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Anders, Water Rates
- 1. TEXAS WATER CONSERVATION ASSOCIATION Central Texas Drought: Austinโs Financial Impacts and Response Presented by David Anders, CFO, Austin Water
- 2. Extreme Drought Conditions โข 2008-2015 โข Stage 2 Water Restrictions โ 1/week watering โ In place for over 4 years โข Significantly Reduced demand 2 Central Texas Drought Conditions
- 4. Stage II 4 Water Demand Reductions 40.7 46.4 48.1 39.3 48.6 43.9 41.9 38.7 38.0 0 10 20 30 40 50 60 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 Water Consumption (BG) Consumption (BG)
- 5. Stage II 6,870 8,380 8,790 6,760 8,810 7,620 6,930 6,100 5,840 4,000 5,000 6,000 7,000 8,000 9,000 10,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 Annual Average Residential Water Consumption Per Account (Gallons) 5 Water Demand Reductions
- 6. Stage II 6 Gallons Per Capital Per Day
- 7. Revenue Losses $52.3 $3.6 0.8% $26.3 $49.4 $16.5 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 $inMillions Water and Wastewater Revenue Losses Revenue Losses (Budget vs. Actual) 12.8% 5.4% 3.2% 9.6% 7 7
- 8. Stage II ($15.1) ($20) ($10) $0 $10 $20 $30 $40 $50 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 $inMillions Water Cash Balance History: Oct 2008 โ Oct 2014 8 Water Cash Balances 8
- 9. Stage II 9 Debt Service Coverage 1.44 1.55 1.45 1.25 1.77 1.48 1.41 1.25 1.40 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 Austin Water Debt Service Coverage Debt Service Coverage Financial Policy: 1.50
- 10. โข Austin Water Bond Ratings โ Standard & Poors: AA โ Moodyโs: Aa2 โ Fitch: AA- โข Moodyโs and Fitch โ 2014 โ put Austin Water on a Negative Outlook โ Without improvement in financial benchmarks a downgrade would be likely 10 Bond Ratings
- 12. โข Fixed revenue โ Low percentage of fixed revenue at 11% โข Volume revenue โ Very volatile to weather conditions and drought โข Residential rates โ 5 blocks with high volume rates for high users โ Blocks 1 and 2 below cost of service โ High volume users subsidizing low volume users โ Increase higher blocks at a faster pace than the lower blocks to reduce impact to low users โข Low cash reserve balances 12 Old Business Model
- 13. FY 2012 Water Rates: Residential 13 $1.17 $3.08 $7.92 $10.50 $12.19 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 Block 1 (0-2k) Block 2 (2 - 9k) Block 3 (9 - 15k) Block 4 (15 - 25k) Block 5 (25k - Over) Residential Volume Rate Per 1,000 Gallons: Uniform vs. Block Rates Block Rates (Non-CAP) Uniform Rate Average Cost of Service Volume Rate: $4.40 13 73% Customers Use less than 9K/month and charged below cost of service
- 14. Joint Committee on Financial Plan โข Council created Joint Committee in 2011 โข Committee consisted of 9 citizen Commissioners drawn from 3 separate Commissions โข Charge was to review Austin Waterโs financial plan and policies and consider recommendations on changes to stabilize finances โข Convened 3 separate times over 2 years โ 20 meetings overall โ Included staff, rate consultants, citizens, financial advisors 14 14
- 15. Residential Water Rate Changes โข Fixed Charges โข Fixed revenue goal at 20%, then increase to 25% over a 2-year period starting in 2016 โข Tiered Fixed Fee โ Create tiered fixed fee based on each monthโs consumption โ Low volume users had lower fixed charges while high volume users had higher fixed charges โ Strengthens conservation incentive โ Less volatility in revenue when using tiered fixed charge instead of volume rates 15 15
- 16. Fixed Revenue Percentage Changes 11.0% 17.0% 20.0% 20.0% 20.0% 22.5% 25.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Proj. FY 2017 16 16
- 17. 2016 Residential Fixed Charges 17 Tiered Minimum Charge Tier Gallons 2016 Approved Rates Tier 1 0 โ 2,000 $1.20 Tier 2 2,001 โ 6,000 $3.45 Tier 3 6,001 โ 11,000 $8.75 Tier 4 11,001 โ 20,000 $27.35 Tier 5 20,001 - over $27.35 Meter Equivalent Minimum Charge Meter Size 2016 Approved Rates 5/8โ $7.10 17
- 18. Volumetric Rate Changes โข New residential volumetric rate block intervals and rates โ Residential blocks remained at 5 โ Block 2-5 thresholds were reduced โ Any rate increase would impact each block by equal dollar amount โ spread between blocks remain same โ Increase block 2 to the average cost of service rate over a 2-year period starting in 2016 18 18
- 19. FY 2016 Water Rates: Residential 19 $3.16 $4.84 $7.88 $11.90 $14.16 $0.00 $5.00 $10.00 $15.00 Block 1 (0-2k) Block 2 (2 - 6k) Block 3 (6 - 11k) Block 4 (11 - 20k) Block 5 (20k - Over) Residential Volume Rate Per 1,000 Gallons: Uniform vs. Block Rates Block Rates (Non-CAP) Uniform Rate Average Cost of Service Volume Rate: $5.62 19 18% of Customers Use less than 2K/month $0.78
- 20. โข Revenue Stability Reserve Fund โ Create revenue stability reserve fund โ Implement reserve fund surcharge โข Currently $0.19 per 1,000 gallons โ Goal to reach 120 days of operating costs in 5 years โ $50M reserve when funded โ Restrictions for use โ revenue shortfalls only, 50% in one year, Council approval โข Operating cash reserves โ Enhance operating cash reserves โ Goal to reach 365 days cash 20 Reserve Fund Changes 20
- 21. 21 Residential Bill Increases - Water 6.1% 29.4% 7.5% 13.0% 18.0% 7.0% 3.2% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Proj. FY 2017 Average Residential Customer 5,700 Gallons Usage / Month 45% System-Wide Rate Increase 85% Bill Impact to Average Customer
- 22. Drought Rates โข Council approved drought rates that would go into effect when Stage 3 and Stage 4 restrictions are implemented โข Stage 3 Water Restrictions (600,000 AF Storage) โ Billed consumption projected to be 6 billion gallons less than Stage 2 levels โ $1.00 per 1,000 gallons of water usage โข Stage 4 Water Restrictions (450,000 AF Storage) โ Billed consumption projected to be an additional 8 billion gallons less than Stage 3 levels โ $3.00 per 1,000 gallons of water usage 22 22
- 23. โข Current drought over โ Lakes overfull! โข Water restrictions โ Stage 2 lifted in Austin, back to conservation stage โ New Conservation Stage approved โข More restrictive than previous conservation stage โข 1/week watering for irrigations systems โข 2/week watering for hose-end sprinklers โข Wash your car at your home! โข Financial Condition โ Significant improvement to financial metrics โ Bond Ratings: Moodyโs and Fitch just improved our ratings to a Stable outlook โ Rate increases have stabilized to inflation levels 23 Howโs the Future Look?
- 24. 24 Questions?
Editor's Notes
- David Anders, CFO, Austin Water Over last 8 years, Austin has been in a historic drought that has strained our water resources and finances. I want to present some of the impacts of this drought and how Austin Water responded.
- This graph displays the total actual water consumption from FY 2007 โ FY 2015. FY 2011 โ 48.6BG and FY 2015 at 38BG โ 10.6BG reduction or 22% reduction in 4 years Stage II โ Never been in stage II more than a month or two, now almost 5 years Each year water demand under Stage II got lower and lower, difficult to forecast revenue
- This graph displays the annual average residential water consumption per account actual figures from FY 2007 โ FY 2015. 2011 at 8,810 and 2015 at 5,840 โ reduction of 2,970 per account or 33.7%
- FY 2006 was our highest Gallons Per Capita Per Day Enhanced conservation measures and mandatory twice per week watering implemented in 2008 2010 we set conservation goal to reduce total GPCD to 140 by 2020. With Stage II once per week watering we met and exceeded our goal of 140 GPCD by 2015. FY 2015 GPCD at 122 total all customers and 67 for residential only FY 2006 to 2015 190 GPCD to 122 GPCD = 36% reduction
- This graphic provides the total water and wastewater revenue losses over the last 5 years. Over 6 years, revenue loss totaling $148M, even with significant rate increases In 2010 revenue losses were due to significant rainfall throughout entire year, including summer months In 2011 AW saw no revenue loss. (actually saw revenue above budget by $17.7M or 4.3% due to extreme drought conditions experienced) This was right before we went into Stage 2 water restrictions Each years water sales from 2012 to 2014 were less than the prior year. Forecasted revenue was reduced each year, but actual was even less than projected. Each year between FY 2010-2015 was a new record low for water use
- Most of financial impacts were on the water revenue impacting our water cash balances. Prior to the drought and Stage II water restrictions, our cash balances were almost $40M Declined to the low in 2014 of negative $15M = $55M reduction in balances
- Debt service coverage also impacted significantly. Our financial policy is to have a DSC at 1.50 or greater. During the drought we were much less. 2014 was the lowest at 1.25 that was just at our bond covenant level.
- Low fixed charges at 11% when our majority of costs are fixed Our Volume rates made revenue very volatile to weather conditions and drought Increasing block rates for residential were much higher for higher volumes. Focused our rate increases in the higher blocks to incentivize conservation and reduce low water user impacts Cash reserves very volatile to weather conditions
- Here are 2012 residential block rates. Red line shows average COS rate Blocks 1-2 below COS and 73% of customers use less than 9,000 per month High users subsidized low users โ there was sufficient usage by high users to subsidize the rates for low users Rate design in wet or drought conditions is extremely volatile and risky
- The Joint Committee on Austin Waterโs Financial Plan created in 2011 9 Citizens from 3 separate Commissions related to Austin Water Committeeโs charge was to review AW financial plan and consider recommendations on changes to fixed charges, volume rates, reserves, and financial policies Convened 3 separate times, 20 meetings, 3-4 hours at night Include Committee, staff, rate consultants, citizens, financial advisors
- Joint Committee recommendations Fixed charges, went from 11% to 20%, then recommended 25% Tiered Fixed Fee Fixed fee based on monthly consumption, could vary each month for the customer Higher fixed fees for higher users, lower fixed fees for low use customers Strengthens conservation Less volatility in tiered fixed charge as compared to tiered volume rates
- Graphic shows the fixed revenue percentage of total revenue In 2011 before the new flat fixed fee was implemented AW was at 11% fixed revenue The new sustainability fee was in place during 2012 and raised fixed revenue to 17% The Joint Committee recommendations were implemented in FY 2013 and raised the total fixed revenue to 20% Residential rates are the most volatile rate structure. Each class has different fixed revenue totals to produce 20% From 2013-15 Residential levels were at 27% For 2016 residential levels will be 30% For 2017 residential levels will be 32%
- FY 2016 Approved Water Fixed Charges Designed to push more of the fixed charges to higher volume users Reduced bill impacts of average and low volume users of increasing fixed charges Less volatile than recovering through volume charges
- Final Recommendations: Volumetric Rates Block 2 which was up to 9,000 gallons was reduced to 6,000 Any rate increase would add equal $ amount to each block. Over time, this has increased block 1-2 closer to COS level Increase block 2 to the average cost of service rate over 2-year period Note: The current 5 block tiered intervals for residential will be changed to represent the following: Block 1 โ lowest 10% of customers (0 โ 2,000 gallons) Block 2 โ to the winter average water usage (2,001 to 6,000 gallons) representing โessential waterโ Block 3 โ to the summer average (6,001 to 11,000 gallons) which allows for some irrigation at a lower rate Block 4 โ up to the top 10% water use customers (11,001 to 20,000 gallons) representing some irrigation use Block 5 โ top 10% water use customers (20,001 and over) representing primarily all irrigation
- Tripled block 1 rate since 2012 FY 2016 rates in green All blocks have increased by about $2 since 2012. Block 1 increase of $2 is 171% above 2012 Block 5 increase of $2 is only 16% above 2012 FY 2017, rates will increase Block 2 to average COS rate Only 18% of customers use less than 2,000 gallons per month Only 18% under COS compared to 73% in 2012 rates
- Created a Revenue Stability Reserve Fund at 120 days of operating. Revenue Stability Reserve Fund Surcharge = $0.19 per 1,000 gallons for all customers By 2018, the level of the fund will be about $50 million. Restrictions โ 5-year funding, Use for revenue shortfalls only, Use 50% in one year, Council approval, Operating cash reserves, goal to reach 365 days over next 5 years
- This graph shows the average residential customer water bill increases since 2011. 29.5% water rate increase in 2012 due to the $4.40 fixed fee implementation. Rate increases due to reduced consumption Difficult to get public buy-in of rates, Asked to reduce consumption due to drought, but increases in rates as well
- When lake levels at the lowest point, it was possible for AW to go into Stage 3 or Stage 4 water restrictions, which would have more significant reductions to billed consumption. Council approved drought rates that would be effective only if we reach stages 3 or 4 Stage 3 water restrictions would be declared if the combined storage reaches 600,000 AF (No outdoor watering) 6 billion gallons reduction and $27 million revenue reduction. Drought rate would be $1.00 per 1,000 gallons in addition to water bill Stage 4 water restrictions would be declared if the combined storage reaches 450,000 AF (No outdoor and more restrictions) Additional 8 billion gallons reduction and $75 million reduction Drought rate would be raised to $3.00 per 1,000 gallons in addition to water bill These drought rates are already programmed into the billing system