Metropolitan Council Environmental Services A Clean Water Agency 2010 Budget and Rates Preliminary Info Jason Willett, MCES Finance Director Presented.

Metropolitan CouncilEnvironmental Services

A Clean Water Agency

2010 Budget and Rates Preliminary Info

Jason Willett, MCES Finance Director

Presented to the Environment CommitteeMay 12, 2009




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Budget Calendar

April-May: Budget & Rate Issues Discussion

Today: Preliminary Budget & Rate Information

May 26: Proposed Budget & Rates to EC

June 18-30: Customer/stakeholder meetings

July: Council adoption of 2010 rates

Sept.–Oct.: ES Capital Budget/CIP finalization

December: Budget adoption (part of Unified Budget)




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Today’s Discussion

2010 preliminary base budget

2010 preliminary rates (for base budget)

Impact of recession on SAC fund and rates

Identified budget options:— Use of operating reserves— Less Pay-as-You-Go (PAYG)— Reserve capacity methodology

improvements




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Base Budget Highlights

No operating reserves used

PAYG of $7 million

No reserve capacity methodology changes

SAC reserve fund will drop below its established minimum balance (under all scenarios)




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Debt Service reduced by capital project cost reductions; the six-year CIP was reduced from $918 million to $789 million— Deferred major growth projects:

– Blue Lake expansion– New Hastings plant, and Northeast and Northwest

interceptors

— Delayed other growth projects by about one year

— $8-$10 million ARRA grants projected— Includes use of some excess Debt Service

Reserve




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Labor:— No wage rate raises (except contractual)

— FTEs not increased

— Reduction of budget for overtime

— Labor vacancy assumption of $2 million

— 10% health care cost increase




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2010 Budgeted FTEs

Treatment Services 405GM Office 21EQA 119Interceptor Services 78Technical Services 84Temporary Ops Trainees -12

Total 695




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FTEs: 12-Year History

695

801

906984

767 754 732719 698 696 694 695

0

200

400

600

800

1000

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09




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Electrical costs reduction for conservation

Reduction in fuel cost adjustment for electricity

$500K reduction of interdivisional charges from Central Services

Includes water supply funding from State




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2010 Base Budget: Revenue/Sources

(7 million PAYG)

Revenue/Sources Budget Percent(in millions) 2009 2010 Change

SAC Transfer 37.9 38.4 1.3

Industry-specific charges 10.0 9.6 -4.0

Other 3.5 3.6 2.9

Subtotal Revenue 51.4 51.7 0.6

Revenue from MWC 161.3 167.3 3.7

TOTAL Revenue 212.7 219.1 3.0




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2010 Base Budget: Expenses/Uses

Expense/Uses Budget Percent(in millions) 2009 2010 Change

Debt Service 90.5 92.1 1.8

MCES Labor 59.3 60.3 1.7

Non-Labor 48.3 49.3 2.1

Interdivisional 10.6 10.4 -1.9

PAYG 5.0 7.0 40.0

TOTAL Expenses 213.7 219.1 2.5

SURPLUS (DEFICIT) -1.0 0.0




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Projected Debt Service

Debt assumptions: Most recent capital spending projection (dated 5/5/09): Council bonds @ 5%, PFA loans @ 3.5% ($50M/yr with $80M in 2009), $7M PAYG in 2010 increasing $2M/yr thereafter.

Debt Service

Use of D/S Reserve

Budget Debt Service

Percent Increase

2010 92.5 (.4) 92.1 1.8

2011 94.7 (.4) 94.3 2.3

2012 98.6 (.4) 98.2 4.2

2013 107.1 107.1 9.1

2014 114.8 114.8 7.2

($s in millions)




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Preliminary 2010 Ratesand Charges

2009 2010PercentChange

Municipal Wastewater Charges ($s in M) $161.32 *$167.35 3.7

Service Availability Charge (per unit) $2,000 **$2,200 10.0

Industrial Strength Charge (TSS $/lb.) $.152 $.160 5.3

Standard Load Charge (per 1,000 gal.) $42.71 $48.97 14.6

Holding Tank Load Charge (per 1K gal.) $2.41 $3.02 ***25.0

Portable Toilet Waste Rate (per 1K gal.) $55.68 $62.48 12.2

Collar County Load Charge (per 1K gal.) $52.71 $58.97 11.9

Industrial Load Charge (TSS $/lb.) $.311 $.324 4.2

Industrial Permit Fees Varies by user type 6.7

*Equals $1.82 per thousand gallons **Does not meet policy minimum ***Assumes cap on annual increase

Base Budget




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Service Availability Charge

Economic effect of recession on SAC:— 2008 SAC units of 10,470 was the lowest

since SAC program inception in 1973— In 2010, the SAC reserve fund is projected to

drop below the minimum balance (Council policy 3-2-5); may occur in 2009

— A $200 increase is proposed for 2010 if no improvements are made to reserve capacity methodology




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5-Year SAC Units PaidSAC Fund: Used for reserve capacity portion of capital costs (M.S. 473.517(3))

Note: 2009 is estimated.




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SAC Reserve

$ in Millions

Year-end SACFund Balance

Minimum Balance

Actual Results Projections 2007 2008 2009 2010

Balance at Year-End $72.2 $55.8 $36.0 $25.0Minimum Balance by Policy $38.4 $43.8 $37.4 $38.6

Minimum Balance Policy Requirement = the average required SAC transfer projected for the next five years.




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SAC Changes/Improvements

Base:— Council approval will be sought to allow SAC reserve

fund to drop below established minimum— SAC credit change expected to increase number of

units paid by about 2,000 RECs per year (included in base)

— Add-on Service Charges shifted to SAC fund— Delayed spending on certain capital projects to

reduce debt service and the corresponding SAC transfer

Options:— Methodology improvements in plant and interceptor

capacity measurement— Legislation to shift some SAC costs to Municipal

Wastewater Charges




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2,000* 1,000 Flat at 10,000

Annual SAC Rate increases under different recovery scenarios**:

* This is used in MCES projections (8,000 SAC units projected in 2009 increased 2,000/yr to a plateau of 18,000 in 2013).**All scenarios incorporate an expected increase of about 2,000 units/yr due to the credit system changes.

2010 10% 13% 25%

2011 9% 11% 20%

2012 8% 12% 20%

2013 10% 11% 18%

2014 10% 10% 18%

2015 10% 10%18%

Service Availability Charge




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Strength Charges

Paid by connected industries for wastewater strength in excess of domestic waste

Total suspended solids (TSS) over 250 mg/liter

Chemical oxygen demand (COD) over 500 mg/liter

2009 Proposed 2010 Increase*

Excess TSS: $.152/lb. $.160/lb. 5.3%

Excess COD: $.076/lb. $.080/lb. 5.3%

* Treatment works O&M increased 4.3% combined with a 1.2% decrease in the 10-year average flow.




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Load ChargesPaid by haulers that discharge truckloads of wastewater into our system (includes volume, strength and facilities components)

(per thousand gallons) 2009 2010Percent

Increase

Standard Load Charge $42.71 $48.97 14.6

Holding Tank Load Charge 2.41 3.02 **25.0

Portable Toilet Waste Rate 55.68 62.48 12.2

Collar County Load Charge 52.71 58.97 11.9

Industrial Load Charge (TSS)* .311 .324 4.2

*COD component of Industrial Load Charge is 50% of TSS component.** Assumes a 25% annual cap on the rate increase.




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Facilities Component

Adopted by Council in July 2004

Includes capital and operating costs for sites that are completed and in use before new rates become effective

Capital calculated as the annual debt service on costs divided by prior 5-year average annual gallons hauled (to get a rate per 1,000 gallons)

In 2010 this component increases from $3.37 to $7.98 per 1,000 gallons due to completion of the Metro Plant disposal site (cost $4.3 million)

Paid by haulers to reimburse MCES for capital costs to upgrade and consolidate disposal sites




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Metro Plant Disposal Site




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Rate with 25%annual increases2008 $1.932009 2.412010 3.02 If the whole facilities component2011 3.77 is included in the Holding Tank Load 2012 4.71 Charge, the 2010 rate would be2013 5.89 $9.782014 7.362015 9.202016 9.78

Should the increase be capped as it was in 2009?

Holding TankLoad Charge




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2010 Fees

Quarterly Reporters $4,675–5,600

Semi-annual Reporters $ 950–3,700

Annual Reporters $ 600–950

Liquid Waste Haulers $ 600–950

Special Discharge $ 600–950

Permit fees increase 6.7% from 2009 (MWC increase plus 3% add-on to phase up to cost of service)

Using Base Budget:

Industrial Discharge Permit Fees




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Identified Budget Options

1. Reduce PAYG

2. Use some excess operating reserves

3. Modify reserve capacity; computation method: Plants Interceptors




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Option 1: Reduce PAYG

Rationale for $2 million/year increase to pay for rehabilitation projects:— Ongoing expenses of maintaining system— More predictable than growth or quality

improvements— About 40% of capital expenses are for rehab

projects (about $50-$75 million per year)




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Option 1: PAYG Factors

Pros:— Avoided interest expense— Adds flexibility into Annual Budget— Positive factor for bond rating

Cons:— Higher MW Charges during transition— Equity claim: debt financing better matches

payments and future beneficiaries of the system

— Opportunity cost




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Option 1: PAYG Impacts

Higher Municipal Wastewater Charges (MWC); more than 20 years before the reduction in annual debt service would offset the increased MWC

Annual debt service, debt outstanding and the ration of debt service to total expenses would decrease

Note: $7 million of PAYG is included in 2010 Base Budget




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PAYG Outstanding Debt

$500

$750

$1,000

$1,250

$1,500

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27

millions

With $2M/yr PAYG increases

(Projected)




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Debt Service/Annual Budget

Debt Service as a Percent of Annual Budget*

*Assumes the O&M portion of the budget increases 3% per year; includes portion of Debt Service paid by SAC transfer.

With PAYG (increased $2m/year)With no PAYG in 2010 & forward




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Option 2:Use of Reserves

Operating Reserve Balance (in millions)

Reserve Balance at end of 2008 $21.5

2009 Projection: Budgeted use 1.0Contingency use 0-2

Surplus/Deficit TBD

Estimated balance at end of 2009: 18.5-20.5

Target Balance: 10% of 2010 Operating expenses* 12.0

Excess Available: $6.5-$8.5

*Council policy 3-8




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Option 3:Modify Reserve Capacity

Using a reduced Reserve Capacity number reduces the SAC Transfer(SAC Fund $s Wastewater Fund)— SAC rate increase can be less or the SAC

reserve fund balance higher— Municipal Wastewater Charge increase must

make up the difference




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Plants:— The reserve capacity calculation currently

separates the capacity of liquids treatment (131BG) and solids treatment (126BG); the lower number could be used for “plant” capacity

Consistent with M.S. 473.517 subdivision 3 language




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Interceptors:— Capacity currently used

to calculate reserve capacity is 249.7BG, based on a minimum peak flow factor of 1.5:1

— No authoritative source of peaking factors

— Used capacity includes capacity for peaking (non-excessive)

— If a peak flow factor of 1.7:1 is used, interceptor capacity changes to 228BG

Reserve

Used




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No Changes One Change* Both Changed*

SAC Rates (urban) with capacity changes:

*If plant capacity or interceptor capacity is independently changed, as both plant and interceptor changes have about the same impact.Note: Rural Growth Centers will have separate and higher SAC rates.

2010 2,200 2,100 2,100

2011 2,400 2,250 2,200

2012 2,600 2,450 2,350

2013 2,800 2,650 2,550

2014 3,000 2,900 2,800

2015 3,200 3,1503,050




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Rate Impact of Choices

Base Case

Options*:$5M PAYG

$3M PAYG

Modify plant capacity

Reduce interceptor capacity to 228BG

Use $2M of reserves

MWC SAC3.7% 10.0%

2.5% no impact

1.3% no impact

4.7% 5.0%**

4.5% 5.0%**

2.5% no impact

Rate Increase from 2009 to 2010:

*Any combination is available.

Bond Rating Impact

neutral

mildlynegative

neutral

neutral

mildlynegative




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Customer Budget Meetings

Brookview Community Center, Golden Valley— Thursday, June 11, 2009— 9:30–11:30 a.m.

League of Minnesota Cities (plus Metro Plant tour), St. Paul— Tuesday, June 16, 2009— 9:30–11:30 a.m.




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Questions, Concerns

Metropolitan Council Environmental Services A Clean Water Agency 2010 Budget and Rates Preliminary Info Jason Willett, MCES Finance Director Presented.

Documents

budget adoption

increasedreduction of

budget calendarapril

state2010 base budget

proposed budget rates

ratesidentified budget

clean water agency2010

sac fund