.1 $134/AF rebate for recycled water sales up
to 13,500 AF per FY. Rebate is set to
expire in June 2017.
Property Tax Receipts $1.7 Assumes a 1% increase in FY 2013/14.
Allocation of 5% temporary of property
taxes to WC fund support program
costs. Beginning FY 2014/15 the 5%
allocation reverts to the RO Fund.
Loan and Grant Proceeds $33.4 SRF loans and grants are the primary
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funding source for the Southern and
Central/Wineville Area Recycled Water
Projects
Inter-fund Loan $5.5 Loan from RC fund to support capital
expenditures not funded by SRF loans
and grants
State Revolving Fund (SRF) loan proceeds and grant receipts in the amount of $33.4 million
represent approximately 67% of the $49.9 million of the Recycled Water program’s Total
Revenue and Other Funding Sources in FY 2013/14. These funding sources, along with a $5.5
million inter-fund loan from the RC Fund and temporary 5% allocation of property taxes in the
amount of $1.7 million are the primary funding sources of the Recycled Water program CIP.
A total of $7 million in operating expenses is budgeted in FY 2013/14, reflecting an increase of
approximately 23% compared to projected actuals of $5.7 million for the current fiscal year.
Utilities are anticipated to increase by nearly $512,000, from $1.7 million to $2.3 million, due to
higher pumping costs compared to projected actuals as summarized in Table 8:
Table 8: FY 2013/14 WC Fund Major Expense Categories & Other Uses of Funds
Program
Major
Revenue Category
Budget
$Millions Key Assumptions
Recycled Water
(WC)
Utilities $2.3 $0.12 kWh electricity rate for direct
access, renewal energy rates based
PPA contracts and annual CPI
increase. Higher pumping costs
driving an increase of nearly
$512,000 compared to projected
actuals.
Employment $2.1 No change in the 295 Full Time
Equivalent (FTE) authorized
positions, maintains a vacancy factor
or up to 5%, includes 1% merit
increase, higher benefit costs,
including 5% increase in CalPERS
employer contribution rate. (Subject
to upcoming labor negotiations).
Contract Work/Special
Projects
$1.1 Some of the major O&M (Special)
projects include; San Antonio &
Jurupa Force ARV replacement,
Urban Runoff Capture Retrofits at
Recharge Basins, and Water Softener
Removal Rebate Program.
Debt Service Costs $5.0 Includes principal and interest costs
for outstanding debt. Increasing by
$232,000 compared to projected
actuals.
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Annual debt service costs are estimated to increase from $4.8 million projected in FY 2012/13 to
$5.0 million in FY 2013/14. Repayment of the $23.5 million outstanding inter-fund loans ($8.5
million due to RC fund and $15 million due WC fund) are scheduled to begin in FY 2016/17
increasing total annual debt service costs to a high of $15.9 million in FY 2021/22. Full
repayment of the $23.5 million inter-fund loans is projected by FY 2022/23.
A total of $41 million is budgeted in the WC fund for CIP in FY 2013/14; nearly $35 million for
the Southern Area and the Central/Wineville projects. Major capital projects budgeted in FY
2013/14 is summarized in Table 9.
Table 9: FY 2013/14 WC Fund Major Capital Projects
Project Name
Total Project
Budget
$Thousands
FY 13/14 Budget
$Thousands
Wineville Extension –
Segment A
$13,948 $9,000
Wineville Extension –
Segment B
$11,925 $8,000
930 Zone RW Pipeline $6,625 $6,100
930 Zone RW Reservoir $7,625 $5,100
CCWRF RW Pump
Station
$5,450 $3,750
San Sevaine Basin
Improvements
$2,502 $1,700
GWR and RW SCADA
Upgrades
$2,433 $1,000
Turner Basin Recharge
Improvements
$1,125 $1,100
RW Misc. Connections $500 $500
Recharge Water (RW) Fund
The Recharge Water (RW) fund accounts for the revenues and expenses associated with
groundwater recharge operations and maintenance through joint effort with the Chino Basin
Watermaster (Watermaster), Chino Basin Water Conservation District, and the San Bernardino
County Flood Control District. Operating expenses include general basin maintenance and/or