Title: Governance Study for the Florida Legislature - Executive Summary
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Title: Governance Study for the Florida Legislature - Executive Summary
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Language: English
Publisher: West Coast Regional Water Supply Authority
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Spatial Coverage: North America -- United States of America -- Florida
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Abstract: Jake Varn Collection - Governance Study for the Florida Legislature - Executive Summary
General Note: Box 28, Folder 14 ( Governance Study for the Florida Legislature - September 10, 1996 ), Item 1
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
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Full Text

The Global Leader
The Global Leader


West Coast Regional
Water Supply Authority


The !in

Governance Study for the
Florida Legislature




Draft Report
Findings and Options



September 10, 1996






APMG Peat Marwick

Management Consultants

Barnett Tower. Suite 1600 Telephone 813 822 8521 Telefax 813 822 7003
One Progress Plaza
St. Petersburg, FL 33701


September 10, 1996




Mr. Jerry Maxwell
General Manager
West Coast Regional Water Supply Authority
2535 Landmark Drive, Suite 211
Clearwater, Florida 34621

Dear Mr. Maxwell:

Enclosed is the first draft report of our findings and options related to the Governance Study
beip performed at the request of the Florida Legislature.

KPMG was requested by the Authority Board to conduct an independent evaluation of
fundamental issues and options for the Authority's governing, operating, funding, and facilities
ownership. This report serves as KPMG's first deliverable to the Authority's Board on its
findings and strategic options and does not include recommendations. A series of Board
workshops is planned during the Fall of 1996 to discuss and receive input on the options.
Recommendations will be developed after the workshops and included in the Legislative
Report.

This study was conducted under the direction of John DiRenzo and Mel Paret of our
government utility consulting group. Both John, Mel and I will attend the Board meetings on
Monday, September 16th to review this draft report and establish the format for the Board
workshops scheduled in October, November and December.

Sincerely,

KPMG Peat Marwick LLP




Donald M. Jones, Jr.
Partner

DMJ:pmh

Enclosure


Member Firm of
Klynveld Peat Marwick Goerdeler






fJr ,Peat Marwick LLP

EXECUTIVE SUMMARY ........................................................................................... E-1

1. INTRODUCTION ............................................................................................................... 1
BACKGROUND ....................................................................................................................... 1
Legislative Basis........................................................... .................................... ..... 1
M mission Statem ent........................................................................................................ .... 2
Legislative Mandate for Study............................................................................................ 2
STUDY OBJECTIVES ................................................................................................ ........... 3
STUDY A PPROACH ....................................................................................................................... 3
2. SITUATION ANALYSIS ............................................................................................. 4
H ISTORY ........................................................................... .................................................... 4
G OVERNIN G ................................................................................................................................. 5
JURISDICTIONAL AGREEMENTS.......................... ................................ ....... ............ 5
Responsibilities ofAuthority vs. Jurisdiction.................................................................... 6
M major ues ........................................................................................................................... 6
SUMMARY OF BOARD WORKSHOPS ........................................................................... 6
REGIONAL AUTHORITY CONCEPT .......................................................................... 8
OWNERSHIP & MANAGEMENT OF THE AUTHORITY AND MEMBER FACILITIES ............................ 9
Summary of Contracts and Responsibilities................................................................... 9
Authority and Member Governments' Water Source Facilities......................................... 13
Debt and operating cost allocations.................................................. 15
Member Government Facilities Debt and Operating Cost Allocation............................................. 17
H historical w after usage ............................................................................... .................... 17
Retail Water Services Summary By Member Governments............................ ............ .. 18
M major Issues ....................................................... ......................... ................................. 20
M ASTER W ATER PLAN ............................................ ............................................................. 20
Projected Water Demands ofJurisdictions........................ .................. 20
Projected Capacities and Costs by Project...................................... ........................ 22
M major issues.......................................................................................................................... 23
ENVIRONMENTAL AND LEGAL ISSUES ......................................... ... .................... 23
Environm mental Issues.................................................................................. ................... 23
Current Issues in Administrative Hearing Process............................................................ 25
Other administrative issues with SWFWMD and the Authority's members are as follows: 26
3. COMPARISON WITH OTHER WHOLESALE WATER SUPPLIERS ...................28
SUM M ARY ................................................................................................................................ 28
B board S ize............................................................................................................................. 28
M em bership and Voting .................................................................................................. 28
Governance Structure and Decision Making ............................................................. 29
P EER R E V IEW ............................................................................................................................ 31
Peace River/Manasota Regional Water Supply Authority ............................................. 31
Brazos River Authority........................................ .................................................. 33
Massachusetts Water Resources Authority....................................... ......................... 34
Metropolitan Water District of Southern California.................... ............ ............ .... 35


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4. COST ALLOCATION, FINANCING AND OTHER TACTICAL OPTIONS .............37
COST AND ENTITLEMENT OPTIONS...............................................................................................37
Subscription M ethod...............................................................................................................38
System -w ide M ethod................................................................................................................38
O & M cost recovery .................................................................................................................39
FINANCING OPTIONS............................................................................... .............................39
SWFWMD Governing And Basin Board Funding................................................................ 40
Legislative A authority ...............................................................................................................42
Save Our Rivers /Preservation 2000 Funds........................................................... .........43
A authority D ebt.........................................................................................................................43
Federalful ing .............................................................................................................. 44
State Revolving Fund (SRF) loan............................................................................................44
MANAGEMENT AND OPERATIONS..........................................................................................44
OPTIONS FOR ACQUISITION OF MEMBER FACILITIES ...................................................... ..........45
5. GOVERNANCE AND STRATEGIC OPTIONS .............................................................47
EVALUATION CRITERIA .............................................................................. ..................................47
G OVERNANCE O PTIONS ................................................................................................................48
G greater State Involvem ent.......................................................................................................49
Proportional Voting............................................................................................................ 49
PRIVATIZATION ..........................................................................................................................50
STRATEGIC OWNERSHIP OPTIONS...............................................................................................50
Option 1: Dismantling ofAuthority........................................................................................55
Options 2: Existing contracts remain intact; Authority develops new supplies with
subscription service (Status Quo)..........................................................................................55
Option 3: Existing contracts remain intact; Authority develops new supplies with system-
w ide service .............................................................................................................................55
Option 4: Dissolution of existing contracts and expansion ofAuthority; System-wide service
(for existing and future supplies).................................................. .........................................55
Option 5: Dissolution of existing contracts and expansion ofAuthority; System-wide service
(for O&M costs) & Subscription service (for capital costs) ......................................... .......... 56
EVALUATION OF RATE IMPACTS OF STRATEGIC OPTIONS.....................................................56
ACQUISITION OF MEMBER WATER SUPPLIES ................................................................................59
APPENDIX
APPENDIX A: Workshop summary
APPENDIX B-l: Summary of West Coast contracts
APPENDIX B-2: Default and dissolution implications
APPENDIX C: Debt summary
APPENDIX D: Master water plan funding
APPENDIX E-1: Water production costs for the Authority facilities
APPENDIX E-2: Water production costs for the Authority and member facilities
APPENDIX E 3: Debt service allocated by permitted capacity
APPENDIX E-4: Cost evaluation of strategic ownership options
APPENDIX E-5: Land and facilities value
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Executive Summary

Introduction

During its 1996 session, the Florida State Legislature considered several pieces of
legislation to modify West Coast Regional Water Supply Authority (Authority). The
proposals ranged from substantially enhancing the Authority's powers to providing more
assistance tdthe Authority through ad valorem taxes. The bill passed by the Legislature
was more modest in its approach calling for an evaluation of the current situation and
recommendations to the Legislature in the following areas:

* Authority membership and voting
* Governing board membership, terms, responsibilities and officers
* Funding options and implementation, including membership responsibility
apportionment
* A water supply development plan based on a 20 year planning horizon
* Facilities ownership and management
* Utilization of .10 mills of basin board ad valorem taxing authority (should the
Legislature provide such authority)

KPMG was requested by the Authority Board to conduct an independent evaluation of
fundamental issues and options for the Authority's governing, operating, funding, and
facilities ownership. The objectives of this study were to:

* evaluate the elements mandated by the Legislature;
* develop strategic options for governance, facilities ownership and financing for the
Authority's Board;
* conduct workshops with the Board to obtain input and evaluate the options;
* prepare a report of findings, options, and recommendations to submit to the Legislature
by February 1, 1997.

This report serves as KPMG's first deliverable to the Authority's Board on its findings and
strategic options and does not include recommendations. A series of Board workshops is
planned during the Fall of 1996 to discuss and receive input on the options.
Recommendations will be developed after the workshops and included in the Legislative
Report.

Key activities accomplished with the work plan include the following:

* Interviews with the Authority staff and Board members, legislators, lobbyist,
facilitator, Southwest Florida Water Management District, member government's
utility directors, and environmental interest groups
* Review of the Authority's documents
* Review of member government data


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* Developments of findings and options
* Workshops plannelin Fall of 1996


Framework for Decision-Making

The Authority is unique from the other typical wholesale water authorities in its reliance on
groundwater sources (versus surface water) and in its diverse source supplies planned for
the future. The Authority is also unique in having a myriad of inter-local agreements
creating a patchwork of facilities owned and controlled by the Authority and its member
jurisdictions throughout the three county area.

This study presents a wide range of both tactical and strategic options for consideration.
For the Board to move forward in shaping and debating various options, a decision-
making framework, such as that presented in Exhibit E-1 below, is suggested. The Board
has discussed its vision through a series of facilitated workshops (see Section 2). Key
elements of the vision generating the most votes in the workshops included:

* The Authority is responsive and responsible (environmentally and technically) by
providing an adequate water supply to members without a negative impact on the
environment
* The Authority operates as a regional system supplying water in an efficient manner at
equitable prices
* The Authority is a stable institution with a clear mission

Exhibit E-1
Decision-Making Framework
for Governance and Strategic Ownership Options

Vision: What Should The
Authority Look Like?


Existing Water Future Water
Supplies & Facilities Supplies & Facilities



Strategic & Tactical Options

Key strategic decisions that need to be addressed by Authority members are as follows:

Who owns and operates the wholesale water supply facilities in the three county area?
How do members or customers share the capital and O&M costs of the facilities and
services?


Th Atort Pg t-- Drf Rpr


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* What entitlements and commitments are required from members in developing future
water supplies?

In addressing each of these strategic decisions, the Authority must consider both existing
and future water supply facilities. Existing facilities are governed by a number of
individual inter-local agreements with many unique provisions. What are the costs and
benefits to the retail user of the Authority owning and operate all of these facilities?
Development of future supplies identified in the Authority's Master Water Plan will be a
challenge considering the limited availability of new water and the environmental concerns
in the three county area. How should the costs and risks of developing new supplies be
shared? These are all difficult questions that this report introduces in the form of options
for discussion and evaluation in future Board workshops.

Governance

The Authority has been faced with a number of governance issues that have hindered
effective management of water resources on a regional basis within the three counties. Key
governance issues include:

* The Authority is part of interconnected governance structure with County/City
governments, SWFWMD/Basin Boards, and State government. The Authority's
business is based upon a series of interjurisdictional contracts.
* A majority vote is needed for most Board decisions, but larger jurisdictions can
exercise veto power on projects by withholding funding.
* The nature of Authority deliberations, including water entitlements and environmental
impacts, make compromise difficult.

Development of governance options will require careful assessment in conjunction with the
strategic ownership and financing options. The Authority may be able to address its
governance issues by enhancing its regional responsibilities and implementing system-
wide financing and rate-setting as discussed in other options. Two options are described
below in more detail: greater state involvement and proportional voting.

Greater State Involvement
The State could increase its involvement in the Authority by playing a role in appointing
the Board members and by ensuring that member jurisdictions pay their share of the cost
of any new water supplies approved by the Authority. Additionally, the Department of
Environmental Protection could provide oversight for compliance with the regional water
authority statute (Section 373.1962).

This option requires that the Governor appoint some or all of the members to the Board.
These appointments could number more than the six that are now on the Board. Each of
the appointments would be made in consultation with the local jurisdictions. For example,
three Board members could be appointed for each county. Each appointment would be
made by the Governor after reviewing a list submitted by the local jurisdiction.


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To ensure that the Governor's appointees could carry out their mission, the Authority
would be given the right to intercept state funds earmarked for the local governments (up
to some reasonable limit) to finance the decisions of the board.

Proportional Voting
The decision making process of the Authority could be changed by adjusting the voting
strength of the members to reflect participation in the Authority.

This option requires that the size of the board change. Each member government would
receive one appointment to the board and up to three additional appointments based on
participation factors such as:

* water consumed and donated (or pumped)
* residential water users or population
* property tax base

This option relies on the concept that if the voting power is aligned more closely with the
financial and other forms of participation, the decisions of the board are likely to
correspond to the separate decisions of its members. A combination of the two options
may create a better balance and would still give the Authority the ability to enforce its
decisions. For example, a possible third option is to broaden the membership of the
authority with the larger users getting more votes, have its members appointed by the
Governor with local consultation, and give the authority the power to use state funds
earmarked for member jurisdictions.

Funding and Cost Apportionment

The pricing of water utility services is frequently a critical factor in securing support of a
regional utility concept. In addition, the pricing mechanism must support the vision and
mission of the utility and correspond to recognized industry pricing practices. Portions of
the Authority's vision and mission particularly applicable to the pricing process include
operating in an "economically sound manner" from the mission statement and the need for
"equitable prices."

There are two generally recognized industry pricing concepts in regional wholesale
utilities: project cost pricing and average cost pricing. Subscription orproject cost pricing
recovers cost by apportioning the cost of each facility in the system to specific customers
who use that facility. System-wide or average cost pricing uses the average cost of all
facilities and recovers costs from customers based on their use of the services) provided
by the entire system. Pricing methods, particularly when applied to capital cost recovery,
are often controversial (and most critical) since they may imply customer ownership and/or
rights.


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Subscription pricing has been used by the Authority, in some form, in all of its contracts.
Additionally, most member governments have developed water supplies independently to
varying degrees. As a result, the cost of wholesale water supplies varies among the
members, as shown in Exhibit E-2 below.

Exhibit E-2
Costs of Existing Wholesale Water Supplies
Member $ / 1,000 gal.
Hillsborough County 1.19
City of Tampa 0.51
Pasco County 0.61
City of New Port Richey 0.40
Pinellas County 0.55
City of St. Petersburg 0.24
Average 0.58

The Authority could be faced with financing substantial costs related to acquisition of
member facilities as well as future supply development. Historically, the Authority and its
members have used long-term bonds to pay for supply development. Financial incentives
from SWFWMD programs are oriented toward alternative supply development (versus
traditional ground and surface water sources). Legislative authority for basin board
millage funding (if mandated) could potentially be directed toward acquisition costs to
reduce cost impacts from purchasing existing facilities.

The key funding options identified for Authority use include the following:

* SWFWMD Governing And Basin Board funding
Cooperative funding program
New Water Sources Initiative program
SSave Our Rivers/Preservation 2000 Fund (land acquisition programs)
Legislative taxing authority
Federal funding
State Revolving Fund (SRF) loan
Authority and member debt

KPMG estimates that if the Legislature directed the 0.1 millage of Basin Board funding
toward the Authority, approximately $6.4 million per year would be generated within the
three counties. All of the Basin Boards in the region, with the exception of Pinellas-
Anclote River, have sufficient authority to include the 0.1 mill ad valorem tax and still
easily be within their 0.500 mill limit. Pinellas-Anclote River (at the .401 mill level for
1997) would just meet the taxing limit with the 0.1 mill addition.

Since SWFWMD is making significant funding levels available for alternative supply
development, the option of using the millage funding to help establish an expanded
regional authority would be most beneficial. In this regard, the funding could be used to


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help pay for acquisition costs of member facilities. If the funding was made available for
an extended period, a long-term bond issue (e.g., a 20 year bond issue) secured by the
millage could generate $60 million or more.

Water Supply Development Plan

The Master Water Plan is a framework for accomplishing systems management and
rotational flexibility in the Tampa Bay area. Through the construction of key interconnects
and the development of additional diversified sources of water supply, the Master Water
Plan will enable the Authority to continue to meet its obligations to member governments
by developing, operating, and maintaining public water supplies while minimizing adverse
environmental impacts for the next 20 years. The Master Water Plan includes potential
long-term costs for well and environmental mitigation in conjunction with supply project
costs.

On July 17, 1995, the Authority's Board adopted five objectives for the recommended
Master Water Plan within the Authority's Water Resource Development Plan. These five
objectives are:

* Aggressive conservation and reserve/rotational capacity
* Diversified supply sources
* Limited additional groundwater beyond built and exchanged capacity
* Increased drought-resistant components
* Least cost consistent with previous objectives

Growing out of Alternative Plan 4 of the Water Resource Development Plan, the Board has
approved a Master Water Plan to include 10 major projects totaling $297 million and 93
million gallons per day (mgd) of additional capacity. The plan includes six new water
supply elements and three pipeline interties and creates an expanded interconnected system
between facilities in Pasco, Pinellas and Hillsborough counties.

The Authority and its member governments have not yet reached an agreement on how the
costs of construction will be shared. Although discussed in the Resource Development
Plan, the Master Water Plan is silent on potential problems regarding the mixing of ground
and surface water and does not address potential cutbacks of existing permitted facilities by
SWFWMD.

Management and Operations

Management and operations of water supply facilities are influenced by the ownership
and/or entitlements specified in inter-local agreements. Changes in operational
responsibility would likely require renegotiation of the agreements. Options for the
Authority include:


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* Member jurisdictions control operations (i.e., pumping) of its wellfields and facilities
owned (even if operated by the Authority)
* Authority controls pumping and operations of all facilities
* Authority controls member facilities under negotiated conditions (e.g., enabling
rotational supplies to balance out capacity needs)

The entitlements and costs under existing contractual arrangements have created incentives
for greater utilization of less expensive water supplies controlled by individual members.
In our interviews, many parties expressed the need for a more regional management of the
water supplies, particularly to encourage staggered pumping of selected wellfields and to
assure cross utilization for system stability and efficiency.

Privatization of operations and maintenance is a viable option to consider once
responsibility for system operations is determined. Selected projects, such as the
Hillsborough River Water Reclamation project, could also be privatized either
operationally or with a full service contract (e.g., build, own, and operate).

Strategic Ownership Options

KPMG has developed a number of strategic options to consider for the long-term role of
the Authority in the three county area. Five options were developed to initially address the
ownership issue and then to demonstrate the management, operational, and financial
features of each scenario (See Exhibit E-3). The options were developed to address key
variations in each of the strategic questions posed earlier.


Exhibit E-3
StrategiclOwnership Options
1. Dismantling of Authority; Each member develops own future supplies
2. Existing contracts remain intact; Authority develops new supplies with subscription
service (assumed as Status Quo scenario)
3. Existing contracts remain intact; Authority develops new supplies with system-wide
service
4. Dissolution of existing contracts and expansion of Authority; Authority acquires
member facilities and operates under system-wide service (for existing and future
supplies)
5. Dissolution of existing contracts and expansion of Authority; Authority acquires
member facilities and operates with system-wide service for O&M costs and
subscription service for capital costs


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Exhibit E-4 shows the relationships among the options under existing and future water
supplies.



Exhibit E-4
Strategic Options and Existing & Future Water Supplies


Option Existing Water Contracts Supplies


_. Future Water Suoplies


Individual
member Regional contract New sources
1 contracts dissolved independently pursued
dissolved
Individual
member Regional contract Subscription of supply needed
2 contracts (status quo) (with entitlement)
(status quo)
Individual
3 member Regional contract System-wide service
contracts (status quo) (with no subscription or entitlement)
(status quo)
System-wide service
(with no individual subscription or entitlement)

3 System-wide O&M Service
5
Subscription Service for Capital Costs
(with system entitlement)



Option 1: Dismantling of Authority
Dismantling of the Authority would create fragmented delivery of and increased
competition over water supplies in the three county area. The variances in supply costs
would likely widen as different governments pursue different cost supply alternatives. The
incentive to continue concentrated use of groundwater supplies could also intensify since
regional approaches are not encouraged. Operationally, many independent non-connected
systems present reliability and capacity issues. Specifically, higher levels of reserve
capacity for peak flows will be needed for the independent systems. Governments would
have more flexibility to pursue supplies and make decisions at their own pace, paying only
for their own facilities or supplies, however, the availability of those supplies within
jurisdictions is disproportionate to their water usage. Each member government will also
have to deal with SWFWMD on permitting issues.

Options 2: Existing contracts remain intact; Authority develops new supplies with
subscription service (Status Quo)
This option is considered the status quo since it represents the Authority's historical mode
of operation. Keeping the existing inter-local contracts intact would preserve current levels


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of entitlements and related wholesale costs (which are low in some cases). Subscription
service for buying capacity can be an effective, market approach in securing low-cost
incremental supplies. However, since the region is now having to rely more on diverse and
higher cost supplies, it may be difficult to attract and commit subscribers, particularly
considering the existing stalemate over allocating costs of the Master Water Plan. The
timing and urgency of individual governments in making decisions are often inconsistent,
leading to fragmented decision-making and supply development. This atmosphere persists
under subscription service, and withdrawal of a single party from financing a project can
affect the technical and financial feasibility and effectively veto the project.

Option 3: Existing contracts remain intact; Authority develops new supplies with
system-wide service
Provision of system-wide service and rates for new supply development should help in
equalizing future costs 4f water and encourage parties to cooperate in the development of
higher cost alternative supplies. With full Authority control over future supply financing
and rate-setting, a majority vote ruling should apply for making supply decisions. Future
supplies could be developed using more long-term, coordinated, and regional perspectives.
Existing customer costs and entitlements could be preserved; however, the current litigious
atmosphere is still present with members maintaining control over their existing supplies.

Option 4: Dissolution of existing contracts and expansion of Authority; System-
wide service (for existing and future supplies)
Expansion of the Authority to provide system-wide services would require acquisition of
wholesale facilities from its members. Dismantling of the many inter-local contracts
would be a significant endeavor by all parties. In addition to the regional cooperation and
voting benefits of Option 3, a larger system would allow greater economies of scale and
more efficient operations and capacity utilization. Customers could be guaranteed system
capacity for the same quality water currently received and would pay uniform, average
capacity and consumption rates. System-wide rates could be used to secure Authority debt
enabling regional projects without financing guarantees from individual members.
Customers with currently low costs would likely experience a wholesale rate increase up to
the uniform rate. However, over the long-term, the increased costs resulting from
developing scarce supplies, and economies of scale in customers, construction and
operations should be more efficient overall in spreading the costs among members.

Option 5: Dissolution of existing contracts and expansion of Authority; System-
wide service (for O&M Costs) & Subscription service (for capital costs)
The primary variation of Option 5 over Option 4 is subscription service as a means to
provide for capacity and growth entitlements. System-wide rates for O&M costs would
enhance financial stability of the Authority and encourage greater participation in high risk
or cost supply projects. With acquisition of existing facilities, a revised entitlement of each
jurisdiction in the overall system can be developed and used to simplify capital cost
allocation. The overall system should be more efficient and cooperative because of the
larger system with greater Authority control. The Authority may be able to negotiate


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control over operations of all new supplies. Subscription for new supply could create the
fragmentation issues discussed in Option 2 and lead to a single vote veto for financing less
attractive supplies. System-wide revenues and financing are possible but more difficult to
structure with members' independent guarantees for capacity.

Evaluation of Rate Impacts of Strategic Options

KPMG prepared an evaluation of the unit costs related to implementation of the strategic
ownership options. Exhibit E-5 summarizes the results of this analysis. The costs reflect
water supplies related to existing facilities (with no change in permitted capacities) as well
as implementation of the Master Water Plan. The key assumptions of the options are as
follows:

* All member facilities are transferred to the Authority in Option 4 with the Authority
absorbing the responsibility for existing debt and O&M costs. No additional
acquisition costs are assumed. The cost impacts of Option 5 are not included in Exhibit
E-5 since there is very little cost difference between Option 4 and Option 5.

* All future costs are borne through water billing revenues and do not include recovery
from impact fees. All jurisdictions charge impact or capacity fees to new customers for
growth which would further reduce the cost impacts of future water supplies on
existing customers.

Exhibit E-5
Evaluation of Subscription and System-Wide Wholesale Rates
(Options 2 & 3 Based on Subscription Rates & Options 4 Based on System-Wide Rates)

Costs of Existing Water Supplies
5 I 1,000 gal. $1 reside. I mo. Retail Rates
Existing Revised
Options %- Options $ change Retail Retail % -
2 & 3 Option 4 change 2 & 3 Option 4 (wholesale) Rate Rate change
Hillsborough County $1.19 $0.58 -51% $7.51 $3.67 (3.84) $16.10 $12.26 -24%
City of Tampa $0.51 $0.58 14% $3.22 $3.67 0.45 $7.56 $8.01 6%
Pasco County $0.61 $0.58 -4% $3.83 $3.67 (0.17) $16.23 $16.06 -1%
City of New Port Richey $0.40 $0.58 47% $2.50 $3.67 1.17 $10.27 $11.44 11%
Pinellas County $0.55 $0.58 5% $3.48 $3.67 0.18 $13.20 $13.38 1%
City of St. Petersburg $0.24 $0.58 144% $1.50 $3.67 2.17 $11.61 $13.78 19%
Iotal $0.58 $0.58 0% $3.67 $3.67
Costs of Existing & Master Plan Water Supplies
$ / 1,000 gal. $1 reside. I mo. Retail Rates
Existing Revised
Options % Options $ change Retail Retail % -
2 & 3 Option 4 change 2 & 3 Option 4 (wholesale) Rate Rate change
Hillsborough County $1.20 $0.87 -28% $7.59 $5.49 (2.10) $16.10 $14.00 -13%
City of Tampa $0.62 $0.68 10% $3.91 $4.28 0.38 $7.56 $7.94 5%
Pasco County $0.94 $0.93 -1% $5.94 $5.87 (0.08) $16.23 $16.15 0%
City of New Port Richey $0.54 $0.70 28% $3.42 $4.39 0.96 $10.27 $11.23 9%
Pinellas County $0.72 $0.74 3% $4.52 $4.66 0.14 $13.20 $13.34 1%
City of St. Petersburg $0.41 $0.69 69% $2.59 $4.37 1.78 $11.61 $13.39 15%
Total $0.7 $d0.76 0% $4.79 $4.79 (0.00)
Note Implementation of Master Water Plan result in average cost of S1 22/1.000 gal. for annual capital and O&M costs for addironal supplis only
Average residential cost is based on 6.300 gal./mo. average consume on.


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The top half of Exhibit E-5 shows existing costs for subscription-based Options 2 & 3
ranging from $0.24/1000 gal. (St. Petersburg) to $1.19/1000 gal. (Hillsborough). The
average unit cost of $0.58/1000 gal. is applied as the system-wide cost for Options 4 & 5
for existing water supplies.

The bottom half of Exhibit E-5 shows existing and future supply costs for subscription-
based Options 2 & 3 ranging from $0.41/1000 gal (St. Petersburg) to $1.20/1000 gal.
(Hillsborough). While the incremental cost of the Master Water Plan is $1.22/1000 gal,
merging of these costs with existing costs show that on the average a 34% increase in total
costs result (future supplies represent only 28% of total supplies upon implementation of
the Plan). The increase in the average unit cost of $0.76/1000 gal. is applied as the
systeAnwide cost for Options 4 & 5 for existing water supplies.

The table above also shows that major swings in wholesale costs are dampened by the
relatively larger portion of the retail rates. The values are based on an average residential
customer of 6,300 gal/mo. consumption and actual retail rate schedules for each
jurisdiction.

Option 5 uses an allocation of capital costs based on capacity entitlements versus water
usage as in Option 4 in which all costs are assigned based on usage. KPMG analysis
shows little difference in wholesale costs between the two options, primarily because of
the relatively small portion of debt service costs (allocated using capacity) to O&M costs
(allocated using usage).

The chart in Exhibit E-6 graphically presents the percent change in the above table
between wholesale unit costs and retail rates. In moving to system-wide rates (Options 4
& 5), the change in the wholesale rate is used to adjust the retail rate resulting in more
modest retail water cost changes.

Exhibit E-6
Wholesale and Retail Rate Impacts of System-wide Rates


160%
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40% .
-60%.


Estimated Water Rate Changes
from Existing Rate Structure to Uniform Rate Structure

-1


0 Wholesale Rate Retail Rate


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_!Peat Marwick LLP

Thus, a 144% change in wholesale costs for St. Petersburg (from a low cost of $0.24/1000
gal.) represents only an 19% increase in retail costs (assuming existing water supplies).
These costs could be further offset by compensating members donating their facilities as
noted in the following section.

Acquisition of Member Water Supplies
To implement a fully regional approach to water supply, members' wholesale water supply
assets would be transferred to the Authority. Acquired assets could include water supply
facilities (and entitlements) or both land and facilities. The Authority is forbidden by
statute (section 373.1962) to provide retail water services. The cost related to acquisition
of member facilities can influence the eventual costs paid by the Authority and its
customers. If such acquisition costs are financed by the Authority with bonded
indebtedness and repaid with system-wide rates, all members will share in paying these
costs.

KPMG conducted a preliminary analysis of the potential acquisition costs related to the
Authority purchasing member facilities and land. The values are generated for level of
magnitude discussions and are not intended to represent a valuation of any facilities or
land. The key findings from this analysis are as follows:

* Land value for the over 12,000 acres of land could be approximately $25 million at
$2,000 per acre.
* Replacement value of existing wellfield facilities at current permit capacities could be
$168 million (assuming $2 million / MGD). This figure accounts for neither the
depreciated value of the facilities nor the potential for reduction in permitted capacities.
* Replacement value of Tampa's dam and water treatment plants (based on a study
conducted by the City) could be almost $106 million. This figure apparently does not
include an adjustment for depreciated value or current condition of the facilities.
Assuming acquisition of the land under SWFWMD programs and use of the 0.1 millage for
wellfield purchases, an average additional cost related to financing these potential
acquisition costs is estimated at $0.24/1000 gal. or $1.50 / mo. residential customer. The
impacts of these costs would decline over time as growth occurs and costs are spread over
a larger base. Those members receiving benefits of the acquisition payments could use
these moneys to reduce the water rate impacts resulting from the acquisition of facilities
and implementation of system-wide rates and financing.

Next Steps

This document serves as an interim report to help guide the Authority in its discussion and
evaluation of various options. Four Board workshops are planned (at the September,
October, November, and December Board meetings) for these evaluations. A final report
of the findings, options, and recommendations will be prepared in January 1997 for
submission to the Legislature.

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