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Putting All Your Eggs In One "Water Utility" Basket

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This presentation will discuss the experience of Brokaw Water Utility, identify lessons learned and give recommendations for water utilities to successfully manage risk when relying on a large customer.

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Putting All Your Eggs In One "Water Utility" Basket

  1. 1. Wisconsin Rural Water Association vision to reality Wisconsin Rural Water Association 2019 Annual Technical Conference “Putting all Your Eggs in One (Water Utility) Basket”(Water Utility) Basket K t R M hKurt R. Muchow Community Development Consultant
  2. 2. Agendag • Why is This Important?Why is This Important? • The Brokaw Experience L L d• Lessons Learned • Best Practices to Manage Risk With Large Customers
  3. 3. • Planning & Civil Engineering Firm Offi L ti• Office Locations: - Reedsburg - MadisonMadison - Milwaukee Metro - Prairie du Chien • Vierbicher Website www.vierbicher.com
  4. 4. Acknowledgementsg Information in this presentation was a obtained from the following individuals:from the following individuals: • Dave Anderson – PFM Financial Advisors. LLC • Stephen Kemna – Wis. Public Service Commission • Denise Schmidt – Wis. Public Service Commission C th d li h i t f t l• Cathy Wunderlich – Wis. Dept. of Natural Resources • David Erdmann – Wis. Dept. of Administration • Julie Giese USDA Rural Development• Julie Giese – USDA Rural Development • Betty Hoenisch – Village of Maine President • Keith Rusch – Village of Maine AdministratorKeith Rusch Village of Maine Administrator • Darrin Pope, PE – Vierbicher
  5. 5. Why Is This Important?y p Economic Development is High Priority • Create or Maintain Jobs • Maintain or Increase Tax Base • Maintain or Increase Population • Maintain or Increase Student PopulationMaintain or Increase Student Population “There is a lot of pressure on communities andp school districts to create sustainable communities”
  6. 6. Why Is This Important?y p Economic Development is High Priority • Communities Need Local Businesses• Communities Need Local Businesses • Business can Create Large Demand on Utilities W t W t t El t i- Water, Wastewater or Electric • Creates Challenges for Communities - High Priority to Create or Maintain Jobs, Tax Base, etc. - Risk Associated with Large Customers “Communities Need to beCommunities Need to be Very Careful to Balance Local DevelopmentLocal Development Goals vs. Financial Risk”
  7. 7. Why Is This Important? Financial Risk Management! • Customer Concentration Risk “Level of risk associated with large customers”g • When are you at Risk? - One customer over 10% of total revenue - Small group of customers combined over 50% • Affects Credit Worthiness of Utility • Places risk on other customers to repay debt “Utiliti d t t t i b k t!”“Utilities do not want too many eggs in one basket!”
  8. 8. Why Is This Important? Water & Sewer System Design & Operation • If system is designed for large user can it be• If system is designed for large user, can it be operated to serve smaller demand? Water System: Water quality & freezing problems- Water System: Water quality & freezing problems - Wastewater: Treatment plant operations • Be sure system can be “Right Sized”• Be sure system can be Right Sized for community without large customer.
  9. 9. The Brokaw Experience Long Time Employer • Wausau-Mosinee Paper Corp Operated in Brokaw For over 100 years • 450 employees• 450 employees • Purchased 200,000 gpd of water • $11 Million Tax Base$11 Million Tax Base “Life was good”Life was good
  10. 10. The Brokaw Experience Should We Be Concerned? • The Mill was the largest water customer• The Mill was the largest water customer • The Mill was the largest tax base Th Mill th j l i t• The Mill was the major employer in town “Until it Closed in 2011”
  11. 11. The Brokaw Experience Mill closing had a catastrophic impact on the Communityon the Community • Loss of 450 jobsLoss of 450 jobs • Village population was 250 • Total Equalized Value decreased 47 6%• Total Equalized Value decreased 47.6% • TID-Out Equalized Value decreased 62.1% Local Mill Rate Increased by 160 4%• Local Mill Rate Increased by 160.4% • Property tax levy per capita is 770% higher than average comparable Villagesthan average comparable Villages
  12. 12. The Brokaw Experience Mill closing had a catastrophic impact th W t Utiliton the Water Utility • Water demand decreased 95%• Water demand decreased 95% • Water Utility revenue decreased 75% • Water rates are 223% higher than average Class D Utility
  13. 13. Impact – Water Demand
  14. 14. The Brokaw Experience Mill closing created severe financial hardship • General Fund & Utilities operated at a deficit • By 2015, fund balances were zeroy • Required heavy subsidy by the Towns of Maine & Texas to pay bills • Imminent dissolution of Brokaw placed full burden on Towns of Maine and Texas
  15. 15. The Brokaw Experience Maine/Texas/Brokaw C ti B d A tCooperative Boundary Agreement • 2015 Maine incorporated to become a Village2015 Maine incorporated to become a Village • 2016 Maine, Texas & Brokaw approved CBA • CBA guided process to dissolve BrokawCBA guided process to dissolve Brokaw • Brokaw was dissolved on 10/01/2018 and attached to the Village of Maineg • Maine Water Utility was created on 10/01/2018
  16. 16. The Brokaw Experience CBA Area – Past & Current Boundaries
  17. 17. The Brokaw Experience Water System Challenges • Designed for paper mill demandmill demand • Water supply 9 500 lf transmission main9,500 lf transmission main • 200,000 gallon water tower • Avg gpd demand 200 000• Avg. gpd demand 200,000 • System operated very well
  18. 18. The Brokaw Experience Water System Challenges • Avg. daily demand w/out mill = 10,300 gpd • Detention time from supply to user = 30 daysDetention time from supply to user 30 days • Water quality problems in summer • Freezing problems in winterFreezing problems in winter • Additional water purchased to flush the system ($38,000 per year)system ($38,000 per year)
  19. 19. The Brokaw Experience Water System Improvements & Funding • What Improvements Need to be Made Construct 2 new water supply wells- Construct 2 new water supply wells - Connecting water main - Retrofit water tower to provide adequate pressureRetrofit water tower to provide adequate pressure - Upgrade existing water distribution system • Total Project Cost = $4,065,000j $ , , • USDA Funding USDA Grant = $2 892 000- USDA Grant = $2,892,000 - USDA Loan = $1,173,000
  20. 20. The Brokaw Experience Lessons Learned • Paper Mill contaminated the Village’s wells • Paper Mill offered to pay for new wellsp p y • Village Board wanted to keep Mill open so they did not require Mill to payy q p y Lesson #1: Village should of required Mill to pay • Village opted to connect to Wausau insteadg p of drilling new wells. System was over sized in the event Mill closed Lesson #2: New wells should have been built
  21. 21. Risk Management Best Practicesg Best Practice #1: Understand Risks • What is a Large Customer? - PSC defines large customer as 20% of revenueg % - Municipal Finance – Concentration Risk * Large customer is 10%, Plus look at 10 largest • Typical Large Customers Dairy plants Ethanol plants- Dairy plants - Ethanol plants - Canning plants - Paper mills - Power plants - Meat processing plantsPower plants Meat processing plants
  22. 22. Risk Management Best Practicesg Best Practice #2: Agreements • Require business to pay upfront (best method)• Require business to pay upfront (best method) • Require business to guarantee future revenue* b th d bt i t i l t- For both debt service & tax equivalent - Take or Pay Clause: Requires minimum payment regardless of usageregardless of usage * Guarantees and Take or Pay Clauses prohibit use of tax exempt bonds • Agreements with guarantees must be secured!• Agreements with guarantees must be secured! - Irrevocable letter of credit - Performance bondsPerformance bonds - Special Assessment (1st lien on property)
  23. 23. Risk Management Best Practicesg Best Practice #3: Self Supply • Utility provides water for domestic use • Keep water system “right sized” for communityKeep water system right sized for community • Business constructs & operates their own supply for process or cooling waterp g • DNR: Cross connection is not allowed • PSC: Once utility serves, obligated to serve.PSC: Once utility serves, obligated to serve. - May not be able to use Self Supply with existing customers.
  24. 24. Risk Management Best Practicesg Best Practice #4: Alternative Revenue Sources • Tax Incremental Financing - Use to pay construction costs instead of user feesp y • Intergovernmental Grants/Loans - CDBG, Rural Development, SDWL, etc.p • Special Assessments - Use to pay construction costs instead of user feesUse to pay construction costs instead of user fees - Special Assessment B Bonds can be used to finance project, which can be tax exempt
  25. 25. Risk Management Best Practicesg Best Practice #5: Miscellaneous • Water Conservation - Work with large water users to reduce waterWork with large water users to reduce water demand to prevent costly improvements • Know your Customers - Meet with large customers regularly - Evaluate financial stability of large customers • Strive to find a “win-win” solutionStrive to find a win win solution
  26. 26. Questions & Answers Kurt R. Muchow k @ i bi hkmuc@vierbicher.com 608/768-4817

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