WATER FOCUS GROUP
REPORT
JANUARY, 2005
Table of Contents
Brief History of the CAW Issue ………………………… page 3
Focus Group Facts Report ……………………………… page 4
Options and Calculations ……………………………….. page 5
Graphs ……………………………………………………. page 6
Cost Calculations ………………………………………… page 7
Explanations of Calculations ……………………………. page 7
Summary of Advantages & Disadvantages …………….. page 8
Brief history of the CAW issue:
The water focus group was assigned the task of investigating the feasibility of purchasing water from Central Arkansas Water or merging with CAW. This group was charged with finding out the facts of these proposals.
The first option the Water Focus Group investigated was the possibility of a merger with CAW. In this scenario, CAW would purchase the assets of MWM and (we hoped) assume the debt. CAW would not entertain this option since their specifications for a distribution system requires ductile iron mains and copper service lines and MWM’s system does not meet this spec. The cost of upgrading the distribution system to meet CAW’s specs was extremely prohibitive with estimated costs in excess of one hundred million dollars.
Next, the Water Focus Group looked at the possibility of purchasing 100% of the water from CAW. This option was dropped due to the debt load of MWM and CAW’s reluctance to take over the existing debt. In essence what would happen in this situation is that the revenues would have been reduced by 65% or more, leaving MWM with fewer resources to pay down their debt.
Finally, the Water Focus Group narrowed the scope and proposed that only the portion of the City on the East side of Maumelle Boulevard be serviced by CAW. This seemed to be a viable option. CAW water would be purchased by MWM and distributed via MWM’s distribution system, the industries would then have a source of water containing fewer minerals, and the City would have a second water source.
The positive aspects of purchasing water from CAW were identified by the Water Focus Group are as follows:
1. Second source of water.
2. More consistent mineral content.
3. Cost effective (with preliminary numbers)
4. Way to bring Maumelle into the CAW system.
The Water Focus Group then requested CAW to investigate the most cost effective method to provide bulk water sales to MWM for the area east of Maumelle Boulevard only.
Water Focus Group
Facts Report
The initial response from CAW was that water could be delivered to the area from the south end of the City. This delivery would require the construction of a storage tank as well as some main extensions within the MWM system. Since the delivery pressure would be some 30 psi lower than the existing MWM pressure this delivery method would also require the construction of a booster pump station since the fire protection systems of industry were designed based on the higher pressures. The preliminary estimate for this project was approximately 2.5 million dollars.
Water would be supplied through a master metering station and sold to MWM at an estimated initial rate of 94 cents per thousand gallons. CAW would supply up to 2.73 million gallons per day (MGD). The average present use in the affected area is 700,000 gallons per day. In addition to the debt service to pay for the project as well as the monthly metered purchase, this proposal included the continuous expense to operate and maintain the booster pump station.
MWM, CAW, and representatives of the Water Focus Group met with Arkansas Soil and Water to investigate financing options for the project. The group was advised that the possibility exist to qualify for State Revolving Loan Funds (RLF). The present rate for RLF monies is 3.25% with 20 year financing. The requirements are somewhat stringent and there is no assurance that a project of this nature will qualify since a majority of the expenditures would not be used for the actual upgrade of MWM’s system. If the project does not meet the criteria, other funding would possibly be available at a higher interest rate.
At a latter date CAW advised MWM that water might possibly be supplied from the north end of the affected area with the potential to supply an even greater volume than the 2.73 MGD if future demands require. In addition, the delivery pressure would be even higher than the existing pressure, therefore eliminated the need to construct and maintain a booster pump station. Water would be master metered and sold at the same rate as the previous preliminary proposal. CAW reported that this option would likely require something less than the original estimated 2.5 million dollar expenditure.
On January 6, 2005 CAW met with MWM to deliver and discuss the latest estimate figures for the connection as investigated. The estimated cost for MWM is 3.6 million dollars. CAW reported that the significant increase of cost was due in part to the cost of pipe but was primarily due to the cost to suspend the pipe under the I 430 river bridge in a method required by the Highway Department. As with the initial proposal, MWM could purchase up to 2.73 MGD but may have the potential to increase that number at a future date if needed. The cost for any additional increase would be proportional to the present numbers.
Options and Calculations
CAW Option:
With an expenditure of 4.1 million dollars which includes the CAW portion as well as an additional .5 million dollar upgrade of the existing well field and treatment plant, the projected quantity of water available to Maumelle would be 6.2 MGD from its own treatment facility and 2.73 MGD from CAW for a total of 8.93 MGD.
MWM Option:
While it is understood that MWM cannot produce a water of the low mineral content of the CAW water, MWM can perform well field and plant upgrades to produce 8.0 MGD for an expenditure of approximately 1.5 million dollars. This would involve the replacement of wells no. 1 and 2 (which became plugged), drilling of two additional wells, construction of a new clarifier, new aeration structure, and retrofit of the four original filters. The project would also include the addition of an acid feed process to lower and stabilize pH as well as include some control upgrades. In an effort to determine that ample supplies exist from the Arkansas River Alluvial Aquifer; a test well will be drilled in the immediate future. With information from this well to use as a comparison to previous results of pumping levels, information should reveal the ability of the aquifer to recharge. The January 6, 2005 “Source Water Assessment Report” from the Arkansas Department of Health has identified all of the existing MWM supply wells as having relatively high pumping capacity in an aquifer that is locally recharged and has moderately high aquifer permeability.
With these facts available, the Water Focus Group has prepared this report to identify the advantages and disadvantages of both options. With the primary goal being the assurance of ample quality water for the future, the group has prepared estimate calculations of water demands and debt service requirements. New debt service calculations for the MWM option are calculated with the RLF rate of 3.25% since source and treatment upgrades would qualify for this type funding. The CAW option is calculated using the same rate as well as a higher rate of 4% since there is no assurance of qualification of the RLF monies.
NOTE: Expense and rate estimates include two financial goals established by the group.
Goal 1. Establish an annual reserve amount equal to 20% of debt service.
Goal 2. Become debt free within 20 years.
Following are two graphs, the first reflecting actual water sales for the past 10 years as well as projections for the future while the second graph shows the actual annual peak days as well as projections:
Note: Peak demands are reflective of Sprinkler usage.
COST CALCULATIONS
Debt Service / MWMOption
3.25% / CAW
option
3.25% / CAW option
4.0%
Existing annual / 485,000.00 / 485,000.00 / 485,000.00
New (4.1 Million) annual / 275,000.00 / 295,000.00
New (1.5Million) annual / 105,000.00
590,000.00 / 760,000.00 / 780,000.00
2007 Projected Figures
Water Expenses / 1,540,000.00 / *1,760,000.00 / *1,760,000.00
Debt Service / 590,000.00 / 760,000.00 / 780,000.00
Reserve / 118,000.00 / 150,000.00
Total Required Revenues / 2,248,000.00 / 2,670,000.00 / 2,690,000.00
Difference between MWM/CAW / 422,000.00 / 442,000.00
% difference between MWM/CAW / 19% / 20%
Metered sales/Total Revenues / 82%
Non-metered sales (assume will remain the same) / 18%
% increase to metered sales / 23% / 24%
* Includes additional cost of bulk purchase from CAW $220K
Metered Sales constitutes 82% of total water revenue while the remaining 18% consists of non-sales revenues. If it is assumed that all new debt service will be satisfied through metered sales.
Projected water sales for 2005 are $1,730,000.00 with a total projected water income of $2,100,000.00. With an approximate 3% annual rate increase, sales for 2007 are projected to be $1,890,000.00 with a total income projected to be $2,260,000.00
As reflective on the cost calculation chart, with the MWM Option, total water expenses for 2007 are expected to be $2,248,000.00, which would be slightly less than the projected total income projection. Therefore, it becomes likely that this option may require no rate increases above the annual inflationary increases.
Also reflective on the chart, the two CAW options metered sales would require increases by $422,000.00 or 23% and $442,000.00 or 24% respectively.
Summary of Advantages and Disadvantages:
Advantages / DisadvantagesMWM Option
No additional rate increase above annual CPI / Basic loss of additional water source
Better control of projected costs / Makes future CAW connection more cost prohibitive
More flexibility of East side supply w/o / Loss of water w/ less mineral content for industry
incurring additional costs
Future plant expansion beyond 8 MGD is limited
to the existing site footprint
CAW Option
Creates second water source / Requires significant rate increase, which will affect all
users, rather than just those receiving the CAW water
Supplies water to industry w/ less minerals / No assurance of supply during drought conditions
Gives some relief to existing source/treatment / No assurance of future rates above the $220,000.00
initial annual cost of bulk purchase
Requires $100.00 per new service connection to CAW
for capitalization fees
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