philadelphia water department investor presentation final ... water department...4 philadelphia...
TRANSCRIPT
INVESTOR PRESENTATIONPhiladelphia Water Department
2
Disclaimer
This presentation is for information purposes only, speaks only as of its date andshould not be construed as an offer or solicitation for purchase or sale of anysecurity or other financial product or instrument. The information contained hereinmay change and the City has no obligation to update it.
3
Presentation Participants
City of Philadelphia and Philadelphia Water Department
Debra A. McCartyWater Commissioner
Melissa LaBudaDeputy Water Commissioner, Finance & Chief Financial Officer
4
Philadelphia Water Department Exhibits Solid Credit Fundamentals
Strong Financial Performance
Consistently meets or outperforms budgets, financial targets and coverages Rate Board determination (July 2018) includes targeting senior debt service coverage of 1.30 times
Diverse & Stable Service Area
City’s economy is dominated by tourism and leisure as well as stable higher education and health service sectors
Employment and private sector job growth demonstrate positive growth trends
Manageable Capital Program
CIP comparable to other large urban water and sewer systems, representing significant investment in City’s infrastructure.
Debt profile provides capacity for PWD to finance its Capital Program 2018 Rate Board determination sets “pay-go” target at 20%.
“Closed-Loop” Fund
Segregation from other City accounts and cap on General Fund transfers limit exposure to City liabilities Bondholders protected from General Fund transfers
Willingness to Raise Rates
Rate Board approved a 2-year rate adjustment in July 2018 Rates sufficient to fund the Department’s capital and operating requirements during the period
Conservative Financing Structure
Conservative debt portfolio Minimal exposure to counterparty or variable rate risks
Ample System Capacity
The Delaware and Schuylkill Rivers provide resources above what is required for the System Water and Wastewater plants have ample capacity to handle treatment of water and wastewater
Experienced Leadership
Seasoned management team with deep bench of long-tenured professionals Depth of experience and conservative approach leads to proactive long-term planning and nimbleness to
adapt to changing circumstances Team approach focused on forecasting potential issues and managing them effectively
5
The City’s Water and Wastewater Operations are Led by an Experienced Management Team
Philadelphia Water Department
Supplies water and wastewater, including stormwater, services to the residents, businesses and other institutional organizations within the City— Serves 10 wholesale wastewater customers and one wholesale water customer
One of the City’s ten operating departments reporting to the Managing Director, operated as a self-supporting enterprise fund of the City—Works collaboratively with the Water Revenue Bureau in the City’s Revenue Department, which is
responsible for billing, collections and customer accounting —A closed-loop enterprise of the City with a cap on transfers to the General Fund, equal to the lower of (a)
net Reserve earnings (as defined in the Ordinance) and (b) $4.994mm Proposes rates and charges to the Rate Board, an independent rate-making body, that final rates in a
transparent and rigorous process
Deep bench of experienced professionals with an average of more than 25 years of industry experience Day-to-day operations managed by Commissioner and five Deputy Commissioners Six main divisions: Operations, Engineering & Construction, Finance, Human Resources, Public Affairs, and Planning &
Environmental Services Actively involved in industry associations, as well as in developing and documenting best practices Received a number of awards for its water and wastewater excellence including, but not limited to the following in 2016:
— The Excellence in Public Infrastructure Award from 10,000 Friends— 3 Platinum Awards for the Water Department’s three WPCPs from the National Association of Clean Water Agencies (“NACWA”)
The Department’s Senior Management Team
6
Philadelphia’s Growing Economy & Strategic Location Anchor PWD’s Service Area
The nation’s sixth largest city based on population with 1.58 million residents in 2018*
Philadelphia’s population grew by 52,436 residents from 2010 to 2017, 3.43%, and has continually increased since 2000
From 2006 to 2012, the percentage of the population aged 20 – 34 years old grew from 20% to 26%
Unemployment Rates nearing 2006 and 2007 levels at 5.2% in April 2018
The City is the center of the nation’s seventh largest metropolitan statistical area (11-county area encompassing the City, Camden, NJ, and Wilmington, DE) with approximately 6.07 million residents
Philadelphia Continues to be “A City On The Move”1972
2018
* Estimated
Source: Bureau of Labor Statistics, 2018.
7
1 Based on 2017 US Census Bureau estimate2 Excludes wholesale agreements3 The total above for the City of Philadelphia includes, among others, charges for water and wastewater services, which include stormwater services as follows: (i) $18,074,519.00 – General Fund; (ii) $3,883,527.10 – Aviation Fund; and (iii) $2,169,491.36 – Philadelphia Zoo.
Philadelphia Water Department Benefits from a Stable & Diverse Customer Base
● Serves 1,580,863 individuals 1
● Approximately 480,000 active water accounts● Approximately 545,000 wastewater accounts,
including approximately 50,000 stormwater-only accounts
● Contract with Aqua Pennsylvania to deliver water at a wholesale price
● Contract with the following 10 neighboring communities and authorities to provide wastewater treatment:
● Delcora● Bucks County Water and Sewer Authority● Upper Darby Township● Lower Southampton Township● Cheltenham Township● Lower Merion Township● Springfield Township- Erdenheim● Springfield Township- Wyndmoor● Abington Township● Lower Moreland Township
Rank Customer Name Revenue ($000)% Total
Revenue
1 City of Philadelphia3 $ 24,312 3.35%
2 Philadelphia Housing Authority $ 13,672 1.89%
3 Veolia Energy Philadelphia $ 5,597 0.97%
4 University of Pennsylvania $ 7,027 0.79%
5 School District of Philadelphia $ 5,750 0.77%
6 Federal Government $ 4,642 0.53%
7 SEPTA $ 3,407 0.47%
8 Temple University $ 3,839 0.44%
9 Paperworks Industries Inc. $ 3,164 0.40%
10 University Of Pennsylvania Health System $ 2,925 0.29%
TOTAL $ 71,780 9.90%
Top 10 Customers based on Revenue (FY 2017)2
8
● The Wastewater System consists of wastewater collection and treatment facilities, including contracted biosolids treatment
● Three water pollution control plants (“WPCPs”) with a combined average daily design capacity of 522 MGD and a peak capacity of 1,059 MGD
● Northeast WPCP, Southeast WPCP & Southwest WPCP
● 19 pumping stations
● The Wastewater System serves the City and has 10 wholesale contracts with other municipalities in this region
WATER SYSTEM
● The Water System receives 59% of its water from the Delaware River and the balance from the Schuylkill River
● Water treatment is provided by three water treatment plants with the combined rated treatment capacity of 546 MGD:
● Samuel S. Baxter Water Treatment Plant on the Delaware River
● Belmont Water Treatment Plant and Queen Lane Water Treatment Plant on the Schuylkill River
● The combined maximum source water withdraw capacity from the two rivers that supply these plants is 680 MGD. The storage capacity for treated and untreated water in the combined plant and distribution system totals 1,066 MG
● The Water System serves the city and has one wholesale contract to deliver water for wholesale prices
WASTEWATER SYSTEM
PWD Provides High Quality Service and has Ample Capacity to Meet the Service Area’s Needs
9Source: Philadelphia Water Department, 2016-2019 rates represent revenue increases set under the new rate setting system
Successful Rate Setting Process in 2018 Continues PWD’s Track Record of Annual Revenue Increases
The Rate Board is Mandated to Ensure that Rates and Charges Recover Costs
Independent 5-member Board appointed by the Mayor and confirmed by City Council—Must be residents of the City or in the region with a minimum of five years professional experience in one or more of the following
fields: (1) Public or business administration, (2) Finance, (3) Utilities, (4) Engineering, or (5) Water resources management—At least one member must have experience as a consumer advocate in utility rate cases and at least one other member must be a
commercial and/or industrial ratepayer with knowledge/experience related to storm water management and which is highly impacted by rates
As required by the Rate Ordinance, rates and charges must generate, at a minimum, an amount, accounting for transfers from the Rate Stabilization Fund, equal to operating expenses and debt service incurred for water supply, sewage and sewage disposal purposes and meeting all bond covenants
The Board’s Governing Regulations outline standards to ensure an open and transparent process for public input and assist theBoard in making its Rate Determination
The City and PWD have Consistently Raised Rates Over the Past 10 Years through the Rate Setting Processes
6.7% 6.3% 5.5% 5.7% 5.8% 5.0% 5.0% 5.1% 4.5%
1.3% 1.2%0.0%
2.0%
4.0%
6.0%
8.0%
1-Nov-08 1-Jul-09 1-Jul-10 1-Jul-11 1-Jan-13 1-Jul-13 1-Jul-14 1-Jul-16 1-Jul-17 1-Sep-18 1-Sep-19
Perc
ent I
ncre
ase
1.6%
4.5%
2018 Original Revenue Request
10
Bills do not go up based on usage. Customers pay a set amount. Customers in the lowest income bracket will pay a bill equivalent to 2% of their monthly income with a minimum of $12/month. Bill is capped as a percentage of income and is constant each month
Designed to benefit those City residents whose income falls at or below 150% of the federal poverty line (“FPL”). For those whose income falls at or below 250% of the federal poverty level, there are affordable payment plans available
— Customers do not have to be delinquent on their bill to enter the program
— No payments are required towards past due bills that may have accrued prior to TAP enrollment as long as the customer remains in TAP
— Program costs are now part of cost recovery mechanism
The City’s Tiered Assistance Program Increases Affordability for Customers
Eligible customers will pay a percentage of their bill based on their income
11
The Capital Improvement Program (“CIP”) Remains Manageable Throughout the 6-Year Forecast Period
Budgeted PWD Capital Improvement Program FY2019 through FY2024
Source: Philadelphia Water Department
Total 6-year spending of $2.3bn
Average annual budget of approximately $380mm
Approximately 80% of CIP costs to be funded with debt proceeds
— Financial Plan targets 20% pay-go funding
— Projected Borrowings for CIP:
– FY 2019 - $285mm
– FY 2020 - $295mm
– FY 2021 - $305mm
– FY 2022 - $340mm
– FY 2023 - $335mm
CIP is updated annually as part of PWD’s annual budget process
PWD has enhanced its planning process to help inform theWater Department’s future critical strategic planning efforts
CSO COA Costs27%
Traditional CIP73%
Average AnnualBorrowing of
$312mm
Forecasted CIPCurrentCIP
050
100150200250300350400
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024Wastewater Treatment Facilities CSO COA RelatedWater & Watewater FacilitiesEngineering Admin. & Material SupportConveyance SystemCollector System CSO COA RelatedCollector System/Flood Relief
12
PWD capital initiatives are designed to anticipate and adequately address ongoing and future needs
— Completed a 25 year wastewater master plan
— Final stages of completing a 25 year water master plan
— On-going extensive engineering analyses underway on the Consent Order & Agreement
PWD is continuing to invest in its treatment plants
— PWD’s annual capital budget is $120 million for plant improvements which includes:
i. 10 million gallon clear water basin at the Baxter Water Treatment Plant
ii. Three 30 million gallon storage tanks at East Park
iii. Additional preliminary treatment building at the Northeast Water Pollution Control Plant
iv. Two pumping stations and various other projects
Accelerated water main and sewer replacement program
— $50M of water main replacements in FY2018, resulting in approximately 28 miles of mains replaced each year– PWD is growing the program by 2
miles annually with a projected FY2024 budget of $73 million resulting in approximately 42 miles of mains replaced annually
— $35M of sewer replacements in FY 2018, resulting in 8 to 10 miles of sewers replaced each year– PWD is growing the program by $5
million in FY2019, and remaining flat thereafter, resulting in approximately 9 to 12 miles of sewers replaced annually
LONG TERM PLANNING RENEW + REPLACE FACILITY UPGRADES
PWD’s CIP Proactively Addresses its Aging Infrastructure
13
The Green City, Clean Waters Initiative Meets the Terms of the Consent Order and Agreement
Background & Key Points
In June 2011, the City entered into a Consent Order and Agreement (“COA”) with the Pennsylvania Department of Environmental Protection for the implementation of PWD’s Combined Sewer Overflow Long Term Control Plan
In April 2012, the City and the US Environmental Protection Agency (“EPA”) signed a partnership agreement to recognize the City’s approach to stormwater management known as Green City, Clean Waters
—The Administrative Order for Compliance on Consent was signed in September 2012
Green City, Clean Waters seeks to protect and enhance Philadelphia’s watersheds by managing stormwater with a mixture of innovative green infrastructure and traditional infrastructure improvements
—25-year agreement targeting 9,600 total greened acres & 85% capture, by mass (Citywide average)—If the wastewater component of the typical bill exceeds 2.27% of median household income, the City can request an extension so
the financial burden does not become excessive on ratepayers
Executed and Planned Green City, Clean WatersGreened Acres and Decrease in Impervious Surface
Year Greened Acres Square Miles% Impervious
Cover Removed 51 750 1 3%
10 2,150 3 8
15 3,800 6 14
20 6,400 10 23
25 9,600 15 341 5-year plan has been executed.
PWD is in the 7th year of Green City, Clean Waters
PWD exceeded its first 5 year compliance target —Greened 837 acres, exceeding the target 750 greened
acres — PWD is working towards its year 10 milestone and expects to meet its
compliance target of 2,150 greened acres
14
Strong Budget Practices and Proactive Oversight Position PWD to Meet or Exceed Financial Projections
PWD Consistently Outperforms its Budgets— During FY 2013 to 2016, PWD utilized an average of 93% of its budget — During FY 2017, PWD utilized 97% of its budget— PWD is projecting to utilize 92% of its FY 2018 budget
PWD Continues its Multifaceted Strategy to Improve Collections and Decrease Delinquencies, including:— Revocation of commercial licenses and sequestration and water service shutoff— Developing technology solutions including improvements to cashier and payment processing systems— The FY 2017 collection rate is approximately 95%, including collections realized in the current and past fiscal years
Original Obligations vs. Year-End Obligations ($000s)
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
$671,889 $688,080 $714,214 $737,314 $746,185 $818,538
$611,955 $643,018 $676,845 $680,535 $725,208 $749,877
Approved Obligations Year-End Obligations1Total obligations have been adjusted for liquidated encumbrances for approved obligations and year-end obligations.
15
Fiscal Year 2018 Year End Summary and Fiscal Year 2019 Highlights
FY18 Projected Year-End Highlights
Estimated 2018 year end revenues are in-line with projections and will likely result in a withdrawal from the rate stabilization fund of $12.2 million
Workforce costs which include salaries, pensions and other employee benefits remain the largest expenditure comprising 32% of total obligations
Debt Service and transfers to escrow are expected to comprise 29% of total obligations
Supplies, Materials and Chemicals are expected to comprise 6% of total obligations
Other purchase of services are expected to comprise 20% of total obligations
The projected combined balance of the rate stabilization fund and residual fund is $204 million
FY 2019 revenues are projected to increase by $7.8 million due to Rate Board Decision and are projecting a rate stabilization fund withdrawal of $3.2 million
Workforce costs which include salaries, pensions and other employee benefits remain the largest expenditure comprising 34% of total obligations
Debt Service is expected to comprise 26% of total obligations
Supplies, Materials and Chemicals are expected to comprise 7.6% of total obligations
Other purchase of services are expected to comprise 25% of total obligations
The projected combined balance of the rate stabilization fund and residual fund is $200 million
FY19 Highlights
16
Managing Debt Portfolio to Improve Debt Service Coverage
Historical and Projected Coverage Calculations
Debt Service Coverage— PWD has consistently met its projections for debt service coverage— 2018 Rate Board determination sets senior debt service coverage target of 1.30 times
Historical and Projected Rate Stabilization Fund and Residual Fund Balances
206 206 202 189 186159 149 143 135
15 15 1515 15
15 15 1515
0
50
100
150
200
250
FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
Millions
Rate Stabilization Fund Residual Fund
Historical Estimated ForecastFY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
Net Revenues Available for Debt Service $ 252,482 $ 271,957 $ 269,501 $ 301,468 $ 258,576 $ 268,511 $ 268,859 $ 290,221 $ 321,152
Revenue Bond Debt Service 205,270 219,304 206,142 239,026 198,847 206,479 206,798 223,236 246,967Total Senior Debt Service Coverage 1.23 x 1.24 x 1.31 x 1.37 x 1.30 x 1.30 x 1.30 x 1.30 x 1.30 x
Net Revenues Available for Debt Service $ 252,482 $ 271,957 $ 269,501 $ 301,468 $ 258,576 $ 268,511 $ 268,859 $ 290,221 $ 321,152 Revenue Bond Debt Service+Transfer to Capital FD 225,975 240,801 238,200 262,087 222,692 231,134 245,039 262,777 287,852 Total Coverage 1.12 x 1.13 x 1.18 x 1.24 x 1.16 x 1.16 x 1.09 x 1.10 x 1.11 x
17
Segregation of Funds and Pledge of Revenues
— The City required to deposit all water and wastewater funds with an independent fiscal agent and to keep such funds separate and apart from City funds
— The City can’t borrow water or wastewater funds for other city purposes, including temporary or seasonal cash flow needs
— Other than an annual transfer to the City of up to $4.994mm (not to exceed the actual amount of interest earnings on the DSR), Water Fund is a closed loop
Rate Covenant
— 1.2x debt service for senior lien debt, 1.0x for all debt obligations
Additional Bonds Test
— 1.2x coverage of maximum annual debt service (“MADS”) from net revenues, including transfers from the Rate Stabilization Fund
Debt Reserve Account
— Funded at MADS
Rate Stabilization Fund and Residual Fund
— Projected Fiscal Year 2018 Combined balance of $204 million
Insurance Rate Covenant
— As long as insured bonds are outstanding, rates and charges equal at least 90% of debt service requirements, excluding transfers from the Rate Stabilization Fund
Legal Protections for Bondholders
18
PWD has Conservative Debt Profile
Fixed88%
($1.5bn)
$1.82bn of senior debt outstanding
— No subordinated debt outstanding PWD current bond portfolio has an average
life of 12.90 years— $1.8 bn of fixed rate revenue bonds
— $127.92mm borrowed under the Pennvest Loan Program
— $49.4mm of variable rate revenue bonds
Bond Ratings Long-Term Outlook
Standard & Poor’s A+ Stable
Moody’s Investor Service A1 Stable
Fitch Ratings A+ Stable
WATER DEPARTMENT DEBT REPAYMENT SCHEDULE
WATER DEPARTMENT CREDIT AS OF JULY 2017
WATER DEPARTMENT DEBT REPAYMENT SCHEDULE
WATER DEPARTMENT CREDIT AS OF JULY 2017
DEBT COMPOSITION
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
Principal Interest
Fixed97%
($1.8bn)
Variable3%
($50mm)
Thank you.
www.phila.gov/water
DRAFT