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Greater Cincinnati Water Works Business Model Overview Presentation to Major Transportation & Infrastructure Committee April 10, 2012
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Biju George, Interim Director Kristi Irick, CFO / Business Services Superintendent Carel Vandermeyden, Chief Engineer
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GCWW Facilities and Service Areas Serves over 1,100,000 customers Supplies close to 50 billion gallons of water/year 2 water treatment plants Over 3,130 miles of water mains 24 pumping stations 32 storage tanks
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Richard Miller Treatment Plant GCWW’s largest treatment plant Treats Ohio River water Approximately 90% of GCWW’s customers receive their water from this facility Current production capacity is 240 MGD In 2011, average daily production was 106 MGD Note: MGD = Million Gallons per Day
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Richard Miller Water Treatment Plant includes the granular activated carbon (GAC) treatment facility GAC facility remains the largest facility of its kind in the country Operational since 1992, the GAC facility continues to produce some of the highest quality drinking water in the country Put Cincinnati at the forefront of water treatment producing high quality water and protecting public health Richard Miller Treatment Plant GAC Treatment Facility
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Richard Miller Treatment Plant Ultraviolet Disinfection Treatment Facility $30 million project 19,600 square foot facility, eight 48 ‐ inch UV reactors UV protects against pharmaceuticals and microorganisms resistant to chlorine disinfection UV is the best complementary treatment to GCWW’s sand filtration and GAC to protect public health UV disinfection does not use chemicals
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Charles M. Bolton Treatment Plant Located in Fairfield Treats groundwater from the Great Miami Aquifer Approximately 10% of GCWW’s customers receive their water from this facility Current production capacity is 40 MGD In 2011, average daily production was 15 MGD Note: MGD = Million Gallons per Day
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GCWW Core Competencies Drinking water treatment/high quality water Testing/developing drinking water technologies (Partnered with USEPA on Water Security Initiative) GCWW enterprise - Function as a business Triple-A bond ratings by S&P and Moody’s Platinum Award for Utility Excellence (2011) Billing services as a core business
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EntityWastewaterStorm water Waste/TrashFire Hydrant # of Accounts Amberley 1,461 Arlington Heights 293 Deer Park 2,221 Elmwood Place 672 Forest Park 5,322 Golf Manor 1,205 Lexington Fayette Urban County Govt 110,000 Lincoln Heights 1,075 Mason 10,371 MSD Greater Cincinnati 209,179 North College Hill 3,232 Silverton 1,759 SMU – Cincinnati 81,938 Whitewater 98 Woodlawn 820 Current Billing Services Contracts 9
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Distribution System: Water mains, tanks, pumps, water quality monitors, meters, etc Treatment: Equipment, operational improvements, water quality enhancements Technology: Hardware, software, computers, servers, networks, control systems Support Systems and Miscellaneous: HVAC, building upgrades, etc GCWW Capital Program (Spending by Type 2011 - 2016)
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Billed Water Revenue Inside the CityOutside the City 79 square miles732 square miles 1,131 miles of water mains2,002 miles of water mains 50% of water mains installed before 1940 10% of water mains installed before 1940
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GCWW Customer Overview 240,600 residential & commercial accounts Diversified customer base - top 10 accounts represent 3.62% of total charges Supported by long-term contracts to service areas outside the City since 1926 GCWW service area: City of Cincinnati, most of Hamilton County, Mason, South Lebanon, parts of Butler, Clermont & Warren Counties, Boone County & Florence, Kentucky Expanded Customer Base 1998 – 351 square miles 2011 – 811 square miles Water service to Lebanon starts end of 2012 Service Area & Infrastructure Increase 1998 - 2011 131%13%
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Source Water Supply & System Capacity Abundant Source Water Supply Ohio River – GCWW uses less than 0.2% of 60 billion gallons per day flowing in the river Great Miami River Aquifer - 45 million gallons per day Installed Treatment Capacity Two treatment plants with total capacity of 280 million gallons per day 2011 Water Production Average Day = 121 million gallons Maximum Day = 206 million gallons
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Quarterly Residential Water Rates (Based on 25 ccf’s usage per quarter) $64.28*
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Trend Analysis of Water Consumption 26
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GCWW Challenges Declining usage Pumpage reduction over past 5 years - approximately $12.5 million in lost revenue Residential use of high efficiency appliances, conservation, decreasing average household size Industrial and manufacturing consumption down 23% Record rainfall, cool spring and summer Rate increases Failure to obtain necessary rate increase in 2010 and 2011 resulted in a loss of revenue in excess of $17 million
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Costs are Increasing 5-Year Average Day Pumpage By Month In Million Gallons (Excluding Summer) Volatile Commodity Prices Pumping less, but the cost of production is increasing Treatment chemicals dramatically increasing because of high demand, limited supply of raw materials, transportation costs, insurance, etc. Unit cost of energy has increased dramatically (GCWW is the largest energy user in the city of Cincinnati) Employee Benefits 37% increase since 2008 Unfunded pension liability Increasing regulatory requirements
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Water Works Costs vs. Revenue Variable Fixed Semi-Fixed Fixed vs. Variable Costs/Revenues Continuous business efficiencies and cost-cutting measures have kept O&M as low as possible Mitigated increased energy costs by innovative purchasing strategies Without GCWW’s expansion to serve an additional 7 communities over the past 15 years, rates would be approximately 20% higher Reduced 2012 capital program by 25% Capital costs are increasing Need to keep pace with replacement of aging infrastructure within the city
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Historical DSCR 2005-2010 computed using cash basis methodology. Projected DSCR beginning in 2011-2012 Historical DSCR
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What if rate increase 201020112012 Proposed Rate Increase6.00%3.00%1.50% Revenues132,386,000141,242,000149,779,000 Fund Balance*49,625,00051,506,00051,132,000 Total DSCR1.401.651.40 Total Revenue DSCR1.551.811.51 Days of Cash235284245 Impact to Fund Balances if Proposed Rate Increases Were Approved Bond Covenants : Maintain a minimum of 200 days operating cash on hand Capital Reserve Balance = 25% of budgeted annual O&M expense Debt Service Coverage Ratio > 1.2%
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Fund Balances - Necessary Rate Increases 20122013201420152016 Proposed Rate Increase8.50%7.25%7.00% 6.00% Revenues131,436,000141,242,000149,779,000158,699,000167,057,000 Fund Balance*46,703,00044,879,00045,705,00049,564,00053,621,000 Total DSCR1.251.321.391.371.42 Total Revenue DSCR1.381.441.51.411.46 Days of Cash218203200210220 Bond Covenants : Maintain a minimum of 200 days operating cash on hand Capital Reserve Balance = 25% of budgeted annual O&M expense Debt Service Coverage Ratio > 1.2%
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Projected DSCR
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Fund Balances – No Rate Increases 20122013201420152016 Rate Increase8.5%0% Revenues131,436,000125,837,000126,125,000126,322,000126,679,000 Fund Balance46,703,00030,076,00022,654,00017,790,00013,846,000 Total DSCR1.250.960.870.730.65 Total Revenue DSCR1.381.060.950.760.67 Days of Cash218136997557 Bond Covenants: Maintain a minimum of 200 days operating cash on hand Capital Reserve Balance = 25% of budgeted annual O&M expense Debt Service Coverage Ratio > 1.2%
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Creation of Financial Policies Long-term plan Business model for finding new sources of revenue and providing a planning tool to make sound business decisions based on risk assessment
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Moody’s Medians Aaa GCWW Fairfax Co. Water Authority Louisville WW Board City of Portland Water Enterprise Operating Ratio (%) 59.043.056.741.465.1 Debt Ratio (%)18.912.622.348.018.2 Net working Capital as % of O&M 27.543.126.927.546.0 DS Safety Margin (%) 132.840.8385.9267.265.4 Total Annual DS Coverage 1.901.251.905.411.98 Water Utility Credit Comparison Key Financial Ratios Operating Ratio = Total O&M Expenses/Total Operating Revenues Debt Ratio = (Total Current and Non-current Debt minus DS & DS Reserve Funds) / (Net Working Capital and Net Fixed Assets) Net Working Capital as a % of O&M = (Restricted and Unrestricted Cash, Cash Equivalents and Receivables Net of Funds Set Aside for DS Obligations Less Current Liabilities Excluding DS Payments) / Total O&M Expenses Debt Service Safety Margin = (Operating Revenues - O&M Expenses – DS) / Gross Revenues
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2009 Water District Report Regional service area boundaries Public agency governed by a Board More flexible business model to grow the service area Spread operating and capital costs over larger customer base
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2012-2014 Strategic Business Plan Same Challenges, New Plan Key Focus Areas 1. Dependability and value Financial management Asset management 2. The community of our future Regional approach to water management Partnerships
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For over the last 15 years, GCWW replaces 1% (32 miles) of the water distribution system per year, with a focus on aging infrastructure, reliability, and capacity GCWW Asset Management Program (Spending by Area 2011 - 2016) Rehabilitation and Replacement = 75% System and Capacity Expansion = 10% System Enhancements = 15%
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Strategic Water Advantage Abundant supply of high quality water Water is a regional competitive advantage WaterMatch Manage water with a regional perspective Expand customer base with minimal infrastructure footprint Focus on water extractive industry such as beer and soup manufacturers, bottlers Work with regional partners to serve new customers (at the customer, for the customer) Commercialized services Billing services Laboratory services Maintenance and monitoring services
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On the Horizon Joint Utility Management Financial policies as fiscal management tool Risk based governance
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