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Financial Services
Valuation Services
Procurement Assistance
Management Consulting
Litigation Support
Financial Services
Birmingham Water
Works Board, Alabama
Water and Wastewater Bond Feasibility Assistance
Overview of Project:
In the late 1990s, the City of Birmingham ("City”)
was in need of additional money to fund its school system. The City
decided it would raise funds by taking the water and sewer utility
from the Water Works and Sewer Board of the City of Birmingham (“Board”) and selling the system. However, a referendum
to allow the sale of the system failed. As a result, the Board agreed
to take the system back from the City and to pay $200 million for
the system.
As a result of these transactions, the fund balance and reserves
that the Board had accumulated for future capital projects was depleted.
Also, the Board’s customers were forced to bear the additional costs
of reacquiring the system. In order to pay for the system, the Board
had to issue revenue bonds. With its limited reserves, the Board
was very concerned about having the rate agencies significantly
decrease their ratings.
Key Issues:
• Maintain bond ratings;
• Effectively manage future rate increases; and
• Develop plan to begin to rebuild fund balances.
RFC Contributions:
RFC has a long-standing relationship with the Board. We have assisted
the Board with a cost of service and rate study, as well as annual
rate updates. When the Board reacquired the system, RFC assisted in developing
a program of rate increases that would allow the Board to incur
the additional expense and still meet its coverage requirements.
We also assisted the Board in developing a strategic financial plan
to regain its financial strength. When the Board initiated the process
to issue $300 million in revenue bonds primarily to defease the
short term loan that was used to reimburse the City for the system,
the Board requested that RFC examine the financial feasibility of
the bond issuance and prepare a financial feasibility report.
RFC developed a forecast schedule and an accompanying feasibility
report. We also worked closely with the Board’s financial
advisors, engineering consultants and legal counsel to develop a
presentation package for the rating agencies. RFC personnel participated
in the rating agencies meetings
As a result of the presentation and meetings, the Board was able
to minimize the decrease in its debt rating to one grade from the
anticipated two grade decline. The Board was extremely pleased with
this result considering its minimal reserves at the time of the
bond issuance.
City of Peoria, Arizona
Water and Wastewater Rate Studies; Development Fee Studies;
and Bond Feasibility Studies
Overview of Projects:
The City of Peoria (“City”) has experienced fast
paced growth and heavy development pressure as the
population has more than doubled since 1990. As a result, demand
for water and wastewater services has also increased at a fast pace.
Concurrently, the State of Arizona (“State”) enacted
the Groundwater Management Act and the Assured Water Supply rules
to limit the use of groundwater and to encourage the use of alternative
water supply sources. As a result, the State mandated that the City
reduce its reliance on mined groundwater and increase its use of
renewable water resources. To comply with these regulatory requirements,
the City developed an aggressive capital plan to reduce its current
100% use of groundwater through a combination of its existing water
supply sources, maximization of reclaimed water for non-potable
use, and a continued commitment to water resource conservation.
To effectively address these growth and regulatory related issues
and concerns, the City sought assistance in reviewing and updating
its existing water and wastewater rate structure and developing
a 10-year financing plan for its extensive capital requirements.
In February 1998, the City engaged RFC to conduct a comprehensive
water and wastewater rate and financial planning study, which incorporated
a water and wastewater utility rate study, an update of its water
and wastewater development fees, the development of a water resource
fee, and the development an appropriate financial plan and bond
feasibility forecast. Following these initial engagements, RFC has
assisted the City in updating its water and wastewater rates, utility
financial plan, and utility development fees on a biennial basis
(2000, 2002, and 2004). RFC also performed bond feasibility forecasts
for the City’s 1998 and 2000 water and wastewater revenue
bond issues. Some of the key issues related to our engagements with
the City of Peoria are summarized below.
Key Issues:
• Developing and updating a long-term financing plan to address
the City’s extensive and evolving capital program required
to meet rapid growth and the State’s mandate to reduce its
reliance of groundwater resources;
• Developing water rates and fees that promote the efficient
use of water resources;
• Updating water and wastewater rates to ensure the equitable
recovery of costs from different customer classes over a five-year
planning period;
• Updating water and wastewater development fees and water
resource fees to reflect the appropriate cost of providing additional
capacity to new utility customers; and
• Ensuring the financial sufficiency and independence of the
City’s water and wastewater utilities while minimizing the
financial impacts on its utility rate payers.
RFC Contributions:
To assist the City in addressing its financial and growth related
challenges, RFC developed a water and wastewater financial planning
and rate model for the purpose of allocating revenue requirements
to the appropriate customer classes, incorporating an evolving capital
improvements plan, and calculating cost of service user rates and
charges over a rolling five-year planning period. The model was
developed to be updated annually and provide the flexibility to
incorporate the forecasted O&M and capital costs into bond feasibility
forecasts. Additionally, RFC developed a development fee model which
incorporated the capital improvements plan, customer account and
demand forecasts; and appropriate calculations of water and wastewater
development fees and water resource fees. Both the financial planning
model and the development fee model have been updated on a biennial
basis since 1998 to reflect changes in customer demand, operating
costs, and the evolving capital program. In addition to serving
as the basis for bond feasibility forecasts, both models have also
been used to evaluate the financial and customer rate impacts of
incorporating planned developments and new service areas into the
City’s water and wastewater system.
City of Redlands, California
Water and Wastewater Rate Study
Overview of Project:
The city of Redlands (“City”) had not updated its
water and wastewater rate structures since 1991. In 2002, the City
was evaluating a significant capital improvement plan due to regulatory
requirements, the funding of the reclaimed water system, and system
expansions. Therefore, the City was interested in reevaluating
the adequacy of its water and wastewater rates to meet operations
and maintenance costs and capital costs.
Key Issues:
• Developing rates that were more responsive to cost of service;
• Developing a firm basis for the differential for rate surcharges
to customers outside the City:
• Ensuring revenues could cover necessary capital improvements; and
• Gaining consensus among a 12-member Rate Committee.
RFC Contributions:
The study was conducted in a short period of time to meet the client's schedule. The goal of the study was to
develop rates that were in line with recovering the cost of service to fund
necessary capital improvements. The study included a comprehensive
review of the City’s revenue requirements and allocation methodology,
review of the City’s user classification, a cost of service
analysis, and rate design for City users. The study was conducted
with input from a 12-member Rate Committee. Over a dozen workshops
were conducted with the Rate Committee to explain concepts, gather
feedback from Committee members, and to discuss the overall findings
of the study.
The City also needed to develop a firm basis for the differential
for rate surcharges to customers outside the City. The City had
been charging a 100% surcharge on the wastewater rates and a 50%
surcharge for the water rates. RFC performed an analysis to identify
the rate differential based on the utility method of rates. The
elements considered to establish the rate surcharge included return
on rate base, depreciation, and general fund subsidy. The project
involved extensive analysis of the City’s assets and benefits
to outside City customers. The surcharges developed differentiated
between residential and nonresidential customers for wastewater
charges and among availability, customer, capacity, and commodity
charges for the water customers. The study was completed in five months.
Finally, we assisted the City of Redlands with its application for the
SRF Loan program which allowed them to obtain $5 million in grants
to upgrade its wastewater treatment facilities
to provide tertiary treatment. We prepared the application and coordinated
and facilitated the entire process on behalf of the City. The application
process was completed and approval obtained in less than three months.
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Valuation Services
City of Peoria,
Illinois
In 2004, RFC conducted a formal appraisal of the Peoria District
of Illinois-American Water Company ("IAWC"). This analysis was an update of a 1999 valuation
and economic feasibility study for the City of Peoria to assess
the viability of acquiring the system. An 1889 franchise agreement
between IAWC and the City of Peoria, that gives the City the right
to purchase the system without condemnation, was upheld in the Illinois
courts. An arbitration process will be used to establish the price
at which the City of Peoria will acquire the system.
Borough of West
Paterson, New Jersey
RFC conducted a valuation and economic feasibility study for
the Borough of West Paterson to assess the viability of acquiring
the portion of the New Jersey-American system serving the West Paterson
area. The Borough currently has its own water department that serves
two-thirds of the population of West Paterson.
City of Peoria,
Arizona
RFC conducted valuation and economic feasibility studies of
three private water systems in the Peoria, Arizona area. The city
is currently considering purchase of one or more municipalities
if the purchase is economically feasible. RFC assessed the
fair market value of the three systems, as well as the investment
value of the systems to the purchasing municipality.
City of Pekin,
Illinois
RFC conducted a valuation and economic feasibility study for
the City of Pekin to assess the viability of acquiring the portion
of the Illinois-American system serving the Pekin area. As a precursor
to condemnation proceedings, RFC provided direct testimony
to the Illinois Commerce Commission (“ICC”) regarding
the feasibility of the City to own and operate the water system.
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Procurement Assistance
City of Phoenix Water Services
Department, Arizona
Lake Pleasant Water Treatment Plant Design-build-operate Procurement
Overview of Project:
The City of Phoenix ("City") is currently constructing under a Design-Build-Operate
("DBO") contract with the All American Water Team, a water treatment
plant in the Lake Pleasant area to address long-term potable water
requirements for its service area. The initial 80 MGD phase of the
Lake Pleasant Water Treatment Plant ("LPWTP") is planned to be operational
in 2007 and will serve the developing northern areas of Phoenix.
The LPWTP DBO project, which is one of the largest
in the country, was the result of a detailed process carried out
by the City to determine the most advantageous delivery
method for the project and to decide on the private partner
that would offer the City and its customers the most value.
Key Issues:
During the time leading up to the start of construction of the LPWTP,
the City was faced with making two critical decisions. First, the
City had to decide whether to pursue the project using the Design-Bid-Build
("DBB") approach that it typically used to deliver water and wastewater
projects or to use an alternative project delivery method such as
DBP. Second, once the City decided to use the DBO approach, it had
to decide on the private partner that would offer the greatest benefit
to the City.
RFC Contributions:
The procurement process for the LPWTP was conducted in two distinct
phases. Phase I centered on the decision of whether to use the typical
DBB approach or an alternative project delivery method. For Phase
I, RFC was engaged as a part of the consulting team to assist the
City in determining the most advantageous project delivery method
for the LPWTP. For this project, RFC’s responsibilities included
assisting in the development of a comprehensive list of alternative
delivery methods; developing a high-level economic model to estimate
the anticipated cost to the City under each alternative delivery
method; researching a broad range of potential financing techniques;
and participating with the Project Team in an overall review of
the alternative delivery methods. Based on the analysis performed
in Phase I, the City decided to use the DBO approach to project
delivery. An executive summary of the report prepared by the Phase
I project team can be viewed at:
Alternative
Delivery Method Investigation for the Lake Pleasant Water Treatment
Plant Project – Executive Summary
Phase II consisted of the actual procurement process. During Phase
II, RFC performed a number of tasks including:
- Assistance in Preparation of Request for Qualifications (RFQ)
- Evaluation of SOQs
- Preparation of Benchmark
- Preparation of the Request for Proposal (RFP)
- Evaluation of Proposals
Additional information related to the Lake Pleasant project may
be accessed on the City
of Phoenix’s website.
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New Orleans Bureau of Governmental
Research
Evaluation of Procurement Process and Evaluation
of Proposals to Manage, Operate and Maintain the Water and Wastewater
Systems of the New Orleans Sewerage and Water Board (S&WB)
Overview of Project:
In early 2000, the New Orleans Sewerage and Water Board ("S&WB"), faced with the cost of significant capital
improvements and attendant rate increases, initiated a procurement
for the private management, operation and maintenance of the S&WB’s
water and wastewater systems. The procurement was for the largest
water/wastewater privatization in the United States, with a term
of 10 to 20 years and an estimated value of $1 billion. The procurement
was structured as a managed competition, meaning that both private
firms and employees of the S&WB were invited to submit proposals.
The Bureau of Governmental Research ("BGR") is a private, non-profit, independent research organization
dedicated to informed public policy making and the effective use
of public resources for the improvement of government in the New
Orleans metropolitan area. Due to the magnitude of the procurement and the potential implications
on the water and sewer customers of New Orleans, BGR engaged RFC to:
- Review and evaluate the S&WB's evaluation and selection
process to identify factors that could negatively impact the S&WB's
ability to select the proposal that would maximize the potential
benefits of the procurement;
- Identify other aspects of the procurement process and the draft
service agreement ("Service Agreement") that might negatively
impact the privatization; and
- Perform an independent evaluation of the proposals received
in response to the Request for Proposals ("RFP") issued by the S&WB
Key Issues:
Due to the implications of the transaction to the water and sewer
customers of New Orleans, the BGR wished to determine whether the
procurement process allowed the S&WB to select the private partner
that could offer the greatest value to the customers. In order to
assess the capability of the procurement process to allow for the
selection of the appropriate partner, RFC performed an independent
third party analysis of the S&WB’s procurement process.
The analysis resulted in the identification of several flaws in
the managed competition process that could have prevented the SWB
from selecting the proposer that could the greatest value and provided
several recommendations that could be implemented by the S&WB
to correct the flaws in the process. A detailed description of the
analysis and its results can be obtained by reading the report prepared
by the BGR and RFC which can be accessed by clicking on the following
link.
Sewerage
& Water Board Privatization at a Critical Stage
In order to provide the BGR with insight into the benefits that
the respondents to the S&WB’s Request for Proposals could offer, RFC also performed an independent third party evaluation
of the proposals that were submitted in response to the RFP. RFC
used the proposal scoring approach that was specified in the RFP
and provided a complete and thorough evaluation of the strengths
and weaknesses of each proposal. A detailed report of the proposal
evaluation performed by RFC can be accessed by clicking on the following
link.
Report
of Proposal Evaluation Sewerage & Water Board of New Orleans
Water and Wastewater Systems Managed Competition
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Management Consulting
Neuse Regional Water and Sewer
Authority, North Carolina
Water Regionalization Economic Feasibility Study
Overview of Project:
In August 2002, the State of North Carolina (“State”)
adopted regulations that will limit future withdrawals of groundwater
from the Black Creek and Upper Cape Fear aquifers in eastern North
Carolina. Under new Central Coastal Plain Capacity Use Area (“CCPCUA”)
rules, the State will limit withdrawals from these and other aquifers
in the Cretaceous aquifer system in three phases that began in 2002
and will end in 2018. In 2002, most of the utilities in Lenoir County,
Pitt County, and Greene County obtained 100% of their water supply
from deep wells supplied from the Black Creek and Upper Cape Fear
aquifers. Although the water from these aquifers is of excellent
quality, water levels have declined for decades and have resulted
in diminishing yields, well failures, and the new State withdrawal
limits. To reduce groundwater withdrawals and address the anticipated
new State regulations, the Neuse Regional Water and Sewer Authority ("WASA") was formed in 2000 by the Town of
Pink Hill, the North Lenoir Water Corporation, the Deep Run Water
Corporation, the Town of LaGrange, and the City of Kinston, the
five original members of the WASA.
To assess the economic feasibility of creating a regional water
system and the potential financial impacts on the original five
members and the eight other entities considering membership, the
WASA engaged RFC to develop a planning tool to forecast the O&M
and capital costs for the initial construction and on-going operation
of a regional treatment plant to treat raw water. As part of the
Study, RFC has worked closely with the WASA’s engineering
consultants, Camp Dresser & McKee (“CDM”) and The
Wooten Company (“Wooten”) to develop and forecast preliminary
O&M budgets and capital costs for the WASA water system over
a 23-year planning horizon.
Key Issues:
• Identifying the most appropriate number and configuration
of WASA members;
• Developing the most feasible and cost effective long-term
financing plan considering a likely mix of grant funding and debt
funding; and
• Estimating and evaluating the financial impacts of recovering
the O&M and capital costs of the WASA from each participant.
RFC Contributions:
To assist the WASA in determining the most appropriate configuration
of members and estimating and evaluating the financial impacts on
the members of a newly created regional system, RFC developed a
financial planning model that provided the flexibility to evaluate
a variety of capital planning and financing alternatives. The model
was used to evaluate a baseline alternative, where the majority
of the regional assets would be constructed to ensure that the WTP
could serve all participants by 2007, and a second alternative where
construction of regional distribution assets to serve Pitt County
and Greene County would be delayed. The model was also developed
to provide the participants with the appropriate financial information
to determine whether membership in the WASA was an economically
feasible approach for meeting the State’s newly adopted withdrawal
limits. In addition, RFC assisted the WASA in working with the United
States Department of Agriculture and the North Carolina Local Government
Commission to determine the potential levels of grant and debt funding
available to the WASA.
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York County, South Carolina
Water and Sewer Regionalization Study
Overview of Project:
York County, South Carolina (“County”) has experienced
significant growth over the last decade and anticipates a continuation
of above average levels of growth in future years. The increase
in population throughout the County has impacted the ability of
water and wastewater service providers (the City of Rock Hill, the
City of York, the Town of Fort Mill, the Town of Clover, the City
Tega Cay, and York County), to address their service area’s
growing needs. Historically, each entity has independently provided
these services, either through a contract with a neighboring utility
or with the use of its own water and wastewater treatment plants.
However, as the population has increased, the demands on each individual
system have grown, causing some entities to incur significantly
higher costs which are passed to retail customers in the form of
higher water and wastewater rates. In 2001, the municipalities joined
with the County to form the York Countywide Water and Sewer Committee
(“Committee”) to explore the best method for providing
water and wastewater services within the County. In an effort to
more efficiently meet the growth in demand and provide more rate
equity among retail customers, the Committee engaged RFC to help
determine the most cost-effective solution for providing water and
wastewater services in the York County area.
Key Issues:
- The identification of the most economical long-term service
delivery alternative for providing water and wastewater services
to the County
- Development of a financial model that projected costs and economic
impacts of the status quo scenario (separate provision of service)
for each entity
- Comparison of the economic impacts of the water and wastewater
service alternatives with the projected costs under the status
quo.
RFC Contributions:
To assist the Committee in determining the most cost-effective solution
for providing water and wastewater services, RFC conducted an economic
feasibility study which was comprised of two phases. Phase I identified
the “status quo” costs and existing relationships that
would serve as the baseline for all comparisons. RFC developed an
economic feasibility model which incorporated each entity’s
capital improvement plan, operations and maintenance costs, and
indirect expenses such as engineering costs, billing and collection
costs, etc. These costs were projected over a twenty-year planning
period for each entity. Phase I also involved the identification
of viable alternatives for providing long-term water and wastewater
services within York County. RFC relied upon a review of the existing
relationships, analysis of the status quo costs, and our extensive
experience in conducting economic feasibility studies to identify
two regional alternatives for the most cost effective, long-term
means of providing water and wastewater services within York County.
Next, RFC evaluated different scenarios within each alternative
based on the ownership and operation of system assets. Phase II
projected long-term costs for the alternatives identified in Phase
I and utilized the model to compare the alternatives to the status
quo costs.
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Litigation Support
Billings, Montana
Mr. Raftelis served as the arbitrator in a water rate dispute between the City of Billings,
Montana (“City”) and its sale for resale customer, the
County Water District of Billings Heights (“District”).
At issue was the wholesale water rate charged by the District to
the City. Mr. Raftelis arbitrated the rates as prepared by both
the City and the District.
Los Angeles, California
Mr. Raftelis provided litigation support and expert testimony on a contract rate
dispute for the City of Los Angeles (“City”). For this
case, the City was in litigation with ten wastewater contracting
agencies (wholesale customers) that disagreed with the manner in
which their rates were calculated and implemented. Mr. Raftelis
assisted the City in evaluating the appropriateness of the wastewater
billing system, the appropriateness of the rate setting methodology,
and the value provided to the contracting agencies.
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