OWSI Water System Plan Update

Port Ludlow Village Council (PLVC) will host an informational meeting for Olympic Water & Sewer, Inc (OWSI) ratepayers on Tuesday, February 10th at 4pm at the Bay Club. The purpose is to review their Water System Plan Update.  The complete 344-page document is currently available at both the Bay & Beach Clubs, or at the OWSI office. More information is also available in the February 2015 issue of The Voice, pages 18 & 34.

                      Below is the complete Table of Contents. Section 1 – Introduction                         and Section 14 – Financial Plan of the Water System Plan Update.

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Olympic Water and Sewer, Inc.

Water System Plan Update

DRAFT

                                        September 19, 2014                                         ________________________________________

                                                        Table of Contents                                                     Section 1 – Introduction

  • 1.1 Introduction and Description of Service Area
  • 1.2 Purpose and Objectives of Water System Plan
  • 1.3 Ownership and Management
  • 1.4 Natural Setting
  • 1.5 Overview of Existing System
  • 1.6 Summary of Water System Carrying Capacities
  • 1.7 Water Utility Policies
  • 1.7.1 Duty to Serve
  • 1.8 Related Plans
  • 1.9 Implementation

Section 2 – System Planning Considerations

  • 2.1 Relation to the Growth Management Act
  • 2.2 Historic and Projected Growth
    • 2.2.1 Residential Growth
    • 2.2.2 Commercial Growth
  • 2.3 Population Forecast
  • 2.4 Consistency with Local Planning

Section 3 – Water Demand Forecast

  • 3.1 Water Production History
  • 3.2 Water Consumption History
  • 3.3 Water Demand Forecast
  • 3.4 Fire Flow Requirements

Section 4 – Water Conservation

  • 4.1 Conservation Objectives
  • 4.2 Conservation Planning Requirements and Compliance Summary
  • 4.3 Existing Conservation Program
  • 4.4 Conservation Effectiveness Evaluation
  • 4.5 Conservation Goals 2015-2020
  • 4.6 Conservation Measures 2015-2020

Section 5 – Existing System Description

  • 5.1 Sources of Supply
    • 5.1.1 Hydrocarbon Contamination at Walker Way
  • 5.2 Water Treatment
  • 5.3 Storage
  • 5.4 Distribution System
    • 5.4.1 Distribution Lines
    • 5.4.2 Pressure Zones
  • 5.5 Telemetry
  • 5.6 Auxiliary Power

Section 6 – Design Standards and Construction Specifications

  • 6.1 Design Standards
    • 6.1.1 Supply
    • 6.1.2 Storage
    • 6.1.3 Distribution System
  • 6.2 Construction Specifications

Section 7 – Source of Supply Analysis

  • 7.1 Water Rights Evaluation 
    • 7.1.1 Instantaneous Water Right Evaluation
    • 7.1.2 Annual Water Right Evaluation
  • 7.2 Source Pumping Capacity Evaluation
  • 7.3 Booster Pump Station Capacity Analysis

Section 8 – Storage Analysis

  • 8.1 Service Zone A Storage Analysis
  • 8.2 Service Zone B Storage Analysis
  • 8.3 Service Zone B Storage Analysis (Upper Zones)

Section 9 – Distribution System Analysis

  • 9.1 Methodology
  • 9.2 Calibration
  • 9.3 Modeling Scenarios
    • 9.3.1 General Setup
    • 9.3.2 Modeling Results

Section 10 – Water Quality Compliance

  • 10.1 Regulatory Framework
  • 10.2 Water Quality Monitoring Program
  • 10.3 Water Quality Monitoring Plans
  • 10.4 Consumer Confidence Report

Section 11 – Source Protection Program

  • 11.1 Wellhead Protection Program Requirements
  • 11.2 Wellhead Protection Area Definition
  • 11.3 Potential Contaminant Source Inventory
  • 11.4 Spill Response Planning
  • 11.5 Contingency Planning
    • 11.5.1 Contamination of a Service Zone A Well
    • 11.5.2 Contamination of a Service Zone B Well
    •  11.5.3 Trucked Water
  • 11.6 Groundwater Monitoring Program

Section 12 – Operations and Maintenance Program

  • 12.1 Organizational Structure
  • 12.2 Personnel Certification
  • 12.3 Routine Operations and Preventive Maintenance
    • 12.3.1 Wells
    • 12.3.2 Reservoirs
    • 12.3.3 Hydrants
    • 12.3.4 Service Meters
    • 12.3.5 Pressure Reducing Valves
    • 12.3.6 Booster Pump Stations
    • 12.3.7 General Distribution System
    • 12.3.8 General Maintenance
  • 12.4 Emergency Response Plan
    • 12.4.1 Vulnerability Assessment
    • 12.4.2 Emergency Contact List
    • 12.4.3 Priority Lists
    • 12.4.4 General Field Response Procedures
    • 12.4.5 Emergency Response Procedures for Specific Situations
    • 12.4.6 Contingency Plan
    • 12.4.7 Emergency Chlorination Procedures
  • 12.5 Water Quality Public Notification, Record Keeping,                                                                     and Customer Complaint Procedures
    • 12.5.1 Public Notification
    • 12.5.2 Recordkeeping
    • 12.5.3 Customer Complaints
    • 12.6 Cross Connection Control Program
  • 12.7 Safety Program

Section 13 –  Capital Improvement Program

  • 13.1 Capital Improvements and Management Projects
    • 13.1.1 Water Supply (WS) Improvements
    • 13.1.2 Water Distribution System (WD) Improvements
    • 3.1.3 Water System Management (WM) Improvements
  • 13.2 Improvement Schedule

Section 14 –  Financial Plan

  • 14.1 Introduction
  • 14.2 Past Financial History
  • 14.3 Development of the Financial Plan (Revenue Requirement)
    • 14.3.1 Revenues
    • 14.3.2 Expenses
  • 14.4 Prudent Financial Planning Criteria
  • 14.5 Summary of the Financial Projections
  • 14.6 Review of the Existing Water Rates
  • 14.7 Overview of Future Water Rates
  • 14.8 Summary

Tables

  • 1-1 Summary of Capacity Limiting Factors
  • 2-1 Historic and Projected Future Growth of Residential Lots and Water Connections
  • 3-1 Summary of Well Production History (in gallons)
  • 3-2 Well Production Statistics (in gallons)
  • 3-3 Summary of Consumption History
  • 3-4 Non-Revenue Water Analysis (all values in mg)
  • 3-5 Summary of Ten Largest Water Customers
  • 3-6 Water System Demand Forecast (in gpd)
  • 3-7 Water System Demand Forecast by Pressure Zone (gpd)
  • 4-1 Compliance with Water Use Efficiency Rule Requirements
  • 5-1 Water Supply Wells
  • 5-2 Water Storage Reservoirs
  • 5-3 Water System Transmission Piping
  • 5-4 Pressure Zone Summary
  • 5-5 PRV Summary
  • 7-1 Water Rights Summary 7-2 Instantaneous Water Rights Analysis
  • 7-3 Annual Water Rights Analysis
  • 7-4 Evaluation of Source Adequacy for Service Zone A
  • 7-5 Evaluation of Source Adequacy for Service Zone B
  • 7-6 Evaluation of Source Adequacy for Woodridge Village BPS
  • 8-1 Evaluation of Storage Adequacy for Service Zone A
  • 8-2 Evaluation of Storage Adequacy for Service Zone B
  • 8-3 Evaluation of Storage Adequacy for Service Zone B – Upper Pressure Zones
  • 9-1 System Hydraulic Analysis Scenarios
  • 9-2 Reservoir Levels for Model Simulations
  • 12-1 Personnel Certification
  • 12-2 OWSI Emergency Contacts
  • 12-3 Retention of Records of Operation and Analysis
  • 13-1 Capital Improvement Program
  • 14-1 Summary of Historical Revenues and Expenses
  • 14-2 Summary of Capital Improvement Projects
  • 14-3 Summary of Projected Revenues and Expenses
  • 14-4 Overview of Current Bi-Monthly Water Rates

Exhibits

  • 1-1 Water Service Area
  • 2-1 Land Use Designations
  • 5-1 Existing Water System Facilities
  • 5-2 Hydraulic Schematic
  • 11-1 Wellhead Time-of-Travel Zones, Service Zone A
  • 11-2 Wellhead Time-of-Travel Zones, Service Zone B
  • 12-1 OWSI Water System Organizational Chart
  • 13-1 Capital Improvement Projects

Appendices

  • A. Olympic Water and Sewer, Inc. Tariff
  • B. Application for Water Service
  • C. Municipal Water Law Consistency Statement Checklist
  • D. Fire Marshall Correspondence
  • E. Water Reuse Analysis and Monthly Water Production
  • F. Standard Details and Specifications
  • G. Water Rights Evaluation Tables
  • H. Hydraulic Model Maps
  • I. Coliform Monitoring Plan
  • J. Well Susceptibility Assessments
  • K. DOH Trucked Water Guidelines
  • L. Fire Hydrant Agreement with Fire Protection District No. 3
  • M. DOH Public Health Notification Materials
  • N. Cross Connection Control Program
  • O. SEPA Checklist and Determination of Non-Significance
  • P. Draft WSP Comments and Responses

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Section 1 – Introduction

This section provides general information regarding the Olympic Water and Sewer, Inc. (OWSI) water system. Material is presented describing the water system’s service area, history and development, and the current ownership and management of the system. An overview of system components is provided, water system policies are summarized, and other related planning efforts are also described in this section.

1.1 Introduction and Description of Service Area  OWSI provides water service to the Port Ludlow Master Planned Resort (MPR) in unincorporated Jefferson County. OWSI’s retail service area (which is also its existing and future service area) is coincident with the Port Ludlow MPR boundary, as defined in the Jefferson County Comprehensive Plan and as shown on Exhibit 1-1. The Port Ludlow community is located approximately five miles north of the Hood Canal floating bridge (SR 104) and 16 miles south of Port Townsend.

Development in Port Ludlow began in 1967. At the end of 2012, there were a total of 1,917 residential lots developed within the MPR; 1,698 single family and 216 multi-family (condominiums). Of this total there were 1,536 residential connections to the water system; 1,390 single family and 216 multi-family. In addition, the MPR includes a marina, restaurant, two homeowner activity centers, conference center, commercial center, inn, and championship golf course.

The service area is comprised of two distinct service zones. Service Zone A refers to the developed area north of Port Ludlow Bay, and Service Zone B refers generally to the area south of the bay.

Growth is anticipated to be slow in the short-term, with full build-out of the water system occurring just beyond the 20 year planning horizon.

1.2 Purpose and Objectives of Water System Plan

The purpose of a Water System Plan (WSP) is to provide a uniform process for water purveyors to:

  • Identify present and future needs,
  • Set forth the means for addressing those needs, and
  • Demonstrate that the system has the operational, technical, managerial, and financial capability to achieve and maintain compliance with all relevant local, State, and federal plans and regulations.

OWSI is required to develop a WSP according to Washington Department of Health (DOH) regulations under Chapter 246-290 (Group A Public Water Supplies) of the Washington Administrative Code (WAC). As an investor-owned utility, OWSI is also regulated by the Washington Utilities and Transportation Commission (WUTC), which reviews rates, schedules of service, and tariff structures. This WSP update has been developed in accordance with Chapter 246-290 WAC and the DOH “Water System Planning Handbook,” dated April 1997.

1.3 Ownership and Management

This WSP is developed for the public water system operated by OWSI. OWSI is privately owned by Port Ludlow Associates LLC. Former names of OWSI were Ludlow Water Company and Ludlow Utilities Company. The OWSI water system is considered a Group A community water system by DOH and has a Public Water System Identification Number of 68700L.

1.4 Natural Setting

The topography of the OWSI water service area is generally hilly, with service elevations ranging from just above sea level to approximately 470 feet in elevation. Future growth will fill in the Port Ludlow community within the existing service area boundary. There are no topographical or natural features that will significantly constrain or impact the operation and expansion of the water system.

1.5 Overview of Existing System

As mentioned above, the OWSI water system is comprised of two service zones. Service Zone A receives its water supply from three groundwater wells having a present combined pumping capacity of approximately 310 gallons per minute (gpm). Storage is provided by two groundlevel steel reservoirs, with a combined capacity of approximately 450,000 gallons. Water is conveyed to two pressure zones within Service Zone A. Water treatment for the removal of iron and manganese is provided at two of this service zone’s wells.

Service Zone B receives its water supply from two groundwater wells having a present combined pumping capacity of approximately 475 gpm. Storage is provided by two ground-level steel  reservoirs, with a combined capacity of approximately 445,000 gallons. Water is conveyed to eight pressure zones within Service Zone B.

All components of the water system are described in greater detail in Section 5. Included in that section of the WSP is a full inventory of water system facilities, with detailed descriptions of the wells, storage reservoirs, distribution system, and other components that make up the system.

1.6 Summary of Water System Carrying Capacities

A key element of this WSP is the evaluation of the capacities of various water system elements and their abilities to support current and projected future water supply needs. Resulting from these evaluations are “carrying capacities,” or the maximum number of equivalent residential units (ERUs) that existing (and/or planned) facilities can support. Such analyses aid in identifying capacity deficiencies and provide the foundation for some capital improvement projects. Table 1-1 summarizes the carrying capacities regarding OWSI’s water rights, source pumping, and storage components. Details of these analyses are presented in later sections of the WSP. In particular, ERU projections are described in Section 3. Water rights and source pumping analyses are presented in Section 7, and storage facilities are evaluated in Section 8.

As noted in the table, OWSI’s existing water rights and storage facilities are capable of meeting system needs beyond the 20-year planning horizon. Existing source pumping capacity is capable of meeting the 20-year needs in Service Zone A, but is slightly deficient in meeting projected 20-year demands in Service Zone B. This reflects OWSI’s current pumping arrangements for Wells 14 and 16, which have been established to maintain arsenic concentrations below regulatory growth in this Service Zone occurs, with the pumping capacity of Well 14 potentially increased to address this minor, long-term deficiency.

Carrying capacity analyses have not been conducted for OWSI’s treatment and distribution facilities, for the following reasons. The treatment systems have been sized commensurate with the pumping capacities at the applicable sources. Therefore, there are no additional limitations imposed by the treatment systems. Regarding distribution facilities, it is difficult to characterize carrying capacities in terms of piping, etc. Water mains are typically designed to convey fire flows, which in the case of OWSI means that they are also more than adequate to support the average and maximum day demands imposed by customers. Some deficiencies have been identified throughout the system regarding the capability of certain sections of distribution piping to convey required fire flows at minimum pressures. Such deficiencies, however, are not a function of the amount of current or proposed ERUs, and therefore do not factor into a carrying capacity analysis. OWSI has scheduled improvements to address noted distribution system deficiencies.

1.7 Water Utility Policies

OWSI’s water utility policies have been established to ensure orderly operations through a variety of circumstances. Conditions of service are governed by Chapter 480-110 WAC (Water Companies) and the OWSI Operating Tariff, as approved by WUTC. Service is available to all properties and projects within the Port Ludlow MPR in accordance with WUTC regulations and Municipal Water Law requirements. OWSI’s current Operating Tariff is provided as Appendix A.

Distribution extensions within new subdivisions are installed at the expense of the developer, while source, storage, and transmission facilities are paid for by OWSI. This method of cost allocation has proven to be successful in maintaining the capital/asset ratio required by WUTC.

An example of OWSI’s application for service is provided in Appendix B.

1.7.1 Duty to Serve

OWSI has a duty to provide service to all new connections within its retail service area, per the Municipal Water Law, when the following four conditions are met:

1) Capacity. OWSI must have sufficient capacity to provide water to a new connection in a safe and reliable manner.

2) Consistent. The requested service must be consistent with adopted local plans and development regulations.

3) Water Rights. OWSI must have sufficient water rights to provide service.

4) Timely and Reasonable. OWSI must be able to provide service in a timely and reasonable manner to authorize service per a request.

As noted above, OWSI is prepared to provide service to all properties in the MPR, within the four conditions set forth in the Municipal Water Law. At this time, OWSI does not foresee any reason related to the four above conditions that would preclude provision of service to any property within the MPR.

1.8 Related Plans

A number of development and water supply related plans and studies have shaped the development and operation of the OWSI water system throughout its history. These plans are described in OWSI’s previous WSP.

This WSP update has been prepared in accordance with both the Jefferson County Comprehensive Plan (Comp Plan), and the Jefferson County Coordinated Water System Plan Regional Supplement – Update (CWSP). The Comp Plan was most recently updated in 2004, having been adopted by the Board of County Commissioners on December 13th of that year. The Comp Plan is a tool for officials and citizens in guiding growth and development in Jefferson County on a 20-year planning horizon. As such, it contains policies and population projections regarding the Port Ludlow MPR. These were used as the basis for WSP-related planning activities, as further described in Section 2.

The CWSP was most recently updated in May of 1997. The CWSP, and its update, was developed under the direction of the Jefferson County Water Utility Coordinating Committee (WUCC), which included representatives of local governments, fire protection districts, and water purveyors. Key elements of the CWSP that directly affect OWSI include definition of utility service areas, minimum standards and specifications, and minimum fire flow requirements. This WSP update has been developed so as to remain consistent with these and other CWSP elements.

1.9 Implementation

A key element in the implementation of the WSP is proper compliance with State and local requirements governing adoption of this document. As previously discussed, this WSP must be submitted to DOH for review and approval.

In addition, the State Environmental Policy Act of 1971 (SEPA), Chapter 43.21C, of the Revised Code of Washington (RCW), requires that a WSP must be accompanied by an appropriate environmental document. An Environmental Checklist has been prepared for the OWSI WSP and its planned activities. A Determination of Non-Significance (DNS) was issued by DOH, based upon review of the checklist and public comments. The checklist and DNS are included as Appendix O of the WSP.

Details of the WSP content are referenced in the Checklist. It is anticipated that both negative and positive impacts will occur to earth, water, land use, population, public services, and utilities as a result of implementing the WSP. However, this WSP has been developed to accommodate and plan for expected changes and not to dictate those changes. Therefore, scheduled implementation of this WSP and sound engineering and construction practices will minimize any adverse impacts.

The final environmental determination, approved OWSI construction specifications and details, and DOH approval combine to endorse the WSP contents and allow the construction of distribution mains listed in the WSP, without individual approval by DOH.

File copies of this document will be furnished to DOH, Ecology, the Jefferson County Environmental Health Department, and Jefferson County Fire Protection District No. 3.

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Section 14 – Financial Plan

14.1 Introduction

The effective implementation of a WSP is dependent upon accurately developing a document that can be financially supported by the utility, will meet State and local regulatory requirements, and provides the flexibility to deal with unforeseen changes. OWSI is a private water company which is regulated by the Washington Utilities and Transportation Commission (WUTC). In developing a water financial plan, it was assumed that the utility must financially “stand on its own” and be properly and adequately funded. As a result, the financial plan developed herein assumes the full and proper funding needed to operate and maintain the water system on a financially sound and prudent basis.

The financial plan was developed under the “cash basis.” Under this methodology the utility’s operating and maintenance expenses, taxes, debt service, and capital funded from rates are summed for the total revenue requirement. This is slightly different from the “utility basis” which includes operating and maintenance expenses, taxes, depreciation, and a return on rate base, which is typically used by the WUTC in its rate reviews. The “cash basis” was used, however, to determine the impacts to rates on an annual basis. This approach conforms to OWSI’s budgeting and capital plans and is a generally accepted methodology.

This section presents a financial plan that reviews the water revenues and expenses for the OWSI water system. The financial plan includes projected operating and capital costs of the system for the six-year time horizon of 2015-2020. The revenues and expenses used in the financial plan were obtained from OWSI’s 2014 adopted budget. The capital costs contained within the financial plan utilize the Capital Improvement Plan (CIP) presented in this WSP (see Section 13). The results of the financial plan outline the annual operating and capital needs of the water system and determine if the current water revenues are sufficient to cover costs.

This analysis is not sufficient to provide a detailed review of cost of service or alternative rate designs. If OWSI considers raising rates it will need to perform a comprehensive rate study independent of this planning effort and work through the WUTC rate setting process. At this time, the results of the financial plan are to provide OWSI with the impacts of funding operating and capital expenditures over the next six year period.

14.2 Past Financial History

The past five years of financial information for the water utility were evaluated to gain an understanding of the past performance of the utility and, at the same time, gain perspective of the current financial status.

Table 14-1 is a summary of a five-year financial history (2008 – 2012) for OWSI.

Summary of Historical Revenues and Expenses
2012 2011 2010 2009 2008
Revenues
Metered Sales $652,533 $641,923 $645,196 $726,756 $646,937
Other Revenues       8,593          519          693       2,187         991
Total Revenues $661,126 $642,442 $645,889 $728,943 $647,928
Expenses
O&M Expenses $413,749 $420,952 $528,325 $503,363 $437,624
Taxes   102,319     93,829     51,731   114,291     73,765
Debt Payments              0              0              0              0              0
Miscellaneous              0              0              0              0              0
CIP Funded from Rates     69,084     68,077     69,875     68,740     73,066
Total Expenses $585,152 $582,858 $649,931 $686,394 $584,455
Balance/(Deficit) in Revenues   $75,974   $59,584      -4,042  $42.549    $63.473

Table 14-1 is a summary of a five-year financial history (2008 – 2012) for OWSI. As Table 14-1 illustrates, the annual operating results are primarily a balance of funds over the past five-year period. The slight deficit in 2010 is the result of a decrease in net revenues from the previous year of approximately $80,000 which was magnified by an increase in O&M of about $25,000 over 2009. Despite the revenue shortage and the increase of expenditures in 2010, the shortfall was held to a minimum at just over $4,000. Although revenues for the utility have been down in recent years, the decrease has been met with a reduction in spending to create surpluses of around $60,000 and $76,000, in 2011 and 2012 respectively. The audited financials for 2013 were not available at the time of the study.

14.3 Development of the Financial Plan (Revenue Requirement)

A financial plan is developed to determine OWSI’s ability to meet its capital improvement and operating needs over the six-year review period. The result provides any necessary rate adjustments to adequately fund the capital needs as identified in this report. In developing the financial plan, fund balance and reserve levels are also analyzed. The financial plan is developed to review the projected revenues and expenses of the water system for 2015 -2020. OWSI’s 2014 budget was used as the base. Future years were escalated by applying factors for inflation and growth, as described below.

14.3.1 Revenues

The first component of the financial plan is a review of the sources of revenues of the water system. The revenues received from operations are water sales to customers. Projections for future year revenues were developed by applying a projected growth rate of 1% to the 2014 budgeted rate revenues. The 1% growth level appeared to be appropriate when reviewing the past revenues.

Total revenues are projected to be approximately $666,000 in 2014. The rate revenues of the utility come from retail sales to OWSI’s customers. With growth applied at one percent per year, plus other miscellaneous revenues, the total revenue increases to approximately $686,000 by 2020.

14.3.2 Expenses

The second part of the financial plan is a review of the annual operating and capital expenses. In developing the financial forecast, four main cost components were reviewed:

  • Operations and Maintenance (O&M) Expenses
  • Taxes
  • Debt Service
  • Capital Improvements Funded From Rates

As noted, these are different than those used by the WUTC in developing rates for OWSI. OWSI’s expenses were projected for future years by applying escalation factors dependent upon the type of expense being reviewed.

Operation and Maintenance Expenses

Using the adopted 2014 budget as a starting point, expenses were projected based on escalation factors representing assumed inflationary rates to develop future expense projections. Escalation factors range from labor at an average annual increase of four percent, to miscellaneous items, materials and supplies at two percent. Each budgeted expense line item was reviewed and projected based on the appropriate escalation factor.

O&M expenses ranged from approximately $343,000 in 2014 to $404,000 in 2020.

Taxes

The water system currently has tax obligations in the form of sales tax, property taxes and income taxes. For 2014 these tax payments total approximately $86,000 and increase to approximately $94,000 by 2020. Projected taxes for the period assume constant tax rates over time plus an annual 1% inflation factor. It should be noted that the income taxes are an allocation to the water operations as a percentage of the total tax paid by Olympic Water and Sewer, Inc.

Debt Service

OWSI has no existing annual debt service payments or projected to issue new debt during the 2014 to 2020 time period. Therefore, there is no annual debt service costs included in the financial model.

Capital Improvement Projects from Rates

Capital improvement projects are related to the infrastructure of a utility. Capital improvement projects are generally divided into two categories: capital improvements related to renewal and replacements of existing plant facilities, and growth related projects including system expansion and upgrades to accommodate new customers.

As mentioned previously the “cash basis” is being used to determine the rate impacts. Under this approach, capital funded from rates is a main element. This component is comparable to depreciation expense under the “utility basis.” Under the “cash basis” approach, a utility will fund an amount equal to annual deprecation to fund renewals and replacements. Some utilities often consider funding renewals and replacement projects at a rate of 1.25 times the annual depreciation expense. The 1.25 factor will assist in the funding difference required when comparing the replacement cost of the asset to the depreciated value. OWSI’s records reflect that the annual depreciation expense for the water utility has been funded in the past. The level of capital improvement projects (CIP) that is funded by rates varies greatly from a high of $895,000 in 2020 to a low of roughly $60,000 in 2014. However, the average CIP from rates over the study’s timeframe is about $217,000 per year. In addition to the repair and replacement capital projects, OWSI has future capital projects which are identified in Section 13. The financial analysis conducted for this WSP assumes these projects will be funded by local developers for new subdivision infrastructure as well as through rates for projects benefitting the entire user group. A summary of the capital projects is provided in Table 14-2.

    Summary of Capital Improvement Projects
Capital Improvements Costs Budget Projected
2014 2015 2016 2017 2018 2019 2020
Water Supply Projects
Water Rights Applications $0 $0 $0 $0 $0 $11,255 $0
Well #18 Design & Construction 0 0 257,500 0 0 0 0
Greensand Filter Backwash Controller 0 10,000 0 0 0 0 0
Wells 14/16 Manganese Removal [1] 0 0 0 0 0 0 0
Total Water Supply Projects $0 $10,000 $257,500 $0 $0 $11,255 $0
Distribution System Projects
Portable Generator – Service Zone A (20kW) $0 $0 $37,132 $0 $0 $0 $0
Transfer Switch – Service Zone A Well (2,3, or 4N) 0 0 5,305 0 0 0 0
Improvements in high elevation area near Reservoir A 0 0 0 53,045 0 0 173,891
OT2 Distrib. Improvements (6,300 ft of pipe & a PRV) 0 0 0 0 0 0 697,883
AC Pipe Replacement [1] 0 0 0 0 0 0 0
Well #3 Water Quality Aesthetic Improvements [1] 0 0 0 0 0 0 0
Total Distribution System Projects $0 $0 $42,437 $53,045 $0 $0 $871,774
[1] Project timing is TBD and is scheduled to take place between 2021 – 2034
Management Projects
Water System Plan Updates $0 $0 $0 $0 $0 $0 $23,185
Transfers Out $60,000 $51,800 $0 $12,519 $67,531 $58,301 $0
Total Capital Improvements $60,000 $61,800 $299,936 $65,564 $67,531 $69,556 $894,960
Less: Financing Sources
Hook Up Fees $0 $0 $0 $0 $0 $0 $0
Loans 0 0 0 0 0 0 0
Transfers In 0 0 236,282 0 0 0 125,433
Developer 0 0 0 0 0 0 697,883
Total Financing Source $0 $0 $236,282 $0 $0 $0 $823,316
CIP from Rates $60,000 $61,800 $63,654 $65,564 $67,531 $69,556 $71,643

14.4 Prudent Financial Planning Criteria

As noted in the development of the capital improvement funding, a key aspect of maintaining a financially healthy utility is providing adequate funding through rates for renewal and replacement items. In addition to adequate renewal and replacement funding, two other prudent financial planning criteria are reviewed to determine the financial health and viability of the utility. These are debt service coverage ratios and minimum reserve levels.

Meeting debt service coverage requirements is an important financial indicator for well managed utilities. Debt service coverage is a financial measurement of an entity’s ability to repay debt. A debt service coverage ratio is a comparison of net income before debt service payments to the total debt service on revenue bonds. Another unique aspect of OWSI’s funding program is that capital projects funded with long-term debt are not subject to typical debt service coverage ratios. This is due to OWSI being a private water company and capital funding outside of rates is funded through commercial loans, intercompany loans, or loans from the parent company. Therefore, no debt service coverage ratio is calculated for OWSI in this analysis.

While no recommendation or funding of reserves has been included within the development of this plan, DOH recommends, for small water systems, a balance for operating reserves of 1/8 of O&M expenses, repair and replacement reserves of 1/20 of total assets, and emergency replacement reserves of 10 percent of revenues. In addition, industry standards (American Waterworks Association – AWWA) recommend that utilities maintain working capital reserves at a level adequate to handle unexpected occurrences, including unexpected cash flow fluctuations. Again, target reserve levels are not included within the analysis or rates, as they have not typically been recognized by the WUTC or included within rates to fund a reserve account.

14.5 Summary of the Financial Projections

All of the above assumptions come together to develop a financial plan for the utility. A summary of the financial plan and resulting financial status of the water system is provided in Table 14-3.

The results in Table 14-3 show that OWSI will collect sufficient revenue to cover operation and maintenance expenses, as well as capital projects. The analysis shows that there will be a surplus in every year of the study. The fluctuations in the surplus or deficit are driven by the capital projects contained in each year. Annually, OWSI will attempt to level load the capital projects to try to produce a more even level of capital to minimize impacts on funding needs. With more predictable and structured CIP’s, OWSI will have a clearer understanding of what the financial situation will be like at the end of a test period and help the utility make more informed decisions. It is also important to note that as a private utility, OWSI collects the cost of capital funding in arrears and OWSI assumes the risk associated with annual capital funding needs and future revenue levels as determined by the WUTC.

It is important to note that the financial plan presented in this section is predicated upon an assumed level of growth on the system (1% per year), and assumptions related to inflation. Should this growth increase, slow down, or not occur, the balance/deficiency of funds will be affected. Likewise, if costs escalate faster or slower than indicated in this plan, the balance/deficiency of funds would also be affected.

14.6 Review of the Existing Water Rates

There are various “generally accepted” water rate structures that can be used to establish or develop rates. The initial starting point in considering a rate structure is the relationship between fixed costs and variable costs. Fixed costs are generally collected as a fixed charge on a monthly basis. This charge may be called by various names (e.g., customer charge, meter charge, base charge, etc.) but in all cases, it is intended to collect those fixed costs that the utility incurs. There are also many different ways to collect the variable costs on a monthly basis. The most basic would be a uniform (flat) rate for all consumption. Other options are seasonal rates, increasing block rates, or declining block rates. The variable charge should in the end reflect the goals and objectives (i.e., conservation, economic development, etc.) of the utility.

Currently, OWSI has a basic charge for service based on tiered consumption levels. For purposes of this overview, the rates in effect as of January 2014 are presented in Table 14-4.

As Table 14-4 indicates, the basic rate increases in relationship to the meter size. The conceptual rate review undertaken indicates that the utility’s rates attempt to capture the cost differential to serve customers with varying usage characteristics and facility requirements. Completion of a comprehensive rate study will assist the utility to identify if any rate structure changes are warranted based on the utility’s goals, objectives and the manner in which costs are incurred.

14.7 Overview of Future Water Rates

Based upon the results of the financial analysis, OWSI has adequate revenues to cover operations and maintenance expenses as well as capital improvement projects. OWSI does not currently have any debt service but this does not preclude them from issuing and servicing debt in the future. During the next rate filing with the WUTC it is recommended that OWSI conduct a comprehensive rate study to verify that the rates charged to its customers are cost-based.

14.8 Summary

The financial plan results presented in this section indicate that there is adequately funding to pay for the projected O&M and capital requirements. The biggest issue the utility is facing is the timing and funding sources of the capital improvement projects identified in the CIP.

In addition, OWSI will continue to demonstrate its commitment to responsible management of the water utility by funding adequate levels of operations, repair and replacement, and emergency reserves. Continued fiscal management will enable the water utility to operate on a financially sound basis. Financial stability is not only a prudent financial management goal; it can also minimize financial costs in the long-term (e.g., unnecessary borrowing). Above all, financial stability will provide the community with the confidence of knowing a strong, consistent management team is managing the utility. Again, any rate changes will need to be authorized by the WUTC and through the public rate setting process.

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