Title: Governance and Strategic Options
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 Material Information
Title: Governance and Strategic Options
Physical Description: Book
Language: English
Publisher: West Coast Regional Water Supply Authority
 Subjects
Spatial Coverage: North America -- United States of America -- Florida
 Notes
Abstract: Jake Varn Collection - Governance and Strategic Options
General Note: Box 28, Folder 14 ( Governance Study for the Florida Legislature - September 10, 1996 ), Item 6
Funding: Digitized by the Legal Technology Institute in the Levin College of Law at the University of Florida.
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Bibliographic ID: WL00004726
Volume ID: VID00001
Source Institution: Levin College of Law, University of Florida
Holding Location: Levin College of Law, University of Florida
Rights Management: All rights reserved by the source institution and holding location.

Full Text


llJaPeat Marwick LLP


5. GOVERNANCE AND STRATEGIC OPTIONS

This section presents KPMG's basic governing and strategic/ownership scenarios developed as
the initial areas for Board evaluation. These options are supported by the tactical options for
costing, financing and operations as presented in Section 4. Recommendations will be
developed through a series of workshops with the Board during the Fall of 1996 and included in
a report to the Florida Legislature in January 1997.

Evaluation Criteria

To evaluate the strategic options presented in part four of this report, we have developed a
number of criteria. The criteria selected are intended to address major issues generally
associated with regional utilities and in particular those of specific importance to local
conditions. Criteria were developed to assess the institutional, financial, management/
operations and planning / system development issues which are considered critical to
developing a successful regional utility. The criteria elected for each category of issues are
presented in outline form below.

* Issues from a governance/institutional view:
Is there sufficient legal authority to permit regionalization and to carry out the stated
mission?
Does it promote a comprehensive regional approach?
Does it promote the achievement of the Authority's vision and mission statements?
Is there a workable balance between management autonomy and member / customer
policy direction
Are the terms and provision of customer contracts consistent with the Authority mission
statement?
Is there sufficient control over regional water supply resources and facilities to permit a
comprehensive regional approach?
Will the option encourage a more cohesive, coordinated and effective relationship with
regulatory agencies such as SWFWMD?

Issues from a financial management view
Does the option promote financial self-sufficiency?
Does it encourage a long-term financial outlook?
Are customer rate impacts from option implementation reasonable?
Do pricing practices follow industry standards and result in equitable customer rates?
Do pricing practices promote the economic and efficient use of Authority resources?
Do financing practices tend to result in cost recovery in parallel with facility usage?
Will it tend to result in lower overall costs over the long term?


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* Issues from a management / operational view
Is the Authority able to take advantage of economies of scale in order to reduce overall
customer cost?
Is the Authority able to take advantage of the diversity of water resources available to
increase the reliability of supply?
Can the Authority utilize all of the available pumping facilities in such a manner as to
increase reliability and / or lower costs?
Are the Authority's mission and vision sufficiently defined through documented goals,
objectives and policies to permit management efficiency and effectiveness?
Are operational alternatives more available to mitigate environmental impacts?

* Issues from a planning / resource development view
Is a long term perspective promoted by the option?
Does it promote regional solutions to replacement / expansion versus member action?
Would the option promote consistent practices in system expansion / replacement
among members?
Could risks associated with system growth be consolidated and mitigated?

It should be noted that the above criteria are focused on evaluating different strategic options
presented in this section even though they may have applicability to evaluating management,
costing, or other member actions.

Governance Options

We have developed two options for changing the governance structure of the Authority. These
options were developed based on an analysis of the current structure and of other authorities
that must address the problem of serving a multi-jurisdictional region. The two options are the
following:

* Option 1: Greater state involvement
* Option 2: Proportional voting

There are several ways to alter the governance structure of the Authority, including number of
members, jurisdictions included, simple majority vs. super majority for decisions, etc. We have
selected the variables "state involvement' and "proportional voting" because we believe that
they could have the greatest influence over the major governance issues. That issue, simply
stated, is that the voting power of the Board's members is at odds with their relative economic
resources. As discussed in Section 2, each jurisdiction has one vote, but the jurisdictions that
have financially committed to the most water under the inter-local contracts control the voting
for those facilities as well as future supplies developed under the contracts.

The two options are described below in more detail.


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Greater State Involvement
The State could increase its involvement with 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.

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. It is conceivable that the Authority
would never have to use the intercept authority because local jurisdictions would rather raise
their utility rates than to have their state aid cut.

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.

Development of these governance options may appear to favor some members over others and
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 presented in other
options within this section.


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Privatization

One strategic option that has been discussed for the Authority involves the role of the private
sector or privatization. As discussed in Section 4, privatization of facility operations and
maintenance or of selected projects is a viable option to consider once overall responsibility for
system management and operations is determined.

Full privatization of the entire Authority is a far-reaching option that presents the following
implications:

* As an inter-jurisdictional entity, a private utility would be regulated by the State Public
Service Commission (PSC) requiring local jurisdictions and SWFWMD to work with the
PSC in addition to the utility.
* PSC procedures enable private utilities to recover their costs-of-services as well as a profit
on their net investment in plant and equipment.
* Private utilities generally borrow funds using taxable bonds which are more expensive than
tax-exempt bonds used by public entities.
* Private utilities have demonstrated experience with retail water services, however, do not
have similar experience with large inter-jurisdictional wholesale services.

Private ownership of selected facilities may provide benefits if the Authority retains contractual
control over the rates and services. Under these circumstances, a full service contract with a
vendor for a facility would not be regulated by the PSC. As the Authority evaluates the
strategic options presented in this section, a number of privatization options can be identified
and evaluated.

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. Key strategic decisions that need to be addressed are as
follows:

* Who owns and operates the wholesale water supply facilities?
* How do members or customers share the capital and O&M costs of the facilities and
services?
* What entitlements and commitments are required from members in developing future water
supplies?

Five options were developed to initially address the ownership issue and then to demonstrate
the management, operational, and financial features of each scenario. The options were
developed to address key variations in each of the strategic questions posed above.


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Strategic/Ownership Options

1. Dismantling of authority; Each member develops own future supplies

2. Existing contracts remain intact; Authority develops new supplies with subscription
service(Status Quo)
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

Exhibit 5-1 shows the relationships among the options under existing and future water supplies.

Exhibit 5-1 Strategic Options and Existing & Future Water Supplies


Existing Water Contracts Supplies


_. Future Water Supplies


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)

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


Exhibit 5-2 presents a summary of the features of each strategic ownership option. While there
may be several variations that could be developed for each option, variations of the latter two
options were evaluated here, resulting in five options for consideration.


Option


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Exhibit 5-2
Features of the Strategic Ownership Options
Strategic Ownership Cost & Management & Acquisition of
Options Entitlement Operations assets Financing
1. Dismantling of authority .Each member .Members manage .Regional system .Authority debt is
develops own & operate own must be defeated &
future supplies & facilities/sources transferred to transferred
pays own capital & members
operating costs
2. Existing contracts remain .Members are .Authority manages .Existing facilities .Financing can
intact independently & operates all new remain as is be obtained by
. Authority develops new entitled to capacity facilities .New facilities are Authority or
supplies with subscription based on financial owned by members
service commitment Authority .Members
commit to each
project
3. Existing contracts remain .Uniform rates for .Authority manages .Existing facilities .Authority is
intact capital & operating & operates all new remain as is responsible for
. Authority develops new costs related to facilities .New facilities are financing
supplies with system-wide new supplies owned by .Members
service .System-wide Authority commit only to
entitlement to paying rates
capacity shared
among members
4. Dissolution of existing .Uniform rates .Authority manages .Authority acquires .Authority is
contracts and expansion of among members & operates all member facilities responsible for
Authority .System-wide existing & new financing
. System-wide service (for entitlement to facilities .Members
existing and future capacity shared commit only to
supplies) among members paying rates
5. Dissolution of existing .Uniform rates for .Authority manages .Authority acquires .Authority is
contracts and expansion of all O&M costs & operates all member facilities responsible for
Authority .Debt service existing & new financing
. System-wide O&M service allocated based on facilities .Members
with & Subscription service system-wide subscribe to
for new supply entitlement future supply
.Members are development
entitled to system and financing
capacity based on
historical
entitlement
andfinancial
commitment


Exhibit 5-3 presents a summary of the relative attributes of each of the five options against the
evaluation criteria discussed earlier in this section: Governance and Institution, Financial
Management, Management and Operations, and Resource Development. Each options is
discussed below.


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Exhibit 5-3
Evaluation Summary of Strategic Ownership Options


Option 1: Dismantling of authority
Criteria Advantages Disadvantages
Governance & Institution .Decisions can be made at own pace & to .Legal & administrative efforts in
meet own needs dismantling contracts
Financial Management Members pay for only facilities used & .Increased variance among member
own growth needs costs and frequently higher costs
Management & Operations Control over facilities used Encourages higher levels of unused
capacities because of fragmented
supplies
.Independent supplies/operations create
interjurisdictional conflict & impacts
Resource Development .Members can develop own supplies .Discourages regional approaches;
independently users don't share risks/ costs of
resource development

Options 2: Existing contracts remain intact; Authority develops new supplies with subscription service
Criteria Advantages Disadvantages
Governance & Institution .Maintenance of historical contracts & .Withdrawal by single party can affect
water entitlements project feasibility
.Continues incentives for litigious
atmosphere to protect existing supplies
Financial Management .Protects low costs for customers with .Could create wide variance in cost of
existing, adequate supplies water especially with diverse source
supplies

Management & Operations .Authority may negotiate control over Encourages higher levels of unused
operations of new supplies capacities from control over existing
supplies
Resource Development Creates incentive to develop low cost Discourages regional approaches to
supply alternatives that are attractive to growth; users don't share in risks of
buyers building for growth and altemative
.Meets incremental needs efficiently supplies
.Fragmented decision-making by
jurisdictions can lead to fragmented,
inefficient supply development


Option 3: Existing contracts remain intact; Authority develops new supplies with system-wide service
Criteria Advantages Disadvantages
Governance & Institution Maintenance of historical contracts & Continues incentives for litigious
water entitlements atmosphere to protect existing supplies
.Systemwide approach amenable to
majority vote ruling for new supplies
Financial Management .Protects low costs for customers with Costs related to growth are borne
existing, adequate supplies equally among members
*Helps equalize costs for future customers
.Ease & efficiency in financing &
administration
Management & Operations .Authority can operate new facilities as Independent operations of existing
single system to maximize utilization supplies discourages efficient resource
utilization
Resource Development Parties share in risks/costs of resource .Opposition to system expansion &
development & alternative supplies alterative supply development by low
______ cost & low growth members


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Exhibit 5-3 (continued)
Evaluation Summary of Strategic Ownership Options

Option 4: Dissolution of existing contracts and expansion of Authority; System-wide service (for existing
and future supplies)
Criteria Advantages Disadvantages
Governance & Institution Amenable to majority vote ruling for new Revision of historical contracts
supplies *Costs/efforts of acquiring existing
.Encourages greater cooperation & member facilities
partnership
Financial Management Parties pay same unit costs for the same .Increases existing costs for low cost
levels of service; equalizes costs among members (in near-term)
members Slower growing members share greater
.Ability to obtain system-wide rates and cost of growth
financing
.Ease & efficiency in finance &
administration
Management & Operations .Opportunities to maximize utilization of .Some loss of member control over
system capacities through Authority existing and future water supplies
operations
*Economies of scale with system-wide
wholesale services
Resource Development Encourages development of regional .Opposition to system expansion &
approaches & alternative supplies alternative supply development by low
cost & low growth members


Option 5: Dissolution of existing contracts and expansion of Authority; System-wide service (O&M costs)
& Subscription service (for capital costs)
Criteria Advantages Disadvantages
Goverance & Institution Encourages greater cooperation with Revision of historical contracts
existing supplies Efforts/costs of acquiring existing
.Mechanism to allow for capacity and member facilities
growth entitlements .Withdrawal by single party can affect
project feasibility
Financial Management .Helps in equalizing costs among Increases existing costs for low cost
members members (in near term)
.May be able to obtain system-wide
financing (e.g. with credit enhancements)
.Simplifies administration of existing
contracts
Management & Operations Opportunities to maximize utilization of Some loss of member control over
system capacities existing water supplies
.Economies of scale with system-wide
wholesale services
*Authority may negotiate control over
operations of new supplies
Resource Development .Encourages development of regional .Opposition to system expansion &
approaches & alternative supplies alternative supply development by low
cost & low growth members


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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 individually with SWFWMD on permitting issues.

Options 2: Existing contracts remain intact; Authority develops new supplies with
subscription service (Status Quo)
Keeping the existing inter-local contracts intact would preserve current levels of entitlements
and related wholesale costs (which are low in some cases). Subscription service for buying
capacity can be effective in securing low-cost incremental supplies. However, since the region
is now having to rely more on diverse and higher cost supplies, it will 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 of 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
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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 fro O&M costs would enhance
financial stability of the Authority and encourage greater participation in high risk or high 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 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 5-4 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:

* Option 1 dismantling costs are assumed to be significantly greater than existing costs
because of the system reconfigurations and loses in system operating efficiency. The
Authority is preparing a scenario to estimate potential dismantling costs and when
available, these costs will be used to update this report.
* Options 2 & 3 include debt service and operating costs by jurisdiction and facility (as
available) and are assumed to simulate rates under subscription services (for existing water
supplies).
* Option 4 averages the unit costs of Options 2 & 3 to represent system-wide rates assumed
for existing and future (Master Water Plan) supplies.
* Option 5 allocates all capital costs to members based on capacity and then calculates the
rate impacts based on water usage. O&M costs are averaged for all facilities and included
in the usage cost.
* All member facilities are transferred to the Authority in Options 4 & 5 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.


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* Future supply costs are based on Phases I and II of the Master Water Plan being fully
implemented (85 MGD additional capacity at an average annualized cost of $1.33/1,000
gal. based on Authority capital & O&M costs and $1995).

* 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.

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

Exhibit 5-4
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


I 1,000 gal. $1 reside. I mo. Ketal Kmates
SExsting 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 $53.67 (3.84) $115.10 $12.25 -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%
Total $0.58 10.b5 0% 13. .7 T3.7 -

Costs of Existing & Master Plan Water Supplies
I I 1,000 gal. V1 resi. I mo. Retail Kates
existing Revisea
Options % Options $ change Retail Retail % -
2 & 3 Option 4 change 2 & 3 Option 4 (wholesale) Rate Rate change
Hillsborough County $1.20 50.87 -285% $7.59 $5.49 (2.10) U) 15.10 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 U0.75 $0.76 0% $4.79 $4.79 (0.00U)
Note: Implementaon of Master War Pln rsultts i average cost of S1.22/1,000 gal for annual capa nd OM co for addt l spp* Cy.
Average residential cost is based on 6.300 gal.mo average consumpon.

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


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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/month consumption and actual retail rate schedules for each jurisdiction
(as shown in Section 2).

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. The table below (Exhibit 5-5)
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). New Port Richey shows in increase of 15% from Option 5 because of
its relatively low level of capacity used.


Exhibit 5-5
Wholesale Unit Costs for Options 4 & 5
S/ 1,000 gal.

Option 4 Option 5 change
Hillsborough County $0.58 $0.60 3%
City of Tampa $0.58 $0.59 1%
Pasco County $0.58 $0.61 4%
City of New Port Richey $0.58 $0.67 15%
Pinellas County $0.58 $0.56 -3%
City of St. Petersburg $0.58 $0.59 1%
Total $0.58 $0.58 0%


The chart in Exhibit 5-6 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. 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. These cost increases
could be further offset by providing compensation to the member donating the facility as noted
in the following section.


Exhibit 5-6
Wholesale and Retail Rate Impacts of System-wide Rates
r -I


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Estimated Water Rate Changes
from EBlstlng Rate Structure to UnLorm Rate Structure


160%


[ WVhoesaleRale Retall Rate


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Acquisition of Member Water Supplies
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 schedules supporting these findings are presented in Appendix E. 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. This estimate is based on recent land acquisition values of SWFWMD and
assumes no existing or future liabilities related to environmental damage on the land.
* Replacement value of existing wellfield facilities at current permit capacities approximates
$168 million (assuming $2 million / MGD). This figure neither accounts for 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.

Financing options to consider for acquisition are as follows:

* Request SWFWMD to acquire the wellfield land owned by member governments using the
Save Our Rivers/Preservation 2000 funding
* Use 0.1 ad valorem tax millage to pay for a portion of the wellfield facilities acquisition
costs. If such funding was made available for the long-term, unit costs for this acquisition
could be $0.13/1000 gal. (based on 1995 actual flows and the $168 million cost).
* Use Authority bonding to acquire the Tampa facilities. Assuming the full $106 million
acquisition cost, long-term financing could result in a unit cost of $0.11/1000 gal (based on
1995 actual flows).

Assuming this combined acquisition financing cost of $0.24/1000 gal., an overall $1.50 / mo.
residential cost impact results from acquisition of all facilities. 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.


The Authority Page 59 Draft Report


Draft Report


The Authority


Page 59




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