At the October meeting of the Muscatine Board of Electric, Water and Communications Trustees, the Board received the Utility’s 2017 Operating Budgets and Ten-Year Financial Projections (2017-2026). Approval of the Operating Budgets will be requested at the November 29, 2016 Board meeting and the Projections were received and placed on file during the meeting.
“Annual budget time provides a unique opportunity to illustrate not only how the public utility model works, but how it benefits our neighbors year in and year out,” said Susan Eversmeyer, Board Chair. “It takes thousands of man-hours and millions of dollars each year to provide reliable utility services for a community this size.”
“As trustees, acting on behalf of our community, we ensure Utility staff maintains a balance between operating efficiently, spending responsibly and limiting rate adjustments wherever possible,” Eversmeyer said.
Based on recent Cost of Service, Power Supply, and Transmission Planning studies, along with scheduled maintenance programs and commitments to upcoming community projects, the 2017 budget includes some revenue adjustments affecting consumer rates (detailed below). With financial stability as a Utility Core Value, the limited increases will ensure costs are recovered and financial targets are reasonably achieved.
“Because MP&W is not for profit, all income generated from consumers and outside revenue streams is reinvested into infrastructure and operations, as well as capital improvement projects that not only provide for community betterment now, but also serve to hold down future maintenance and emergency recovery costs,” said Jerry Gowey, Director of Finance and Administrative Services.
In presenting the budget and projections, Utility staff laid out a comprehensive plan to provide major infrastructure projects and new innovative services for Muscatine in the coming year while ensuring MP&W’s industry-leading reliability and lower than average consumer utility rates.
The 2017 budget includes these major projects:
- Mississippi Drive Corridor – All three utilities will participate with capital improvement projects to support the City of Muscatine’s reconstruction project which will beautify and provide improved access to the riverfront and central business district. In 2017, the Electric Utility will begin a project to move overhead transmission and distribution lines to underground at a cost of $3.6 million (of a total multi-year project budget of $8.0 million) and the Water Utility is projected to spend $623,000 to replace water main infrastructure in conjunction with this project. Overhead Communications infrastructure will also be relocated underground.
- Unit 9 Maintenance – The Electric Utility will perform a major scheduled maintenance outage on Unit 9. The turbine will be overhauled at a cost of approximately $1.6 million; the turbine overhaul occurs about every 7 years. Scheduled maintenance outages help ensure MP&W’s generating units’ peak operation, efficiency and availability to produce a reliable electrical supply for the benefit of the
- Well Field Development and Construction – In order to continue to meet the community’s water needs, the Water Utility will invest over $4 million in the construction of 4 new wells, expansion of a water treatment plant, installation of new water main transmission lines and replacement of old water mains including areas involved in the City’s West Hill Sewer Separation Project in
- Fiber to the Home/IPTV/VoIP – The Communications Utility will have capital expenditures of $8.7 million which includes the Fiber To The Home (FTTH) Project to convert the current hybrid fiber coax (HFC) system to fiber. Upgrading the infrastructure will ensure ongoing reliability and reduce maintenance requirements in the long term. The project will enable the Muscatine Community to join the elite ranks of Gigabit communities, allows the conversion of the cable TV system to Internet Protocol Television (IPTV), and will make telephone service using Voice over Internet Protocol (VoIP) available to MP&W
The budget also includes additional improvements, operations and maintenance expenditures proposed to maintain a highly reliable system and are detailed below.
Staff also reminded those in attendance that because the Utility has no profit motive, Muscatine residents and businesses can expect to see their utility rates remain below national averages wherever possible, while enjoying the advantages of service reliability and rates that are the envy of many cities, all delivered with outstanding local customer service.
“Year after year, costs continue to rise and put pressure not only on business budgets, but personal and family budgets, too,” said Sal LoBianco, General Manager. “We’re always sensitive to that and take great care when preparing MP&W’s budgets to minimize the impact of outside economic factors such as fuel, materials and regulatory compliance. Our customers have come to expect outstanding reliability from all three utilities and we always try to balance that expectation with our commitment to be good stewards of our customers’ money.”
Lower expected wholesale energy sales, and higher environmental compliance costs and infrastructure needs are driving revenue lower and expenses higher for the Electric Utility. Specifically, operating revenues are expected to decline 7.8%, driven by a 4.5% decrease in wholesale energy revenue and a 69% decrease in steam sales revenue when those sales cease at the end of April 2017.
Although fuel, emissions, labor and other fixed operating expenses have been decreased by $2.7 million, increases in purchased power costs and maintenance expenses drove an operating expense increase of approximately 0.5% over the 2016 forecast.
Besides the Mississippi Drive Corridor project, other capital expenditures include: Oregon Street and Wiggins Road Substation transformer rebuilds, 69kV transmission line upgrade, distribution system extensions, improvements and upgrades, generation plant upgrades, phase V of the LED street lighting program, data center hardening, vehicle purchases and a portion of the multi-year business system acquisition, all totaling $6.4 million. The budget does not include any borrowings.
A 4% revenue adjustment beginning August 1, 2017 that is based on cost of service is included in the budget assumptions. The increase is necessary to recover costs and reasonably achieve stated financial targets.
2017 operating expense for the Water Utility is projected to be 7.6% higher than the 2016 forecast due mainly to increases in operations, maintenance and labor costs. Increases in water main maintenance, well cleaning and pumping power costs are driving the operations and maintenance rise. The interest expense on $11.3 million in projected borrowings also contributed.
Recent water system studies recommended MP&W develop more wells to maintain consistent water production as older wells age and reduce in output and customer demand for water increases. As detailed above, capital expenditures for well field development, a water main transmission line and the Grandview Water Treatment Plant expansion are included in 2017 budget. Also included are water main replacements in conjunction with the City’s Mississippi Drive Corridor Project and West Hill Sewer Separation Project and miscellaneous water main and infrastructure upgrades. Total capital expenditures total $5.2 million.
The budget includes a 5.5% revenue adjustment beginning April 1, 2017.
Total operating expenses for the Communications Utility are projected to increase 7.6% in 2017. Programming costs continue to be the largest single expense driver in the budget. With TV networks demanding increases between 7% and 20%, overall programming costs are budgeted to increase 12.7% in 2017. MP&W continues to absorb part of those increases and not pass the entire cost on to its customers.
Beyond capital expenditures for FTTH detailed earlier, other capital items include a portion of the WiMAX/LTE Conversion Project ($107,000), satellite dish replacement ($190,000), fiber test equipment ($200,000), digital CATV boxes and miscellaneous upgrades ($987,300).
Increases in Internet access fees, system maintenance, and labor contributed to higher expenses, as well as expected FTTH promotional costs. Also included is a borrowing of $12 million for the FTTH project and the 2017 principal payment on a loan from the Electric Utility.
The budget includes no increase for Internet services and a revenue increase of just 7% for cable TV subscribers effective April 1, 2017.