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Metropolitan Council

Metropolitan Council. Environmental Services. 2010 Budget and Rates Preliminary Info. Presented to the Environment Committee May 12, 2009. Jason Willett, MCES Finance Director. A Clean Water Agency. Budget Calendar. April-May: Budget & Rate Issues Discussion

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Metropolitan Council

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  1. Metropolitan Council Environmental Services 2010 Budget and Rates Preliminary Info Presented to the Environment CommitteeMay 12, 2009 Jason Willett, MCES Finance Director A Clean Water Agency

  2. 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)

  3. 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

  4. 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)

  5. Base Budget Highlights • 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

  6. Base Budget Highlights • 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

  7. 2010 Budgeted FTEs Treatment Services 405 GM Office 21 EQA 119 Interceptor Services 78 Technical Services 84 Temporary Ops Trainees -12 Total 695

  8. FTEs: 12-Year History

  9. Base Budget Highlights • 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

  10. 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

  11. 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

  12. Projected Debt Service ($s in millions) 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.

  13. Preliminary 2010 Ratesand Charges Base Budget *Equals $1.82 per thousand gallons **Does not meet policy minimum ***Assumes cap on annual increase

  14. 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

  15. 5-Year SAC Units Paid SAC Fund: Used for reserve capacity portion of capital costs (M.S. 473.517(3)) Note: 2009 is estimated.

  16. SAC Reserve Minimum Balance Policy Requirement = the average required SAC transfer projected for the next five years. Actual ResultsProjections 2007 2008 2009 2010 Balance at Year-End $72.2 $55.8 $36.0 $25.0 Minimum Balance by Policy $38.4 $43.8 $37.4 $38.6 $ in Millions Year-end SACFund Balance Minimum Balance

  17. 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

  18. Service Availability Charge Annual SAC Rate increases under different recovery scenarios**: 2,000* 1,000 Flat at 10,000 • 10% 13% 25% • 9% 11% 20% • 8% 12% 20% • 10% 11% 18% • 10% 10% 18% • 10% 10% 18% * 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.

  19. 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.

  20. Load Charges Paid by haulers that discharge truckloads of wastewater into our system (includes volume, strength and facilities components) *COD component of Industrial Load Charge is 50% of TSS component. ** Assumes a 25% annual cap on the rate increase.

  21. Facilities Component Paid by haulers to reimburse MCES for capital costs to upgrade and consolidate disposal sites • 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)

  22. Metro Plant Disposal Site

  23. Metro Plant Disposal Site

  24. Metro Plant Disposal Site

  25. Metro Plant Disposal Site

  26. Holding TankLoad Charge Should the increase be capped as it was in 2009? Rate with 25%annual increases • $1.93 • 2.41 • 3.02 If the whole facilities component • 3.77 is included in the Holding Tank Load • 4.71 Charge, the 2010 rate would be • 5.89 $9.78 • 7.36 • 9.20 • 9.78

  27. Industrial Discharge Permit Fees Using Base Budget: 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)

  28. Identified Budget Options • Reduce PAYG • Use some excess operating reserves • Modify reserve capacity; computation method: • Plants • Interceptors

  29. 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)

  30. 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

  31. 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

  32. PAYG Outstanding Debt millions (Projected) With no PAYG in 2010 & forward With $2M/yr PAYG increases

  33. Debt Service/Annual Budget Debt Service as a Percent of Annual Budget* With no PAYG in 2010 & forward With PAYG (increased $2m/year) *Assumes the O&M portion of the budget increases 3% per year; includes portion of Debt Service paid by SAC transfer.

  34. Option 2:Use of Reserves Operating Reserve Balance (in millions) Reserve Balance at end of 2008 $21.5 2009 Projection: Budgeted use 1.0 Contingency 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

  35. 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

  36. Option 3:Modify Reserve Capacity • 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

  37. Option 3:Modify Reserve Capacity • 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

  38. Option 3:Modify Reserve Capacity SAC Rates (urban) with capacity changes: No ChangesOne Change* Both Changed* • 2,200 2,100 2,100 • 2,400 2,250 2,200 • 2,600 2,450 2,350 • 2,800 2,650 2,550 • 3,000 2,900 2,800 • 3,200 3,150 3,050 *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.

  39. Rate Impact of Choices Rate Increase from 2009 to 2010: MWCSAC Base Case Options*: $5M PAYG $3M PAYG Modify plant capacity Reduce interceptor capacity to 228BG Use $2M of reserves Bond Rating Impact neutral mildlynegative neutral neutral mildlynegative 3.7% 10.0% 2.5% no impact 1.3% no impact 4.7% 5.0%** 4.5% 5.0%** 2.5% no impact *Any combination is available.

  40. 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.

  41. Questions, Concerns

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