Albany County Regional Solid Waste Authority Feasibility Study
FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL …€¦ · The Study and results outlined in...
Transcript of FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL …€¦ · The Study and results outlined in...
FINAL REPORT
FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
Summary Report
BLACK & VEATCH PROJECT NO. 184920
PREPARED FOR
Central Iowa Regional Drinking Water Commission
21 JULY 2015
®
®
©Black & Veatch Holding Company 2013. A
ll rights reserved.
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Table of Contents i
Table of Contents
1 ExecutiveSummary.........................................................................................................1
1.1 Purpose......................................................................................................................................1
1.2 SpecialNotice..........................................................................................................................1
1.3 Scope...........................................................................................................................................2
1.4 StakeholderInputandSWOTAnalysis........................................................................2
1.4.1 StakeholderInput........................................................................................................2
1.4.2 SWOTAnalysis..............................................................................................................3
1.5 ValuationEstimate................................................................................................................4
1.5.1 AssetInventory............................................................................................................5
1.5.2 EstimatedRangeofValue.........................................................................................6
1.6 FinancialAnalysis..................................................................................................................7
1.6.1 NetValueAnalysis.......................................................................................................7
1.6.2 DevelopmentofFiveYearFinancialProjection..............................................9
1.6.3 AnalysisofEffectiveRate......................................................................................10
1.6.4 FutureConsiderations............................................................................................11
1.7 Governance...........................................................................................................................12
1.7.1 PotentialInitiatingPrinciples..............................................................................12
1.7.2 KeyGovernanceIssues...........................................................................................12
1.7.3 GovernanceAlternatives.......................................................................................13
1.8 Conclusion.............................................................................................................................14
2 Introduction....................................................................................................................16
2.1 Participants...........................................................................................................................16
2.2 ScopeofWork......................................................................................................................17
3 StakeholderInputandSWOTAnalysis..................................................................18
3.1 StakeholderInput...............................................................................................................18
3.1.1 Input...............................................................................................................................18
3.1.2 GeneralTakeaways..................................................................................................19
3.2 SWOTAnalysis....................................................................................................................20
3.2.1 InputIntoFeasibilityStudy..................................................................................23
4 ValuationEstimate........................................................................................................25
4.1 DevelopmentofAssetInventory.................................................................................25
4.1.1 AssetInventory.........................................................................................................26
4.1.2 AssetInspection........................................................................................................31
4.1.3 AssetReview...............................................................................................................31
4.2 EstimationofOriginalCostLessDepreciation(OCLD)......................................32
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4.2.1 OriginalCost...............................................................................................................33
4.2.2 AccumulatedDepreciation...................................................................................33
4.2.3 OCLDResults..............................................................................................................34
4.3 EstimationofReplacementCostLessDepreciation(RCLD)............................36
4.3.1 ReplacementCost.....................................................................................................37
4.3.2 AccumulatedDepreciation...................................................................................37
4.3.3 RCLDResults..............................................................................................................38
4.4 CombinedEstimateofValuation.................................................................................40
4.5 EstimateofPurchasedCapacityValue......................................................................41
4.6 OtherContributedDMWWAssets...............................................................................43
4.6.1 JointEastSideProject.............................................................................................43
4.6.2 PolkCityFeederMain.............................................................................................43
4.6.3 AnkenyContributiontoSWTPFeederMain.................................................43
4.6.4 WDMWW98thStreetElevatedStorageTank................................................44
4.6.5 L.P.MoonStorageandBoosterStation...........................................................44
4.7 ValuationConclusion........................................................................................................44
5 FinancialAnalysis..........................................................................................................45
5.1 NetValueAnalysis.............................................................................................................45
5.1.1 SummaryofEstimatedValueandNetValueperMGD.............................45
5.1.2 AlignmentofNetValuebyEntity.......................................................................48
5.1.3 SummaryofNetValueAnalysis..........................................................................50
5.2 DevelopmentofFiveYearFinancialProjection....................................................51
5.2.1 OperationandMaintenanceExpense...............................................................52
5.2.2 AnnualRenewalandReplacement....................................................................53
5.2.3 MajorCapitalImprovementCosts.....................................................................53
5.2.4 RepaymentofOutstandingPurchaseCapacityDebt.................................54
5.2.5 AdjustmenttoDesMoinesWaterWorks’NetValue.................................54
5.2.6 MajorCapitalImprovementFinancing............................................................54
5.2.7 ProjectionofAnnualRevenueRequirementsandEffectiveRate ..........................................................................................................................................55
5.2.8 Financingalternatives............................................................................................58
5.2.9 EffectiveRatesensitivity.......................................................................................59
5.3 AnalysisofEffectiveRate................................................................................................60
5.3.1 FutureConsiderations............................................................................................61
5.3.2 CommunitiesThatOptOut...................................................................................63
5.4 FinancialAnalysisConclusion.......................................................................................63
6 Governance......................................................................................................................64
6.1 PotentialInitiatingPrinciples.......................................................................................64
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6.2 KeyGovernanceIssues....................................................................................................65
6.2.1 VotingRights..............................................................................................................65
6.2.2 BoardMakeup............................................................................................................66
6.3 GovernanceAlternatives.................................................................................................68
6.3.1 TraditionalMunicipalGovernance....................................................................68
6.3.2 ModificationofCurrentGovernanceArrangement....................................70
6.3.3 PublicPrivatePartnership....................................................................................71
7 NextSteps.........................................................................................................................73
7.1.1 ShortTerm..................................................................................................................73
7.1.2 LongTerm...................................................................................................................74
AppendixA..................................................................................................................................A
AppendixB..................................................................................................................................B
AppendixC...................................................................................................................................C
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LIST OF TABLES Table1‐1SummaryofTotalCapacityandFirmCapacity......................................................5
Table1‐2SummaryofEstimatedValuation.................................................................................6
Table1‐3SummaryofNetValueperMGDbyEntity...............................................................7
Table1‐4SummaryofAlignmentofNetValueperMGDbyEntity....................................8
Table1‐5BreakdownofTotalMidRangeValue........................................................................9
Table1‐6EstimateofProjectedRevenueRequirements........................................................9
Table1‐7‐EstimatedEffectiveRate.............................................................................................10
Table1‐8‐EffectiveRateComparison.........................................................................................10
Table1‐9FutureExpansionExample...........................................................................................11
Table2‐1FullServiceandWholesaleCustomersofDMWW..............................................16
Table4‐1TotalSourceandSupplyAssetsforRegionalUtility..........................................29
Table4‐2DistributionSystemStorageandPumpStationAssets.....................................30
Table4‐3DesMoinesWaterWorksTransmissionMainAssets.......................................31
Table4‐4TreatmentAssetStrengthsandWeaknessesReview........................................32
Table4‐5EstimatedOCLDValueofDMWWAssets................................................................35
Table4‐6EstimatedOCLDValueforWDMWWAssets.........................................................36
Table4‐7EstimatedOCLDValueforUrbandaleWW,Altoona,andAnkeny................36
Table4‐8RCLDResultsforDMWW.............................................................................................39
Table4‐9RCLDResultsforWDMWW.........................................................................................40
Table4‐10RCLDResultsforUrbandaleWaterWorks,Ankeny,andAltoona............40
Table4‐11CombinedEstimateofValuation............................................................................41
Table4‐12SummaryofCurrentPurchasedCapacityAmountsandOriginalContribution.....................................................................................................................42
Table4‐13EstimatedRangeofPurchasedCapacityValueforWholesaleCustomers.........................................................................................................................43
Table5‐1SummaryofTotalCapacity,Value,andNetValuebyEntity(MidRangeValue)....................................................................................................................46
Table5‐2PurchasedCapacityMidRangeValuebyCustomer..........................................47
Table5‐3AlignmentofNetValueperTotalCapacitybyEntity........................................49
Table5‐4SummaryofAlignmentofNetValueandTotalCapacity................................50
Table5‐5SummaryofNetValueorEquity...............................................................................51
Table5‐6ProposedOperation&MaintenanceExpense......................................................52
Table5‐7ProjectedRenewalandReplacement......................................................................53
Table5‐8MajorCapitalImprovementProgram.....................................................................54
Table5‐9EstimatedCapitalFinancingPlan..............................................................................55
Table5‐10SummaryofRevenueRequirementsandUnitCostDevelopment...........56
Table5‐11ProjectedBilledWaterUsage...................................................................................57
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Table5‐12AlternativeRevenueRequirementsandUnitCostDevelopment.............59
Table5‐13RateSensitivityComparison....................................................................................60
Table5‐14EffectiveRateComparison........................................................................................61
Table5‐15FutureExpansionExample........................................................................................62
Table6‐1HypotheticalWeightedVoteBasedon%ofNetValue....................................66
LIST OF FIGURES Figure1SWOTAnalysisMatrix.......................................................................................................21
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Executive Summary 1
1 Executive Summary
1.1 PURPOSE Black&VeatchCorporation(Black&Veatch)anditssubconsultantHRGreen,Inc.(HRGreen)wereretainedbytheCentralIowaRegionalDrinkingWaterCommission(CIRDWC)toassessthefeasibilityofformingaregionalwaterproductionutility(RegionalProductionUtility)fortheGreaterDesMoines,Iowaregion.Thefeasibilitystudy(Study)outlinedinthisreport(Report)includesthefollowingspecificelements:
ReceiptofinputfromCIRDWCmemberswithrespecttothecurrentmethodofregionalwatersupply,aswellasinputrelatedtothemeritsanddrawbacksofformingaRegionalProductionUtility.
ConductofaStrengths,Weaknesses,Opportunities,andThreatsanalysistocomparethebenefitsanddrawbacksofprovidingregionalwaterserviceunderthecurrentmethod,versusprovidingwaterserviceviaaRegionalProductionUtility.
Estimationoffairmarketvalueofassetsthatwouldcomprisetheregionalwaterproductionentity.
AnalysisofthefinancialimpactoncustomersofmovingtoaRegionalProductionUtility.
AnalysisofelementsrelatedtogovernanceoftheRegionalProductionUtilityandassessmentofpotentialgovernancealternatives.
TheStudyandresultsoutlinedinthisReportdidnotincludealegalassessmentofthefeasibilityofformingaregionalwaterproductionentity.TheStudyprovidesabasefeasibilityassessmentthatincludesanestimateofthefinancialimpactoncustomerscomparedtotheircurrentwholesaleservicearrangementswithDesMoinesWaterWorks(DMWW).Fromthisbasefeasibilityassessment,CIRDWCmemberscanthendeterminewhetheritisintheirinteresttofurtherpursueaRegionalProductionUtility.IfaRegionalProductionUtilityispursuedbyCIRDWCmembersbeyondthisStudy,itisanticipatedthatadditionalfinancial,legal,andengineeringanalysiswouldbenecessary.
1.2 SPECIAL NOTICE Inconductingthisstudy,Black&Veatchrevieweddocuments,records,agreements,capitalimprovementprograms,andfinancialinformationforCIRDWCmembersasdeemednecessary.WhileBlack&Veatchconsiderssuchdocuments,records,andprojectionstobereliable,theaccuracyofthesedocumentshasnotbeenverified.
TherecommendationssetforthinthisReportbelowinclude“forward‐lookingstatements”.Informulatingtheseprojectionsand/orrecommendations,Black&Veatchhasmadecertainassumptionswithrespecttoconditions,events,andcircumstanceswhichmayormaynotoccurinthefuture.Themethodologyusedinperformingtheanalysesfollowsgenerallyacceptedpracticesforsuchprojections.Suchassumptionsandmethodologiesarereasonableandappropriateforthepurposeforwhichtheyareused.WhileBlack&Veatchbelievestheassumptionsarereasonableandtheprojectionmethodologyvalid,actualresultsmaydiffermateriallyfromthoseprojectedasinfluencedbytheconditions,events,andcircumstanceswhichactuallyoccur.Suchfactorsmay
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include(1)theabilityofCIRDWCmemberstoexecutetheirfinancialandcapitalimprovementprogramsasscheduledandwithinbudget,(2)regionalclimateandweatherconditionsaffectingwateruse,and(3)adverselegislative,regulatoryorlegaldecisions(includingenvironmentallawsandregulations)affectingtheirabilitytomanagetheirsystemstomeetwaterqualityrequirements,orotherregulatoryrequirements.
1.3 SCOPE TheStudywasconductedpertheScopeofWorkoutlinedintheConsultingServicesAgreementbetweenBlack&VeatchandCIRDWCdatedJune27,2014.ThegeneralelementsoftheScopeofWorksareasfollows:
Collectandreviewdatarelatedtofinancial,operational,andassetinformationtogainanunderstandingofthecurrentmethodologyusedtoprovidedrinkingwaterservicetotheGreaterDesMoinesregion.
ConductstakeholderinputsessionswithCIRDWCmemberstogainanunderstandingoftheircurrentoperations,aswellastoreceivetheirinputwithrespecttotheStudyandtheformationofapotentialregionalwaterproductionentity.
ConductSWOTanalysiswithCIRDWCmemberstounderstandthebenefitsanddrawbacksofformingaRegionalProductionUtilityversusthecurrentwholesaleservicearrangement.
PerformestimateoffairmarketvalueofassetsthatwouldcomprisetheRegionalProductionUtilityusingtheCostApproachmethodologyofvaluation.
PerformafinancialanalysistodeterminethepotentialimpactonwholesalecustomerratesunderaRegionalProductionUtility.
Evaluatethreepotentialgovernancealternatives,includingissuesofpotentialboardcomposition,votingrights,andresponsibilities.
1.4 STAKEHOLDER INPUT AND SWOT ANALYSIS
1.4.1 Stakeholder Input
Black&VeatchinterviewedCIRDWCmembersoverseveraldaysinJuly2014.AquestionnairewaspreparedbyBlack&Veatchthatfocusedonquestionsandissuesrelatedto1)generalcharacteristicsofcommunityandwaterutility;2)localstrategywithrespecttoanticipatedgrowthandfuturewaterneeds;3)inputonbenefitsanddrawbacksofformingaRegionalProductionUtility;4)financialandrateissuesformember’swaterutility;and5)generalinputwithrespecttotheStudy.AppendixApresentsacopyofthequestionnaireprovidedtoCIRDWCmembers.
Keytakeawaysfromthestakeholderinputsessionsinclude:
ThemajorityofmembersthatcurrentlyreceivetheirwaterservicefromDMWWareexpectingsteadygrowthinpopulationoverthecomingyears.
TherearemultipleplanninginitiativesforgrowthandeconomicdevelopmentbeingconductedthroughouttheDesMoinesmetroarea.WhilecommunicationbetweenDMWWandregionalcommunitiesdoesoccurwithrespecttowaterissues,thereisnocoordinated,regionalplanningwithrespecttodevelopingfuturewatersupplytomeetprojecteddemands.
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CurrentwholesalecustomersareveryinterestedinhavingmorerepresentationinthefuturedevelopmentandprovisionofwaterserviceintheGreaterDesMoinesregion.
Generally,membersindicatedthatgovernancewithproportionaterepresentationwouldbeacceptableinanynewregionalwaterproductionentity.Therewereasmallnumberofparticipantsthatadvocatedforaonemember,onevoteapproachtogovernance.
CurrentwholesalecustomersexpressedfrustrationwithDMWW’scostofservicestudyandratesettingapproach,however,therewasnotanoverarchingviewthattheyarereceivingpoorvalue.Inseveralinstances,wholesalecustomersindicatedtheyarereceivinggoodvalueatthecurrentrate.
MembersindicatedthatdealingwithDMWWonoperationalissuesisveryeasyandprofessional. MembersindicatedthatthefinishedwaterqualitytheyreceivefromDMWWisgenerallyverygood.
Membersindicatedthatthereisaconcernabouthowfuturewatersupplyandadditionalcapacitywillbedevelopedunderthecurrentframework.
1.4.2 SWOT Analysis
TheSWOTAnalysiswasconductedonSeptember12,2014attheDesMoinesBotanicalGarden.TheSWOTAnalysiswasledbyBlack&VeatchandconsistedofapproximatelytwomembersfromeachCIRDWCcommunity/utility.Amorningsessionfocusedonthestrengths,weaknesses,opportunities,andthreatsoftheexistingmethodforprovidingregionalwaterservice.ThecurrentmethodincludesthemajorityofsourceofsupplyandtreatmentprovidedbyDMWWwithwholesalepurchasedcapacityagreementsorfullserviceagreementswiththesurroundingcommunities.Theafternoonsessionfocusedonthestrengths,weaknesses,opportunities,andthreatsofprovidingwaterservicetotheGreaterDesMoinesregionfromnewRegionalProductionUtility.Uponcompletionoftheafternoonsession,Black&VeatchreviewedindividualgroupresultstoderiveaconsolidatedsummarythatwasreviewedbyCIRDWCmembers.ThefollowingTablespresentthecombinedresultsoftheSWOTAnalysis.AppendixBpresentsacopyofthepresentationmaterialsusedduringtheSWOTanalysis.
STRENGTHS
Current
DMWW Staff Responsible and Knowledgeable
Reliability of finished water Currently finished water quality is good Redundancy Multiple sources of supply
Ability of customer communities to make
independent decisions
Opportunity to choose level of service Knowledge of defined capacity limits for each
community
Regional Production Utility
More equal representation with regards to
governance, planning, and rates
More political influence at regulatory level
More political stability on governing board
Potential long‐term cost efficiencies (direct and
indirect)
Regional planning Provide relative savings – slow the rate of increase
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WEAKNESSES
Current
Autocratic governance of water supply and production
No current Board representation of customer
communities
No accountability to customer communities for how
resources are spent or decisions made
Source water quality Source water quantity Competing priorities for responding to regional
growth
Availability of purchased capacity to meet growth
Regional Production Utility
Size of governing body Source water quality and quantity are still issues Change in workforce impacting level of service
Cost versus investment – long term change over
short term pain
Buy‐in costs Conflict between growth and reinvestment
Right now we know who to blame
OPPORTUNITIES
Current
Improve current processes
Individual communities continue to make
independent decisions
More inclusive governance and geographic diversity
of Board
Ability to improve watershed management
Regional Production Utility
Ability to influence quality and quantity Long term bonding capability
Predictability on revenue and costs Better control over resources Consistent message communicated with customers
Input into regional economic development
THREATS
Current
Competing interests for same source water
Division/breakup of current customer configuration
Availability of capacity to meet customer community
needs
Nonpoint source pollution impact on source water
Climate issues
Regional Production Utility
Initial cost of buy‐in Less than 100% participation from communities
Perception of reduction in work force Loss of local control Failure to meet customer expectations
Nonpoint source pollution impact on source water
Climate issues
1.5 VALUATION ESTIMATE TheformationofaRegionalProductionUtilityseparatefromDMWWwouldlikelyincludeatransactionthattransfersassetsfromDMWWandseveralotherentitiestothenewRegionalProductionUtility.Therefore,anestimateofthevalueofthoseassetsisneededtounderstandthelevelofvaluebroughtbyparticipantstothenewRegionalProductionUtility.Black&VeatchperformedavaluationtoestimatethepotentialfairmarketvalueofassetsusingtheCostApproachmethodofvaluation.ThisconsistsofdeterminingtheOriginalCostLessDepreciation(OCLD)andReplacementCostLessDepreciation(RCLD)toderivearangeofvalue.TheCostApproachprovidesareasonablerangeoffairmarketvalueforpurposesofthisStudy.
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1.5.1 Asset Inventory
Black&VeatchreliedoninformationprovidedbyCIRDWCmemberstounderstandwhatpotentialwaterserviceassetswouldbetransferredtotheRegionalProductionUtility.AfterreviewinginformationanddiscussingwithCIRDWCmembers,Black&Veatchgenerallyselectedassetsthat1)currentlyservemorethanoneutilityorcommunity;or2)havethefuturepotentialofservingorsupportingtheservicetomorethanoneutilityorcommunityintheregion.AmapshowingtheGreaterDesMoinesregionandsignificantwaterproductionassetsisincludedinAppendixC.Thefollowingprovidesabriefdescriptionoftheidentifiedassets:
CorenetworkassetsofDMWWincludingsourceofsupply,treatmentfacilities(Fleur,McMullen,andSaylorvillewatertreatmentplants(WTP)),aswellastheassociatedcorenetworktransmissionmains,pumpstations,andstoragetanks.
SourceofsupplyandtreatmentfacilitiesofWestDesMoinesWaterWorks(WDMWW),aswellasthe98thStreetelevatedstoragetank.
WellsandtreatmentplantsownedandoperatedbytheCityofAltoona.
AquiferStorageandRecovery(ASR)wellsownedandoperatedbytheCityofAnkeny.
RawwaterquarriesownedbytheUrbandaleWaterWorks.
Alongwiththeassetinventory,Black&Veatchreviewedinformationrelatedtotheseassetstounderstandtheircapabilitieswithrespecttomeetingpeakdaywaterdemands.Basedonareviewofinformationanddiscussionswithstaffthatoperatetheseassets,theestimatedtotalandfirmcapacitiesoftheseassetsispresentedinTable1‐1.
Table 1‐1 Summary of Total Capacity and Firm Capacity
LINE
NO. PHYSICAL ASSET
TOTAL
CAPACITY/
DEMAND,
MGD
FIRM
CAPACITY/
DEMAND,
MGD
WTP and ASR Supply Facility Capacity
1 City of Altoona Treatment Plants 3.90 0.58
2 City of Ankeny ASR Wells 4.32 0.00
3 DMWW Treatment Plants and ASR Wells 116.00 86.70
4 WDMWW Treatment Plant 9.90 6.90
5 Total WTP and ASR Capacity(a) 134.12 118.6
(a) The value of 118.6 mgd is not a summation. Total firm capacity considers all production facilities in operation with one of the seven WTPs (McMullen WTP) limited to firm capacity and one 3.0 mgd ASR well out of service to account for equipment being offline for maintenance and/or repair.
Theidentifiedassetsarecurrentlynotdesignedtoworkincoordination,andBlack&VeatchandHRGreendidnotundertakedetailedmodelingoranalysistoassesstheoverallperformanceofthesystemsasacombinedRegionalProductionUtility.Basedonareviewofavailableinformation,areasonable,highlevelestimateoftheregionalpeakdaydemandisapproximately115mgd.This
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reflectsthatregionaldemandsarealreadyclosetofirmcapacitylimitsandapproachingtotalcapacitylimits.Assumingsteadygrowthintheregion,itappearsreasonabletoassumethatexpansionofregionalproductionassetswillbenecessaryinthecomingyears.
1.5.2 Estimated Range of Value
Table1‐2presentstheresultsoftheCostApproachmethodofvaluation.Ingeneral,Black&Veatchreliedonassetinformationandotherdataprovidedbytheentitiesthatwouldcontributesourceofsupply,treatment,andtransmissionassetstotheRegionalProductionUtility.Incertaininstances,Black&VeatchdevelopedReplacementCostestimatesforspecificassetsusingengineeringjudgment.Black&VeatchusedcosttrendindicesfromtheHandy‐WhitmanBulletinNo.180:CostTrendsofWaterUtilityConstruction(Handy‐WhitmanIndex)toderivetheReplacementCostorOriginalCostoftheassets.TheOriginalCostandReplacementCostvaluesareadjustedforaccumulateddepreciationtorecognizethatovertime,thevalueofanassetdecreasesduetofactorssuchaswearandtear,actionoftheelements,orotherfactors.AccumulateddepreciationwasdeterminedonastraightlinebasisusingservicelifeestimatesdevelopedbyBlack&Veatch,aswellastheknownageoftheasset.Theestimatedvaluationrangesfromapproximately$234millionto$413million,withamidrangevalueof$323million.
Table 1‐2 Summary of Estimated Valuation
1.5.2.1 Estimated Value of Purchased Capacity and Other Contributions
DMWWmaintainsWholesaleWaterServiceMasterAgreementswithapproximately12communitiesintheGreaterDesMoinesregion.TheseagreementsprovidedamechanismforwholesalecustomerstocontributefundstoDMWWinexchangeforacommitmentbyDMWWtosupplyaspecificamountofpeakdaywater,orcapacity.Basedonareviewoftheagreementsandotherinformation,Black&VeatchdeterminedthatfundscontributedbythesecustomerswereprimarilyusedtoconstructDMWW’sMcMullenWTP(includingrawwaterassets),SaylorvilleWTP(includingrawwaterassets),SaylorvilleWTPFeederMain,andtwoASRwells.Therangeofvaluefortheseassetsisapproximately$71,791,000to$95,177,300,withamidrangevalueof$83,484,200.
Additionally,itwasdeterminedthatarecentprojecttoenhancewatersupplytotheeasternportionoftheregionalsystemwascontributedbythreecommunities.Theestimatedvalueofthisprojectrangesfromapproximately$12,422,200to$13,455,600,withamidrangevalueof$12,939,000.
Replacement
Original Cost Cost
Line Original Replacement Accumulated Accumulated
No. Description Cost Cost Depreciation Depreciation OCLD RCLD
1 Des Moines Water Works $288,395,300 $692,556,400 $78,733,700 $327,320,800 $209,661,600 $365,235,600
2 West Des Moines Water Works $27,060,600 $61,177,000 $9,900,400 $27,349,700 $17,160,200 $33,827,300
3 City of Altoona $8,145,700 $23,050,800 $3,857,400 $13,600,700 $4,288,300 $9,450,100
4 City of Ankeny $2,279,800 $3,310,400 $468,600 $729,700 $1,811,200 $2,580,700
5 Urbandale Water Works $870,900 $1,680,000 $0 $0 $870,900 $1,680,000
6 Estimated Valuation $326,752,300 $781,774,600 $92,960,100 $369,000,900 $233,792,200 $412,773,700
7 Mid Range Estimate $323,283,100
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TherewerealsocontributionsidentifiedforassetssuchasthePolkCityfeedermainandWDMWW’s98thStreetElevatedStorageTankwhichwereincorporatedintotheStudy.
WithintheFinancialAnalysisportionofthisReport,thesevaluesaredeductedfromtheapplicableentity’soverallvalue,andappliedtotheindividualutilitiesorcommunitiesthatmadethecontribution.ThenetmidrangevalueapplicabletoDMWWisapproximately$196.5million.
1.6 FINANCIAL ANALYSIS Afinancialanalysiswasconductedto1)defineanapproachforhowregionalparticipantscouldformaRegionalProductionUtilityonanequalbasis;and2)determinetheestimatedeffectiverateper1,000gallonsthatwouldapplytoparticipantsforwaterservicefromtheRegionalProductionUtility.AsignificantassumptioninthefinancialanalysisisthatallcurrentpurchasedcapacitycustomersandDMWWwouldparticipateinthenewRegionalProductionUtility.
1.6.1 Net Value Analysis
TheNetValueanalysisreflectsthevaluebroughttothetablebypotentialparticipantsintheRegionalProductionUtility.Thenetvalueperentityreflectstheirrespectivevalue,offsetbyoutstandingnetdebtservicethatisheldbyDMWW,primarilyrelatedtopurchasedcapacitycontributions.ThefollowingTablepresentsthenetvaluebyentitybasedonthemidrangeestimateofvaluedeterminedintheValuationEstimatesectionofthisReport.
Table 1‐3 Summary of Net Value per MGD by Entity
AsisseeninColumns1and2ofTable1‐3above,theentitieshavevaryinglevelsofclaimsonthetotalcapacityoftheregionalsystem.ThepurchasedcapacitycustomershavetheiramountsthathavebeencontractuallyagreedtowithDMWW.Inadditiontopurchasedcapacityamounts,WDMWW,Altoona,andAnkenyretainthecapacityrelatedtotheirtreatmentandASRfacilitiesthatwouldbetransferredtotheRegionalProductionUtility.DMWWretainsthetotalcapacityoftheDMWWsystem,lessthepurchasedcapacityamountspreviouslymentioned(approximately116mgd–56.137mgd=59.86mgd).
(1) (2) (3) (4) (5) (6) (7) (8)
Estimated Estimated
% Estimated DMWW DMWW % Net
Line Total Total Mid Range Outstanding Debt Service Net Net Value
No. Description Capacity Capacity Value Debt Reserve Value Value per mgd
mgd =(3)+(4)+(5) =(6)/(1)
Contributing Entities
1 Des Moines Water Works 59.86 44.63% $196,459,400 ($5,996,800) $703,400 $191,166,000 65.17% $3,193,400
2 Polk Co. (SE and Unincorporated) 1.95 1.45% $3,895,200 ($679,800) $0 $3,215,400 1.10% $1,648,900
3 Berwick Water Association 0.25 0.19% $371,800 ($56,300) $45,100 $360,600 0.12% $1,442,400
4 Urbandale Water Works 15.30 11.41% $24,028,800 ($11,204,700) $1,609,000 $14,433,100 4.92% $943,300
5 West Des Moines Water Works 18.87 14.07% $36,457,400 ($4,541,500) $708,100 $32,624,000 11.12% $1,728,600
6 Ankeny 12.60 9.39% $15,339,900 ($9,983,100) $959,500 $6,316,300 2.15% $501,300
7 Clive 6.98 5.20% $11,967,400 $0 $0 $11,967,400 4.08% $1,714,500
8 Waukee 3.69 2.75% $6,287,100 ($805,100) $171,000 $5,653,000 1.93% $1,530,300
9 Warren Rural Water 3.25 2.42% $4,827,300 $0 $0 $4,827,300 1.65% $1,487,200
10 Xenia Rural Water 2.95 2.20% $4,385,700 $0 $0 $4,385,700 1.50% $1,487,200
11 Norwalk 1.97 1.47% $2,922,200 ($412,400) $146,500 $2,656,300 0.91% $1,351,800
12 Bondurant 1.20 0.89% $1,784,600 ($684,800) $77,800 $1,177,600 0.40% $981,300
13 Altoona 4.90 3.65% $12,337,600 $0 $0 $12,337,600 4.21% $2,517,900
14 Polk City 0.35 0.26% $2,218,700 $0 $0 $2,218,700 0.76% $6,339,100
15 Total 134.12 100.00% $323,283,100 ($34,364,500) $4,420,400 $293,339,000 100.00% $2,187,100
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Executive Summary 8
ThenetvaluebyentityisreflectedinColumn6,alongwiththeassociatedpercentageoftotalnetvalueinColumn7.ThenetvaluepermgdoftotalcapacityisreflectedinColumn8andshowsthatindividualentitiesarecontributingadifferentnetvaluepermgdtotheRegionalProductionUtility.
AlignmentofnetvaluepermgdbyentityprovidesfortheformationoftheRegionalProductionUtilitywithparticipantsonanequalbasis.Toachievethisalignment,Black&Veatchusedatwo‐stepprocess.First,acashpaymenttoDMWWwasassumedtoreduceitsoverallnetvaluepermgdtoalevelclosertotheotherentities.Second,thecontributionbyentitythatwouldbringallparticipantsintoalignmentonanetvaluepermgdbasiswasdetermined.Table1‐4presentsthealignmentofnetvaluepermgdbyentity.
Table 1‐4 Summary of Alignment of Net Value per MGD by Entity
Ascanbeseen,thecashpaymentof$100milliontoDMWWinLine1resultsinanadjustednetvaluepermgdofapproximately$1,522,900.Black&VeatchthenmadetheadjustmentsseeninColumn3toaligneachentitywithDMWWatanetvalueof$1,522,900permgdoftotalcapacity.PositivevaluesinColumn3reflectcontributionsthatwouldhavetobemadebyentitiestothenewRegionalProductionUtility,whilenegativevaluesreflectcontributionsthatwouldhavetobemadetotheentities.Asforregionalcommunitiesthatcurrentlydonothavepurchasedcapacityagreements,thenetvaluepermgdamountof$1,522,900,multipliedbyneededcapacity,couldprovidethebuyinvaluenecessaryforachievingmembership.
OneimpacttotheRegionalProductionUtilitywouldbethelikelyneedtoissuedebttoperformthecashpaymentstoDMWW.Thisincludesthepaymenttoretiredebtrelatedtothecorenetwork,andthe$100millioncashpaymentnotedabove.Table1‐5presentsasummaryofthetotalmidrangevalue,andresultingnetvaluefortheRegionalProductionUtility.
(1) (2) (3) (4) (5) (6)
Net Adjusted
Cash Payment Contributions Adjusted Restated Net
Line Net Des Moines (To)/From Net Total Value
No. Description Value Water Works Other Entities Value Capacity per mgd
(1)+(2)+(3) (4) / (5)
Contributing Entities
1 Des Moines Water Works $191,166,000 ($100,000,000) $91,166,000 59.86 $1,522,900
2 Polk Co. (SE and Unincorporated) $3,215,400 ($245,800) $2,969,600 1.95 $1,522,900
3 Berwick Water Association $360,600 $20,200 $380,800 0.25 $1,522,900
4 Urbandale Water Works $14,433,100 $8,867,400 $23,300,500 15.30 $1,522,900
5 West Des Moines Water Works $32,624,000 ($3,882,200) $28,741,800 18.87 $1,522,900
6 Ankeny $6,316,300 $12,872,400 $19,188,700 12.60 $1,522,900
7 Clive $11,967,400 ($1,337,400) $10,630,000 6.98 $1,522,900
8 Waukee $5,653,000 ($27,300) $5,625,700 3.69 $1,522,900
9 Warren Rural Water $4,827,300 $116,100 $4,943,400 3.25 $1,522,900
10 Xenia Rural Water $4,385,700 $105,500 $4,491,200 2.95 $1,522,900
11 Norwalk $2,656,300 $336,200 $2,992,500 1.97 $1,522,900
12 Bondurant $1,177,600 $649,900 $1,827,500 1.20 $1,522,900
13 Altoona $12,337,600 ($4,875,300) $7,462,300 4.90 $1,522,900
14 Polk City $2,218,700 ($1,685,700) $533,000 0.35 $1,522,900
15 Total $293,339,000 ($100,000,000) $10,914,000 $204,253,000 134.12 $1,522,900
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BLACK & VEATCH | Executive Summary 9
Table 1‐5 Breakdown of Total Mid Range Value
1.6.2 Development of Five Year Financial Projection
ThesecondpartofthefinancialanalysisistodevelopanestimatedfiveyearfinancialprojectioniftheRegionalProductionUtilityweretobeformed,aswellastheresultingeffectiverateonaper1,000gallonbasis.
1.6.2.1 Revenue Requirements
Forpurposesofthefinancialanalysis,Black&Veatchdevelopedafiveyearprojectionofrevenuerequirementsthatinclude1)operationandmaintenance(O&M)expense;2)anydebtserviceonoutstandingbondissues;3)annualprovisionforrenewalandreplacementcapitalofthesystem;4)othercashfundedcapital.
AsummaryoftherevenuerequirementscanbeseeninthefollowingTable1‐6.AscanbeseenonLine5,areasonableprojectionoftherevenuerequirementsfortheRegionalProductionUtilitystartsatapproximately$44.9millionin2016,andincreasestoapproximately$49.9millionby2020.
Table 1‐6 Estimate of Projected Revenue Requirements
1.6.2.2 Projected Billed Usage and Effective Rate
Todeterminetheeffectiverateper1,000gallons,itisnecessarytoestimatetheprojectedbilledusagethattheRegionalProductionUtilitywouldusetorecoverrevenue.Black&VeatchutilizedhistoricalbilledusageprovidedbyDMWWforthemajorityofentities.AdditionalbilledusagerelatedtoWDMWWandAltoonacustomersthatareservedbythoseentitieswasalsoincludedtoderiveatotalestimateofregionalbilledusage.Forprojectionpurposes,Black&VeatchassumedthatDMWWbilledusagedoesnotgrowoverthefiveyears.Forallotherbilledusage,itisestimated
Line Breakdown
No. Description of Value
1 Total Value Estimate ‐ Mid Range $323,283,100
2 Cash Payment to DMWW ($100,000,000)
3 Net Cash Payment to DMWW for Debt ($29,944,100)
4 Contributions From Participants $22,967,700
5 Contributions To Participants ($12,053,700)
6 Total Net Value (Equity) $204,253,000
Line
No. Description 2016 2017 2018 2019 2020
1 Operation & Maintenance Expense $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000
2 Debt Service $8,241,000 $8,241,000 $8,241,000 $8,241,000 $8,241,000
3 Cash Financed Major Capital $0 $0 $500,000 $0 $3,000,000
4 Capital Renewals & Replacements $11,616,000 $11,289,000 $11,164,000 $11,616,000 $11,616,000
5 Total Revenue Requirements $44,929,700 $45,354,800 $45,392,800 $46,109,400 $49,897,000
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Executive Summary 10
thattheannualgrowthwillbe1.5percent.Thisresultsinaneffectivegrowthrateof1.0percentannually.ThefollowingTable1‐7presentstheprojectofbilledusageandannualrevenuerequirements.Theeffectiveratebyyearisshownonaper1,000gallonsbasis.
Table 1‐7 ‐ Estimated Effective Rate
LINE NO. DESCRIPTION 2016 2017 2018 2019 2020
1 Annual Revenue Requirements $44,929,700 $45,354,800 $45,392,800 $46,109,400 $49,897,000
2 Projected Billed Usage (1,000 gal.) 17,857,100 18,010,100 18,165,300 18,322,900 18,482,900
3 Estimated Effective Rate ($/1,000 gal.) $2.52 $2.52 $2.50 $2.52 $2.70
1.6.3 Analysis of Effective Rate
Forcomparisonpurposes,Black&VeatchlookedatthecurrentratepaidbyseveralpurchasedcapacitycustomerstoDMWWunderthecurrentwholesalearrangement.DMWWrecentlyapprovedapurchasedcapacityrateof$1.53per1,000gallons.Forcomparisontothefiveyearprojection,Black&Veatchassumesthatthiswillincreaseto$1.59per1,000gallons.InadditiontothepurchasedcapacityratepaidtoDMWW,entitiesmustalsopaydebtservicerelatedtotheirpurchasedcapacitycontributiontoDMWW.Black&Veatchderivedanestimateofthiscostper1,000gallonsbytakingtheannualprincipalandinterestforeachentityanddividingitbytheirrespectivebilledusage.TheestimatedeffectiverateforWDMWW,CityofAnkeny,UrbandaleWaterWorks,andtheCityofWaukeeispresentedinLine2ofTable1‐8.ThecompleteTablepresentsacomparisonoftheeffectiverateunderaRegionalProductionUtilitytotheestimatedeffectiverateunderthecurrentwholesalearrangement.
Table 1‐8 ‐ Effective Rate Comparison
LINE NO. DESCRIPTION
CITY OF ANKENY
URBANDALE WATER WORKS
CITY OF WAUKEE
WEST DES MOINES WATER WORKS
1 2016 Effective Rate – Regional Production Utility ($/1,000 gal.) $2.52 $2.52 $2.52 $2.52
2 Current Effective Rate ($/1,000 gal.) $2.15 $2.27 $2.37 $2.00
3 % Difference (Regional to Current) $17.2% $11% 6.3% 26.0%
Ascanbeseen,theestimatedeffectiveratefortheRegionalProductionUtilitywouldlikelybehighercomparedtothecurrenteffectiveratefortheabovecommunities.Whiletheabovecomparisonprovidesanindicationofthecurrentcomparison,Black&VeatchrecommendsthateachentityundertakeitsownseparateanalysisaseachentityisfamiliarwiththecostsitmayhaveincurredtopurchasecapacityorcontributetoDMWWovertheyears.Ingeneraltheestimatedeffectiverateisnotcompletelyoutoflinewithcurrentratespaidbyregionalentities.
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BLACK & VEATCH | Executive Summary 11
1.6.4 Future Considerations
WhilethecomparisonoftheeffectiverateunderaRegionalProductionUtilitycomparedtothecurrentwholesalearrangementprovidesvaluableinformationtoseehowcurrentcostsmightchange,itisalsoimportanttoconsiderthevalueofpotentialchangestomeetingfuturegrowthdemands.
Underthecurrentwholesalearrangement,autilitythatneedsadditionalcapacitymorethanlikelymustobtainitfromDMWW.Black&VeatchunderstandsthatDMWWwillidentifythecostofthenecessaryimprovementstoaddthecapacity,andthenpassthatcostsolelyalongtotheutilitythatrequiresthecapacity.ThisapproachbyDMWWisnotuncommonandisdonetoprotectexistingcustomersfrombeingoverlyburdenedwithcostsforadditionalcapacitythatmaynotbenefitthem.
OnepotentialoptioncouldbefortheRegionalProductionUtilitytoshareintheoverallcostsforexpandingthecapacityofthesystem.ThesharingofexpansioncostsunderthisoptionwouldbeconsistentwiththenetvalueapproachoutlinedinthisReportthatbringsparticipantsintotheRegionalProductionUtilityonanequalbasis(netvaluepermgd).
Table1‐9providesahypotheticalexampleforconsideration.Underthecurrentsituation,thefourutilitiesrequireanadditional5.0mgdofcapacityeach.Thehypotheticalprojectcostof$60millionwouldbesplitbetweentheutilitiesonanequalbasis.Theassociatedbondissueresultsinannualprincipalandinterestpaymentsof$867,000peryear,andthesepaymentsarepassedonbyDMWWtotheutilities.Thisresultsinvaryingcostper1,000gallonsbasedontheirrespectivebilledusageforrecoveringthecost.
Thealternativeoptionreflectsthesharingofsystemexpansioncostsof20.0mgdamongallregionalparticipants.Theunitcostunderthisoptionis$0.20per1,000gallons.ForUtilityNo.2,thiswouldresultinannualsavingsofapproximately$375,000(($0.35‐$0.20)X2,500,000).
Table 1‐9 Future Expansion Example
LINE NO. UTILITY
CAPACITY NEEDED (MGD)
ANNUAL PRINCIPAL
AND INTEREST (1)
BILLED USAGE
(1,000 GAL.)COST PER 1,000 GAL.
CURRENT SITUATION
1 Utility No. 1 5.0 $867,000 1,200,000 $0.72
2 Utility No. 2 5.0 $867,000 2,500,000 $0.35
3 Utility No. 3 5.0 $867,000 1,400,000 $0.62
4 Utility No. 4 5.0 $867,000 500,000 $1.73
POTENTIAL OPTION – REGIONAL PRODUCTION UTILITY
5 Total Regional Utility 20.0 $3,470,000 17,557,917 $0.20
Note: Hypothetical analysis for illustration purposes only.
(1) Estimated based on hypothetical project cost of $60M, 30‐year bond using 4.0% annual interest rate.
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BLACK & VEATCH | Executive Summary 12
Existingutilitiesand/orcommunitiesthatarecustomersofDMWW,andthatarenotanticipatinggrowthmaybalkattheoptionofaregionalwaterutilitysharingexpansioncostsamongallregionalentities.However,theseentitiesmustconsiderthepotentialofgrowthcommunitiespursuingtheirfuturewaterneedseitherindividually,orasagroupseparatefromDMWW.OvertimethelossofrevenuefromanycustomerthatleavesDMWWcouldresultinrateincreasestocustomersthatremain,asfixedcostsoftheDMWWsystemarespreadoverasmallerbilledusagebase.
1.7 GOVERNANCE ThecreationofanewRegionalProductionUtilitywouldbeasignificantchangefromthecurrentarrangementthathasseenDMWWasthekeyplayerinthedevelopmentofthecurrentregionalwatersystem.GovernanceoftheprovisionofwatertothesurroundingcommunitiesviathecorenetworkisprimarilyadministeredbytheDMWWBoardofDirectors.ThisBoardiscurrentlyresponsiblefortheestablishmentofratesandcharges,systemplanning,capitalfinancing,andothermiscellaneousresponsibilitiesthatmustbehandledonadaytodaybasis.
1.7.1 Potential Initiating Principles
AsCIRDWCmembersconsiderwhethertoestablishaRegionalProductionUtility,thereareseveralitemsorprinciplesderivedfromthestakeholderinputandSWOTanalysisthatwereimportanttomembers.TheseitemswerenotedbyBlack&Veatchasbeingimportanttooneorseveralmembers,andcouldprovidethebasisforafoundingdocumentcreatingtheRegionalProductionUtility.Theyareprovidedhereforconsideration:
FutureSourceofSupply–Memberswouldneedtoagreenottoindependentlydeveloptheirownsourceofsupply,unlessapprovedbytheRegionalProductionUtility.
FuturePurchaseofFinishedWater–Memberswouldneedtoagreetopurchaseallfuture,finishedwaterfromtheRegionalProductionUtility.
WaterQuality–MemberswouldneedtoagreetosupportallapprovedinitiativesbytheRegionalProductionUtilityrelatedtosourceandfinishedwaterquality.
SystemPlanningandExpansion–Memberswouldneedtoagreetoparticipateinregionalwatersystemplanningtobenefittheentireregion.
OutstandingDebt–MemberswouldneedtoagreethatalldebtrelatedtotheirindividualsystemsorpreviousrelationshipwithDMWWremainseparatefromtheRegionalProductionUtility.
RatesandCharges‐Memberswouldneedtoagreetoestablishsufficientratesandchargesthatsupportandmaintaintheexistingcorenetwork,aswellasexpandthecorenetworktomeetfutureregionaldemand.
1.7.2 Key Governance Issues
ThisStudyaddressesseveralkeyaspectofgovernancethatwillneedtobeaddressedbytheregionalentities.
BoardMakeup–DuringthestakeholderinputandSWOTanalysis,are‐occurringthemefromCIRDWCmemberswastheirdesiretohaveaseatatthetablewithrespecttogovernanceissues,includingestablishmentofratesandchargesandsystemplanning.ThiswillrequirealargeBoard
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BLACK & VEATCH | Executive Summary 13
thatwillneedtoaccommodatevaryingviewpointsongovernanceandregionalwaterissues.CIRDWCmembersdidstatethatthelargeWRABoardfunctionseffectively.
InBlack&Veatch’sexperience,aneffectiveBoardmakeupwouldincludememberswhoareappointedbythegoverningbodiesoftheirrespectivecommunities.TheappointmentofBoardmembersispreferabletoaBoardthatismadeupofelectedmembers.
AprofessionalstaffwouldlikelybenecessarytoassisttheBoardinthedaytodayoperationoftheRegionalProductionUtility.StaffwouldincludeaGeneralManagerorExecutive,FinancialOfficer,ChiefEngineer,HumanResourceManager,andLegalManager.
BasedonfeedbackfromCIRDWCmembersandBlack&Veatch’sexperience,importantcommitteeswouldlikelyinclude:
● ExecutiveCommittee
● Planning/TechnicalCommittee
● FinanceCommittee
VotingRights–DuringthestakeholderinputphaseoftheStudy,amajorityofmembersagreedthatitwouldbereasonabletoassignagreaterweightintermsofvotingandgovernancetolarger(intermsofpopulation,usage,orotherwater‐relatedfactors)communities.WiththeNetValueanalysisaligningmembersonanequalbasisintermsofnetvaluepermgd,itcouldbepossibletoapportionvotesinseveralwaysasagreedtoatthefoundingoftheRegionalProductionUtility.Examplesincludeusingthetotalnetvaluecontributedbymembersorpopulation.
GrowthofRegionalSystem–Growingtheregionalwatersysteminanefficientmannertothebenefitofallmemberswillbeanimportantconsiderationformembers.Thisincludesissuessuchasratesandcharges,financingofexpansionimprovements,andserviceissues.Intermsoffinancinggrowth,memberswillneedtodecideonwhethertoadoptan“allin”approachwhereallmembershelpwithexpandingthecoresystemtothebenefitoftheregion,orwhethertofinanceexpansionprojectsthatarerecoveredonlyfromentitiesthatrequiretheexpansion.
1.7.3 Governance Alternatives
DuringthestakeholderinputphaseoftheStudy,manyoftheCIRDWCmembersstatedthatthecurrentgovernancestructureoftheDesMoinesMetropolitanWastewaterReclamationAuthority(WRA)waseffective.MostoftheCIRDWCmembersparticipateasmembersoftheWRABoardthatoverseestheoperationoftheregionalwastewatersystem.Black&VeatchevaluatedseveralgovernancealternativesthatcouldbeconsideredbyCIRDWCmembers.Thesealternativesarediscussedbelow:
TraditionalAuthority–ThisalternativeismostcommoninBlack&Veatch’sexperienceandisalsosimilartothefamiliarWRAmodel.Inthisalternative,theBoardhasresponsibilityforthecorefunctionsoftheutility,includingfinancial,operational,planning,andregulatoryfunctions.Membersaretypicallyappointedbygoverningbodiesofthecommunitiesthatareservedbytheutility.Aprofessionalstaffmanagesthedaytodayoperationoftheutility.
ModificationofCurrentGovernanceArrangement–OnealternativetomovingfullytoaRegionalProductionUtilitycouldbeamodificationofthecurrentregionalwaterservicearrangement.Currently,managementofregionalwaterproductionandtransmission,financeandrates,and
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BLACK & VEATCH | Executive Summary 14
otherimportantfunctionsareoverseenbytheDMWWBoardofDirectors.Modificationstothisarrangementcouldbemadetoallowregionalentitiesmoreinputintotheoverallgovernanceoftheregionalwatersystem.
PublicPrivatePartnership–ThisalternativegovernanceoptioncouldtaketheformofaleasearrangementbetweenDMWWandaprivateorinvestor‐ownedutility.Theadvantagesofthisalternativegovernanceoptioncouldinclude1)retainownershipofassets;2)leasepaymentstoDMWWandpurchasedcapacitycustomers;3)potentialoperationalcostsavings;and4)mitigationofpoliticaldifferencebetweenregionalentities.Thepotentialdrawbackstothisgovernancealternativeare1)lossofcontrolinregionalwatersupplydecisions;2)potentialhigherratesduetorequiredhigherreturnoninvestment;and3)minimalinputintoregionalplanning.
1.8 CONCLUSION Black&VeatchwasretainedbyCIRDWCtostudyseveralimportantaspectswithrespecttopotentiallyformingaRegionalWaterProductionUtilityfortheGreaterDesMoinesregion.InitialtasksfocusedonreceivinginputfromCIRDWCmembersandincludedstakeholderinputandaSWOTanalysis.Anestimatedvaluationandfiveyearprojectionofpotentialrevenuerequirementswasderivedtodevelopaneffectivewaterrateper1,000gallonsformemberstocomparewiththeircurrentrate.GovernanceparameterswereanalyzedtounderstandissuesthatmemberswillhavetoagreetobeforeformingtheRegionalProductionUtility.
FromBlack&Veatch’sperspective,thisfirststepatevaluatingthepotentialforformingaRegionalProductionUtilityhasprovidedvaluableinformationforCIRDWCmembers.Thisinformationincludes:
ConsolidatedCIRDWCmemberinputintothepositiveandnegativeaspectsofformingaRegionalProductionUtilityversusthecurrentregionalarrangement.
Anestimatedvaluationofregionalproductionassets.
ANetValueanalysisthatestablishesmemberscomingintotheRegionalProductionUtilityonanequalbasis.
AnestimatedeffectivewatertreatmentandtransmissionrateforCIRDWCmemberstocomparetotheirexistingrates,aswellasfuturefinancialconsiderationsforbothgrowthandnon‐growthentities.
Considerationofgovernancecriteriasuchasboardresponsibilities,potentialcommittees,andpotentialweightedvotingoptions.Additionallyconsideredgovernancealternativestothecurrentregionalmethodforsupplyingwatertotheregion.
FromBlack&Veatch’sperspective,noneoftheinformationderivedduringthisStudyappearstobea“dealbreaker.”However,werealizethatCIRDWCmemberswillneedtodigesttheinformationandconsiderthebestpathforwardfortheircommunities.IfCIRDWCmembersdeterminethattheresultsofthisStudyarefavorableformovingforward,Black&Veatchwouldrecommendthefollowing:
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Executive Summary 15
AdditionalevaluationanddiscussionofissuesraisedinthisStudybysub‐committeesoftheCIRDWCBoard.Thiscouldincludesub‐committeesfocusedonStudyelementssuchasfinancial,technical,andgovernanceissuesshouldCIRDWCmembersdecidetocontinuemovingforward.
Futurestepscouldincludeadditionalfinancialandlegalduediligencetoprovideamoredetailedfeasibilityassessment;draftingofmemorandumofunderstandingthatoutlineskeyprinciplesofaRegionalProductionUtility;andpublicinput.
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BLACK & VEATCH | Introduction 16
2 Introduction
2.1 PARTICIPANTS DesMoinesWaterWorks(DMWW)provideswatertoapproximatelytwenty‐twosuburbancommunitiesandwaterdistrictsintheGreaterDesMoinesregion.Table1‐1isalistofthesecommunitiesandthecurrenttypeofserviceand/oragreementeachcommunityhaswithDMWW.EachofthecommunitiesshowninTable2‐1hastheopportunitytoparticipateinthenewRegionalProductionUtility.ThelastcolumninthetableindicatescommunitiesthathaveexpressedpotentialinterestinjoiningaRegionalProductionUtilityviaparticipationinthisStudyforCIRDWC.
Table 2‐1 Full Service and Wholesale Customers of DMWW
COMMUNITY
TOTAL
SERVICE
AGREEMENT WHOLESALE
PURCHASED
CAPACITY
REGIONAL
UTILITY
PARTICIPANT(a)
Alleman
Altoona
Ankeny
Berwick
Bondurant
Clive
Cumming
Greenfield Plaza
Johnston
Norwalk
Pleasant Hill
Polk City
Polk County Benefited Water District
Polk County RWD 1 (b)
Runnells
Unincorporated Warren County
Urbandale
Warren Rural Water
Waukee
West Des Moines
Windsor Heights
Xenia (b) (a) Des Moines Water Works is a CIRDWC member and participant in this Study.
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BLACK & VEATCH | Introduction 17
(b) Polk County RWD has reached an agreement to sell its purchased capacity to Xenia. As of the date of this report, the transaction has not been approved by the DMWW Board of Trustees.
Forcommunitiesthathaveatotalserviceagreement,DMWWprovidesservicessuchasdistributionsystemoperation,maintenanceandreplacementofmainsandcustomerservice.ItisassumedthatDMWWwouldcontinuetoprovidetheseservicestothesecommunitiesifaRegionalProductionUtilitywasformed.Wholesalecustomersaresuppliedwaterthroughoneormoremastermeters.WholesalecustomershadtheoptioninthepasttopurchasecapacityinDMWW’ssystem.Thisupfrontinvestmentininfrastructureessentially“buysdown”thecommunity’srateforwholesalewaterbyeliminatingthereturnoninvestedcapitalcomponentoftheDMWWwholesalerate.Table2‐1indicateswhichwholesalecustomerscurrentlyhavepurchasedcapacityfromDMWW.IfaRegionalProductionUtilityisformed,thisStudyassumesthatthesepurchasedcapacitycontractswillbeeliminatedandwaterwillbeprovidedbythenewRegionalProductionUtility.ForcommunitiesthatdidnotparticipateinthisStudysponsoredbyCIRDWC,thisStudyassumestheywillcontinuetoreceivetheirwaterfromDMWWviathenewRegionalProductionUtility.
2.2 SCOPE OF WORK TheStudywasconductedpertheScopeofWorkoutlinedintheConsultingServicesAgreementbetweenBlack&VeatchandCIRDWCdatedJune27,2014.ThegeneralelementsoftheScopeofWorksareasfollows:
Collectandreviewdatarelatedtofinancial,operational,andassetinformationtogainanunderstandingofthecurrentmethodologyusedtoprovidedrinkingwaterservicetotheGreaterDesMoinesregion.
ConductstakeholderinputsessionswithCIRDWCmemberstogainanunderstandingoftheircurrentoperations,aswellastoreceivetheirinputwithrespecttotheStudyandtheformationofapotentialregionalwaterproductionentity.
ConductSWOTanalysiswithCIRDWCmemberstounderstandthebenefitsanddrawbacksofformingaRegionalProductionUtilityversusthecurrentwholesaleservicearrangement.
PerformestimateoffairmarketvalueofassetsthatwouldcomprisetheRegionalProductionUtilityusingtheCostApproachmethodologyofvaluation.
PerformafinancialanalysistodeterminethepotentialimpactonwholesalecustomerratesunderaRegionalProductionUtility.
Evaluatethreepotentialgovernancealternatives,includingissuesofpotentialboardcomposition,votingrights,andresponsibilities.
AttendCIRDWCmeetingstobriefCIRDWCmembersonprogressoftheStudy.
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BLACK & VEATCH | Stakeholder Input and SWOT Analysis 18
3 Stakeholder Input and SWOT Analysis
3.1 STAKEHOLDER INPUT InJulyof2014,Black&VeatchmetwithCIRDWCmemberstobetterunderstandissuessurroundingthepotentialdevelopmentofaRegionalProductionUtility,andtoallowmemberstheopportunitytoprovideinputintothedevelopmentoftheStudy.TheinputfromCIRDWCmemberswasalsovaluableforpreparingandconductingtheStrengths,Weaknesses,Opportunities,andThreats(SWOT)Analysisthatwillbediscussedsubsequently.Thefollowingprovidesalistofthecommunitiesand/ororganizationsthatBlack&Veatchmetwithtoreceivestakeholderinput:
WestDesMoinesWaterWorksandCityofWestDesMoines DesMoinesWaterWorksandCityofDesMoines PolkCounty CityofJohnston CityofWaukee CityofPleasantHill XeniaRuralWater UrbandaleWaterWorksandCityofUrbandale CityofNorwalk WarrenCountyRuralWater CityofBondurant CityofAltoona CityofAnkeny CityofPolkCity CityofWindsorHeights CityofClive
3.1.1 Input
PriortomeetingwithCIRDWCmemberstoreceivetheirinput,Black&Veatchpreparedaquestionnairetoallowmemberstoconsidercertainissues,aswellastoprovidebasicinformationontheirrespectivecommunitiesand/orutilities.ThequestionnaireisprovidedforreferenceinAppendixA.Keyelementsofthequestionnaireincludedunderstandingthecharacteristicsofeachcommunityorutility.Thesecharacteristicsincludeditemssuchas1)currentandgeneralconfigurationofindividualentity’swatersystem;2)numberoftypesofwaterutilitycustomers;3)annualandpeakwaterusage;4)numberofemployees;and5)annualbudget.ThisinformationwasimportantasitallowedBlack&VeatchtounderstandthescopeandsizeofmembersthatrequirewaterserviceintheGreaterDesMoinesregion.
Thenextcomponentofthequestionnairewasrelatedtounderstandingeachentity’sstrategy,particularlyrelatedtoprovidingwaterservice.Itemsinthissectionofthequestionnairefocusedonunderstandingwhetherthecommunityinquestionhadastrategicplan;estimatedgrowthtounderstandpotentialfuturewaterneeds;plansformeetingfuturewaterneeds;andgeneralinputrelatedtothecurrentquantityandqualityofthewatersuppliedtocustomers.
TheRegionalizationsectionofthequestionnaireprimarilyfocusedonreceivinginputaboutthebenefitsanddrawbacksofapotentialRegionalProductionUtility.Thus,memberswereaskedto
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BLACK & VEATCH | Stakeholder Input and SWOT Analysis 19
providetheiropinionastowhatwouldbethreebenefitstoformingaRegionalProductionUtility;andconversely,whatwouldbethreefearsordrawbackstoformingaRegionalProductionUtility.Additionally,memberswereaskedtoprovidetheir“bestcase”scenarioforprovidingwaterservicetotheregion.
ThenextsectionofthequestionnairefocusedongovernanceofthepotentialRegionalProductionUtility.Memberswereaskedtoprovideinputonseveralgovernanceparametersincluding1)generalstructureofgoverningBoard;2)levelofdaytodayinputoftheentityinthepotentialgoverningBoard;3)numberofmembers,professionalbackground,andgeographicalrepresentation;4)keyfocusareasandresponsibilitiesofpotentialBoard;and5)frequencyofpotentialBoard’smeetings.
Thequestionnairealsoincludedasectiononwatersupplytounderstandeachmember’sconcernsandinputrelativetothecurrentmethodofsupplyingwater.Questionsinthissectionfocusedonthestabilityofthecurrentwatersupply;themember’sabilitytocontributetotheregionalwatersupply;theprosandconsofthecurrentwatersupplysituation;thepotentialbenefitswithrespecttosupplyfromformingaRegionalProductionUtility.
TherewasalsoasectiononFinancialandRateissuesforeachmembertoprovideinput.ThepurposeofthissectionwastounderstandthecurrentratesthatmemberspaytoDMWWforwaterservice,aswellasunderstandingtheratesthateachmemberchargesitsowncustomersforoverallwaterservice.Additionally,memberswereaskedtheiropinionofthevalueofwaterserviceprovidedbyDMWW,aswellastheiropinionontransferringtheirwaterproductionassets,ifany,toanewproductionentity.
AsectionrelatedtoPublic/StakeholderinputwasincludedinthequestionnairetoreceivefeedbackrelatedtowhateachmemberwouldhavetodointermsofpublicoutreachshouldaRegionalProductionUtilitybepursued.Thisincludedunderstandingtheprocessforeducatingcitizens,andwhatstepswouldberequiredforamembertoreceivethenecessarypermissiontojoinanewRegionalProductionUtility.Aquestionwasalsoaskedtogaugewhethermembersarealreadyparticipatinginotherregionalinitiatives.
Finally,memberswereprovidedaperiodoftheinterviewtoprovidetheirowninputifnotalreadycoveredaspartofthequestions.Thisallowedmemberstoeitherre‐emphasizeimportantelementsoftheStudy,oraddnewitemstodiscusswithBlack&VeatchrelativetotheStudy.
3.1.2 General Takeaways
Basedonthefeedbackreceivedfrommembersaspartofthestakeholderinput,thefollowingaregeneraltakeawaysderivedbyBlack&Veatchfromtheinterviews.Itshouldbenotedthatthetakeawaysbelowdonotnecessarilyreflectaunanimousopinionofallmembers,butaregeneraltakeawaysthatarederivedfromfeedbackfromseveralmembersduringourinterviews.
ThemajorityofmembersthatcurrentlyreceivetheirwaterservicefromDMWWareexpectingsteadygrowthinpopulationoverthecomingyears.
TherearemultipleplanninginitiativesforgrowthandeconomicdevelopmentbeingconductedthroughouttheDesMoinesmetroarea.WhilecommunicationbetweenDMWWandregional
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communitiesdoesoccurwithrespecttowaterissues,thereisnocoordinated,regionalplanningwithrespecttodevelopingfuturewatersupplytomeetprojecteddemands.
CurrentwholesalecustomersareveryinterestedinhavingmoreofasayinthefuturedevelopmentandprovisionofwaterserviceinthegreaterDesMoinesregion.
Generally,membersindicatedthatgovernancewithproportionaterepresentationwouldbeacceptableinanynewregionalwaterproductionentity.Therewereasmallnumberofparticipantsthatadvocatedforaonemember,onevoteapproachtogovernance.
CurrentwholesalecustomersexpressedfrustrationwithDMWW’scostofservicestudyandratesettingapproach;however,therewasnotanoverarchingviewthattheyarereceivingpoorvalue.Inseveralinstances,wholesalecustomersindicatedtheyarereceivinggoodvalueatthecurrentrate.
MembersindicatedthatdealingwithDMWWonoperationalissuesisveryeasyandprofessional.
MembersindicatedthatthefinishedwaterqualitytheyreceivefromDMWWisgenerallyverygood.
Membersindicatedthatthereisaconcernabouthowfuturewatersupplyandadditionalcapacitywillbedevelopedunderthecurrentframework.
TheinputfromCIRDWCmembersalsoprovidedissuestobefurtherassessedduringaStrengths,Weaknesses,Opportunities,andThreats(SWOT)analysistobeconductedaspartoftheStudy.Basedonthestakeholderinput,severalimportantquestionswereidentifiedbyBlack&Veatch:
WouldagovernancemodelthatissimilartothatusedtoprovidewastewaterservicetothegreaterDesMoinesareabeappropriateorapplicableforapotentialregionalwaterproductionentity?
Wouldthelevelofrepresentationchangeovertimedependingonchangestowaterusage,numberofcustomers,etc.?
Howcanthecurrentcostofserviceandrateprocessbeimproved?
WhatisthebeststructureforaddressingfuturewaterqualityandquantityissuesforthegreaterDesMoinesregion?
3.2 SWOT ANALYSIS AspartoftheStudy,SWOTanalysiswasperformedwiththeCIRDWCmembers.TheSWOTanalysiswasconductedonSeptember12,2014attheDesMoinesBotanicalGarden.CIRDWCmemberswerenotifiedoftheSWOTworkshopinadvanceandtherewasattendancefromamajorityofCIRDWCmembersparticipatingintheStudy.AsummaryofthepresentationmaterialsisincludedinAppendixB.
ASWOTanalysisisastructuredplanningmethodusedtoevaluatethestrengths,weaknesses,opportunities,andthreatsinvolvedinaprojectorinabusinessventure,inthisinstanceapotentialbusinessventurerelatedtoaregionalwaterproductionentity.ASWOTexerciseprovidesthestructuretoallowallparticipantstovoicetheirthoughts,opinionsandconcernsrelatedtopotentialbusinessventure.Italsoinvolvesidentifyingtheinternalandexternalfactorsthatarefavorableandunfavorabletoachievetheobjectiveofthebusinessventure.
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BLACK & VEATCH | Stakeholder Input and SWOT Analysis 21
Figure1providesavisualdepictionforassessingapotentialbusinessventure.ThefollowingaregeneraldefinitionsrelatedtotheSWOTcomponents:
Strengthsareinternalcharacteristicsorissuesthatgivetheprojectorbusinessventureadvantageoverothers
Weaknessesareinternalcharacteristicsorissuesthatplacetheprojectorbusinessventureatadisadvantage
Opportunitiesareexternalcharacteristicsorissuesthatgivetheprojectorbusinessventureadvantageoverothers
Threatsareexternalcharacteristicsorissuesthatplacetheprojectorbusinessventureatadisadvantage
Figure 1 SWOT Analysis Matrix
CIRDWCmembersweredividedintofourseparategroupsofapproximatelyeighttoninemembers.Ingeneral,Black&VeatchrequestednomorethantwoparticipantsfromeachCIRDWCmembertoprovideforabalancedandcandiddiscussion.Thefourseparategroupswerealsogenerallymixedtoprovidebalancedgroupsthatreflectthevariousentitiesthatcomprisethecurrentarrangementforprovidingregionalwater,i.e.,DMWW,wholesalecustomers,andtotalservicecustomers.Black&VeatchandHRGreenservedasfacilitatorsforthefourgroups,andanoverallfacilitatorfromBlack&Veatchmovedfromgrouptogrouptoresolveanyquestionsandkeepthegroupsonschedule.
Themorningportionofthedaylongsessionfocusedongeneratingthestrengths,weaknesses,opportunities,andthreatsofprovidingwaterunderthecurrentsituation.Thegroupsfocusedongeneratingfiveideasand/orconceptsforeachSWOTmatrixoption.Theafternoonsessionfocusedongeneratingthestrengths,weaknesses,opportunities,andthreatsofprovidingwaterunderapotentialRegionalProductionUtility.Aswiththemorningsession,thegroupswereaskedto
Strengths Weaknesses
Opportunities Threats
Helpful Harmful
Internal
External
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generateapproximatelyfiveideaand/orconceptsforeachSWOTmatrixoptionunderthisscenario.
BasedontheideasandconceptsgeneratedforeachSWOTmatrixoption,andforeachscenario,Black&Veatchcompiledtheresultsandassessedcommonthemesthatarosefromthesmallgroupsessions,comparingthethemesbetweenbothscenarios(currentscenariowherewaterisprovidedbyDMWWtowholesaleandretailcustomersvs.waterprovidedbyanewRegionalProductionUtility).Thesecommonthemeswerepresentedtotheentiregroupattheendofthedayforreview,clarification,anddiscussion.Asummaryofthethemesbyscenarioispresentedbelow:
STRENGTHS
Current
Staff Responsible and Knowledgeable Reliability of finished water Currently finished water quality is good Redundancy Multiple sources of supply
Ability of customer communities to make
independent decisions
Opportunity to choose level of service Knowledge of defined capacity limits for each
community
Regional Production Utility
More equal representation with regards to
governance, planning, and rates
More political influence at regulatory level
More political stability on governing board
Potential long‐term cost efficiencies (direct and
indirect)
Regional planning Provide relative savings – slow the rate of increase
ThecurrentstrengthsreflectthatDMWWstaffareknowledgeableandprovidereliableandqualityservice.ThecurrentsituationalsoallowsforwholesalecustomerstomakeindependentdecisionsunderthedefinedcapacitylimitsthattheyhaveestablishedwithDMWW.ThestrengthsrelatedtoapotentialRegionalProductionUtilityreflectgreaterrepresentationfromaregionalperspectiveforgovernance,planning,andrateissues.Additionalstrengthsincludegreaterpoliticalstabilitywithrespecttogovernance,andgreaterpoliticalinfluencewithrespecttoregulatoryandpoliticalissuesthatmayimpactregionalwaterissues.
WEAKNESSES
Current
Autocratic governance of water supply and production
No current Board representation of customer
communities
No accountability to customer communities for how
resources are spent or decisions made
Source water quality Source water quantity Competing priorities for responding to regional
growth
Availability of purchased capacity to meet growth
Regional Production Utility
Size of governing body Source water quality and quantity are still issues Change in workforce impacting level of service
Cost versus investment – long term change over
short term pain
Buy‐in costs Conflict between growth and reinvestment
Right now we know who to blame
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Forthecurrentsituation,weaknesseswereidentifiedaslackofregionalrepresentationwithrespecttogovernanceandplanningissues.Additionalweaknessesincludepollutantsimpactingthesourcewater,lessthanrobustsourcewaterquantityduringpeakdemandperiods,anduncertaintywithrespecttomeetingfuturedemandswithaninabilitytopurchasemorecapacityfromDMWW.TheweaknessesrelatedtoaRegionalProductionUtilitycouldincludeamorediversegoverningbodythatmaypresentchallengeswithbuildingconsensus.Additionally,theremaybeupfrontcostsrelatedtothetransactionthatcouldmakeserviceviaaRegionalProductionUtilitycostprohibitive.
OPPORTUNITIES
Current
Improve current processes
Individual communities continue to make
independent decisions
More inclusive governance and geographic diversity
of Board
Ability to improve watershed management
Regional Production Utility
Ability to influence quality and quantity Long term bonding capability
Predictability on revenue and costs Better control over resources Consistent message communicated with customers
Input into regional economic development
Underthecurrentsituation,membersindicatedthatthereareopportunitiesforimprovingcurrentprocesses,e.g.,ratemethodology.However,theopportunitieswouldbepursuedviamultiplegoverningBoardsactingindependently.ForthepotentialRegionalProductionUtility,membersviewedopportunitiesasbeingamorecoordinatedapproachtocontrollingwaterproductioncostsandassociatedrates.Theyalsoviewedamorecoordinatedapproachtoaddressorinfluencewaterquantityandqualityissuesfacingtheregion.
THREATS
Current
Competing interests for same source water
Division/breakup of current customer configuration
Availability of capacity to meet customer community
needs
Nonpoint source pollution impact on source water
Climate issues
Regional Production Utility
Initial cost of buy‐in Less than 100% participation from communities
Perception of reduction in work force Loss of local control Failure to meet customer expectations
Nonpoint source pollution impact on source water
Climate issues
ThemainthreatsfacingthegreaterDesMoinesregionunderthecurrentsituationconsistsofevengreatercompetitionforaccesstotheregion’ssourcewater.Thisisinadditiontononpointsourcepollutionandclimateissuesthattheregionisfacingthatlimittheavailabilityandqualityofsourcewater.FromaRegionalProductionUtilityperspective,thenonpointsourcepollutionandclimateissuesremain,however,otherthreatsconsistofthebreakupofthecurrentcustomerconfigurationwhichcouldimpacttherevenuesandexpensesofvariousmembersinanegativemanner.
3.2.1 Input Into Feasibility Study
TheSWOTanalysisprovidedmemberstheabilitytovoicetheirconcernsandopinionsastomovingfromthecurrentmethodofprovidingwaterproductionservicetoonewherewaterserviceispotentiallygovernedandperformedviaaRegionalProductionUtility.Forpurposesofthisstudy,Black&Veatchwasalsoaskedtoperformafinancialanalysistoderiveanestimateoftheuniform
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ratethatwouldbeapplicabletoallCIRDWCmembersshouldapotentialRegionalProductionUtilitybeformed.Black&VeatchwasalsoaskedtoevaluatethreeseparategovernancealternativesthatcouldbeusedbythepotentialRegionalProductionUtility.Inperformingthesetasks,Black&VeatchusedtheSWOTanalysisasabasisforunderstandingwhetherouranalysis1)sustainedstrengthsormitigatedcurrentweaknessesidentifiedbythemembers,and2)enhancedordidnotpreventthemembersfromtakingadvantageofregionalopportunitiesormitigatingexternalthreats.
Additionally,thesummaryoftheSWOTanalysisispresentedinthisreportasareferencepointforthemembersastheycontinuetheirdiscussionsaroundaRegionalProductionUtility.WhilethisStudyprovidesanimportantfirststepindeterminingthemeritsofaRegionalProductionUtility,additionalworkanddiscussionbetweenthememberswillhavetobeperformedshouldthemembersdecidetocontinuedownthepathtowardaRegionalProductionUtility.TheissuesraisedduringthisSWOTanalysisprovideabasisforfuturediscussionsand/ordocuments.
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4 Valuation Estimate WhenassessingthefeasibilityofcreatingaRegionalProductionUtility,considerationmustbegiventotheestimatedvalueofwaterproductionandtransmissionassetsthatwouldcomprisethenewentity.Astherearemultipleutilitiesthatwouldpotentiallycontributeassetstothenewentity,thescopeofworkforthisengagementwascraftedtoprovideCIRDWCwithanestimatedvaluebasedontheCostApproachmethodologyofutilityvaluation.TheCostApproachprovidesanindicationofassetvaluebasedon1)theoriginalcostofinvestmentmadebycurrentownerstoconstructthecurrentsystem,and2)thereplacementcostthatapotentialbuyerwouldhavetoinvesttoconstructanessentiallysimilarwaterproductionsystem.Inbothinstances,Black&Veatchfactorsinestimateddepreciationtorecognizethatovertime,assetsdecreaseinvaluebasedonfactorssuchaswearandtear,actionoftheelements,andobsolescence.InBlack&Veatch’sexperience,areasonableestimateoffairmarketvaluebetweenawillingbuyerandsellerwouldfallsomewherebetweentherangeoforiginalcostlessdepreciation(OCLD)andreplacementcostlessdepreciation(RCLD).OthervaluationapproachessuchastheIncomeApproachandMarketApproachwerenotfactoredintothevaluationestimateduetocostconstraintsofthestudy.InBlack&Veatch’sexperience,theIncomeApproachandMarketApproachwouldgenerallyhelptobetterrefinetheoverallvaluewithintheOCLDandRCLDrange.Anappraisaloflandisalsonotincludedinthevaluationestimate.
Thefollowingsectionsoutlinetheapproachtoderivethevaluationestimate.Thegeneralapproachwasto1)definethepotentialassetstobetransferredfromcurrentutilitiestothenewRegionalProductionUtility;2)determineOCLD;and3)determineRCLD.ThisapproachprovidesCIRDWCwithanestimatedrangeofvalueforregionalwaterproductionassets,alsoprovidesvaluableinputforconductingthefinancialanalysisdescribedlaterinthisReport.
4.1 DEVELOPMENT OF ASSET INVENTORY Black&VeatchworkedwithCIRDWCmemberstoidentifywatersystemassetsthatwouldtransfertoaregionalwaterproductionutility.Assetswouldincludeallsourcesofsupply,watertreatmentplants(WTP),transmissionmains,pumpingfacilities,andstoragetanksforsupplyingfinishedwatertotheindividualentities.
Oneofthegoalsofregionalizationistohaveaconsolidatedapproachfordevelopingrawwatersourcesandprovidingtreatedwater.Productionfacilitiesforallmemberswouldbeincludedintheregionalentityandwerethereforeincludedaspotentialassets.Productionfacilitiesweredeterminedtoincludetreatmentfacilitiesandaquiferstorageandrecovery(ASR)wells.ASRwellswereincludedduetothebasisthattheyfunctiontoprovidefinishedwaterintothesystemandoffsetdemandfromothertreatmentfacilitiesduringpeakdemandperiods.
Generally,transmissionmainsandstorageassetsweredeemedtobeeligibleforinclusionintotheregionalutilityifthatassetserved(orhadtheabilitytoserve)morethanoneentity.DMWWhaspreviouslyidentifiedaCoreNetworkoftransmissionmains,storagetanks,andpumpingfacilitieswhichitusestosupplyfinishedwaterthroughouttheGreaterDesMoinesregion.TheseCoreNetworkfacilitieswereidentifiedasassetsthatwouldbetransferredtotheRegionalProductionUtility.However,individualcommunitydistributionsystemsthatprovidemoredirectservicetocustomers,includingpumpstations,distributionmains,andstoragetanks,werenotincludedaspotentialassets.
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4.1.1 Asset Inventory
AssetsgenerallyincludedinthevaluationareshownonthemapinAppendixCandsummarizedinTables4‐1through4‐3below.ThesephysicalassetsweredeterminedbasedonpreliminarydiscussionswithCIRDWCmembers.IndividualrawwatersourcesarenotidentifiedintheTables,butthesesourceswouldbeincludedaspotentialassetsandareincludedaspartofeachrespectivetreatmentfacility.Thefollowingsectionsprovideabriefoverviewoftheassets.
4.1.1.1 City of Altoona
TheCityofAltoona(Altoona)haspurchasedcapacityfromDMWWbutdoesnotcurrentlyutilizetheinterconnection.Instead,AltoonameetsallitsdemandsusingthreeWTPs,eachwithsimilarsourceandtreatmentcomponents.FourdeepJordanaquiferwellssupplythewatertotheWTPs.Treatmentconsistsofaeration,pressurefiltration,ionexchangesoftening,andchlorination.WTPNo.1isfedfromWellNo.1andWellNo.2;WTPNo.2andWTPNo.3areeachsuppliedfromasinglewell.Theionexchangeprocessremovescalciumandmagnesiumionstoprovidesofteningbutdoesnotremovetotaldissolvedsolids(TDS)andsulfates.TDSandsulfatesdonothaveanyprimarydrinkingwaterlimits,butdohavesecondarylimitsassociatedwithtasteandodors(aesthetics).
Altoona’sWTPsarenotcurrentlylocatedadjacenttoanyCoreNetworkpiping.However,basedonthe2013WaterSystemMasterPlanconductedbyBlack&Veatch,theWTPsarenearcapacityandarethereforenotlikelytohaveasignificantamountofadditionalcapacitytosupplywateroutsideAltoona’sdistributionsystem.However,itisrecognizedthatduringpeakdemandperiodsfortheregion,theseWTPssupplyasignificantamountofwaterthatotherwisewouldlikelyhavetobesuppliedbyDMWW.
ThetotaltreatmentproductioncapacitiesofAltoona’sthreeWTPsareshowninTable4‐1below.
4.1.1.2 City of Ankeny
TheCityofAnkeny(Ankeny)haspurchasescapacityfromDMWWandusesthistomeetthemajorityofitsdemands.AnkenyalsohastwodeepJordanaquiferwellsthatareusedasASRwellstomeetseasonalpeakdemands.ThetwoASRwellsareincludedasapotentialassettotheregionalutility.NeitherwellislocatedadjacenttotheCoreNetworkpipingandthesupplyfromthesewellswouldmostlikelybeusedexclusivelyintheAnkenydistributionsystem.However,itisrecognizedthatduringpeakdemandperiodsfortheregion,theseASRssupplyasignificantamountofwaterthatotherwisewouldlikelyhavetobesuppliedbyDMWW.
ThetotalproductioncapacityoftheASRwellsisshowninTable4‐1below.
4.1.1.3 Des Moines Water Works
4.1.1.3.1 Source of Supply and Treatment Assets
DesMoinesWaterWorks(DMWW)ownsandoperatesthreeWTPfacilitiesandtwoASRwellstosupplywaterthroughouttheGreaterDesMoinesregion.
ThethreeWTPfacilitiesconsistoftheFleurWTP,L.D.McMullenWTP(McMullenWTP),andtheSaylorvilleWTP.Sourceofsupplyforallthreefacilitiesconsistsofdirectsurfacewaterandgroundwaterunderthedirectinfluenceofsurfacewater.TheFleurandMcMullenWTPsutilize
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lime/sodaashsofteningwithconventionalfiltrationanddisinfectionfortreatment.TheSaylorvilleWTPutilizesultra‐filtration(UF)membranefiltersandreverseosmosis(RO)membranesoftening.
TheFleurWTPutilizestworiverintakesalongtheRaccoonRiverandDesMoinesRiver,witheachintakecapableofsupplyingupto100mgdinrawwatertotheWTP.TheFleurWTPalsoutilizesariverbankstyleinfiltrationgalleryalongtheRaccoonRiverwhichpullswaterfromtheriverandprovidesriverbankfiltrationtolimitturbidityandothersuspendedsolids,whilesimultaneouslyprovidingsomedenitrification.Thecapacityoftheinfiltrationgalleryvariesfromapproximately10mgdto20mgddependingontheriverlevel.Rawwaterfromthetworiversourcestypicallypassesthroughpresedimentationforturbidityandtotalorganiccarbon(TOC)removal.DMWWcanalsobypasspresedimentationandsendflowdirectlytothesofteningbasins.ThetotalcapacityoftheFleurWTPisapproximately75mgd,whichislimitedbythefiltrationcapacity.Firmcapacityisapproximately70mgd,whichislimitedbyfiltrationandsofteningcapacity.
TheMcMullenWTPcurrentlyusesradialandhorizontalalluvialwellsandtwosurfacewatersources(CrystalLakeandMaffittReservoir).Allrawwateristreatedthroughsolids‐contactsofteningbasinsandfiltration.TotaltreatmentcapacityoftheMcMullenWTPis25mgdandfirmcapacityis12.5mgdwithoneofthetwosofteningbasinsoutofservice.
TheSaylorvilleWTPusestworadialcollectorwellstosupplyrawwatertotheWTP.Thesmallerofthetwowellsisratedforapproximately5mgd.TotaltreatmentcapacityoftheSaylorvilleWTPis10mgd.ThetreatmentefficiencyoftheUFandROmembranesisapproximately83percent,whichresultsinafirmcapacityofapproximately4.2mgd,whichislimitedbythesourcewatercapacity.
DMWWpurchasedapproximately3.235billiongallonsofstoragecapacityintheSaylorvilleReservoirfromtheArmyCorpsofEngineersintheearly1980’s.ThisstoragevolumeservesasabackupwatersupplyduringperiodsofdroughtandcanbereleasedfromthereservoirandcollectedbytheDesMoinesRiverintakedownstreamoftheSaylorvilleReservoir.
ThetotalproductioncapacityofDMWW’streatmentfacilitiesareshowninTable4‐1below.Thesecapacitiesarebasedonsourcewaterandtreatmentcomponents.DMWWisintheprocessofmakingimprovementstoincreasesourcewatercapacityattheMcMullensite,whichisanticipatedtoincreaseproductiontothetotaldesigncapacityof25mgdduringlowriverlevels.Inaddition,theUFmembranesattheSaylorvilleWTPfacilityareneartheendoftheirusefullifeandDMWWisintheprocessofreplacingthesemembranes.Oncereplaced,thenewUFmembranesareanticipatedtorestoretheoperatingcapacityoftheSaylorvilleWTPbacktoitsdesigncapacity.
DMWWoperatestwoASRwellsduringthehighsummerseasonaldemandperiod.TheASRwellsarelocatedattheMcMullenWTPsiteandtheL.P.Moonstorageandpumpstationsite.
4.1.1.3.2 Transmission Mains, Pumping, and Storage Assets
DMWWalsooperatestheCoreNetworktotransportanddeliverwateracrossthemetroarea.Theseincludetwogroundstoragereservoirs,threestandpipes,twoelevatedstoragetanks,fivepumpstationfacilities,andapproximately134milesoftransmissionmainsranginginsizefrom12‐inchto60‐inchindiameter.ThesefacilitiesareshowninTables4‐2and4‐3below.Thestorageandpumpingfacilitieswereincludedaspotentialassetsbasedontheiroperationalfunctionalityofservingmultipleentities.
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TheDMWWCoreNetworktransmissionandpumpingassetsconsideredfortheregionalutilitycurrentlyoperatewithfivepressurezonesasdescribedbelow.Thesepressurezonesonlyincludethosethatwouldservetheregionalutility;additionalpressurezonesexisttoserveindividualentities.Thenumberingconventionusedbelowisonlyforthecontextofthisstudy.1. PressureZone1:SupplybyFleurandMcMullenWTPsandservedbyAllenHazenTowerand
PumpStation,Nollen,Tenny,andWilchinskiStandpipes.ThesystemnormallyfloatsoffthewaterlevelintheTennyandWilchinskiStandpipes.Thesystemhydraulicgradeline(HGL)normallyoperatesabovetheleveloftheAllenHazenTowerandNollenStandpipe.
2. PressureZone2:SupplybySaylorvilleWTPandPolkCountyPumpStation.ThePolkCountyGroundStoragefacilityisfilledbyPressureZone1andre‐pumpedtoserveAnkeny(throughPressureZone2)andruralPolkCounty(separatepressurezone).
3. PressureZone3:SupplybyNollenStandpipethroughPressureZone1.NollenPumpStationre‐pumpstoserveportionsoftheDMWWandBondurantsystems.
4. PressureZone4:SupplythroughPressureZone1andre‐pumpedthroughEastsidePumpStationintoSharedEastsideTower.ServesPleasantHill,Altoona,andPolkCountyRWDsystems.
5. PressureZone5:SupplythroughPressureZone1andLPMoonASR.LPMoonGroundStorageandPumpStationutilizestwosetsofpumpstoservei)WDMWW’s98thStreetTowerthatservestheWDMWW,Clive,andWaukeesystems,andii)UrbandaleandXeniasystems.
FromdiscussionswithDMWW,dischargepressuresfromtheFleurWTPregularlyexceed100poundspersquareinch(psi)andcanapproach120psibasedonthedemandlocationandpointsofentryintotheCoreNetworkpiping.DMWWrecentlyinstalledacontrolvalveontheinfluenttotheWilchinskiStandpipeinordertothrottleflowintothestoragetankanddivertwaterfromtheFleurWTPtothenorthandwesternportionsoftheCoreNetworksystem.
4.1.1.4 Urbandale Water Works
TheCityofUrbandalehaspurchasedabandonedquarrypitslocatedalongtheDesMoinesRiverthatcouldbedevelopedintoarawwatersource.Theestimatedcurrentcapacityofthequarrypitsisapproximately725milliongallons.UrbandalealsoobtainedawithdrawalratepermitfromtheIowaDepartmentofNaturalResourcestoallowwithdrawalupto30mgddirectlyfromtheDesMoinesRiver.Atthetimeofthisreport,themaximumfeasiblewithdrawallimitfromthequarrypit/DesMoinesRiversourceisnotknown,butisassumedthatthewithdrawalpermitcanbeusedtorechargethequarryasneeded.
4.1.1.5 West Des Moines Water Works
WestDesMoinesWaterWorks(WDMWW)ownsandoperatesoneWTPfacility,theA.C.WardWTP.GroundwaterwellsfortheWTPconsistofthreedeepJordanaquiferwellsand18totalshallowalluvialwells.Thewellfieldtotalcapacityisapproximately9.9mgdandislimitedtoafirmcapacityofapproximately6.9mgdwithtwoofthethreeJordanwellsinoperation.ThelimesofteningprocesscannotremoveTDSandsulfatesthatarenaturallyoccurringintheJordanaquifer,whichcanresultintasteandodorissueswiththefinishedwater.
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TheWTPconsistsofaeration,lime/sodaashsoftening,filtration,anddisinfection.ThetotaltreatmentcapacityoftheA.C.WardWTPis12mgdandthefirmtreatmentcapacityis9mgdwithoneofthesolids‐contactsofteningbasinsoutofservice.TheWTPiscurrentlylimitedbyrawwatersourcecapacity.TheproductioncapacityofWDMWW’streatmentfacilitiesareshowninTable4‐1below.WDMWW’ssystem‐widedemandinWDMWW’sserviceareacanexceedthecapacityoftheA.C.WardWTP,withtheremainingwatersuppliedbyDMWW.
TheA.C.WardWTPisnotlocatedalonganyCoreNetworkpiping.ItisassumedforthepurposesofthisstudythatallwaterproducedbytheA.C.WardWTPwillremaininWDMWW’sdistributionsystemandnotsuppliedbackintotheCoreNetwork.
WDMWWownsanelevatedstoragetankalong98thStreetthatcurrentlyservestheWDMWW,Clive,andWaukeesystems;allthreeentitiesprovidedinitialcapitalandongoingmaintenancecostsforthestoragetank.The98thStreetESTisfedbytheLPMoonpumpstationandisoperatedbyDMWW.
Table 4‐1 Total Source and Supply Assets for Regional Utility
PHYSICAL ASSET
TOTAL CAPACITY/
DEMAND, MGD
FIRM CAPACITY/
DEMAND, MGD
WTP and ASR Supply Facility Capacity
Altoona ‐ WTP No. 1 1.30 0.58
Altoona ‐ WTP No. 2 1.30 0.00
Altoona ‐ WTP No. 3 1.30 0.00
Ankeny ‐ ASR No. 1 1.44 0.00
Ankeny ‐ ASR No. 2 2.88 0.00
DMWW ‐ Fleur WTP 75.00 70.00
DMWW ‐ LP Moon ASR 3.00 0.00
DMWW – L.D. McMullen WTP 25.00 12.50
DMWW ‐ McMullen ASR 3.00 0.00
DMWW ‐ Saylorville WTP 10.00 4.20
WDMWW – A.C. Ward WTP 9.90 6.90
Total WTP and ASR Capacity(a) 134.12 118.60
2012 Maximum Day Finished Water Demands(b)
Altoona 3.90
Ankeny 4.30
DMWW 96.60
WDMWW 9.90
Total 2012 Maximum Day Finished Water Demand 114.70
2012 Remaining Capacity 19.42 3.90
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(a) The value of 118.6 mgd is not a summation. Total estimated firm capacity considers all production facilities in operation with one of the seven WTPs (McMullen WTP) limited to firm capacity and one 3.0 mgd ASR well out of service to account for equipment being offline for maintenance and/or repair. (b) DMWW recorded a peak day usage of 96.6 mgd during the summer months of 2012. For the purposes of this report, it was assumed that the other production facilities in the metro operated by Altoona, Ankeny, and West Des Moines were operating near full capacity.
Table 4‐2 Distribution System Storage and Pump Station Assets
PHYSICAL ASSET
TOTAL CAPACITY, MG/MGD
DMWW ‐ Allen Hazen Tower and Pump Station 2.0 MG – EST
18.5 MGD – PS
DMWW ‐ Eastside Tower and Pump Station 2.0 MG – EST
11.5 MGD – PS
DMWW ‐ LP Moon Ground Storage and Pump Station 6.0 MG – GST
21.5 MGD – PS
DMWW ‐ Nollen Standpipe and Pump Station 4.0 MG – SP
20.0 MGD – PS
DMWW ‐ Polk County Ground Storage and Pump Station
5.0 MG – GST
10.0 MGD – PS
DMWW ‐ Tenny Standpipe 4.0 MG – SP
DMWW ‐ Wilchinski Standpipe 2.4 MG – SP
WDMWW – 98th Street Tower 2.5 MG ‐ EST
TOTAL GROUND STORAGE 17.0 MG
TOTAL ELEVATED STORAGE 10.9 MG
TOTAL PUMP STATION 81.5 MGD
(a) EST = Elevated Storage Tank: Allen Hazen tower effectively operates below the hydraulic grade line of the Pressure Zone 1 and therefore its capacity is considered to be ground storage capacity under normal operating conditions. (b) SP = Standpipe: Tenny and Wilchinski standpipes effectively operate as elevated storage and are therefore considered to be included in the total elevated storage capacity calculation. However, due to their standpipe configuration their total effective capacity is significantly lower than the total capacity identified. (c) PS = Pump Station
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Table 4‐3 Des Moines Water Works Transmission Main Assets
PHYSICAL ASSET
TOTAL
LENGTH, FT
12‐INCH 40
14‐INCH 20,220
16‐INCH 104,960
18‐INCH 300
20‐INCH 81,260
24‐INCH 206,950
30‐INCH 120,180
36‐INCH 122,210
42‐INCH 15,160
48‐INCH 34,280
60‐INCH 890
TOTAL 706,450
4.1.2 Asset Inspection
Black&VeatchandHRGreenconductedinspectionsofalltheproposedassetstoidentifytherelativeconditionofthefacilitiesincomparisontotheirrespectiveage.InspectionswereconductedinOctoberandNovemberof2014withtheassistanceoftheowner’sstaff.Inspectionsweremadeoftreatment/productionfacilitiesforAltoona,DMWW,andWDMWWandDMWW’sstorageandpumpstationsassignedtotheCoreNetwork.
4.1.3 Asset Review
Areviewoftheassetswasgenerallybasedontherelativeage,condition,andtypeofmaterialfortreatment,supply,storage,andpumpingfacilities.Ingeneral,theconditionofallfacilitiesappearedtobecommensuratewiththeageofthefacility.Theageandmaterialsofconstructionwereusedtoassignanticipatedlifeexpectancy,whichfactorsintothecostdepreciationasdiscussedbelow.
Itshouldbenotedthatforthepurposesofthisstudy,noinspection,review,orhydraulicmodelingwasprovidedforthewatertransmissionmainsassociatedwithDMWW’sCoreNetworkpiping.Additionalhydraulicmodelingisrecommendedtodetermineifadditionalimprovementsarerequired.DMWWnotedthathighdistributionsystempressuresattheFleurWTPsometimescurrentlylimitthepumpingrateduringhighdemandperiodsinordertopreventwatermainbreaksonolderwatermainsduetohighpressures.
Asummaryofthestrengthsandweaknessesfortheindividualtreatment/supplyfacilitiesareincludedinTable4‐4.
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Table 4‐4 Treatment Asset Strengths and Weaknesses Review
FACILITY STRENGTHS WEAKNESSES
Altoona WTPs
Reliableandconsistentsource Distributedfacilitiesresultinbetterhydraulicperformanceofthedistributionsystem
Softenedwater
SinglewellperWTPfacility ResidualTDSandsulfatescanresultintasteandodorissues
Ankeny ASRs
Consistentsourceoffinishedwatertoseasonallyoffsethighfinishedwaterdemandperiods
ASRrechargeiscontingentuponadequatefinishedwaterquality
Onlyavailableseasonally
DMWW Fleur WTP
Threesourcesofsupply(infiltrationgalleryandtworiversources)
Limesofteningprocess Multipleandflexibletreatmentsystems
Ageandcondition Limitedhypochloriteandferricchemicalstorage
Nofilter‐to‐waste Waterqualityconcernsw/DBPs
Limitedmechanicalnitrateremovalcapabilities
Locatedinfloodplain
DMWW McMullen WTP and ASR
Limesofteningprocess ASRlocatedon‐site Treatmentcapacityexpandable
Currentlylimitedbysourcewaterquantity
Nomechanicalnitrateremovalcapabilities
DMWW Saylorville WTP
UF/ROtreatmentprovidesconsistentfinishedwaterquality
Treatmentcapacityexpandable Fullcapacitymechanicalnitrateremoval
Currentlylimitedbysourcewaterquantity
Treatmentcapacityimpactedbyrawwatertemperatureandhardness
Unprovenadequacyofpretreatmentforsuccessfullong‐termUFmembranelife
WDMWW A.C. Ward WTP
Reliableandconsistentsource Limesofteningprocess
Currentlylimitedbysourcewaterquantity
ResidualTDSandsulfatescanresultintasteandodorissues
4.2 ESTIMATION OF ORIGINAL COST LESS DEPRECIATION (OCLD) Asnotedabove,theassetinventorywasderivedtounderstandtheassetsthatwouldbetransferredtoanewRegionalProductionUtility.Black&VeatchrequestedinformationfromCIRDWCmembersrelatedtotheseassets,includinginformationsuchastheoriginalcostinvestedtoconstructtheassets,ifavailable.Informationwasalsorequestedwithrespecttocurrentunitcostsforitemssuch
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asmains,meters,andotherassets.Thisdatawasusedtoderiveanestimateoftheoriginalcostforvariousassettypes.AdditionalexplanationofthedevelopmentofOCLDforassetscontributedbyindividualutilitiesisprovidedinthefollowingsections.
4.2.1 Original Cost
TheassetinventoryaboveprovidesageneraloverviewofthemajorassetsrecognizedbyBlack&VeatchasbeingnecessaryforanewRegionalProductionUtility.Generally,theseassetsincludedsourceofsupply,treatment,pumpstations,storage,transmissionmains(includingappurtenances),andwholesalemeters.
Formajorfacilitytypeassets,e.g.,wells,intakes,treatmentplants,pumpstations,etc.,Black&Veatchprimarilyusedoriginalcostinformationprovidedbytheutilitiesasabasisfortheoriginalcostestimatefortheirrespectiveassets.Forassetsinstalledmorerecently,thecostandscaleoftheassetwasreviewedforreasonableness,andingeneralBlack&VeatchutilizedthesevaluesasitsestimatefororiginalcostofmajorabovegroundfacilitiesforDMWWandWDMWW.ForAltoonaandAnkeny’sassets,theoriginalcostwasdeterminedbyestimatingthecurrentreplacementcostvalueoftheassets,andthentrendingthevaluesbacktotheirdateofinstallationusingHandy‐WhitmanBulletinNo.180:CostTrendsofWaterUtilityConstruction(Handy‐WhitmanIndex).ThetrendfactorforAnkeny’sASRwellsandAltoona’streatmentplantsisthetrendindexvaluefortheyearofinstallation,dividedbythetrendindexvalueforthecurrentyearforeachassettype.
FortransmissionmainsthatprimarilyareownedbyDMWW,availabledataconsistedofGeographicInformationSystem(GIS)datarelatedtocorenetworkmainsprovidedbyDMWW.Originalcostdatawasnotassociatedwiththisdata,therefore,Black&Veatchhadtoestimatetheoriginalcostoftransmissionmains.Todothis,anestimateofreplacementcostperfootofmainwasprovidedbyDMWWandmultipliedbythelengthofeachmainsegmenttoderivetheestimatedreplacementcostpersegmentofmainprovidedintheGIS.TheoriginalcostforeachsegmentwasthendeterminedbytrendingbackthereplacementcosttotheyearofinstallationnotedintheGISusingtrendindicesfromtheHandy‐WhitmanIndex.Thetrendfactorfortransmissionmainsisthetrendindexvaluefortheyearofinstallation,dividedbythetrendindexvalueforthecurrentyearforeachassettype.Asimilarapproachwasalsousedtoderivetheoriginalcostforwholesalemeters.
FortherawwaterquarriesownedbyUrbandaleWaterWorks,Black&VeatchprimarilyreliedonthevaluepaidbyUrbandaleWaterWorksforthequarriesandadjacentparcelsbasedoninvoicesprovidedbyUrbandaleWaterWorks.
4.2.2 Accumulated Depreciation
AccumulatedDepreciationprovidesanestimateofthedecreaseinvalueduetofactorssuchaswearandtear,actionoftheelements,andobsolescence.ForthisStudy,Black&Veatchutilizedthestraightlinemethodfordeterminingaccumulateddepreciationforassets.
Therearetwokeyelementsneededfordeterminingstraightlinedepreciation.Thefirstistheageoftheasset.Thisdatapointwasgenerallyderivedfromassetdataprovidedbytheutilities.Theotherdatapointneededistheestimatedservicelifeforeachasset.Black&VeatchandHRGreendevelopedgeneral,estimatedservicelivesforvariousassetclasses.Thefollowingprovidesanoverviewofestimatedservicelivesformajorassets:
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Structures&Improvements–75years Wells&Springs–50years ElectricPumpingEquipment–25years LargeTreatmentPlantEquipment–30years ElevatedSteelTanks–75years ConcreteStorageReservoirs–75years Pre‐stressedConcreteTransmissionMains–100years PolyvinylChloride(PVC)TransmissionMains–50years DuctileIronTransmissionMains–75years CommunicationEquipmentandSCADA–20years LaboratoryEquipment–10years WholesaleMeters–20years
ThesegeneralservicelifeestimateswerethenreviewedforindividualassetsbasedonthesitevisitsconductedbyBlack&Veatch.IfbasedonthesitevisitBlack&Veatchdeterminedthatanalternateservicelifewasapplicable,theservicelifewasadjustedhigherorlowertoreflectourjudgmentoftheservicelifeofanindividualasset.Theaccumulateddepreciationfactortobeappliedtotheoriginalcostwasdeterminedbycomparingtheageoftheassettoitsestimatedservicelife.Theaccumulateddepreciationfactor,multipliedbytheassetoriginalcostprovidedtheestimatedaccumulateddepreciationforeachasset.
4.2.3 OCLD Results
ThefollowingTablespresenttheresultsoftheOCLDforassetsthatpotentiallycouldbeconveyedtoanewRegionalProductionUtility.
4.2.3.1 DMWW OCLD Results
AscanbeseenonTable4‐5,theOCLDforDMWWassetsisapproximately$210.3million.ThistotalestimatedOCLDisbrokenoutbymajorassetclass,includingsourceofsupply,treatment,boostersandstorage,transmissionmains,andmiscellaneousassets.IncludedinthemiscellaneousOCLDvalueisanestimateofgoingconcern.Goingconcerngenerallyrecognizesthatabuyerofassetswouldalsopurchasethebusinessprocesses,vendorrelationships,andotherbusiness‐relateditemsthatallowthesellertoefficientlyconductbusinessonadaytodaybasis.ForDMWW,Black&Veatchutilizedahighlevelestimateofgoingconcernofapproximately$6.2millionderivedfromDMWW’s2013operatingincome.TheMiscellaneouslineitemalsoincludesconstructionworkinprogress(CWIP)estimatetorecognizevalueincorenetworkassetsthatarealreadyunderconstructionandlikelytobeinserviceatthedateofanytransaction.
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Table 4‐5 Estimated OCLD Value of DMWW Assets
4.2.3.2 WDMWW OCLD Results
AspresentedinTable4‐6,theestimatedOCLDvalueforWDMWWassetsisapproximately$17.1million.ThisincludesOCLDvalueprimarilyforwells,treatmentplant,andthe98thStreetstoragereservoirasnotedaboveintheassetinventorysection.SimilartoDMWW,highlevelestimateofgoingconcernisprovidedforWDMWWinLine6ofapproximately$979,000andisbasedonWDMWW’s2013NetOperatingIncome.
Original Cost
Line Original Accumulated
No. Description Cost Depreciation OCLD
Source of Supply
1 Des Moine River Intake $9,165,000 $4,409,100 $4,755,900
2 Fleur Infiltration Gallery $1,296,300 $937,800 $358,500
3 Maffitt Raw Water $10,307,600 $1,955,800 $8,351,800
4 Maffitt Reservoir $1,172,300 $679,800 $492,500
5 Saylorville Lake Storage $3,033,500 $0 $3,033,500
6 Saylorville WTP Raw Water $8,616,600 $448,300 $8,168,300
Treatment
7 Fleur WTP $51,413,900 $25,290,000 $26,123,900
8 Fleur Nitrate Facility $4,185,500 $2,417,600 $1,767,900
9 Fleur Laboratory $534,900 $446,500 $88,400
10 McMullen WTP $29,975,700 $9,402,100 $20,573,600
11 Saylorville WTP $27,405,900 $3,561,700 $23,844,200
Boosters and Storage
12 Hazen Storage $1,655,000 $1,001,200 $653,800
13 East Side Tower $4,597,200 $198,900 $4,398,300
14 LP Moon Booster and Storage $8,838,200 $2,825,200 $6,013,000
15 Polk Co. Storage $2,177,200 $945,600 $1,231,600
16 Polk Co. Booster $1,751,700 $1,189,000 $562,700
17 Standpipes $2,731,400 $1,536,800 $1,194,600
18 ASR Wells $6,558,400 $900,400 $5,658,000
Transmission Mains
19 Mains $88,559,700 $17,826,300 $70,733,400
20 SWTP Feeder Main ‐ Purch. Cap. $5,411,600 $216,500 $5,195,100
21 Wholesale Meters $210,000 $84,000 $126,000
Miscellaneous
22 General Office $3,750,200 $999,000 $2,751,200
23 Other $1,677,500 $1,462,100 $215,400
24 Miscellaneous $13,370,000 $0 $13,370,000
25 Total DMWW Assets $288,395,300 $78,733,700 $209,661,600
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Table 4‐6 Estimated OCLD Value for WDMWW Assets
4.2.3.3 Other OCLD Results
Table4‐7providestheestimatedOCLDvalueforassetscontributedbyAltoona,Ankeny,andUrbandaleWaterWorks.TheseassetsareconsolidatedonthesameTableastheirnumberofassetitemsislimitedcomparedtoDMWWandWDMWW.Noestimateofgoingconcernwasdeterminedfortheseassets.
Table 4‐7 Estimated OCLD Value for Urbandale WW, Altoona, and Ankeny
4.3 ESTIMATION OF REPLACEMENT COST LESS DEPRECIATION (RCLD) Thereplacementcostlessdepreciation(RCLD)providesanindicationoftheupperrangeofvaluerelatedtotheassetsthatwouldcomprisethepotentialRegionalProductionUtility.Replacementcostreflectsanestimateofwhatapotentialbuyerwouldhavetopaytoconstructtheregionalproductionassetsatpresentvalue.AswiththeOCLDanalysis,accumulateddepreciationisderivedandsubtractedfromthereplacementcosttoreflectthatvaluediminishesovertimeduetofactorssuchaswearandtear,actionoftheelements,andobsolescence.ThedeterminationoftheRCLD
Original Cost
Line Original Accumulated
No. Description Cost Depreciation OCLD
Source of Supply
1 Wells and Equipment $4,543,400 $1,582,200 $2,961,200
Treatment
2 Plant Structures and Buildings $9,730,700 $3,385,700 $6,345,000
3 Treatment Equipment $7,987,200 $4,389,400 $3,597,800
Mains
4 Raw and Finished Water $604,200 $157,600 $446,600
Storage
5 98th Street Tower $3,216,100 $385,500 $2,830,600
6 Miscellaneous $979,000 $0 $979,000
7 Total WDMWW Assets $27,060,600 $9,900,400 $17,160,200
Original Cost
Line Original Accumulated
No. Description Cost Depreciation OCLD
Urbrandale
1 Raw Water Quarries $870,900 $0 $870,900
Ankeny
2 ASR Wells $2,279,800 $468,600 $1,811,200
Altoona
3 Wells and Treatment Facilities $8,145,700 $3,857,400 $4,288,300
4 Total Other $11,296,400 $4,326,000 $6,970,400
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valuefortheassetsthatwouldcomprisetheRegionalProductionUtilityisdiscussedinthefollowingsections.
4.3.1 Replacement Cost
ForthisStudy,ReplacementCostreflectstheestimatedpresentdayvaluethatapotentialbuyerwouldhavetoinvesttoconstructaregionalproductionsystemsimilartothatconstructedbyDMWW,WDMWW,Altoona,Ankeny,andUrbandaleWaterWorks.Thereplacementcostisgenerallydesignedtoreflectwhatitwouldtakeapotentialbuyertoconstructassetsofsimilarscaleandtechnology.
Aswiththeoriginalcostdeterminationabove,Black&Veatchreliedondataprovidedbytheutilitiesthatincludedtheoriginalcostoftheassetandtheyearofinstallation.ForDMWWandWDMWW,thisincludedassetschedulesthatincludedoriginalcost,yearofinstallation,andadescriptionoftheassetforabovegroundassetssuchaswells,treatmentplants,storagetanks,pumpstations,andothersimilarabovegroundassets.TheoriginalcostfortheseassetswastrendedtotheirrespectivereplacementcostvalueusingtheHandy‐WhitmanIndex.Thetrendindexforthecurrentyear(2014),dividedbythetrendindexfortheyearofinstallationbyassettypeprovidedthetrendfactor.Thetrendfactor,multipliedbytheoriginalcostprovidedthereplacementcostestimate.Black&VeatchandHRGreenalsoevaluatedtheresultingreplacementcostestimateforreasonablenessusingourknowledgeofsimilarconstructionprojects.Ifthereplacementcostderivedviatrendingwasviewedtobetoohighortoolow,Black&Veatchadjustedthereplacementcosttoreflectareasonablereplacementcostvaluebasedonourknowledgeandexperience.
ThereplacementcostforthecorenetworktransmissionmainsownedbyDMWWwasderivedinthesamemannerasnotedaboveinthedescriptionofthedevelopmentoforiginalcost.Theestimatedreplacementcostperfootofmainwasmultipliedbytheapplicabletransmissionmainsegmentlengthtoderivethereplacementcostestimate.
FortheASR,treatmentplant,andsourceofsupplyquarriesownedbyAnkeny,Altoona,andUrbandaleWaterWorks,respectively,Black&Veatchderivedestimatedreplacementcostestimatesusingengineeringjudgmentandexperience.Theseestimateswerecomparedtoknownprojectsofsimilarscopeandsizetoassessforreasonableness.
4.3.2 Accumulated Depreciation
AswiththeOCLDanalysis,accumulateddepreciationwasderivedtoreflectthatovertime,thereplacementcostvaluewoulddiminishduetofactorssuchaswearandtear,actionoftheelements,andobsolescence.Black&Veatchusedthesamegeneralservicelifevalues,whichareshownasfollows,astheoriginalcostanalysis.
Structures&Improvements–75years Wells&Springs–50years ElectricPumpingEquipment–25years LargeTreatmentPlantEquipment–30years ElevatedSteelTanks–75years ConcreteStorageReservoirs–75years
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Pre‐stressedConcreteTransmissionMains–100years PolyvinylChloride(PVC)TransmissionMains–50years DuctileIronTransmissionMains–75years CommunicationEquipmentandSCADA–20years LaboratoryEquipment–10years WholesaleMeters–20years
Similartothedeterminationofaccumulateddepreciationfortheoriginalcostanalysis,ifBlack&Veatchfeltthatbasedonsitevisits,amorereflectiveservicelifeshouldbeused,thentheservicelifewasadjustedtobemorereflectiveoftheobservedcondition.
Straightlinedepreciationwasusedtodeterminetheaccumulateddepreciationusingthefollowingformula:
AccumulatedDepreciation=((Age/ServiceLife)xReplacementCost)
Iftheageoftheassetwasgreaterthantheservicelife,theaccumulateddepreciationwassetequaltothereplacementcost.TheaccumulateddepreciationwasthensubtractedfromthereplacementcosttoderivetheestimatedReplacementCostLessDepreciationorRCLD.
4.3.3 RCLD Results
ThefollowingTablespresenttheresultsoftheOCLDforassetsthatpotentiallycouldbeconveyedtoanewRegionalProductionUtility.
4.3.3.1 DMWW RCLD Results
Table4‐8presentsasummaryoftheestimatedRCLDresultsforthecorenetworkassetsofDMWW.Ascanbeseen,theRCLDvalueforDMWWassetsisapproximately$365million.Thisincludesassetsrelatedtothesourceofsupplyintakes,collectorwells,treatmentplants,transmissionmains,pumpstations,andstoragefacilitiesofDMWW.AswiththeOCLDanalysis,italsoincludesahighlevelmiscellaneousvalueestimateforgoingconcernandaprovisionforCWIP.
4.3.3.2 WDMWW RCLD Results
Table4‐9presentsasummaryoftheestimatedRCLDresultsforWDMWW.Thisincludeswells,theA.C.WardWTP,98thStreetelevatedstoragetank,andmiscellaneousrawandfinishedwatermains.AswiththeOCLDanalysis,ahighlevelestimateforgoingconcernisincludedintheRCLDvalueforWDMWW.
4.3.3.3 Other RCLD Results
Table4‐10presentstheestimatedRCLDforthewaterassetscurrentlyownedbyUrbandaleWaterWorks,Ankeny,andAltoona.
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Table 4‐8 RCLD Results for DMWW
Line Replacement Accumulated
No. Description Cost Depreciation RCLD
Source of Supply
1 Des Moine River Intake $26,442,500 $12,929,400 $13,513,100
2 Fleur Infiltration Gallery $16,715,000 $14,795,500 $1,919,500
3 Maffitt Raw Water $16,569,800 $3,377,000 $13,192,800
4 Maffitt Reservoir $15,864,400 $11,211,700 $4,652,700
5 Saylorville Lake Storage $7,257,300 $0 $7,257,300
6 Saylorville WTP Raw Water $9,754,800 $505,300 $9,249,500
Treatment
7 Fleur WTP $208,435,800 $147,560,200 $60,875,600
8 Fleur Nitrate Facility $9,167,600 $5,356,900 $3,810,700
9 Fleur Laboratory $923,700 $830,500 $93,200
10 McMullen WTP $51,015,200 $15,924,900 $35,090,300
11 Saylorville WTP $30,448,200 $3,967,400 $26,480,800
Boosters and Storage
12 Hazen Storage $7,020,100 $6,682,500 $337,600
13 East Side Tower $4,826,000 $209,200 $4,616,800
14 LP Moon Booster and Storage $11,326,300 $3,623,700 $7,702,600
15 Polk Co. Storage $3,827,100 $1,661,900 $2,165,200
16 Polk Co. Booster $3,775,800 $2,764,000 $1,011,800
17 Standpipes $15,414,600 $10,858,800 $4,555,800
18 ASR Wells $5,500,000 $777,300 $4,722,700
Transmission Mains
19 Mains $216,318,000 $78,141,100 $138,176,900
20 SWTP Feeder Main ‐ Purch. Cap. $6,709,600 $268,400 $6,441,200
21 Wholesale Meters $322,700 $129,100 $193,600
Miscellaneous
22 General Office $7,337,900 $2,038,500 $5,299,400
23 Other $4,214,000 $3,707,500 $506,500
24 Miscellaneous $13,370,000 $0 $13,370,000
25 Total DMWW Assets $692,556,400 $327,320,800 $365,235,600
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Table 4‐9 RCLD Results for WDMWW
Table 4‐10 RCLD Results for Urbandale Water Works, Ankeny, and Altoona
4.4 COMBINED ESTIMATE OF VALUATION ThecombinedestimateofvaluationreflectsthecombinedvalueofassetscontributedbytheutilitiesofDMWW,WDMWW,Altoona,Ankeny,andUrbandaleWaterWorks.ThecombinedestimateofvaluereflectstherangeofvaluethatprovidesareasonablebasisforestablishingthefairmarketvalueofwaterutilityassetsthatcouldbetransferredtoanewRegionalProductionUtility.AsisseeninTable4‐11,thecombinedestimatedrangeofvaluationisapproximately$234millionto$413million.ThelowrangevaluerepresentsthesumofOCLDvaluesforTables4‐5through4‐7,whilethehighrangevaluerepresentsthesumofRCLDvaluesforTables4‐8through4‐10.Themidrangerepresentsthemedianbetweenthelowandhighrange.
Repl. Cost
Line Replacement Accumulated
No. Description Cost Depreciation RCLD
Source of Supply
1 Wells and Equipment $8,957,900 $3,291,900 $5,666,000
Treatment
2 Plant Structures and Buildings $30,636,700 $15,343,700 $15,293,000
3 Treatment Equipment $13,388,500 $7,648,300 $5,740,200
Mains
4 Raw and Finished Water $1,414,900 $370,500 $1,044,400
Storage
5 98th Street Tower $5,800,000 $695,300 $5,104,700
6 Miscellaneous $979,000 $0 $979,000
7 Total WDMWW Assets $61,177,000 $27,349,700 $33,827,300
Line Replacement Accumulated
No. Description Cost Depreciation RCLD
Urbrandale
1 Raw Water Quarries $1,680,000 $0 $1,680,000
Ankeny
2 ASR Wells $3,310,400 $729,700 $2,580,700
Altoona
3 Wells and Treatment Facilities $23,050,800 $13,600,700 $9,450,100
4 Total Other $28,041,200 $14,330,400 $13,710,800
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Table 4‐11 Combined Estimate of Valuation
4.5 ESTIMATE OF PURCHASED CAPACITY VALUE Beginninginapproximately1996,DMWWbeganenteringintowholesalewatercontractswithsurroundingcommunitiesthatwereexperiencingcustomergrowth,andasaresult,neededadditionalwaterfromDMWW.ThesewholesalewatercontractsarecommonlyreferredtoasWholesaleWaterServiceMasterAgreementsorPurchasedCapacityAgreements.Inapproximately2006,DMWWenteredintoanewWholesaleWaterServiceMasterAgreement(2006Agreement)withtheoriginal1996communitiesandseveralothercommunitiesthatwerealsoseekingaccesstoadditionalwaterfromDMWW.The2006agreementsupersededthe1996agreements.
Ingeneral,thecommunitiesseekingwaterfromDMWWcontributedanupfrontamountofcapitaltohelpDMWWbuildthenecessarytreatmentfacilitiesthatwouldprovideadditionalwatertothegreaterDesMoinesregion.The2006purchasedcapacityamountwas$1.90pergallonperdayofcapacity.CommunitiescouldelecttoeitherpayDMWWupfrontfortheirpurchasedcapacity,ortheycouldelecttohaveDMWWissuerevenuebondsfortheprojects,andthecommunitywouldpaytheirapplicableshareoftheprincipalandinterestdueeachyear.
DMWWprovidedBlack&Veatchwithasummaryoftheoriginalcontributedamountsbyentityandtheirassociatedcurrentpurchasedcapacityamounts.AsisseeninTable4‐12,theamountcontributedbythecommunitiestotalsapproximately$79million.Sincethe2006AgreementindicatesthatthepurchasedcapacityamountsweretobeusedtoconstructtreatmentandASRfacilities,Black&VeatchcomparedtheoriginalcontributionamountinTable4‐12totheoriginalcostamountsinTable4‐5.ThefacilitiesrelatedtoMaffittRawWater,SaylorvilleWTPRawWater,McMullenWaterTreatmentPlant,SaylorvilleWaterTreatmentPlant,SaylorvilleWTPFeederMain,andASRWellsreflectanoriginalcostofapproximately$88,275,800,whichcomparescloselytotheoriginalcontributionamount.AsitappearsthattheseDMWWassetswereprimarilyconstructedusingpurchasedcapacitycontributions,Black&VeatchutilizedtheOCLDandRCLDamountsfortheseassetstoderiveanestimateofthepurchasedcapacityvaluefortherespectiveentitiesthatenteredintotheWholesaleWaterServiceMasterAgreementwithDMWW.Table4‐13presentstheestimatedrangeofpurchasedcapacityvalueforthecommunitiesand/orutilitiesthatpurchasedcapacityfromDMWW.ThisrangerepresentsBlack&Veatch’sestimateofthepurchasedcapacityvaluecontributedbythewholesalecustomersofDMWW.ThispurchasedcapacityvalueisnotinadditiontotheestimatedvalueofDMWWassets.ThepurchasedcapacityvaluereflectstheportionoftheDMWWvalueestimatethatwascontributedbythewholesalecustomers,andisusedintheNetValuedeterminationdiscussedinsubsequentsectionsofthisReport.
Total
Line Value
No. Description Estimate
1 Low Range (OCLD) $233,792,200
2 Mid Range $323,283,100
3 High Range (RCLD) $412,773,700
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Table 4‐12 Summary of Current Purchased Capacity Amounts and Original Contribution
Community/Utility
Current
Purchased
Capacity
(mgd)
Original Capital
Contribution
Polk Co. (SE and Unincorporated) 1.950 $1,937,500
Berwick Water Association 0.250 $310,000
Urbandale Water Works 15.300 $22,584,000
West Des Moines Water Works 8.973 $11,564,100
Ankeny 8.280 $12,365,000
Clive 6.980 $11,400,000
Waukee 3.694 $4,105,000
Warren Rural Water 3.246 $3,343,000
Xenia Rural Water 2.949 $3,623,400
Norwalk1 1.965 $2,353,800
Bondurant2 1.200 $2,940,000
Altoona 1.000 $1,900,000
Polk City 0.350 $665,000
Total 56.137 $79,090,800
1 Includes original purchased capacity contribution from the City of Cumming, which was subsequently purchased by Norwalk. 2 Includes original purchased capacity contribution from the City of Pleasant Hill, which was subsequently purchased by the City of Bondurant.
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BLACK & VEATCH | Valuation Estimate 43
Table 4‐13 Estimated Range of Purchased Capacity Value for Wholesale Customers
4.6 OTHER CONTRIBUTED DMWW ASSETS
4.6.1 Joint East Side Project
DuringthecourseofthisStudy,Black&VeatchwasalsoabletodeterminethattheJointEastSideprojectwascontributedbyseveralwholesalecustomersandafullservicecustomerofDMWW.TheJointEastSideprojectgenerallyconsistsofapumpstation,transmissionmain,andanelevated2.0mgdstoragetank.TheprojectwasdesignedtoprimarilyservethecustomersofAltoona,PleasantHill,andPolkCounty.FrominformationprovidedbyDMWW,itisestimatedthattheprojectcostisapproximately$13million.TheassetsarerelativelynewandBlack&VeatchdevelopedanestimatedOCLDandRCLDvalueof$12,422,000and$13,456,000,respectively.
InformationprovidedbyDMWWreflectsthattheprojectwassplitbetweenthethreecommunitiesasfollows:
PleasantHill–61.54% Altoona–30.77% PolkCounty–7.69%
ThisestimatedvalueisassignedtothesecommunitiesintheNetValuedeterminationinsubsequentsectionsofthisReport.
4.6.2 Polk City Feeder Main
DMWWindicatedthatafeedermainrunsnorthalongthewestsideofAnkenytosupplywatertoPolkCity.PolkCitycontributedapproximately$1,579,520tocompletethisprojectwhichisownedbyDMWW.Theestimatedvalueforthiscontributionis$1,516,339(OCLD)to$1,880,056(RCLD),withamidrangevalueof$1,698,197.
4.6.3 Ankeny Contribution to SWTP Feeder Main
DMWWindicatedthatAnkenycontributedapproximately$772,350towardtheconstructionofthenorthfeedermainrelatedtotheSWTP.Theestimatedvalueforthiscontributionis$741,456(OCLD)to$919,305(RCLD),withamidrangevalueof$830,381.
Replacement
Original Cost Cost
Line Original Replacement Accumulated Accumulated
No. Description Cost Cost Depreciation Depreciation OCLD RCLD
1 Maffitt Raw Water $10,307,600 $16,569,800 $1,955,800 $3,377,000 $8,351,800 $13,192,800
2 Saylorville WTP Raw Water $8,616,600 $9,754,800 $448,300 $505,300 $8,168,300 $9,249,500
3 McMullen WTP $29,975,700 $51,015,200 $9,402,100 $15,924,900 $20,573,600 $35,090,300
4 Saylorville WTP $27,405,900 $30,448,200 $3,561,700 $3,967,400 $23,844,200 $26,480,800
5 ASR Wells $6,558,400 $5,500,000 $900,400 $777,300 $5,658,000 $4,722,700
6 SWTP Feeder Main $5,411,600 $6,709,600 $216,500 $268,400 $5,195,100 $6,441,200
7 Purchased Capacity Estimate $88,275,800 $119,997,600 $16,484,800 $24,820,300 $71,791,000 $95,177,300
8 Mid Range Estimate $83,484,200
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BLACK & VEATCH | Valuation Estimate 44
4.6.4 WDMWW 98th Street Elevated Storage Tank
InformationprovidedbyWDMWWindicatesthatits98thStreetElevatedStorageTankincludesanagreementwithCliveandWaukee.ThesetwoentitiescontributedtotheconstructionofthisassetwhichisownedbyWDMWW.Thefollowingpresentsthepercentagesplitoftheassetbetweenthecommunities:
WDMWW–40% Clive–40% Waukee–20%
ThisestimatedvalueisassignedtothesecommunitiesintheNetValuedeterminationinsubsequentsectionsofthisReport.
4.6.5 L.P. Moon Storage and Booster Station
DMWWindicatedthattheconstructionoftheL.P.MoonStorageandBoosterstationwascompletedwithcontributionsfromseveralentities.DMWWstaffreviewedtheagreementsrelatedtothisproject,andindicatedthatmoreworkwouldneedtobedonetoreadilydeterminetheamountofcontributionfromseveraldifferententities.ForpurposesofthisStudy,anydeterminedcontributionforthisassetwouldbeassignedtotheappropriateentityforpurposesofdeterminingtheirrespectiveNetValuethatisdiscussedinthefollowingsectionsofthisReport.
4.7 VALUATION CONCLUSION ThepurposeoftheestimatedvaluationistoderiveanestimatedrangeofvaluethatCIRDWCmemberscanuseasabasisforcontemplatingthemeritsofformingaRegionalProductionUtility.TheformationofaRegionalProductionUtilitywillrequireatransferofassets.Therefore,understandingtheestimatedvaluetoutilitiesthatcontributewaterproductionassetsisnecessarytounderstandthepotentialupfrontcostsofanytransaction.
Itshouldbenotedthatthevaluationestimatedoesnotincludeanappraisedvalueoflandownedbyanycontributingutility.TheestimatedvalueisbasedoninformationavailabletoBlack&VeatchandreflectsBlack&Veatch’sopinionofareasonableestimatebasedontheCostApproachmethodologyofvaluationonly.TheuseoftheIncomeApproachandMarketApproachwerebeyondthescopeofthisStudy,butcouldhelprefineorestablishavalueestimatethatismateriallydifferentthantherangeoutlinedherein.
TheestimatedvaluationprovidesabasisforconductingtheFinancialAnalysisdiscussedsubsequentlyinthisReport.ForpurposesoftheFinancialAnalysis,Black&Veatchhaschosentoselectthemidrangeofthetotalvaluationestimate,orapproximately$323,283,100.
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5 Financial Analysis ThenextstepintheStudywastoassessthefinancialimpactonCIRDWCmembersshouldaRegionalProductionUtilitybeformed.Ingeneral,Black&VeatchutilizedathreestepprocesstoderivethepotentialimpactonCIRDWCmemberscomparedtothecurrentprocessthatutilizestheWholesaleWaterServiceMasterAgreements.
Step1:DeterminetheNetValueorEquitythatwouldbecontributedbymemberstothepotentialRegionalProductionUtility.
Step2:Determinetheestimatedrevenuerequirements(includingtransactionpayments)thatthepotentialRegionalProductionUtilitywouldneedduringthefirstfiveyearsofoperation.
Step3:DetermineaneffectiveuniformratethatwouldapplytomembersofthepotentialRegionalProductionUtilityandcomparetothecurrentwholesalerate.
Thefinancialanalysisincorporatesthefindingsofthevaluationestimateintoafiveyearfinancialprojection,allowingpotentialparticipantstoevaluatethefinancialimpactofregionalizationofjoiningtheRegionalProductionUtility.Thefinancialprojectionincludesdevelopingtherevenuerequirementsforthenewentity.Thesecosts,appliedtotheestimatedbilledusage,deriveanestimatedeffectiveunitcostper1,000gal.
5.1 NET VALUE ANALYSIS TheNetValueAnalysisprovidesonepathforwardfortransitioningfromthecurrentmethodofprovidingwatertoapotentialRegionalProductionUtility.ThemainobjectiveoftheNetValueanalysisistobringpotentialparticipantsintotheRegionalProductionUtilityonanequalbasis.ThisincludesdeterminingtheNetValue,orequity,contributionofparticipantsonapermgdofcapacitybasis,andperforminganynecessaryadjustmentstoalignparticipantswiththesamenetvaluepermgdofcapacity.AkeyassumptionforthisanalysisisthatDMWW,andallentitiesthathaveaPurchasedCapacityAgreementwithDMWW,willjointheRegionalProductionUtility.
ForpurposesofthisNetValueAnalysis,Black&usedthemidrangevalueestimate,orapproximately$323,283,100.
5.1.1 Summary of Estimated Value and Net Value per MGD
ThefirstpartoftheNetValueanalysisistodeterminethenetvaluepermgdofeachentity.NetvalueisreflectedonapermgdbasisasDMWWandthesurroundingutilitieshaveprimarilydesignedthecorenetworktoserveatotalcapacitythatincludestheneedsofDMWWandutilitiesthathavea2006AgreementforpurchasedcapacitywithDMWW.ThefollowingTablepresentsasummaryofthecurrentnetvaluebyentity.
5.1.1.1 Total Capacity
TheTotalCapacitypresentedinTable5‐1,Column1andColumn2includesthefollowing:
TotalcapacityoftheDMWWsystemof116mgd,including56.137mgdofpurchasedcapacityrelatedtothe2006Agreements.ThenettotalcapacityapplicabletoDMWWis59.86mgd.
Additionaltotalcapacitycontributedbyutilitieswithproductionassets.ThisincludesWDMWW(9.9mgd);Altoona(3.9mgd);andAnkeny(4.32mgd).
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Table 5‐1 Summary of Total Capacity, Value, and Net Value by Entity (Mid Range Value)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Estimated
Estimated
%Estimated
DMWW
DMWW
%Net
Line
Total
Total
Mid Range
Outstanding
Debt Service
Net
Net
Value
No.
Description
Capacity
Capacity
Value
Debt
Reserve
Value
Value
per mgd
mgd
=(3)+(4)+(5)
=(6)/(1)
Contributing Entities
1Des Moines Water Works
59.86
44.63%
$196,459,400
($5,996,800)
$703,400
$191,166,000
65.17%
$3,193,400
2Polk Co. (SE and Unincorporated)
1.95
1.45%
$3,895,200
($679,800)
$0$3,215,400
1.10%
$1,648,900
3Berw
ick Water Association
0.25
0.19%
$371,800
($56,300)
$45,100
$360,600
0.12%
$1,442,400
4Urbandale W
ater Works
15.30
11.41%
$24,028,800
($11,204,700)
$1,609,000
$14,433,100
4.92%
$943,300
5West Des Moines Water Works
18.87
14.07%
$36,457,400
($4,541,500)
$708,100
$32,624,000
11.12%
$1,728,600
6Ankeny
12.60
9.39%
$15,339,900
($9,983,100)
$959,500
$6,316,300
2.15%
$501,300
7Clive
6.98
5.20%
$11,967,400
$0$0
$11,967,400
4.08%
$1,714,500
8Waukee
3.69
2.75%
$6,287,100
($805,100)
$171,000
$5,653,000
1.93%
$1,530,300
9Warren Rural W
ater
3.25
2.42%
$4,827,300
$0$0
$4,827,300
1.65%
$1,487,200
10Xenia Rural W
ater
2.95
2.20%
$4,385,700
$0$0
$4,385,700
1.50%
$1,487,200
11Norw
alk
1.97
1.47%
$2,922,200
($412,400)
$146,500
$2,656,300
0.91%
$1,351,800
12Bondurant
1.20
0.89%
$1,784,600
($684,800)
$77,800
$1,177,600
0.40%
$981,300
13Altoona
4.90
3.65%
$12,337,600
$0$0
$12,337,600
4.21%
$2,517,900
14Polk City
0.35
0.26%
$2,218,700
$0$0
$2,218,700
0.76%
$6,339,100
15Total
134.12
100.00%
$323,283,100
($34,364,500)
$4,420,400
$293,339,000
100.00%
$2,187,100
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BLACK & VEATCH | Financial Analysis 47
5.1.1.2 Estimated Total Value by Entity
Table5‐1,Column3presentsthemidrangevaluebyentityandincludesthefollowing:
Purchasedcapacityvalueforentitiesthathavea2006AgreementforpurchasedcapacitywithDMWW.TheestimatedvaluefortheseentitiesisreflectedinTable5‐2.Themidrangepurchasedcapacityvalueof$83,484,200isdistributedtothepurchasedcapacitycustomersonthebasisoftheirpurchasedcapacityamounts.
Table 5‐2 Purchased Capacity Mid Range Value by Customer
ValueofcontributedassetsfromentitiesotherthanDMWW.ThisincludessupplyandtreatmentassetsfromWDMWW,Altoona,UrbandaleWaterWorks,andAnkeny.Forexample,thetotalvalueforWDMWWshowninColumn3ofTable5‐1reflectsitspurchasedcapacityvalue,pluscontributedmidrangevalueofassets($36,457,400=$13,344,200+$23,113,200).
OthersignificantcontributionssuchasthePolkCityfeedermainandJointEastSideprojectforCityofPleasantHill(includedinDMWWasfullservicecustomer),PolkCo.,andAltoona.Oncedetermined,thecontributionbyentitiesrelatedtotheL.P.Moonstorageandpumpingstationwouldalsobeincluded.
5.1.1.3 Net Outstanding Debt
Table5‐1,Columns4and5primarilypresentstheestimatedoutstandingdebtheldbyDMWWrelatedtocorenetwork,offsetbyapplicabledebtservicereserveamounts.ThisoutstandingdebtisprimarilydebtthatwasissuedbyDMWWonbehalfofpurchasedcapacitycustomers.WithanytransferofassetsfromDMWWtoanewRegionalProductionUtility,theoutstandingdebtheldbyDMWWwouldneedtobeaddressed.ForpurposesofthisStudyandReport,Black&Veatchhasassumedthatatthetimeofanytransaction,DMWWwouldbecompensatedbythenewRegional
%
Line Purchased Purchased Estimated
No. Purchased Capacity Holder Capacity Capacity Value
mgd
1 Polk Co. (SE and Unincorporated) 1.950 3.47% $2,899,900
2 Berwick Water Association 0.250 0.45% $371,800
3 Urbandale Water Works 15.300 27.25% $22,753,400
4 West Des Moines Water Works 8.973 15.98% $13,344,200
5 Ankeny 8.280 14.75% $12,313,600
6 Clive 6.980 12.43% $10,380,300
7 Waukee 3.694 6.58% $5,493,500
8 Warren Rural Water 3.246 5.78% $4,827,300
9 Xenia Rural Water 2.949 5.25% $4,385,700
10 Norwalk 1.965 3.50% $2,922,200
11 Bondurant 1.200 2.14% $1,784,600
12 Altoona 1.000 1.78% $1,487,100
13 Polk City 0.350 0.62% $520,500
14 Total 56.137 100.00% $83,484,200
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ProductionUtilitytoretiretheoutstandingdebt,lessoutstandingdebtservicereserveamounts.Additionallegalandfinancialanalysisshouldbeundertakenbeforeanypotentialtransactiontodeterminewhetherthisisfeasibleornot.
Black&VeatchwasalsoabletodeterminethatAnkenyhassomeoutstandingdebtrelatedtoitsASRwells.Thisamountisapproximately$1,545,000andisincludedinTable5‐1,Column4,Line6.
Black&Veatchalsorecognizesthatsomeentitiesmayhaveoutstandingdebtrelatedtotheir2006Agreements.Forpurposesofthisstudy,Black&Veatchassumesthatthoseentitieswouldcontinuetopaytheprincipalandinterestpaymentsrelatedtothatdebtafteranypotentialtransaction.
5.1.1.4 Estimated Net Value by Entity
Table5‐1,Column6presentsthenetvaluebyentity.ItisderivedbysubtractingthenetoutstandingdebtheldbyDMWWfromthetotalvaluerelatedtothecorenetwork.ThepercentageofnetvaluebyentityispresentedinTable5‐11,Column7.
Table5‐1,Column8presentsthenetvaluepermgdofcapacitybyentity.ItisderivedbydividingColumn6byColumn1.Ascanbeseen,thenetvaluepermgdbyentityisnotuniform.DMWWwiththecontributionofamajorityofassetsreflectsthehighestnetvaluepermgd,whileAnkenyreflectsthelowestnetvaluepermgd.ThelowernetvaluepermgdvalueforAnkenyisprimarilyrelatedtothefactthatitscontributionforthe2006AgreementwasprimarilyfinancedthroughdebtissuedbyDMWW.ThereisalsosomeoutstandingdebtrelatedtoAnkeny’sASRwellsofapproximately$1,545,000thatwouldlikelyneedtoberetiredatthetimeofthetransaction.
5.1.2 Alignment of Net Value by Entity
Asindicatedabove,theentitiescontributedvaryinglevelsofnetvalueonapermgdbasis.TobringeachentityintothepotentialRegionalProductionUtilityonanequalbasis,Black&Veatchperformedatwo‐stepprocesstoalignthenetvalueofeachentityonapermgdbasis.ThefirststepincludesbuyingdownthenetvalueofDMWWtoalevelmoreconsistentwiththeotherentities.Thisresultsinanew,lowernetvaluepermgdforDMWW.Thesecondstepincludesaligningthenetvalueofallotherstothenew,lowernetvalueofDMWW.Table5‐3presentsthealignmentofcustomersonanetvaluepertotalcapacitybasis.Table5‐3,Column1restatestheNetValuebyentityasreflectedonTable5‐1.
5.1.2.1 Cash Payment to DMWW
ThecashpaymenttoDMWWisthefirststepinaligningthenetvaluepertotalcapacityoftheentitiesandisshowninTable5‐3,Column2.Black&Veatchusedanestimatedcashpaymentof$100million.ItisassumedfortheStudyandthisReportthatthecashpaymentwouldbefundedfromdebtissuedbytheRegionalProductionUtility.Theprincipalandinterestrelatedtothispaymentwouldbeincludedintheannualrevenuerequirementsofthenewentityandpayableaspartofitsuniformratewhichisdiscussedlaterinthisreport.
ThecashpaymenttoDMWWresultsinanewnetvalueofapproximately$91,166,000.WhendividedbythetotalcapacityapplicabletoDMWWtheresultis$1,522,900permgdoftotalcapacity.
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Table 5‐3 Alignment of Net Value per Total Capacity by Entity
(1)
(2)
(3)
(4)
(5)
(6)
Net
Adjusted
Cash Payment
Contributions
Adjusted
Restated
Net
Line
Net
Des Moines
(To)/From
Net
Total
Value
No.
Description
Value
Water Works
Other Entities
Value
Capacity
per mgd
(1)+(2)+(3)
(4) / (5)
Contributing Entities
1Des Moines Water Works
$191,166,000
($100,000,000)
$91,166,000
59.86
$1,522,900
2Polk Co. (SE and Unincorporated)
$3,215,400
($245,800)
$2,969,600
1.95
$1,522,900
3Berw
ick Water Association
$360,600
$20,200
$380,800
0.25
$1,522,900
4Urbandale W
ater Works
$14,433,100
$8,867,400
$23,300,500
15.30
$1,522,900
5West Des Moines Water Works
$32,624,000
($3,882,200)
$28,741,800
18.87
$1,522,900
6Ankeny
$6,316,300
$12,872,400
$19,188,700
12.60
$1,522,900
7Clive
$11,967,400
($1,337,400)
$10,630,000
6.98
$1,522,900
8Waukee
$5,653,000
($27,300)
$5,625,700
3.69
$1,522,900
9Warren Rural W
ater
$4,827,300
$116,100
$4,943,400
3.25
$1,522,900
10Xenia Rural W
ater
$4,385,700
$105,500
$4,491,200
2.95
$1,522,900
11Norw
alk
$2,656,300
$336,200
$2,992,500
1.97
$1,522,900
12Bondurant
$1,177,600
$649,900
$1,827,500
1.20
$1,522,900
13Altoona
$12,337,600
($4,875,300)
$7,462,300
4.90
$1,522,900
14Polk City
$2,218,700
($1,685,700)
$533,000
0.35
$1,522,900
15Total
$293,339,000
($100,000,000)
$10,914,000
$204,253,000
134.12
$1,522,900
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5.1.2.2 Alignment of Net Value per MGD of Other Entities
Oncethenewnetvaluepertotalcapacityof$1,522,900forDMWWwasestablished,Black&Veatchderivedtheestimatedcontributionthatwouldbemadeby,ormadetotheotherentitiestoachievealignmentwithDMWW.ThiscontributionisreflectedinTable5‐3,Column3.Negativevaluesreflectcashpaymentstoentitiestoaligntheirnetvaluepertotalcapacityat$1,522,900permgd.PositivevaluesreflectcashpaymentsfromtherespectiveentitiestothenewRegionalProductionUtilitytoaligntheirnetvaluepertotalcapacityat$1,522,900permgd.Table5‐3,Column4reflectsthenewadjustednetvaluepermgdbyentitypostcontribution.Table5‐3,Column5restatesthetotalcapacitybyentity.TheColumn4adjustednetvalueisdividedbythistotalcapacitytoreflecttheadjustednetvaluepermgdinColumn6.Ascanbeseen,thecashpaymenttoDMWW,combinedwithcontributionsbothtoandfromtheentities,alignsallparticipantsonthesamebasis.
5.1.3 Summary of Net Value Analysis
TheNetValueanalysisalignseachofthepotentialmembersoftheRegionalProductionUtilityonanequalbasis.Thisalignmentiskeyforseveralreasons.Firstitestablisheseachcommunityonanequalbasisintermsoftheirrespectivecontribution,ornetvalue,tothenewRegionalProductionUtility.Thisalignmenthelpsexplaintopolicymakersandthepublicthatthecommunitiesarecomingintotheendeavoronanequalbasis.Second,thealignmentpavesthewayforjustificationofuniformrates,whichwasadesirefrommanyCIRDWCmembersduringtheStakeholderInputphaseoftheStudy.AsisseeninTable5‐4,thealignmentachievesequalfootingforparticipantsbothintermsofnetvalueandtheirrespectivepercentageoftotalcapacity.
Table 5‐4 Summary of Alignment of Net Value and Total Capacity
TheNetValueanalysisresultsincashpaymenttoDMWW.ThecashpaymentsarerelatedtotheretirementofoutstandingdebtheldbyDMWW,andalsoacashpaymenttolowerDMWW’snet
Adjusted % Adjusted
Line Net Net Total % Total
No. Description Value Value Capacity Capacity
Contributing Entities
1 Des Moines Water Works $91,166,000 44.63% 59.86 44.63%
2 Polk Co. (SE and Unincorporated) $2,969,600 1.45% 1.95 1.45%
3 Berwick Water Association $380,800 0.19% 0.25 0.19%
4 Urbandale Water Works $23,300,500 11.41% 15.30 11.41%
5 West Des Moines Water Works $28,741,800 14.07% 18.87 14.07%
6 Ankeny $19,188,700 9.39% 12.60 9.40%
7 Clive $10,630,000 5.20% 6.98 5.20%
8 Waukee $5,625,700 2.75% 3.69 2.75%
9 Warren Rural Water $4,943,400 2.42% 3.25 2.42%
10 Xenia Rural Water $4,491,200 2.20% 2.95 2.20%
11 Norwalk $2,992,500 1.47% 1.97 1.47%
12 Bondurant $1,827,500 0.89% 1.20 0.90%
13 Altoona $7,462,300 3.65% 4.90 3.65%
14 Polk City $533,000 0.26% 0.35 0.26%
15 Total $204,253,000 100.00% 134.12 100.00%
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BLACK & VEATCH | Financial Analysis 51
valuetoalevelclosertotheotherentities.ForpurposesofthisStudy,thecashpaymentswouldbemadebythenewRegionalProductionUtilitymostlikelythroughtheissuanceofdebtthatwouldthenbepaidbackbyallmembers.Table5‐5presentsasummaryofthemidrangevalueandderivationofthenetvalue,orequityofthepotentialRegionalProductionUtility.
Table 5‐5 Summary of Net Value or Equity
AsTable5‐5shows,thenetvalueequatestoapproximately$204millionandconsistsofthetotalvalue,offsetbycashpaymentstoDMWWandnetcontributionsfromotherentities.Thenetvalueisapproximately63percentofthetotalmidrangevalue.TheamountsforthecashpaymentstoDMWWtoreduceDMWW’snetvalueanddefeaseDMWWdebtwillbeincludedinthefollowingsections.
5.1.3.1 Potential Buy In Amount for Non‐Members
ThereareseveralcommunitiesthatreceivetheircompletewaterservicefromDMWW.ForpurposesofthisStudy,theircapacityisincludedintheDMWWlineitem.ThereisalsotheCityofJohnston,whichisawholesalecustomerofDMWWthatdidnotenterintoaPurchasedCapacityAgreement.Thus,thequestionwasposedtoBlack&Veatch:“whatwouldJohnstonhavetocontributetogainparticipationinthenewRegionalProductionUtility?”TheNetValueanalysisprovidesabasisforacceptingnewmemberstotheRegionalProductionUtility.
FortheCityofJohnston,itscurrentpeakdaywaterneedmultipliedbythenetvaluepermgdseenaboveinTable5‐3couldprovidecontributionnecessary.Black&VeatchutilizedanestimatedpeakdaydemandfortheCityofJohnstonof7.0mgd.Thispeakdaydemand,multipliedby$1,522,900equals$10,660,300,andcouldserveasonecontributionbasisforacceptingnewparticipants.
Additionally,shouldtheCIRDWCmembersdeterminetopursuetheRegionalProductionUtility,asimilarmethodcouldbeusedforfullservicecustomersservedbyDMWW.ConsiderationwillneedtobegiventothedistributionoftotalcapacitycomparedtoDMWW.Asmentionedpreviously,thedemandfortheCityofJohnstonandfullservicecustomersofDMWWisincludedinthetotalDMWWcapacityof59.86mgd.
5.2 DEVELOPMENT OF FIVE YEAR FINANCIAL PROJECTION Forpurposesofthefinancialanalysis,Black&Veatchdevelopedafiveyearprojectionofrevenuerequirementsthatinclude:(1)operationandmaintenance(O&M)expense,(2)annualrenewalandreplacementcosts,(3)debtserviceand/orcashfinancingofmajorcapitalimprovements,(4)debt
Line Breakdown
No. Description of Value
1 Total Value Estimate ‐ Mid Range $323,283,100
2 Cash Payment to DMWW ($100,000,000)
3 Net Cash Payment to DMWW for Debt ($29,944,100)
4 Contributions From Participants $22,967,700
5 Contributions To Participants ($12,053,700)
6 Total Net Value (Equity) $204,253,000
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BLACK & VEATCH | Financial Analysis 52
serviceand/orcashfinancingoftherepaymentofoutstandingdebtcurrentlyheldbyDMWWrelatedtoPurchasedCapacityAgreementsortheconstructionofthecorenetwork,and(5)debtserviceand/orcashfinancingofthepaymenttoDMWWtoachievealignmentbetweensystemcapacityandnetvalue.
5.2.1 Operation and Maintenance Expense
TheoperatingbudgetsforDMWW,WDMWW,andAltoonawereutilizedtodevelopaprojectedoperatingbudgetfortheassetstobecontributedbytheseentitiestotheRegionalProductionUtility.Theelementsofoperationandmaintenanceexpenseincludetheannualexpenseassociatedwithsourceofsupply,treatment,pumpstation,storage,andtransmissionmainsassociatedwiththecontributedassetsaswellasadministrativecostsassociatedwiththenewRegionalProductionUtility.
AsummaryofproposedoperationandmaintenanceexpenseispresentedinTable5‐6.TheprojectedoperationandmaintenanceexpensereflectsDMWW2015proposedbudgetforWaterProductionwhichincludeslaborandnon‐laborexpensesassociatedwiththemaintenance,energyandchemicalsforthethreeWTPs,storageandpumping,laboratory,facilityandvehiclemaintenance,communicationsystem,andHVAC.TheexpensesassociatedwithDesMoinesRemoteStoragehasbeenexcludedsinceO&MforthesefacilitieswillremainwithDMWW.Inaddition,anallowancehasbeenmadeforO&MassociatedwithDMWW’scorenetworktransmissionsystem.
ProjectedoperationandmaintenanceexpenseforWDMWWreflectsitsdraft2015budgetamountsforWaterTreatmentPlantexcludingthecostsassociatedwithpurchasedwater,aswellasagrantforanaeratorretrofit.The2015budgetfortheCityofAnkeny’stwoASRwellsisbasedonapercentageofDMWW’sbudgetforL.P.MoonPumpingandMaintenance.TheCityofAltoona’s2015proposedbudgetforWaterOperationswasthebasisforprojectedoperationexpenseassociatedwiththeCity’streatmentplantsandwells.
Table 5‐6 Proposed Operation & Maintenance Expense
Line Budget
No. Description 2015 2016 2017 2018 2019 2020
Des Moines Water Works
1 Production $15,122,500 $15,576,200 $16,043,500 $16,524,800 $17,020,500 $17,531,100
2 Core Network Distribution System 1,536,000 1,582,100 1,629,600 1,678,500 1,728,900 1,780,800
West Des Moines Water Works
3 Production 2,647,164 2,726,600 2,808,400 2,892,700 2,979,500 3,068,900
City of Ankeny
4 ASR Wells 127,207 131,000 134,900 138,900 143,100 147,400
City of Altoona
5 Production 852,392 878,000 904,300 931,400 959,300 988,100
New Authority
6 Administration 4,178,800 4,304,100 4,433,300 4,566,300 4,703,300
7 Estimated Savings (1,111,800) (1,145,200) (1,179,600)
8 Total $20,285,263 $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000
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InadditiontotheO&Midentifiedaboveassociatedwiththecontributedassets,administrativecostsassociatedwiththenewRegionalProductionUtilityneedtobeconsidered.Thesecostsincludepersonnel,materials,andsuppliesassociatedwithhumanresources,finance,informationtechnology,engineering,andmanagementofthenewentity.BasedonpreviousefficiencystudiesperformedbyBlack&Veatch,areasonableestimateofadministrativeexpensesassociatedwiththenewentityisapproximately20percentofthetotalofallotherexpenses.ThisamountisshownonLine6ofTable5‐6.
ItisanticipatedthatthenewRegionalProductionUtilitywilleventuallyexperiencesavingsassociatedwithareductionintheduplicationofservicesandtheconsolidatedpurchasingofmaterialsandsupplies.EstimatedsavingsareprojectedtoimpactO&MassociatedwithchemicalandenergycostsassociatedwithDMWW’sandWDMWW’swatertreatmentplants.AdditionalsavingscouldberealizedbycoordinatingO&Mactivitiesrelatedtofacilitymaintenance,vehiclemaintenance,communicationsystem,andHVACO&MbetweenDMWW,WDMWW,andAltoona.Thesesavingsareestimatedtobeginin2018andareshownonLine7ofTable5‐6.
O&Mexpenseprojectionsfortheyears2016through2020arebasedonbudgeted2015expenseamountsadjustedtoincludeanallowanceforinflation,estimatedat3percentannually.AsshowninTable5‐6,O&Mexpenseisprojectedtoincreasefrom$25,072,700in2016to$27,040,000by2020.
5.2.2 Annual Renewal and Replacement
Annualrenewalandreplacementexpendituresincludethosecostswhichtendtoberoutinelyincurredeachyearfornormalreplacements,extensions,andminorimprovements.Projectedrenewalandreplacementcostswereestimatedusingthereplacementcostandaverageservicelifefromthevaluationanalysisabove,aswellaslookingatthehistoricalcapitalspendforDMWW.ProjectedrenewalandreplacementcostsaredeterminedaspresentedinTable5‐7.
Table 5‐7 Projected Renewal and Replacement
5.2.3 Major Capital Improvement Costs
ProjectedexpendituresformajorcapitalimprovementsconsistofprojectsassociatedwiththecontributedassetsprovidedbyDMWW,WDMWW,andAltoona.BasedonDMWW’scapitalbudget,improvementsduringthe2016‐2020studyperiodconsistsofprojectsassociatedwithFacilityMaintenance,RawWaterMaffitt,theFleurDriveTreatmentPlant,andtheMcMullenTreatmentPlant.
Line
No. Description 2016 2017 2018 2019 2020
1 Des Moines Water Works $9,700,000 $9,700,000 $9,700,000 $9,700,000 $9,700,000
2 West Des Moines Water Works 1,390,000 1,063,000 938,000 1,390,000 1,390,000
3 City of Ankeny 66,000 66,000 66,000 66,000 66,000
4 City of Altoona 460,000 460,000 460,000 460,000 460,000
5 Total $11,616,000 $11,289,000 $11,164,000 $11,616,000 $11,616,000
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AnticipatedprojectsforWDMWW’sproductionassetsconsistofrepaintinggroundstoragetanksNo.1andNo.2,andreplacementofthelimeslakerattheA.C.WardWTP.Tomeetfuturewaterdemandsbeyondtheyear2020,projectsrelatedtoAltoona’sproductionassetsincludeconstructionofanewwellatWaterTreatmentPlantNo.1toreplaceWellNo.2,andreplacementofmajorequipmentcomponentsatWaterTreatmentPlantNo.1.Thefive‐yearmajorcapitalimprovementprogramcostsareestimatedtototal$15,615,400andareshowninTable5‐8.
Table 5‐8 Major Capital Improvement Program
5.2.4 Repayment of Outstanding Purchase Capacity Debt
AsmentionedintheNetValueAnalysissection,Black&Veatchhasassumedthatatthetimeofanytransaction,DMWWwouldbecompensatedbythenewRegionalProductionUtilitytoretireoutstandingdebtissuedbyDMWWonbehalfofpurchasedcapacitycustomers.Thisamount,asshowninTable5‐1,Column4totals$34,364,000.ItisassumedthatthedebtservicereserveseeninTable5‐1,Column5willoffsettheoutstandingdebtservice.Thisresultsinanetoutstandingdebtpaymentof$29,944,000.
5.2.5 Adjustment to Des Moines Water Works’ Net Value
AsdiscussedintheNetValueAnalysissectionofthisReport,inordertobringeachentityintothepotentialRegionalProductionUtilityonanequalbasis,atwo‐stepprocesswasusedtoalignthenetvalueofeachentityonapermgdbasis.ThefirststepwastobuydownthenetvalueofDMWWtoalevelmoreconsistentwithotherentitiesusingacashpaymentof$100,000,000.Thesecondstep,whichinvolvesanestimatedcontributionthatwouldbemadeby,ormadetotheotherentities,wouldalignthenetvalueofallotherstothenew,lowernetvalueofDMWW.Thisvalue,asshowninColumn3ofTable5‐3is$10,914,000.Thenetcashpaymentof$89,086,000consistsofthecashpaymenttoDMWW,offsetbythecontributionstoandfromtheentities.
5.2.6 Major Capital Improvement Financing
Table5‐9presentsthecapitalimprovementfinancingplanwhichsummarizestheprojectedsourceandapplicationoffundsoverthefive‐yearstudyperiod.Thisplananticipatesthatproposedcapitalimprovementswillbefinancedfromacombinationofbondproceedsandannualoperatingrevenue;however,otheralternativescanbeconsideredandarediscussedlaterinthissection.
Line
No. Description 2016 2017 2018 2019 2020
1 Des Moines Water Works $6,198,700 $5,639,300 $0 $0 $0
2 West Des Moines Water Works 0 327,000 452,000 0 0
3 City of Altoona 0 0 0 0 2,998,400
4 Total 6,198,700$ $5,966,300 $452,000 $0 $2,998,400
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Table 5‐9 Estimated Capital Financing Plan
Line1indicatesthattheRegionalProductionUtilitywillbegin2016withnounencumberedcashorinvestmentsavailabletofundcapitalcost.Anoptionwouldbetousesomeorallofthecontributionsfromotherentitiestoinitiallyfundtheconstructionfund,however,thatoptionisnotpresentedinthisReport.Arevenuebondissueintheamountof$142,500,000in2016isprojectedandshownonLine2ofTable5‐9.Theproceedsofthisissuancewillfundallcapitalrelatedcostsin2016and2017.Theamountsandyearsofeachloanaredevelopedconsideringcapitalprogramneedsandothersourcesofcapitalimprovementfinancing.
Cashfinancingofcapitalimprovementsfromannualrevenuesisexpectedtototal$3,500,000forthestudyperiodasindicatedonLine3ofTable5‐9.Interestincomeonthecapitalfunds,whichisshownonLine4,reflectsanassumed1.0percentannualinterestrate.Line5showsthetotalofallfundsavailabletofinancethecapitalimprovementprogram.
Theapplicationoffundsshowthat$15,615,400majorcapitalimprovementsexpendituresareprojectedovertheplanningperiodasshownonLine6.Line7showsthenetrepaymentofoutstandingdebtcurrentlyheldbyDMWWrelatedtothecorenetworkandpurchasedcapacity.ThenetcashpaymenttoDMWWtoachievealignmentbetweenthesystemcapacityandnetvalueispresentedonLine8.Line9ofTable5‐9showsthedebtissuancecostsassociatedwiththeprojectedbondissuance.Thiscostisestimatedtobe2.0percentofthetotalissuanceamount.Line10reflectstheestimateddebtservicereserverequirementwhichisequaltoannualprincipalandinterest.Theissuancecostanddebtservicereserveamountsareassumedtobefundedfromthebondproceeds.
Line11showsthetotalofallfundapplications.TheendofyearbalanceisshownonLine12,andreflectsLine11subtractedfromLine5.
5.2.7 Projection of Annual Revenue Requirements and Effective Rate
Table5‐10showstheprojectedfinancialobligationsforthenewRegionalProductionUtilityfortheperiod2016through2020.ThistablesummarizesO&Mexpense,debtservicerequirementson
Line
No. Description 2016 2017 2018 2019 2020
Construction Funds Available
1 Beginning Balance ‐$ 6,242,500$ 338,900$ 392,800$ 396,700$
2 Revenue Bond Proceeds 142,500,000 0 0 0 0
3 Transfer from Operating Fund (Cash Financing) 0 0 500,000 0 3,000,000
4 Interest Income 62,200 62,700 5,900 3,900 19,100
5 Total Funds Available 142,562,200$ 6,305,200$ 844,800$ 396,700$ 3,415,800$
Construction Funds Used
6 Major Capital Improvements 6,198,700$ 5,966,300$ 452,000$ ‐$ 2,998,400$
7 Repayment of Outstanding DMWW Debt 29,944,000 0 0 0 0
8 Net Cash Payment to DMWW 89,086,000 0 0 0 0
9 Revenue Bond Issuance Expense 2,850,000 0 0 0 0
10 Revenue Bond Debt Service Reserve Requirement 8,241,000 0 0 0 0
11 Total Funds Utilized 136,319,700$ 5,966,300$ 452,000$ ‐$ 2,998,400$
12 Ending Balance 6,242,500$ 338,900$ 392,800$ 396,700$ 417,400$
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proposedbonds,thetransferofoperatingfundsformajorcapitalimprovementfinancing,andcapitalrenewalandreplacementcosts.
O&Mexpense,previouslyprojectedinTable5‐6,isshownonLine1.EstimateddebtservicerequirementsonrevenuebondsprojectedtobeissuedtohelpfinancemajorcapitalprogramexpendituresandothercapitalrequirementsareshownonLines2and3.Revenuebondsindicatedtobeissuedduringthestudyperiodareassumedtobe30year,4.0percentfixedinterestbondswithequalannualpaymentsofprincipalandinterest.Line4reflectstheprojectedtransferoffundsfromoperationstoassistinmajorcapitalfinancing.CapitaloutlayforrenewalsandreplacementsisshownonLine5ofTable5‐10.Line6indicatesthetotalrevenuerequirementsforthefiveyearperiod.
Table 5‐10 Summary of Revenue Requirements and Unit Cost Development
Todeterminetheeffectiveunitcostper1,000gallonsofbilledwaterconsumption,usagefromeachofthe14contributingentitieswasprojectedbasedonhistoricalbilledusageprovidedbyDMWW.AsummaryofhistoricalandprojectedwaterusageispresentedinTable5‐11.Projectedquantitiesarebasedon(1)recognitionofhistoricalusagequantitiesandtrends,(2)totalwaterconsumptionbythecontributingentities,and(3)projectedgrowthratesinthecustomerbase.
Line
No. Description 2016 2017 2018 2019 2020
1 Operating Expense $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000
Debt Service
2 Projected Future Bonds 8,241,000 8,241,000 8,241,000 8,241,000 8,241,000
3 Total Debt Service on Bonds 8,241,000 8,241,000 8,241,000 8,241,000 8,241,000
4 Cash Financing of Major Capital 0 0 500,000 0 3,000,000
5 Renewals & Replacement 11,616,000 11,289,000 11,164,000 11,616,000 11,616,000
6 Total Revenue Requirements $44,929,700 $45,354,800 $45,392,800 $46,109,400 $49,897,000
7 Projected Usage ‐ 1,000 gal. 17,857,100 18,010,100 18,165,300 18,322,900 18,482,900
8 Unit Cost ‐ $/1,000 gal. $2.52 $2.52 $2.50 $2.52 $2.70
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Table 5‐11 Projected Billed Water Usage
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Line
2‐year
Projection
No.
Description
2013
2014
Average
Base
2016
2017
2018
2019
2020
1,000 gal.
1,000 gal.
1,000 gal.
1,000 gal.
1,000 gal.
1,000 gal.
1,000 gal.
1,000 gal.
1,000 gal.
Contributing Entities
1Des Moines Water Works
7,931,336
7,387,434
7,659,385
7,659,385
7,659,385
7,659,385
7,659,385
7,659,385
7,659,385
2Polk Co. (SE and Unincorporated)
693,540
640,478
667,009
667,009
687,169
697,477
707,939
718,558
729,336
3Berw
ick Water Association
29,449
32,930
31,189
31,189
32,132
32,614
33,103
33,599
34,103
4Urbandale W
ater Works
1,668,940
1,415,742
1,542,341
1,542,341
1,588,958
1,612,793
1,636,985
1,661,539
1,686,462
5West Des Moines Water Works
899,201
739,937
819,569
2,469,969
2,544,624
2,582,793
2,621,535
2,660,858
2,700,771
6Ankeny
1,716,937
1,531,156
1,624,046
1,624,046
1,673,133
1,698,230
1,723,703
1,749,559
1,775,802
7Clive
659,958
584,555
622,256
622,256
641,064
650,680
660,440
670,346
680,402
8Waukee
437,206
395,094
416,150
416,150
428,728
435,159
441,686
448,312
455,036
9Warren Rural W
ater
670,806
557,656
614,231
614,231
632,796
642,288
651,922
661,701
671,627
10Xenia Rural W
ater
513,240
612,208
562,724
562,724
579,732
588,428
597,255
606,214
615,307
11Norw
alk
254,975
239,462
247,219
247,219
254,691
258,512
262,389
266,325
270,320
12Bondurant
118,588
148,747
133,667
133,667
137,707
139,773
141,869
143,997
146,157
13Altoona
150
22
86876,000
902,477
916,014
929,754
943,701
957,856
14Polk City
99,447
84,015
91,731
91,731
94,504
95,921
97,360
98,820
100,303
15Total
15,693,772
14,369,436
15,031,603
17,557,917
17,857,100
18,010,066
18,165,326
18,322,915
18,482,868
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BasedonhistoricaldataprovidedbyDMWW,itwasdeterminedthatusagein2013and2014reflectstypicalweatherconditionsandwaterusage,therefore,theaverageof2013and2014wasusedasthebasisforprojectedwaterusage.ThehistoricalwaterconsumptionforWestDesMoinesWaterWorksandtheCityofAltoonadoesnotreflectwaterproducedbythewatertreatmentplantscurrentlyownedandoperatedbythoseentities.UndertheRegionalProductionUtility,theseplantswouldbeincludedintheassetspurchased.Therefore,thewaterprovidedbytheseplantstoservetheCitiesofWestDesMoinesandAltoonaisincludedintheprojectionbaseforthenewRegionalProductionUtility,andisshowninColumn6ofTable5‐11.Projectedusagethrough2020reflects0.0percentgrowthfortheDesMoinesWaterWorksserviceareaand1.5percentgrowthforallotherentities.Thisreflectsconservativeestimatesbasedonhistoricalgrowthandassumedfuturegrowthasprovidedbyeachentity.Salesvolumesforthisperiodareprojectedtoincreaseatanaveragerateofabout1.0percentannually.
Line8ofTable5‐10showstheprojectedunitcostforwaterpurchasedfromthenewentityper1,000gallonsbasedontherevenuerequirementsonLine6dividedbytheprojectedbilledusageshownonLine7.
5.2.8 Financing alternatives
Theunitcostsdeterminedintheprevioussectionarebasedonfinancingallcapitalrelatedcostsin2016and2017withtheissuanceofarevenuebond.Asanalternative,ifthenewRegionalProductionUtilitycouldreachagreementonarepaymentscheduledirectlywithDMWW,thenasmallerrevenuebondcouldbeissuedfortheremainingcapitalcostsandthenewRegionalProductionUtilitywouldpaylessinbondissuancecostsanddebtservicereserve.Table5‐12reflectstheproposedrevenuerequirementsandunitcostforthisscenario.ProposeddebtserviceonLine2reflectsarevenuebondissueintheamountof$51,000,000whichwouldbeusedtofundtherepaymentofoutstandingDMWWdebtandmajorcapitalprojectsin2016and2017.Line4showstheestimatedannualpaymentsthenewRegionalProductionUtilitywouldmakedirectlytoDMWWaspaymenttoachievealignmentbetweenthesystemcapitalandnetvalue.Thesepaymentsarebasedona40‐yeartermand5percentinterest.Line9indicatesthatthisfinancingoptionwouldhaveafavorableimpactontheproposedunitcostswhencomparedtodebtfinancingallinitialcapitalcosts.
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Table 5‐12 Alternative Revenue Requirements and Unit Cost Development
5.2.9 Effective Rate sensitivity
Inanefforttodeterminehowmuchtheunitcostswillfluctuateasaresultofchangesinassumptions,aratesensitivityanalysiswasperformedcomparingtheinitialbaserun(Table5‐10)against3alternatives.TheresultsaresummarizedinTable5‐13.Line1ofTable5‐13reflectsthesameunitcostsshowninTable5‐10.
Thefirstvariabletobeconsideredwastheestimatedfairmarketvalueforthecontributedassets.TheinitialbaserunshowninTables5and6isbasedonthemid‐rangevalueofassets;however,therevenuerequirementswerealsodeterminedusingthelow‐rangevalueofassets.TheresultingunitcostsarepresentedinLine4ofTable5‐13andreflectadecreaseofapproximately4percent.
Thesecondvariableconsideredwastheestimatedrenewalandreplacementcosts.Theestimatedrenewalandreplacementcostsreflectahighlevel,conservativeestimate.However,additionalplanningandengineeringcouldresultinalower,actualamount.Therefore,theestimatedrenewalandreplacementcostswerereducedby15percent.Lines2and5inTable5‐13reflectthereducedunitcostsforthemid‐rangeandlow‐rangevaluation,respectively.
Line
No. Description 2016 2017 2018 2019 2020
1 Operating Expense $25,072,700 $25,824,800 $25,487,800 $26,252,400 $27,040,000
Debt Service
2 Projected Future Bonds 2,660,000 2,660,000 2,660,000 2,660,000 2,660,000
3 Total Debt Service on Bonds 2,660,000 2,660,000 2,660,000 2,660,000 2,660,000
4 Net Cash Payment to DMWW 5,192,000 5,192,000 5,192,000 5,192,000 5,192,000
5 Cash Financing of Major Capital 0 0 500,000 0 3,000,000
6 Renewals & Replacement 11,616,000 11,289,000 11,164,000 11,616,000 11,616,000
7 Total Revenue Requirements $44,540,700 $44,965,800 $45,003,800 $45,720,400 $49,508,000
8 Projected Usage ‐ Mgal 17,857,100 18,010,100 18,165,300 18,322,900 18,482,900
9 Unit Cost ‐ $/Mgal $2.49 $2.50 $2.48 $2.50 $2.68
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Table 5‐13 Rate Sensitivity Comparison
Thethirdvariableconsideredforthesensitivityanalysiswasthegrowthrateofprojectedbilledwaterusage.Thegrowthassumptionsusedintheinitialbaserunreflectaconservativeoverallannualgrowthrateof1.0percent.TheunitcostsshowninLines3and4ofTable5‐13reflectaslightlyhigherannualgrowthrateof1.5percent.Theunitcostsdecreasebyapproximately1.5percent.
5.3 ANALYSIS OF EFFECTIVE RATE InanefforttoprovideacomparisonbetweentheeffectiveratespresentedinthisReportandDMWW’sexistingwholesalerates,itisusefultotakeintoconsiderationtheeffectiveratethatcontributingentitiesarecurrentlypayingforpurchasedwater.ThecurrenteffectiveratetakesintoconsiderationthepurchasedcapacityratechargedbyDMWW,aswellastheoutstandingdebtservicerelatedtoPurchasedCapacityAgreements.
DMWWissueddebtforeachofthefourentitiesshownonLines1through4ofTable5‐14forpurchasedcapacity,andeachentityreimbursesDMWWfortheannualprincipalandinterestpayment.Theannualprincipalandinterestpaymentduein2016foreachcommunityisshowninColumn4.Theunitcostper1,000gallonsfordebtserviceisdeterminedbydividingtheannualprincipalandinterestpaymentinColumn4bytheprojectedbilledusagefor2016,showninColumn3.TheresultingunitcostfordebtservicerelatedtopurchasecapacityisshowninColumn5.
DMWW’spurchasecapacityratewillincreasefrom$1.46per1,000gallonsto$1.53per1,000gallonseffectiveApril1,2015;anincreaseof4.8percent.Forcomparisonpurposes,itisassumedthattheratewillincreaseanother4.0percentin2016to$1.59per1,000gallonsasshowninColumn7ofTable5‐14.TheeffectiverateforthefourentitiesidentifiedinTable5‐14isdeterminedbyaddingtheunitcostfordebtservice(Column5)andtheestimated2016purchasedcapacityrate(Column7)andisshowninColumn8.ThecalculatedcurrenteffectiveratefromTable5‐14isgenerallylowerthanthepotentialeffectiveratefortheRegionalProductionUtilityshowninTable5‐10.Whenthelowrangeportionofthevaluationestimateisusedinthefinancialanalysis,
Line
No. Description 2016 2017 2018 2019 2020
$/1,000 gal. $/1,000 gal. $/1,000 gal. $/1,000 gal. $/1,000 gal.
Mid‐Range Valuation
1 Conservative Base Run $2.52 $2.52 $2.50 $2.52 $2.70
2 Reduction in R&R $2.42 $2.42 $2.41 $2.42 $2.61
3 Higher Usage Projection $2.49 $2.48 $2.44 $2.44 $2.61
Low‐Range Valuation
4 Conservative Base Run $2.40 $2.41 $2.39 $2.41 $2.59
5 Reduction in R&R $2.31 $2.31 $2.30 $2.31 $2.50
6 Higher Usage Projection $2.38 $2.37 $2.33 $2.34 $2.50
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theresultingeffectiverate(Table5‐13,Line4)ismorecomparabletothederived,currenteffectiverateinTable5‐14.
Table 5‐14 Effective Rate Comparison
Whiletheabovecomparisonprovidesanindicationofthecurrentcomparison,Black&Veatchrecommendsthateachentityundertakeitsownseparateanalysis,aseachentityisfamiliarwiththecostsitmayhaveincurredtopurchasecapacityorcontributetoDMWWovertheyears.Ingeneral,theestimatedeffectiverateisnotcompletelyoutoflinewithcurrenteffectiveratespaidbyregionalutilities.
ItisalsoimportanttonotethattheeffectiverateunderthepotentialRegionalProductionUtilityofapproximately$2.52per1,000gal.islessthanDMWW’scurrent“WithStorage”rateforwholesalecustomers.The“WithStorage”rateincludesthefullyloaded,wholesaleratethatrecoversO&M,depreciation,andreturnoninvestmentfromwholesalecustomers.
5.3.1 Future Considerations
WhilethecomparisonoftheeffectiverateunderaRegionalProductionUtilitycomparedtothecurrentwholesalearrangementprovidesvaluableinformationtoseehowcurrentcostsmightchange,itisalsoimportanttoconsiderthevalueofpotentialchangestomeetingfuturegrowthdemands.
Underthecurrentwholesalearrangement,autilitythatneedsadditionalcapacitymorethanlikelymustobtainitfromDMWW.Black&VeatchunderstandsthatDMWWwillidentifythecostofthenecessaryimprovementstoaddtothecapacity,andthenpassthatcostsolelyalongtotheutilitythatrequiresthecapacity.ThisapproachbyDMWWisnotuncommonandisdonetoprotectexistingcustomersbeingoverlyburdenedoncostsforadditionalcapacitythatmaynotbenefitthem.
(1) (2) (3) (4) (5) (6) (7) (8)
Estimated
2016 2015 2016 Estimated
Line 2016 Annual P&I per Purch Cap Purch Cap 2016 Effective
No. Description Usage P&I 1,000 gal. Rate (a) Rate Rate
1,000 gal. (4) / (3) (6) x 104% (5) + (7)
1 City of Ankeny 1,673,133 $939,828 $0.56 $1.53 $1.59 $2.15
2 City of Urbandale 1,588,958 $1,072,853 $0.68 $1.53 $1.59 $2.27
3 City of Waukee 428,728 $333,566 $0.78 $1.53 $1.59 $2.37
4 West Des Moines Water Works 739,937 $301,794 $0.41 $1.53 $1.59 $2.00
Des Moines Water Works ‐ Wholesale (a)
5 Purchased Capacity $1.53
6 With Storage $3.33
7 Off Peak $1.72
(a) Effective April 1, 2015.
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OnepotentialoptioncouldbefortheRegionalProductionUtilitytoshareintheoverallcostsforexpandingthecapacityofthesystem.ThesharingofexpansioncostsunderthisoptionwouldbeconsistentwiththenetvalueapproachoutlinedinthisReportthatbringsparticipantsintotheRegionalProductionUtilityonanequalbasis(netvaluepermgd).
Table5‐15providesahypotheticalexampleforconsideration.Inthisexample,itisassumedthatanadditional20mgdofcapacityisrequiredtoserve4customers.Thehypotheticalprojectcostofthisadditionalcapacityis$60,000,000andwillbefinancedwitha30yearrevenuebondwith4percentinterest.Theannualprincipalandinterestpaymentwillbe$3,470,000.Underthecurrentorganizationalstructure,thefourcommunitiesallocatetheannualprincipalandinterestpaymentbasedontheallocationofthenewcapacity.Eachcommunity’scostofdebtper1,000gallonsisbasedontheirshareoftheannualdebtserviceallocatedtotheirannualusage,whichresultsinunitcostsrangingfrom$0.35per1,000gallonsto$1.73,asshowninTable5‐15.
Thealternativeoptionreflectsthesharingofsystemexpansioncostsof20.0mgdamongallregionalparticipants.AsshownonLine5,theunitcostofdebtper1,000gallonsisbasedontheannualdebtserviceallocatedtothetotalregionalbilledwaterusageandresultsin$0.20per1,000gallons.Theannualsavingsthateachofthefourcommunitieswouldrealizeundertheregionalentityscenariorangesfrom$379,000to$785,000.
Table 5‐15 Future Expansion Example
Existingutilitiesand/orcommunitiesthatarecustomersofDMWW,andthatarenotanticipatinggrowthmaybalkattheoptionofaregionalwaterutilitysharingexpansioncostsamongallregionalentities.However,theseentitiesmustconsiderthepotentialofgrowthcommunitiespursuingtheirfuturewaterneedseitherindividually,orasagroupseparatefromDMWW.Overtime,thelossofrevenuefromanycustomerthatleavesDMWWcouldresultinincreasestocustomersthatremainasfixedcostsoftheDMWWsystemarespreadoverasmallerbilkedusagebase.
LINE NO. UTILITY
CAPACITY NEEDED (MGD)
ANNUAL PRINCIPAL
AND INTEREST (1)
BILLED USAGE
(1,000 GAL.)COST PER 1,000 GAL.
CURRENT SITUATION
1 Utility No. 1 5.0 $867,000 1,200,000 $0.72
2 Utility No. 2 5.0 $867,000 2,500,000 $0.35
3 Utility No. 3 5.0 $867,000 1,400,000 $0.62
4 Utility No. 4 5.0 $867,000 500,000 $1.73
POTENTIAL OPTION – REGIONAL PRODUCTION UTILITY
5 Total Regional Utility 20.0 $3,470,000 17,557,917 $0.20
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5.3.2 Communities That Opt Out
AnotherquestionisrelatedtotheimpactofthisStudyshouldoneormoreentitiesdecidenottojointheRegionalProductionUtility.With14differententitiesincludedintheNetValueanalysisabove,analyzingthemultiplescenariosthatcouldmaterializeisbeyondthescopeofthisStudy.Therearehowever,severalitemstoconsider.
First,iftheentitythatoptsoutcontinuestoreceiveitswaterfromtheRegionalProductionUtility,theimpacttotheeffectiverateinTable5‐10wouldlikelybenegligible.ThisisbecausetheprojectedcostsoftheRegionalProductionUtilitywouldbespreadoverthebilledusagewhichwouldincludetheentitythatoptsout.
Second,iftheentitythatoptsoutdecidestopurchaseorproducewaterseparatefromtheRegionalProductionUtility,thenthepotentialimpacttotheeffectiverateinTable5‐10wouldbenegative.Thisisparticularlythecaseiftheentityisalargeruserofwater.ThebilledusagedeductedfromthetotalregionalbilledusagewouldresultinahighereffectiveratefortheRegionalProductionUtility.
Finally,ifoneormoreentitiesdecidetooptout,thenthepercentageofadjustednetvalue(seeTable5‐4)wouldchange.EachoftheentitiesthatjointheRegionalProductionUtilitywouldreceivealargershareofnetvalue,orequityintheorganization.
5.4 FINANCIAL ANALYSIS CONCLUSION ForpurposesofthisStudy,Black&VeatchdeterminedanestimatedrangeofvaluefortheassetsthatcouldbetransferredtoanewRegionalProductionUtility.ShouldCIRDWCmembersdecidetomoveforwardwithformingtheRegionalProductionUtility,therangeofvalueestimateprovidesabasisforconsiderationandnegotiation.
TheNetValueanalysisalsoprovidesamethodforbringingregionalparticipantsintotheRegionalProductionUtilityonanequalbasis.Itisachievedbyassessingthenetvaluethateachentitybringstothetable,andthenadjustingeachentitytothesamenetvaluepermgdofcapacityusingcontributionsandacashpaymenttoDMWW.Becauseeachparticipantcomesintotheendeavoronanequalbasis,auniformrateispossible,alongwiththesharingofbothongoingmaintenancecostsandexpansionofthesystem.
Black&VeatchalsodevelopedaprojectionofrevenuerequirementsforthefirstfiveyearsoftheRegionalProductionUtility.Thisresultedinanestimatedeffectiverateof$2.52per1,000gallons.ThiseffectiverateappearstobehigherthanthecurrenteffectiveratesforWDMWW,UrbandaleWaterWorks,Ankeny,andWaukeebyabout6.0percentto26.0percent.However,thishighercostprovidesentitieswithparticipationinthegovernanceoftheRegionalProductionUtility.Itshouldalsobeevaluatedinthecontextofhoweachentitywillfinancefutureimprovementsforadditionalwatersupply.
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6 Governance
6.1 POTENTIAL INITIATING PRINCIPLES DuringthefirstphaseofthisStudy,CIRDWCmembersprovidedfeedbacktoBlack&VeatchwithrespecttotheirreasonsforpotentiallycreatingaRegionalProductionUtility,aswellaspotentialconcernsthatmightarisefromcreatingandjoiningaRegionalProductionUtility.BasedonfeedbackfromthestakeholderinputandSWOTAnalysismentionedabove,thefollowingsectionsoutlinepotentialinitiatingprinciplesthatparticipantscouldincludeinafoundingdocumentfortheRegionalProductionUtility.ThepurposeoftheseprincipleswouldbetoprovideanorganizationalframeworkforoversightoftheRegionalProductionUtilityandallowfortheregionalgrowthandexpansionofthewatersystem.
FutureSourceofSupply–Memberswouldneedtoagreetoberestrictedfromindependentlydevelopingtheirownsourceofsupply,unlessapprovedbytheRegionalProductionUtility.Thisprinciplebalancestheregionalneedforwatertosupportgrowingcommunitieswithaconcernthatcommunitiesactingindependentlyonsourceofsupplyissuescouldcreateaninefficientregionalsystemforwaterdelivery.Forexample,ifacurrentwholesalecustomerofDMWWdevelopsitsownsourceofsupplyandleavesDMWWasacustomer,thecurrentDMWWcorenetworkcouldoperateinanunder‐utilizedmanner.Thiswouldleavefixedcostsforthecorenetworktobelargelybornbycustomersthatdonotutilizeasignificantportionofthecorenetwork.
FuturePurchaseofFinishedWater–Memberswouldneedtoagreetopurchaseallfuture,finishedwaterfromtheRegionalProductionUtility.ThisprinciplebalancestheneedtodevelopaRegionalProductionUtilitythatisdedicatedtoservingtheregion,withthepotentialnegativeimpactthatcouldariseifmembersoftheRegionalProductionUtilitydeveloptheirownsourceofsupplies,orenterintoseparateagreementsforwaterfromotherentities.Anadvantageofhavingtotalcommitmentfromallmembersisthatexistingandfuturecostsofthecorenetworkwouldbecoveredbyagrowingbasedofbilledusageand/orcustomers.
WaterQuality–MemberswouldneedtoagreetosupporttheapprovedinitiativesoftheRegionalProductionUtilityrelatedtosourceandfinishedwaterquality.DuringthestakeholderinputandSWOTAnalysis,CIRDWCmembersindicatedthatsourcewaterandfinishedwaterqualitywasimportanttothem.ThisprinciplestatesthatparticipantsintheRegionalProductionUtilitywouldcommittoapprovedinitiativesdesignedtoimprovebothsourceandfinishedwaterquality.
SystemPlanningandExpansion–Memberswouldneedtoagreetoparticipateinregionalwatersystemplanningtobenefittheentireregion.Thisprinciplepromotestheefficientplanningofthecorenetworksystem.Thisprinciplewouldbalancethedesireofgrowingcommunitiestodevelopasystemthatmeetsfuturedemand,withthedesireofnon‐growthcommunitiestoconductresponsibleplanningthatexpandstheregionalwatersystemefficiently.
OutstandingDebt–MemberswouldneedtoagreethatalldebtrelatedtotheirindividualsystemsorpreviousrelationshipwithDMWWremainseparatefromtheRegionalProductionUtility.ThisprincipleprotectstheRegionalProductionUtilityfromanynegativefinancialimpactsofdebtrelatedtothepotentialmembers.ThisdoesnotincludetheoutstandingdebtcurrentlyheldbyDMWWforthecorenetworkand/orpurchasedcapacityfinancedforwholesalecustomers.As
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describedintheFinancialAnalysissectionofthisReport,thatdebtcouldbepaidoffbytheRegionalProductionUtility,orretiredinanotheracceptablemanner.Futurelegalandfinancialadvicewouldneedtobeundertakentodeterminethebestmannerforaddressingthatdebt.
RatesandCharges‐Memberswouldneedtoagreetoestablishsufficientratesandchargesthatsupportandmaintaintheexistingcorenetwork,aswellasexpandthecorenetworktomeetfutureregionaldemand.Thisprinciplewouldrequirethatfutureratesandchargeswillprovidecapitalforoperatingandmaintainingthecurrentcorenetworksystem,aswellasexpandingtheregionalsystemtomeetfuturedemand.
6.2 KEY GOVERNANCE ISSUES
6.2.1 Voting Rights
AnunderlyingpurposeforthisStudywasthedesireofregionalcommunitiestohaveavoiceintheplanningandprovisionofwatertotheregion.Thisincludesplanningtoaddresssourceofsupplyissuesandfuturedemands,aswellastheestablishmentofratesandcharges.DuringthestakeholderinputportionoftheStudy,CIRDWCmemberswereaskedtheiropinionwithrespecttohowtheyviewedgovernanceandvotingrights.MostoftheCIRDWCmembersrespondedthataweightingofvotingrightstoreflecttherelativesizeofregionalcommunitiesappearedappropriate.
TheNetValueanalysisportionoftheStudyprovidesamechanismwhereeachoftheparticipantswouldbeabletoparticipateintheRegionalProductionUtilityonthesamebasisintermsofthenetvaluepermgdofcapacityneededfromtheRegionalProductionUtility.BybringingthesamenetvaluepermgdtotheRegionalProductionUtility,Black&Veatchbelievesthisprovidesparticipantswiththeabilitytoestablishvotingrightsinseveraldifferentways.
Thefirstexamplethatcouldbeacceptableweightsaparticipant’svoteonthebasisofthenetvaluecontributedtotheRegionalProductionUtility.ThenetvaluereflectstheresultsofTable5‐4above,wherethenetvaluecontributedbyparticipantsequalstheirpercentageofthesystemtotalcapacity.ThefollowingTablereflectsahypotheticalexampleofaweightedvotebasedonthenetvaluecontributedbyparticipants.Ascanbeseen,anissuebroughtbeforetheRegionalProductionUtilityforconsiderationwouldbevotedonbyonememberforeachparticipant.EachvotewouldbeweightedbasedonthepercentageofnetvaluecontributedbyeachparticipanttotheRegionalProductionUtility.Inthishypotheticalexample,“yes”votesforfourparticipantscomparedto“no”votesfor10participants,resultsinoverallapprovalofthehypotheticalmeasure.
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Table 6‐1 Hypothetical Weighted Vote Based on % of Net Value
6.2.1.1 Other Voting Rights Options
TheuseofnetvaluepermgdisoneoptionforestablishingvotingrightsformembersoftheRegionalProductionUtility.Anotheroptionwouldbetoweightthevoteusingthepopulationnumbersforeachparticipant.ThiswouldbesimilartothemethodologyusedbyWRA,whichassignsanadditionalrepresentativetomembersforeachpopulationincrementof25,000persons.WithrespecttotheRegionalProductionUtility,theuseofpopulationincrementscouldbeused,ordeterminingthetotalpopulationofparticipantsandusingtheresultingweightedpercentagecouldbeanotheralternative.
6.2.2 Board Makeup
DuringthestakeholderinputandSWOTanalysis,are‐occurringthemefromCIRDWCmemberswastheirdesiretohaverepresentationwithrespecttogovernanceissues,includingestablishmentofratesandchargesandsystemplanning.ThiswillrequirealargeBoardthatwillneedtoaccommodatevaryingviewpointsongovernanceandregionalwaterissues.CIRDWCmembersdidstatethatthelargeWRABoardfunctionseffectively.
Aneffectiveboardmakeupwouldincludememberswhoareappointedbythegoverningbodiesoftheirrespectivecommunities.Theappointmentofboardmembersispreferabletoaboardthatismadeupofdirectlyelectedmembers.BasedonourdiscussionswithotherregionalwaterentitiesacrosstheU.S.,boardmembersthataredirectlyelectedtotheirpositionprovidesanadditionallayerofwaterpoliticsthatcaninterferewithaneffectivedecision‐makingprocess.Thiscanalsoresultinthepoliticizationofregionalwaterissuesandabreakdownofcooperationbetweencommunities.Thealternativeofgoverningthroughappointedmembersretainsaccountabilityofgoverningmemberstotheirrespectivecommunities,whileallowingappointedmemberstoworkonregionalwaterissuesinalesspoliticalenvironment.
Line (1) (2) (3) (4) (5) (6)
No. Description % Net Value Factor YES NO YES NO
=(1)x(2)x(3) =(1)x(2)x(4)
1 Des Moines Water Works 44.63% 100 1 44.63 0
2 Polk Co. (SE and Unincorporated) 1.45% 100 1 1.45 0
3 Berwick Water Association 0.19% 100 1 0 0.19
4 Urbandale Water Works 11.41% 100 1 0 11.41
5 West Des Moines Water Works 14.07% 100 1 0 14.07
6 Ankeny 9.40% 100 1 9.4 0
7 Clive 5.20% 100 1 5.2 0
8 Waukee 2.75% 100 1 0 2.75
9 Warren Rural Water 2.42% 100 1 0 2.42
10 Xenia Rural Water 2.20% 100 1 0 2.2
11 Norwalk 1.47% 100 1 0 1.47
12 Bondurant 0.90% 100 1 0 0.9
13 Altoona 3.65% 100 1 0 3.65
14 Polk City 0.26% 100 1 0 0.26
15 Total 100.00% 4 10 60.68 39.32
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AprofessionalstaffwouldlikelybenecessarytoassisttheBoardinthedaytodayoperationoftheRegionalProductionUtility.StaffwouldincludeaGeneralManagerorExecutive,FinancialOfficer,ChiefEngineer,HumanResourceManager,andLegalManager.BasedonfeedbackfromCIRDWCmembersandBlack&Veatch’sexperience,importantcommitteeswouldlikelyinclude:
ExecutiveCommittee–ThiswouldbeimportantforalargeboardcontemplatedfortheDesMoinesregion.TheExecutiveCommitteeprovidesguidanceandfeedbacktotheprofessionalstaffasnecessaryandmayconsistofapproximatelythreemembers.Typically,theExecutiveCommitteewouldincludeaChair,ViceChair,andSecretary.TheExecutiveCommitteewouldbenominatedandappointedbytheboardatthebeginningofeachyear.
Planning/TechnicalCommittee–Thiswouldbeanimportantcommitteethatplansforthefutureexpansionoftheregionalwatersystem,aswellasplanningfortraditionalprojectssuchascapitalmaintenanceandwaterqualityenhancement.
FinanceCommittee–ThiswouldbeimportantformanagingtheoverallfinancesoftheRegionalProductionUtility,aswellastheestablishmentofratesandcharges.
6.2.2.1 Staff
DuringthestakeholderinputportionoftheStudy,severalCIRDWCmembersnotedthatWRAcontractsoutoperationofthewastewatersystemtotheCityofDesMoines.Black&VeatchrealizesthatcontractingoutallorsomeoftheoperationsoftheRegionalProductionUtilitytoanotherentitycouldbeanoption.Nevertheless,itisalsolikelythattheRegionalProductionUtilitywouldwanttohaveaprofessionalstafftohandlemanagementandpolicyissuesrelatedtotheutility.Ingeneral,theprofessionalstaffwouldtypicallyconsistofthefollowingpositions:
ChiefExecutiveorGeneralManager–TheChiefExecutiveorGeneralManagerwouldberesponsiblefortheoveralloperationandmanagementoftheRegionalProductionUtility.Thisincludesresponsibilitiessuchasoversightofoperationstoensurewaterisproducedinsufficientquantitiesandofaqualitynecessaryfortheregion;planningtoensuretheabilityoftheRegionalProductionUtilitytomeetfuturedemand;financialmanagement;anddevelopmentandimplementationofBoardpoliciesandprocedures.TheChiefExecutiveorGeneralManagerwouldalsoretaintheauthoritytosignandexecutelegaldocumentsonbehalfoftheRegionalProductionUtility.
ChiefEngineer–TheChiefEngineerwouldoverseetheplanningandconstructionofanyimprovementsandwouldleadthedevelopmentofregionalplanningtoensurethewatersystemmeetstheneedsoftheregionandutilityparticipants.TheChiefEngineerwouldworkwiththeBoardTechnicalCommitteetoderiveanoverallplanforexpandingtheregionalwatersystemtomeetfuturedemand,aswellasperformingtheappropriateassetmanagementtoensuretheexistingsystemisingoodworkingorder.
ChiefFinancialOfficer–TheChiefFinancialOfficerwouldoverseeallfinancialaffairsoftheorganization.Thispositionwouldleadthedevelopmentoftheannualbudgetandauditprocesses,aswellasthedevelopmentofannualratesandchargestobeassessedbytheRegionalProductionUtility.TheChiefFinancialOfficerwouldworkcloselywiththeBoardFinanceCommitteetodevelopappropriatepoliciesandproceduresformaintainingappropriatefinancialcontrolswithrespecttothevariousfundsmaintainedbytheRegionalProductionUtility.
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HumanResourcesManager–AHumanResourcesmanagerwouldberequirediftheRegionalProductionUtilityinheritsorhiresemployeesthatrunthedaytodayoperationsoftheutility.Thismanagerwouldoverseehiringpractices,training,disciplineissues,andotherpersonnel‐relatedissues.TheHumanResourcesmanagerwouldworkwiththeChiefFinancialOfficeronemployeebenefitissuessuchasannualpay,benefits,andretirementplanningissues.IftheRegionalProductionUtilitywerehireacontractoperator,theHumanResourcesManagermightnotberequired.Alternatively,itisfeasibletooutsourceHumanResourcefunctions.
Legal–ALegalmanagerorGeneralCounselwouldprovidetheBoardandstaffwithlegaldirectiononutilityissues.Additionally,thismanagercouldoverseeriskmanagementissues
6.3 GOVERNANCE ALTERNATIVES
6.3.1 Traditional Municipal Governance
ThefirstalternativeevaluatedbyBlack&Veatchconsistsofatraditionalmunicipalutilitygovernancemodelonaregionalbasis.DuringthestakeholderinputphaseofthisStudy,CIRDWCmembersgenerallyindicatedthattheDesMoinesMetropolitanWastewaterReclamationAuthority(WRA)wassuccessfulmodelforregionalgovernance.Black&VeatchreviewedtheAmendedandRestatedAgreementfortheDesMoinesMetropolitanWastewaterReclamationAuthoritythatoriginatedin2004.TheAgreementincludesprovisionsthatoutlineissuessuchas1)votingrights;2)organizationandpowersoftheboard;3)acquisitionandtransferofwastewaterassets;4)constructionoffutureimprovements;5)operationandmaintenanceofthewastewatersystem;and5)financialissuessuchasbudgeting,audits,andissuanceofbonds.Ingeneral,theAgreementprovidesagoodexampleofcomponentsthatwouldneedtobeaddressedshouldCIRDWCmembersdeterminetomoveforwardwithcreatingaRegionalProductionUtility.
Thereareseveralother,similarexamplesthathavebeencreatedacrosstheU.S.,albeitwithvariationsinthenumberofmembers,howtheyareelectedorappointed,orothergovernancematters.Thetraditionalmunicipalgovernancemodelconsistsofboardmembersthatareelectedorappointedbythecommunitiestheyrepresent,andthatexercisetheirauthorityunderstatestatutestoprovideapublicneed.Inthiscase,theprovisionofdrinkingwateronaregionalbasistothecommunitiesthatcomprisetheGreaterDesMoinesregion.ItshouldbenotedthatthisStudydoesnotincludealegalanalysisofformingaregionalwaterutility,oralegalanalysisastotheappropriateresponsibilitiesofaregionalwaterutility.ThatanalysiswillneedtobeundertakenbyCIRDWConaseparatebasisfromthisStudy.
ThereareseveralexamplesofcommunitiesacrosstheU.S.thathavecometogethertoaddresswaterneedsonaregionalbasis.Thefollowingprovidesabriefdescriptionofseveralutilitiesthatusetraditionalmunicipalgovernance:
CentralArizonaProject–TheCentralArizonaProject(CAP)isamulti‐countymunicipalcorporationgovernedbymembersrepresentingMaricopa,Pima,andPinalcounties.TheCAPprovidesapproximately1.5millionacre‐feetofwaterperyeartocentralArizona.TheCAPconsistsofasecure,open‐airwatercanalthatoriginatesatLakeHavasuandstretchesapproximately336milestotheCityofTucson.Therawwaterissuppliedformunicipal,agricultural,andtribaluse.ThemissionoftheCAPistobethestewardofcentralArizona'sColoradoRiverwaterentitlementandacollaborativeleaderinArizona'swatercommunity.
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Governanceisconductedbya15‐memberBoardofDirectorsthatarepopularlyelectedfromMaricopa,Pima,andPinalcounties.Boardmembersservestaggeredsixyearterms.ThenumberofBoardmembersisgenerallybasedonthepopulationsofthecountiesrepresented.Thereare10membersfromMaricopaCounty;fourfromPimaCounty;andonefromPinalCounty.KeypowersincludetheresponsibilityformanagingthebusinessofCAP,executingallnecessarycontractsandinstrumentsfortheCAP,employingthestaffthatmanageandoperateCAP,receivingandinvestingmoniesforCAP,andestablishingrevenuebondingprogram.EstablishedBoardcommitteesconsistofanExecutiveCommittee,CentralArizonaGroundwaterReplenishmentDistrictCommittee,FinanceandAuditCommittee,andPublicPolicyCommittee.
TheBoardmanagesthedaytodayoperationsofCAPwithaGeneralManagerassociatedstafftotalingapproximately400employees.
TampaBayWater–TampaBayWater(TBW)isaregionalwatersupplyentitythatprovideswholesaledrinkingwatertotheFloridacommunitiesofHillsboroughCounty,PascoCounty,PinellasCounty,NewPortRichey,St.PetersburgandTampa.Thepopulationofthisregionisapproximately2.3million.ThemissionofTBWistoreliablyprovideclean,safewatertotheTampaBayregionnowandforfuturegenerations.Tomeettheneedsoftheregion,TBWderivesrawwaterfromgroundwater,surfacewater,andseawatersources.Themajorityofsupplyissuppliedfromwellfields,butissupplementedfromwatertreatedatsurfacewateranddesalinationtreatmentplants.ThehistoryofTBWdatesbacktothemid‐1990swhenthecommunitiesoftheregiondecidedtoformTBWtocooperateregionallyonwatersupplyandplanningissues.
GovernanceisconductedbyaninememberBoardofDirectorsconsistingofelectedpersonsappointedbytheirrespectivecommunities.TherearetwomembersrepresentingHillsboroughCounty;twomembersrepresentingPinellasCounty;twomembersrepresentingPascoCounty;onememberrepresentingtheCityofTampa;onememberrepresentingtheCityofSt.Petersburg;andonememberrepresentingtheCityofNewPortRichey.EachBoardmemberhasonevoteandapprovalofactionsbeforetheBoardrequiressixvotesoutofnine.
TBWhasanInterlocalagreementthatoutlinesthedutiesandresponsibilitiesofTBWandtheBoard.Ofsignificantnoteistheemphasisonwatermasterplanning,andexclusivityprovisionsrecognizingTBWastheprimarysupplierofregionaldrinkingwater.Therearecurrently125fulltimeemployeeswithaGeneralManagerthatoverseesthedaytodayoperationsonbehalfoftheBoard.
Thetwoorganizationsabovewerecreatedtoaddresswatersupplyissuesorotherregionalissuesthatareuniquetotheirownrespectiveregions.IntheinstanceoftheCAP,theregionalentitywasformedtomanagetheoperationofafederallyconstructedprojecttoensuresufficientwatersupplytoregionalstakeholders.TBWwasformedtocoordinatethemanagementofwatersupplyandtreatmentservicetoseveralregionalstakeholders.Bothhavedevelopedtheiruniquegovernancestructures,butcommonalitiesincludeboardsthatdeveloppoliciesandprovideoversighttoensuremanagementofwaterissuesonaregionalbasis.InBlack&Veatch’sopinion,asimilargovernancestructurecouldbecreatedtoaddressregionalwatersupply,treatment,andtransmissionissuesfortheGreaterDesMoinesregion.
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6.3.2 Modification of Current Governance Arrangement
Underthecurrentarrangement,DMWWcontrolstheproductionandtransmissionofdrinkingwatertotheGreaterDesMoinesregion.ThisincludesconductingtheplanningandsettingratesandchargestofundcapitalinvestmentandO&M.Onepotentialalternativewouldbetograntregionalcommunitiesgreaterinputintofutureregionalplanningandratesettingdecisions.Onemechanismforachievingthiswouldbetore‐negotiateexistingpurchasedcapacityagreementstoaddprovisionsrelatedtogovernanceoftheregionalutility.Thefollowingprovidesseveralaspectsthatcouldbeaddressedinare‐negotiatedpurchasedcapacityagreement.
FinancialPlanningandRateConsiderations–AconsistentthemefromCIRDWCmembersthatreceiveservicefromDMWWwasthattheratesettingprocesswasdifficulttounderstand.TherewasdiscussionaboutthedifficultyofunderstandingDMWW’srateprocess,aswellastheplanningandnotificationprocessforestablishingratesfromyeartoyear.Thiscouldbeoneareathatpurchasedcapacitycustomersre‐negotiateaspartoftheirexistingWholesaleServiceMasterAgreement.Potentialitemstoincludewouldhavetobenegotiated,however,negotiationpointscouldinclude:
● EstablishingafinancialplanningandratesettingcommitteethatconsistsofbothfullservicecustomersofDMWWandcustomerswithpurchasedcapacityagreements.Whilethecommitteewouldnothavefinalsayinthedeterminationofrates,itcouldserveasavenueforcustomerstoprovideinputtoDMWW,understandhowcostsareallocated,andratesdetermined.
● CostofServiceDetermination–Thecurrentcostofserviceandrateprocessisconductedinhouse.ApotentialsolutiontoderivemoreconfidencefromDMWWcustomerswouldbetojointlyhireaconsultingfirmtoperformacostofservicestudytoderivetheallocationofcoststoDMWWcustomers.
● RateProcess–Thiscouldincludeamoredetaileddescriptionthatcouldbeincludedinagreementsthatoutlinesthecostofserviceandrateprocess.Therateprocesscouldincludeadescriptionofcoststhatwouldbeincludedinpurchasedcapacityrates,etc.Therecouldbeadetailedexampleofthecostallocationprocessincludedintheagreementsforfutureunderstanding.Thegoalwouldbetoestablishanupfrontunderstandingofhowcostofserviceandratesareestablished.
WaterSystemPlanning–CommunicationonwatersystemplanningappearstoprimarilyoccurbetweenDMWWandindividualcommunities.OnewaytoexpandthistoamoreregionalbasiswouldbetocreateatechnicalorplanningadvisorycommitteetoassistDMWWwithunderstandingwaterneedsonbothanindividualcommunityandregionalbasis.Thiscommitteecouldalsofocusontrackingandmeetingregularlytodiscusspeakdayandpeakhourdemands,aswellasstrategiestomeetfuturedemands.Additionaltopicscouldincludesourcewaterqualityandfinishedwaterqualitytorepresenttheseissuesfromamoreregionalbasis.
Other–Theitemsabovearejustsomeexamplesofissuesthatcouldbere‐negotiatedbetweenDMWWanditsWholesaleMasterServiceAgreementcustomers.Otherimportantitemscouldadditionallybeadded,however,theyshouldgenerallyreflectissuesthatfurthergreaterregionalcooperation.
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Intermsofgovernance,themodificationofthecurrentgovernancearrangementwillstillleavetheDMWWBoardofDirectorswithafinalsayinmattersimportanttoregionalcommunitiesandutilities.ThesuccessofthisalternativewouldbedependentontheabilityofDMWWandtheregionalcommunitiestoworktogethercollaborativelytobuildtrustandfurtherregionalcooperation.
6.3.3 Public Private Partnership
PublicPrivatePartnerships(PPPs)withinthewaterindustryrepresentcooperationbetweenmunicipalandprivateentitiesintheareaofpublicwatersupply.Ingeneral,theuseofPPPsformajorU.S.watersystemshasbeenlimited,however,thereareseveralexampleswheremajormunicipalitiesutilizeprivateentitiesinsomeformtoassistwithprovidingwaterorwastewaterservicetocustomers.Severalexamplesinclude:
CityofBuffalo,NewYork–BuffaloWaterutilizesVeoliaWaterNorthAmericatooperateandmaintainitswatersupplyanddistributionsystem.BuffaloWaterretainsratesettingresponsibilityandoverallownershipofthewaterassets.
Indianapolis,IN–Intheearly2000s,theCityofIndianapolisutilizedPPPsinseveralinstancestoassistwiththeprovisionofwaterandwastewaterservice.Inapproximately2001,theDepartmentofWaterworkscontractedwithVeoliaWaterNorthAmericatooperateandmaintainthewatersystemassets,includingsupply,treatment,transmission,anddistributionassets.TheBoardofWaterworksmaintainedownershipoftheassets,aswellasresponsibilityfordevelopmentofpoliciesandstrategicdirectionoftheutility.TheCityofIndianapoliscontractedwithUnitedWatertooperateandmaintainthewastewatersystem.Thisincludedtheliftstations,collectionsystem,andtreatmentplantsownedbytheCity.Aswiththewatersystem,theCitymaintainedownershipofthewastewaterassets.In2011,boththewaterandwastewaterassetswerepurchasedbyCitizensEnergyGroup,alocalenergyutility.CitizensEnergyGroupnolongerusesVeoliatooperateandmaintainthewatersystem,butdoesutilizeUnitedWatertooperateandmaintainthewastewatersystem.
ThereareseveralotherexampleswherePPPsareutilizedbymunicipalitiesforwaterandwastewaterservicetocustomers.Ingeneral,PPPscanbeusedtofocusonareaswheremunicipalitiesmaylackexperienceortoachievecostsavingsinwaterorwastewaterservice.WithrespecttoregionalwaterservicefortheGreaterDesMoinesregion,CIRDWCmembersdidnotindicatethattheyviewedaPPPasapotentialsolution.However,Black&VeatchhasincludedthisalternativeinthisStudyasmeansofconsideringalternativegovernanceoptions.
ThereareseveralpotentialoptionsforaPPP.Thefollowingisprovidedasareasonableexample;however,theremaybeothermorepreferablePPParrangementsthatwouldhavetobeinvestigatedifCIRDWCbelievesthistobeapotentialalternative.
LongTermLease–Underalongtermleasearrangement,thecurrentownerofthecorenetworkwouldlikelyreceiveanupfrontpayment.Inexchange,theprivateentitywouldmanage,operate,andmaintainthesystemunderaleaseagreement.Theleaseagreementwouldhavetobenegotiatedtoreflectkeyprovisionsdesiredbyregionalparticipants,includingitemssuchaswaterqualityexpectations,ratesandcharges,sharingofcostsavings,andotherimportantitems.Theprivateentitywouldprovidekeygovernancerolesfortheutilityduringthetermofthelease.
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Thisincludessettingpoliciesandprocedures,establishingratesandcharges,andotherpolicy‐relateditems.Itistypicalwithinotherstatesforastateregulatorybodytooverseeratesandchargesforinvestor‐ownedutilities.Considerationofhowratesandchargeswouldbeimplementedwouldbeakeycomponentoftheleaseagreement.ConsiderationwouldalsoneedtobegiventowhatroletheIowaUtilitiesBoardwouldplay,ifany.
ThepotentialbenefitsofthisarrangementincludepotentialO&Mcostsavings.Thesecostsavingscouldbesharedbetweentheprivateentityandtheratepayers.Othernon‐costbenefitscouldincludegovernanceanddecision‐makingfromanunbiasedperspective.Intheory,aprivateentitywouldmakeregionalwaterdecisionswithlessconcernforindividualcommunityneeds.Capitalinvestment,bothforupkeepoftheexistingsystemandexpansiontomeetfuturedemand,wouldbemadetoderiveanefficientregionalsystem.Finally,aleasearrangementhasanexpirationdate,albeitlongerterm,forendingtheleaseshouldcustomersbeunhappy.
Thepotentialdrawbacksofthisarrangementareevidentinthatregionalcommunitieswouldhavelimitedsayinthegovernanceoftheregionalprovisionofwater.ThedesireforhavingasayinthegovernanceofaRegionalProductionUtilitywasakeyreasonforCIRDWCimplementingthisStudy.Additionally,implementationofcapitalprojectsistypicallymoreexpensiveforprivateorinvestor‐ownedutilities.Municipalutilitieshavetheabilitytoissuetax‐exemptdebtandcanissuerevenuebondsatcompetitiveinterestrates.Privateorinvestor‐ownedentitiesgenerallycannotissuetax‐exemptdebtandrequireahigherrateofreturnoninvestmentfortheirownersorshareholders.
OtherModifications–Asindicatedabove,thereareotherPPPalternativesthatCIRDWCcouldexplore.Asakeydrawbacktothelongtermsystemleasewasthelackofgovernanceforregionalcommunities,amodificationtotheleasearrangementwouldbetoallowsomeformofgovernancebyregionalcommunities.Thiscouldincludeprovidingoversightonkeyitemssuchasratesandcharges,systemplanning,waterquality,andotheritems.Thisgovernancemodificationandtheinteractionwiththeprivateorinvestor‐ownedentitywouldhavetobecarefullyconsideredanddocumentedtoensuresuccessbothfortheregionalcommunitiesandfortheprivateorinvestor‐ownedentity.
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Next Steps 73
7 Next Steps ThecompletionofthisStudyisCIRDWC’sfirststeptowardevaluatingwhethertoformaRegionalProductionUtility.ThisStudyhasprovidedvaluableinformation,includinganestimateofvalueofassetsthatcouldbetransferred,aprojectedfiveyearscheduleofrevenuerequirements,andanestimatedeffectiverateforcomparingtothecurrentcostofwaterfromDMWW.Additionally,CIRDWCmembersevaluatedthestrengths,weaknesses,opportunities,andthreatsofthecurrentmethodforprovidingwater,versustheregionalalternative.ThenextstepsmustcontinuetodriveCIRDWCmembersclosertoultimatelydeterminingwhethertoformtheRegionalProductionUtility.Thefollowingsectionsincludebothshortandlongertermtaskstocontinuemovingtowardafinaldetermination.
7.1.1 Short Term
WithrespecttothisStudy,thereareseveralissuesthatshouldbeconsideredfurtherbyCIRDWCmembers.Thisfurtherconsiderationcanbecompletedintheshortterm,whichisapproximately4to6monthsafterthecompletionofthisStudy.Onemethodforconsideringissueswouldbetoformsub‐committeestomoreefficientlyreviewelementsofthisStudyandfutureissuestoberesolved.Thegoalofeachsub‐committeewouldbetoconsiderelementsofthisStudy,assesswhetheranydealbreakersexist;assesswhethertherearebetteroptionsforcreatingaRegionalProductionUtility;anddevelopconclusionsandrecommendationsthatcanbepresentedtothefullCIRDWCboard.ThefollowingaresomeitemsthatCIRDWCmembersmaywanttoconsiderfurther:
Financial–ThefinancialreviewwouldconsistofreviewingtheestimatedvaluationforthisStudy,aswellastheNetValueanalysisandderivationoftheeffectivefortheRegionalProductionUtility.AhigherorlowervaluationestimateimpactsthecashpaymenttoDMWWaswellascontributionstoandfromindividualentities.Questionstoconsiderinclude:Doesthevaluationestimateappearreasonable?Ifnot,whatisabetterestimate?DoestheNetValueanalysisappeareffectiveforbringingregionalparticipantsintotheutilityonanequalbasis?HowshouldoutstandingdebtheldbyDMWWbehandled?CanthecashpaymenttoDMWWbereduced?Istheresultingeffectiverateanon‐startercomparedtotheexistingrate?
Theanswerstothesequestionscanvary,however,bydiscussingtheseissuesamongCIRDWCmembers,greaterclarityandacommonunderstandingacrossCIRDWCcandevelop.
Technical–ThetechnicalreviewwouldconsistoffocusingonthetechnicalaspectsoftheRegionalProductionUtility.Questionstobeconsideredcouldinclude:ShouldanyotherregionalassetsbeincludedintheStudy?ShouldanyoftheregionalassetsincludedintheStudybeexcluded?Howwouldoperationsbeperformed?HowwouldtheRegionalProductionUtilitybemanaged?
Governance–Thegovernancereviewcouldfocusonquestionssuchas:Shouldboardmembersbeelectedorappointed?Whatcommitteesshouldbeestablished?Howwouldvotingrightsbeweighted?Whatwouldbegeneraldutiesandresponsibilitiesofboard?Howwouldnewmembersjoin?
Theaboveprovidejustsomeexamplesofareasthatsub‐committeescouldconsider.Oncetheseissueshavebeenaddressedinsub‐committee,aconsolidatedsetofconclusionsandfindingscanbedevelopedbythefullCIRDWCboard.Atthispoint,conclusionsandfindingscanbediscussedwith
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Next Steps 74
politicalandutilitygoverningbodiestoobtainadditionalinputandfeedback.CIRDWCcanthendeterminewhethertocontinuemovingforwardintheprocess.
7.1.2 Long Term
ForpurposesofthisReport,longtermreflectsanadditionalperiodbeyondthe4to6monthshorttermperiodmentionedabove.ThiscouldlastanadditionalsixmonthsorlongerbeyondtheshorttermperiodandisonlynecessaryifCIRDWCdeterminestocontinuemovingforward.
7.1.2.1 Additional Due Diligence
Atthispoint,itisenvisionedthatfurtherduediligencewouldbeneeded,includinglegalandfinancialanalysisofhowtheRegionalProductionUtilitywouldbeformed,transferofassets,establishingfinancialstatements,staffandmanagementplanning,andotherimportantmatters.Technicalduediligencecouldalsobedonetofocusinondevelopinginitialplansformaintainingthecorenetworkandproceedingwiththeinitialexpansion,includingpotentialprojectsandtiming.
Additionally,CIRDWCmaywanttobegindraftingamemorandumofunderstandingthatwouldformthebasisofaregionalagreement.Importantcomponentswouldlikelyincludeinitiatingprinciples,boardmakeupandresponsibilities,sharingofcosts,andotherareasimportanttopotentialparticipants.Thisadditionalduediligence,plusadraftmemorandumofunderstandingcanthenbepresentedtothefullCIRDWCboardforconsideration.
7.1.2.2 Public Input
Shouldtheboarddeterminetomoveforward,itwouldlikelythenbeappropriatetobeginpublichearings.ThepublichearingscouldbeheldineachcommunitytopresentthemeritsofaRegionalProductionUtilitycomparedtothecurrentarrangement.Thiswillallowthepublictoconsidertheimpactofdeal,andprovideinputtotheultimatedecision‐makers.
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Appendix A A
Appendix A
CENTRAL IOWA REGIONAL DRINKING WATER COMMISSION
BLACK & VEATCH | Central Iowa Regional Drinking Water Commission 1
Central Iowa Regional Drinking Water Commission
QUESTIONNAIRE FOR FEASIBILITY OF REGIONAL WATER PRODUCTION ENTITY
1. Entity Characteristics
a. NameofEntitytobeInterviewed
b. InterviewParticipantsw/Titles
c. CurrentandGeneralSystemConfiguration/Service
Sourceofsupply Treatment Transmission Distributionsystem CustomerCare
d. NumberofAccounts/Customers
Types–Residential/Commercial/Industrial
e. Whatcurrentsystemassetsdoyouownorhaveownershipin?
Whatvaluewouldyouplaceonyourassets? Howdidyoudeterminethatvalue?
f. AverageAnnualWaterUsage
g. PeakUsage
Howdoyoumeasure? Howdoyoumeetrequirements?
h. NumberofEmployees
Management Operations Administrative/Support
i. EstimatedAnnualBudget
Operating Capital
2. Entity Strategy
a. Doyouhaveastrategicplan?
b. Doyoucoordinatewithlocalchamber/economicdevelopment/Council/Commission?
c. Whatisyouranticipatedsystemgrowth?,i.e.,annualpercentagegrowthrateofnewcustomers.
CENTRAL IOWA REGIONAL DRINKING WATER COMMISSION
BLACK & VEATCH | Central Iowa Regional Drinking Water Commission 2
d. Inyouropinion,doesthecurrentregionalwatersituationhinderorpromoteeconomicdevelopmentintheregion?
e. Donewcustomerspayanup‐frontcapitalchargeforjoiningthesystem?
f. Doyouhaveadequatesupplyforanticipatedgrowth?
g. Howdoyouplanonaddressingincreasedwaterdemand?
h. Howwouldyouclassifythequantityandqualityofyourwater?
3. Regionalization
a. Whatarethreeitemsthatyourentityseeswouldbebeneficialfromapotentialregionalproductionauthority?
b. Whatarethreeitemsthatyoufearfromapotentialregionalproductionauthority?
c. Whatwouldbethe“best”scenariofortheregion?
d. Doyouhaveconcernsabouttheimpactofaregionalwaterproductionentityonyourcurrentstaff?
4. Governance
a. Whatisyourgeneralconceptofwhatthegovernancestructureofanewregionalwaterproductionentityshouldbe?
b. Howimportantisitforyourentitytohavearoleintheday‐to‐daygovernanceofanewregionalwaterproductionentity?
c. WithrespecttoanewBoardthatoverseesapotentialregionalproductionentity,whatisyouropinionoftheidealcomposition?
NumberofMembers GeographicalRepresentation ProfessionalBackground
d. Inyouropinion,whatshouldbethekeyfocusorresponsibilitiesoftheBoard?
e.g.,Planning,Finance,Budget,Operations,Policy
e. Inyouropinion,howfrequentlyshouldtheBoardofapotentialregionalproductionentitymeet?,e.g.,monthly,bimonthly,quarterly
5. Water Supply
a. Inyouropinion,howstableistheregionalwatersupply?
b. Doesyourentityhaveasignificantsourceofsupplythatcouldcontributetothepotentialregionalproductionentity?
c. Doesyourentityforeseesignificantpopulationand/oreconomicgrowthinthecomingyears?
d. Whereisyourcurrentsupplyderivedfrom?
e. Doyouhaveacontractforwatersupply?ifso,whoisthecontractwith?
CENTRAL IOWA REGIONAL DRINKING WATER COMMISSION
BLACK & VEATCH | Central Iowa Regional Drinking Water Commission 3
f. Whataretheprosandconsofthecurrentwatersupplysituation?
g. Howcanapotentialregionalproductionauthorityalleviateorimprovethecurrentsituation?
6. Financial and Rate Stability
a. Whatistheratethatyourentitypayscurrentlyforwater?
b. Whoestablishestheratepaidbyyourentity?
c. Inyouropinion,doesthecurrentrateprovideyourcommunitywithgoodvalue?
d. Inyouropinion,howshouldnewproductionandwatersupplyprojectsbefunded?
e. Whatisyouropinionwithrespecttotransferringcommunitywaterproductionassetstoanewregionalwaterproductionentity?
7. Public / Stakeholder Input
a. Howawareareyourcitizens/customersofcurrentwatersituation?
Dotheyknowwhatyoursourceofsupplyis?
Dotheyunderstandyourcoststructure?
b. Inyouropinion,whatwouldbethegeneralreactionofyourcommunity’scitizenstotheformationofanewregionalwaterproductionentity?,e.g.,positive,negative,indifferent?
c. Inyouropinion,whatarekey,publicengagementcomponentsthatwouldbenecessaryleadingtotheformationofaregionalproductionauthority?
d. Whatisthegeneralpoliticalprocessthatyourcommunitywouldberequiredtoundertaketoapprovetheformationofaregionalproductionentity?
e. Isyourcommunityconservation‐minded?
f. Doyoushareanyserviceswithyourneighboringcommunities?
Police/Fire/Parks/School/Library/PublicWorks
8. Open Discussion / Topics
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Appendix B B
Appendix B
12 September 2014
CEN
TRAL IOWA REG
IONAL DRINKING W
ATER
COMMISSION
SWOT ANALYSIS FO
R THE FEASIBILITY
OF A REG
IONAL WATER PRODUCTION
ENTITY
AGEN
DA
Definition
Process
Expected Outcomes
2
WHAT IS A
SWOT ANALYSIS
3
DEFINITION OF SWOT
•A SWOT an
alysis is a structured planning method used to
evaluate the strengths, weaknesses, opportunities, and
threats involved in
a project or in a business venture
•The feasibility of creating a regional water production entity
is the project or business venture
•To
days’ exercise will provide the structure to allow all
participants to voice their thoughts, opinions and concerns
•Th
e analysis involves identifying the internal and
external factors that are favorable and unfavorable to
achieve the objective of the business venture or project
•The objective is to provide sustainable water supply to m
eet
the strategic needs of the Greater Des M
oines area
DEFINE SW
OT
16 September 2014
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DEFINITION OF SWOT
SWOT MATR
IX
16 September 2014
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Black & Veatch
Strengths
Weaknesses
Opportunities
Threats
Helpful
Harmful
Internal External
DEFINITION OF SWOT
•Strengths
•Internalcharacteristics or issues that give the project
or business venture advantage
over others
•Weaknesses
•Internalcharacteristics or issues that place the project
or business venture at a disad
vantage
•Opportunities
•Externalcharacteristics or issues that give the project
or business venture advantage
over others
•Th
reats
•Externalcharacteristics or issues that place the project
or business venture at a disad
vantage
SWOT MATR
IX
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DEFINITION OF SWOT
Keepanopenmindandpositiveattitude
•Destructive
•Dominating
•Rushing
•Withdrawing
•Discounting
•Digressing
•Blocking
•Constructive
•Cooperative
•Clarifying
•Inspiring
•Harmonizing
•Risk Taking
•Process Checking
BEH
AVIORS
Black & Veatch
7
16 September 2014
WORKSH
OP
PROCESS
8
WORKSHOP PROCESS
•Schedule
•Team
s
•Procedure
ELEM
ENTS
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WORKSHOP PROCESS
•9:00 –4:00
•2 Breaks
•Networking
•Phone calls / emails /
texting / facebook
•Please return promptly
•Lunch hour
•3:00 –Summary
•Combine sm
all group
analysis
•Prioritize
SCHED
ULE
Black & Veatch
10
16 September 2014
Agenda
9:00 am – 4:00 pm
9:00 – Presentation of Feed
back from one‐on‐one interviews
9:30 – SW
OT Analysis Briefing
Process
Expected
Outcomes
10:00 – Break
10:30 – SWOT – Analysis of continuation of curren
t situation
10:50
–
strengths
11:10
–
weaknesses
11:30
–
opportunities
11:50
–
threats
12:00 – Lunch
1:00 – SWOT – Analysis of Regional Production Entity
1:00 –
strengths
1:20 –
weaknesses
1:40 –
opportunities
2:00 –
threats
2:30 – Break
3:00 – summary – findings of the tw
o analyses are combined
and outcomes are
prioritized
3:30 – 3:45 – W
orkshop concludes
WORKSHOP PROCESS
•SW
OT Analysis
•2 small‐group sessions
•Morning –Curren
t Situation
•Afternoon –Regional Entity
•Each session budgeted 1 hour 20 m
inutes for activity
•Aim
for approximately 20 m
inutes per m
atrix
componen
t
•5 –10 ideas, concepts, issues characteristics for each
element of the SWOT matrix for each option
•Summary
•Full group activity ‐Participation and input from all
members
•Combine and analyze the findings of the tw
o sessions
SCHED
ULE
16 September 2014
11
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WORKSHOP PROCESS
•4 Team
s Designated
•Diversified
Groups
•Optimal group size is 8 –9 participan
ts
•Ground Rules
•Everyone turn off your cell phones
•We begin/end on tim
e
•Inform
ation shared
in the room stays in
the room
•Activities
•Determine critical issues
•Write responses for each of the 4 four boxes
•Be prepared
to discuss with the larger group
TEAMS
16 September 2014
12
Black & Veatch
12
WORKSHOP PROCESS
•Questions as thought starters:
•Internal Stren
gths: W
hat skills, services and resources
distinguish us?
•Internal W
eaknesses: W
hat do our customers think we
could do better? W
here could we be more efficient?
•External Opportunities: W
hat influen
ces, partnerships
and resources could be tapped
to help us move forw
ard?
•External Threats: W
hat forces, trends, technology
changes, governmen
tal policy, and social patterns could
limit our ability to m
eet our goals?
PROCED
URES
16 September 2014
13
Black & Veatch
EXPEC
TED
OUTC
OMES
14
EXPECTED OUTCOMES
•Expected Outcomes for Current Situation vs.
Regional Production Entity
•Identify common themes which create a platform
to
move forw
ard
•Identify common themes which create significan
t barriers or incentives to m
ove forw
ard
COMBINED
GROUP
16 September 2014
15
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EXPECTED OUTCOMES
•What critical action items need to be addressed in
order to m
ove forw
ard?
•What hap
pens if we do nothing to address these
issues? Is this acceptable?
•If chan
ge can
be achieved, w
hat are the positive
outcomes that result?
GOING FORWARD
16 September 2014
16
Black & Veatch
QUESTIONS?
www.bv.com
12 September 2014
CEN
TRAL IOWA REG
IONAL DRINKING W
ATER
COMMISSION
INTERVIEW FEEDBACK
FEASIBILITY OF A REG
IONAL WATER
PRODUCTION ENTITY
•Weeks of July 14than
d July 21stone‐on‐one
interviews were conducted with participating
entities
•Interviews lasted 1 –2 hours
•Form
al questions
•Open
tim
e for discussion
•Data Collected
•Hard data on community specifics
•Opinions and concerns about curren
t situation and
impact of regional entity
•Purpose
•Provide inform
ation for the SW
OT Analysis
ACTIVITIES
12 September 2014
•Altoona
•Ankeny
•Bondurant
•Clive
•Cumming
•Des Moines
•Johnston
•Norw
alk
•Pleasan
t Hill
•Polk City
•Polk County
•Urban
dale
•Warren County
•Wau
kee
•West Des
Moines
•Windsor
Heights
•Xenia
PARTICIPANTS
12 September 2014
Black & Veatch
3
•Governan
ce
•Tran
sparency
•Cap
acity
GEN
ERAL TH
EMES
12 September 2014
4
Black & Veatch
•Th
emes
•Proportionate rep
resentation
•Future “say in water issues”
•Issues to consider during SW
OT
•Is Des M
oines W
astewater governance m
odel
appropriate?
•Size and rep
resentation
•Would level of representation change over time? If so,
how?
GOVER
NANCE
12 September 2014
5
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TRANSPAREN
CY
12 September 2014
6
Black & Veatch
•Th
emes
•Cost of Service and Rate Study
•Developmen
t of volume charge
•Capacity Buy in
•Capacity Projects vs. Internal DMWW Projects
•Operations
•Issues to consider during SW
OT
•How can
the curren
t cost of service and rate process
be im
proved?
CAPACITY
12 September 2014
7
Black & Veatch
•Th
emes
•Adeq
uate capacity for future needs
•Sustainable Growth
•Quality
•Finished
vs. Source
•Issues to consider during SW
OT
•What is the best structure for addressing future
quantity and quality needs?
SWOT TEAMS
Team
ATeam
BTeam
CTeam
D
Facilitator: M
ike Borchers
Facilitator: Anna White
Facilitator: Heath
Picken
Facilitator: Peggy Howe
Jeff W
alters
Tim Hoskins
E.J. Giovannetti
Dan
Lovett
Karen
Novak‐Sw
alwell
Dale Acheson
DianaWilson
Tom Hadden
Mark Lindem
an
SkipCronkling
Karen
Oppelt
Shane Kinsey
Graham
Gillette
Mike Schultze
John M
cCune
Mark Wandro
Casey
Harvey
Pat Collison
Rachel Swisher
John Gibson
Merrill Heemstra
Randy Beavers
GaryBen
jamin
Ken
Plager
Betty Glover
Jason Van
Essen
Len M
urray
Bill Stowe
Bart Weller
Amy Kahler
Jaki Livingston
Madeline Sturm
s
Jim M
cKen
na
Jean
Lare
Scott Cirksen
a
www.bv.com
12 September 2014
CEN
TRAL IOWA REG
IONAL DRINKING W
ATER
COMMISSION
SWOT SU
MMARY
CURRENT VS. REGIONAL PRODUCTION ENTITY
Regional Production Entity
•More equal rep
resentation with
regards to governance, planning, and
rates
•More political influen
ce at regulatory
level
•More political stability on governing
board
•Potential long‐term
cost efficiencies
(direct and indirect)
•Regional planning
•Provide relative savings –slow the
rate of increase
Current
•Staff Responsible and Knowledgeable
•Reliability of finished
water
•Curren
tly finished
water quality is
good
•Red
undancy
•Multiple sources of supply
•Ability of customer communities to
make indep
enden
t decisions
•Opportunity to choose level of service
•Knowledge of defined
capacity lim
its
for each community
STREN
GTH
S
2
12 September 2014
CURRENT VS. REGIONAL PRODUCTION ENTITY
Regional Production Entity
•Size of governing body
•Source water quality and
quantity are still issues
•Change in
workforce im
pacting
level of service
•Cost versus investmen
t –long
term
change over short term
pain
•Buy‐in costs
•Conflict between growth and
reinvestmen
t
•Right now we know who to
blame
Current
•Autocratic governance of water
supply and production
•No curren
t Board rep
resentation
of customer communities
•No accountability to customer
communities for how resources
are spen
t or decisions made
•Source water quality
•Source water quantity
•Competing priorities for
responding to regional growth
•Availability of purchased
capacity to m
eet growth
WEA
KNESSES
3
12 September 2014
CURRENT VS. REGIONAL PRODUCTION ENTITY
Regional Production Entity
•Ability to influen
ce quality and
quantity
•Long term
bonding capability
•Predictability on reven
ue and
costs
•Better control over resources
•Consisten
t message
communicated
with customers
•Input into regional economic
developmen
t
Current
•Im
prove curren
t processes
•Individual communities continue
to m
ake indep
enden
t decisions
•More inclusive governance and
geographic diversity of Board
•Ability to im
prove watershed
managem
ent
OPPORTU
NITIES
4
12 September 2014
CURRENT VS. REGIONAL PRODUCTION ENTITY
Regional Production Entity
•Initial cost of buy‐in
•Less than
100% participation
from communities
•Perception of reduction in
work
force
•Loss of local control
•Failure to m
eet customer
expectations
•Nonpoint source pollution
impact on source water
•Clim
ate issues
Current
•Competing interests for same
source water
•Division/breakup of curren
t customer configuration
•Availability of capacity to m
eet
customer community needs
•Nonpoint source pollution
impact on source water
•Clim
ate issues
THREA
TS
5
12 September 2014
www.bv.com
CIRDWC | FEASIBILITY STUDY FOR THE DEVELOPMENT OF A REGIONAL WATER PRODUCTION UTILITY
BLACK & VEATCH | Appendix C C
Appendix C
Strat
ford W
ater T
reatm
ent P
lant
43 M
iles t
o the
Nor
th
Urba
ndale
Roc
k Qua
rries
Raco
on R
iver In
take
and P
ump S
tation
Infiltr
ation
Gall
ery,
Rech
arge P
onds
,an
d Low
-Lift P
ond
Rech
arge P
ump S
tation
Urba
ndale
WTP
Site P
rope
rty
DM R
IVER
INTA
KE
GROU
ND ST
ORAG
EAN
D PO
LK C
OPU
MPIN
G ST
ATIO
N
TENN
YST
ANDP
IPEDM
RIVE
R PU
MPIN
G ST
ATIO
N HAZE
NTO
WER A
NDPU
MP ST
ATIO
NNO
LLEN
STAN
DPIPE
AND
PUMP
ING
STAT
ION
WEST
SIDE S
TORA
GE LP
MOON
TANK
, PUM
PST
ATIO
N, AN
D ASR
98TH
STRE
ETWE
ST D
ES M
OINE
SST
ORAG
E TAN
K
SHAR
EDEA
STSID
ETA
NK
SE 6
AVE
(5420
) SE P
OLK
PUMP
ING
STAT
ION
WILC
HINS
KIST
ANDP
IPE
WDMW
W A.
C. W
ardMu
nicipa
l WTP
,an
d Well
Field
(Sha
llow
Alluv
ialan
d Dee
p Jor
dan)
Polk
City
WTP a
ndSh
allow
Well
s
ASR
#1An
keny
ASR
#2An
keny
WTP #
1Al
toona
and
Deep
Well
WTP #
2Al
toona
and
Deep
Well
WTP #
3Al
toona
and
Deep
Well
DMWW
-Fle
ur W
TP
DMWW
- McM
ullen
WTP,
ASR,
Coll
ector
Wells
, and
Surfa
ceWa
ter Su
pply
(Maff
ittan
d Crys
tal La
kes)
DMWW
- Say
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leWT
P and
Colle
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ells
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3,250
Feet
JOIN
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Treatm
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DMWW
Cor
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12"
14"
16"
18"
20"
24"
30"
36"
42"
48"
60"
Urba
ndale
Purch
ased
Prop
erty