City of South Daytona Municipalization Evaluation. December 19, 2006 WHH Enterprises, Inc.

Similar documents
JEA s Future Opportunities and Considerations

Retail Acquisition Example

Broker. Basic Business Appraisal. Chapter 9. Copyright Gold Coast Schools 1

Master Plan Draft Document

Contract-Related Intangible

This addendum is being issued to modify and clarify some sections of the RFP as well as to answer questions submitted by the question deadline.

Shawnee Landing TIF Project. City of Shawnee, Kansas. Need For Assistance Analysis

Broward County Civic Arena. County Commission Workshop October 20, 2015

COLUMBIA COUNTY EVENTS CENTER PLANNING COMMITTEE REPORT (FINAL)

Leases. (a) the lease transfers ownership of the asset to the lessee by the end of the lease term.

ANALYTICS & MANAGEMENT OF MIXED INCOME PROPERTY

U.S. Department of Housing and Urban Development Community Planning and Development

Great Elm Capital Group, Inc. An Introduction to the Fort Myers Transaction & GEC s Real Estate Strategy

Real Estate Principles Chapter 17 Quiz

The Economic & Fiscal Impacts of the Blanche Hotel Redevelopment Project

Orange Water and Sewer Authority Water and Sewer System Development Fee Study

Honorable Mayor Lenny Curry Honorable Members of the Jacksonville City Council JEA Board of Directors

Analysis Prepared by David L. Sjoquist and Robert J. Eger III

North Seattle College RES 217 Session 5. Market Feasibility and Financial Analysis

Broker. Investment Real Estate. Chapter 15. Copyright Gold Coast Schools 1

Di Fiore Fourplex. 859 Di Fiore Dr San Jose, CA Offering Price: $1,300,000 Significant price reduction!

HOW TO MAKE THE RIGHT LEASING DECISIONS

Basics of Commercial Real Estate Transactions Day Two

Professional Certification Programs

FPL Institutional Investor Information. August 2013

Opening Doors to Affordable Mixed-Use Development

Commercial Real Estate. Offering Memorandum: 1003 Park Centre Blvd Miami Gardens, FL 33169

Preface Who Should Read This Book 3 Organization and Content 4 Acknowledgments 5 Contacting the Author 5 About the Author 6

Business Valuation More Art Than Science

Investor Presentation December 2017

BUSI 330 Suggested Answers to Review and Discussion Questions: Lesson 10

Cost Segregation Instructor Teaching Schedule (3-Hour)

GOLDFIELD CORPORATION

Economic and Fiscal Impact Analysis of Future Station Transit Oriented Development

The New Housing Market and its Effect on Infrastructure Financing Capacity

Four (4) Factors in Investment Definition: Investment

Applying IFRS. Impairment considerations for the new leasing standard. November 2018

Sales Associate Course

Advanced M&A and Merger Models Quiz Questions

Di Fiore Fourplex. 859 Di Fiore Dr San Jose, CA Offering Price: $1,550,000

Project Economics: The Value of Leasing. Russell Banham, Savills

Benchmarking Your CCRC

Chapter 9 Question Review 1

Auditing PP&E, Including Leases

Course Number Course Title Course Description

DRAFT REPORT. Boudreau Developments Ltd. Hole s Site - The Botanica: Fiscal Impact Analysis. December 18, 2012

FIRE DISTRICTS FUND. The Fire Districts Fund consists of primarily one funding source: property taxes (ad valorem revenue).

REQUEST FOR PROPOSAL (RFP) RFP AS. Appraisal Services Valuation of DBHA Properties


Real Estate Finance and Development Syllabus

CHAPTER 18 Lease Financing and Business Valuation

REED APPRAISAL COMPANY REAL PROPERTY APPRAISERS AND CONSULTANTS

Paducah Power Rate Recovery Plan. November 12, 2014

Process information you will need to gain access to MUNIS

4. Parks and Recreation Fee Facility Needs and Cost Estimates Fee Calculation Nexus Findings 24

7401 PACIFIC BLVD. HUNTINGTON PARK, CA 90255

IAG Conference Accounting Update Emerging issues in the public sector 20 November 2014 Michael Crowe Yannick Maurice

$450,000 $63,425 $33, % PURCHASE PRICE NET OPERATING INCOME ANNUAL CASH FLOW CAP RATE

National Rental Affordability Scheme. Economic and Taxation Impact Study

REPORT. DATE ISSUED: December 19, 2014 REPORT NO: HCR Chair and Members of the San Diego Housing Commission For the Agenda of January 16, 2015

CHARTER TOWNSHIP OF FENTON SEWER SYSTEM FINANCIAL OVERVIEW MARCH, 2018

Cost of Service. NARUC Energy Regulatory Partnership Program

City of Puyallup. Parks Impact Fee Study

Purchase Price Allocations ASC 805 Business Combinations

Demystifying Rental Underwriting. August 15, 2017

Invesco Real Estate Acquisitions

List of Appendices A-1

Chapter 18. Investors have different required yields Different risk assessment Different opportunity cost of equity

PRIMARIS RETAIL REIT Announces Third Quarter Results

Leasing versus Buying Business Location

IFRS - 3. Business Combinations. By:

Please find attached a brief overview of our services and an informative review of Chase Group s SBA-compliant business valuation services.

5892 Orange Ave OFFERING MEMORANDUM LONG BEACH, CA OFFERING MEMORANDUM PRESENTED BY:

will not unbalance the ratio of debt to equity.

FOR SALE :: FEE SIMPLE

Ch.1 Sourcing Analysis.

To all Appraisers: Brief Overview:

Bridge Financing & Valuation Trends Amid a Changing CRE Landscape ARBOR.COM 800.ARBOR.10

Offering Memorandum. Exclusively Offered By: Jeff Houge: Dana Dose:

AN ECONOMIC, FISCAL AND CAPITAL ASSET IMPACT ANALYSIS OF THIRTEEN PROPOSED NEW DEVELOPMENTS ON THE TOWN OF DENTON, MARYLAND.

Private Practice (A)

OFFERING MEMORANDUM. 445 Kele Street Kahului, Maui. Tim Lee RA (RS-69814) Managing Director Investment Sales

Before the Minnesota Public Utilities Commission State of Minnesota. Docket No. E002/GR Exhibit (LMC-1) Property Taxes

Palm Beach County FY 2018 Proposed Budget

Housing Characteristics

Balance Sheet Summary

Housing Supply Overview

Housing Commission Report

Classroom Procedures Introduction to the Course

Rate Case Settlement Overview

IFRS 16 Leases. An overview. March 9, kpmg.com/ca/leases

Hotel / Motel. Market Value Assessment in Saskatchewan Handbook. Hotel / Motel Valuation Guide

Orange Avenue Corridor Study

Housing Trust Fund Developer Advisory Group. Options and Considerations Related to the HTF Operating Assistance and Operating Assistance Reserves

Shaw's - Peterborough, NH

Economic Significance of the Property Industry to the. OTAGO Economy PREPARED FOR PROPERTY COUNCIL NEW ZEALAND BY URBAN ECONOMICS

COUNTRY CLUB APARTMENTS 953 S. 23RD STREET, RICHMOND, IN 47374

MPEEM The New and Improved Residual Technique of Reserve Valuation

EITF ABSTRACTS. [Nullified by FIN 46 and FIN 46(R) for entities within the scope of FIN 46 or FIN 46(R)]

Guide to Appraisal Reports

Transcription:

City of South Daytona Municipalization Evaluation December 19, 2006 WHH Enterprises, Inc. 1

Purpose of WHH Assignment Evaluate feasibility of purchasing FPL electric facilities used to provide retail electric service within the City of South Daytona Prepare a 20-year financial pro forma Estimate the purchase price Evaluate likely bulk power supply alternatives Analyze severance & reintegration identify and evaluate changes required in distribution system to form independent municipal utility system Planning Level Accuracy 2 WHH Enterprises, Inc

Franchise Agreement with FPL 30 year agreement (expires 6-2008) Gives FPL the right to construct, operate, and maintain required facilities to provide retail electric service within City and to use public rights-of-way Grants FPL the non-exclusive right to provide electric service City agrees to not engage in the electric distribution business during life of the franchise 3 WHH Enterprises, Inc

Franchise Agreement with FPL (cont d) Agreement gives City the right to purchase FPL s facilities used to provide electric service within the City at end of franchise. Purchase price = Replacement Cost less Depreciation FPL pays 6% franchise fee to City (percentage of sales revenues within city). 4 WHH Enterprises, Inc

Purchase Option Why would City want to purchase electric distribution system? Municipal electric utilities are profitable (source of additional revenues for City. Opportunities for efficiency through combined operations with other City enterprise funds. Local Control: Responsiveness to citizen/customer concerns (Local control is strongest benefit) Ability to determine locally how capital dollars will be spent (e.g. undergrounding) Ability to determine electric distribution system aesthetics and design. 5 WHH Enterprises, Inc

Purchase Option Reasons to Not Purchase Increased responsibilities over what the City now has. Electric revenue supported debt seen by some as additional per capita debt of City s citizens (note current electric rates pays FPL s debt) Political opposition, fear of change City seen as too small and lacking sophistication to run an electric utility 6 WHH Enterprises, Inc

Purchase Option Overview of Municipal Ownership & Operation Over 2000 in the U.S. 33 municipal utilities in Florida Smallest is Moore Haven ~1,100 customers Largest is JEA with 360,000 customers Median size is < 2,000 (South Daytona ~ 6,550). Larger than 75% of other APPA Municipal utilities. On the average IOUs residential rates are 10-15% higher than municipals on a nationwide average basis. (Muni s do it right) 7 WHH Enterprises, Inc

Purchase Option Overview of Municipal Ownership & Operation Distribution of Public Power Utilities By Customer Count Information Obtained from the American Public Power Association 8 WHH Enterprises, Inc

Real World Study Source: American Public Power Association; Based on 2011 municipal utilities and 230 Investor owned utilities 9 WHH Enterprises, Inc

Florida Electric Rate Comparisons IOU vs. Muni Residential Rates 1992-2001 2001 Source: FMEA 10 WHH Enterprises, Inc

What would be involved in developing a South Daytona Municipal Electric Utility? Purchase the distribution system in accordance with franchise agreement. Requires debt Contract out for wholesale power supply Contract out for distribution services. WHH does not see self do option as a reasonable initial option City performs customer service and billing functions City determines budget (capital and O&M), sets rates City Commission sits as utility s policy board, sets rules, regulations and policies governing electric service 11 WHH Enterprises, Inc

Severance and Reintegration Reconfiguration of the utility facilities (i.e. electric distribution facilities) so that the City s customers are connected to City owned distribution facilities and FPL s customers are connected to FPL distribution facilities. 12 WHH Enterprises, Inc

WHH approach to Severance and Reintegration Field survey and evaluation of electric distribution system particularly at the boundaries Identification of solutions and planning level estimate of cost to separate and reintegrate 13 WHH Enterprises, Inc

Severance & Reintegration Findings Some FPL feeders originate inside City and serve customers within the City and then serve FPL customers beyond the City Some FPL feeders originate outside the City and serve customers both outside and inside the City City currently served by feeders from 3 substations (South Daytona, Port Orange, and Reed Substation) WHH severance and reintegration plan assumes 4 feeders from Reed Substation will serve City 14 WHH Enterprises, Inc

Severance and Reintegration - Identification of Solutions Minor reconfiguration will be required along Beville Rd. Minor severance and reconfiguration required along Nova Rd. south of Beville Rd. New feeder from So. Daytona Sub along Palmetto to serve beach load. Existing O/H Palmetto feeder to be isolated from So. Daytona Sub and connected to Reed Sub. New Feeder required along east side of South U.S. 1 to serve beach. Existing feeder along west side will need to be severed at City limits New lateral required along west side of Sauls St. (Harborside Village area) to serve FPL customers isolated by severance 15 WHH Enterprises, Inc

Estimated Cost of Severance and Reintegration 1. 2. 3. 4. 5. 6. 7. 8. Severance & Reintegration Projects U.S. 1 south of Buchannan Way to Port Orange Boundary Oak Lea Village Area Harborside Village Area Nova Rd. Reed Canal north to Beville Rd. Beville Rd Area South Palmetto Ave. Misc. Severance and Reconfiguration Contingency and Rounding TOTAL Estimated Cost $214,000 $7,000 $46,000 $4,000 $15,000 $210,000 $35,000 $59,000 $625,000 16 WHH Enterprises, Inc

Severance & Reintegration Conclusions Compact nature of system and uniformity of City boundary results in low severance & reintegration cost $625,000 estimated severance & reintegration cost amounts to $95/customer, lowest WHH has evaluated to date 17 WHH Enterprises, Inc

Estimation of Purchase Price According to franchise agreement, purchase price = Replacement cost less depreciation Estimated by using FPL original cost information + escalation (Handy-Whitman index). Depreciation estimated using FPL system depreciation information. 18 WHH Enterprises, Inc

Estimation of Purchase Price Methodology Replacement Cost Less Depreciation (per franchise agreement) Prior Arbitrations (for comparison purposes only) Estimate $9.5 million $17 million 19 WHH Enterprises, Inc

Financial Analysis WHH prepared a 20 year financial forecast (Pro Forma) Pro forma includes estimated annual revenues Annual cost of wholesale power supply Operations and maintenance expenses Administrative & general expenses Debt Service Annual capital expenditures Transfers to the City at current franchise fee levels + utility taxes (makes City whole for financial analysis purposes) Excess net cash flow 20 WHH Enterprises, Inc

Financial Pro forma - Key Assumptions Estimated number of customers 2009 6,650 Annual revenues, assumed FPL rates Growth in sales including customer growth and usage growth = 1.5%/yr Power supply based on FPL s wholesale cost to FKEC; derived rate using FPL balance sheet and income statements; FPL large transmission customer rate; + City of Winter Park power supply costs. Distribution services based on APPA comparables, WHH utility experience and competitive bids Transfer to City equal to 6% franchise fee + 10% utility taxes 21 WHH Enterprises, Inc

Wholesale Power Supply Available for T&D, Administration & General, and funds for City $121.79 set by market competitive limits (FPL) $87.07/MWh FPL analyses + Winter Park actual Wholesale Power Supply 22 WHH Enterprises, Inc

Wholesale Power Supply Following utilities identified as possible wholesale suppliers: Gainesville Regional Utilities, JEA, Utility Commission New Smyrna Beach/PEF, The Energy Authority (TEA), Orlando Utilities Commission, and Florida Power & Light Co. Financial Feasibility of acquisition is significantly affected by cost of wholesale power. Best options for power supply may be JEA, OUC, FPL and possibly PEF through NSB. 23 WHH Enterprises, Inc

20-year Pro Forma Financial Analysis Annual Operating Cash Flows. Year 2008 2009 2010 2011 2012 2013 2014 Annual System Requirement at Reed Sub delivery point kw-hr 166,835,447 169,337,978 171,878,048 174,456,219 177,073,062 179,729,158 System Peak Demand kw 38,090 38,662 39,242 39,830 40,428 41,034 Losses kw-hr 8,036,041 8,156,581 8,278,930 8,403,114 8,529,161 8,657,098 Retail Sales kw-hr 158,799,406 161,181,397 163,599,118 166,053,105 168,543,901 171,072,060 Revenue per MW-hr sold $121.79 $124.83 $127.95 $131.15 $134.43 $137.79 Retail Sales Revenue $19,339,870 $20,120,718 $20,933,092 $21,778,265 $22,657,563 $23,572,362 Other Revenues ( Service Fees, ets) $386,797 $402,414 $418,662 $435,565 $453,151 $471,447 Total Revenues $19,726,668 $20,523,132 $21,351,753 $22,213,830 $23,110,714 $24,043,809 Annual Energy Requirement kw-hr 166,835,447 169,337,978 171,878,048 174,456,219 177,073,062 179,729,158 Average Cost Bulk Power Supply (incldg transmission) $/MW-hr $87.07 $89.08 $91.13 $93.22 $95.37 $97.56 Total Bulk Power Supply Expense $14,527,105 $15,084,147 $15,662,548 $16,263,129 $16,886,738 $17,534,260 Distribution O&M Expense $711,044 $734,153 $758,013 $782,648 $808,084 $834,347 Customer Service and A&G Expenses $959,909 $991,107 $1,023,317 $1,056,575 $1,090,914 $1,126,369 Annual Capital Outlays $591,800 $615,694 $640,553 $666,415 $693,321 $721,314 Debt Service $712,142 $712,142 $712,142 $712,142 $712,142 $712,142 Gross receipt tax $421,815 $438,846 $456,564 $474,998 $494,176 $514,128 General Fund Transfer (Franchise Fees & Utility Tax) $2,179,382 $2,267,375 $2,358,920 $2,454,161 $2,553,248 $2,656,335 Total Cash Outlays $20,103,197 $20,843,462 $21,612,057 $22,410,068 $23,238,624 $24,098,896 Net Cash Flow ($376,529) ($320,330) ($260,303) ($196,238) ($127,910) ($55,087) Electric Utility Fund Cash Balance (plus earned interest incl DSR) $449,063 $104,252 ($199,562) ($456,492) ($660,151) ($803,618) ($879,400) Internal Rate of Return 10.19% Net Present Value of Investment $5,758,633 $13,532,034 24 WHH Enterprises, Inc

Purchase Option Base Case $(000) 2009 2018 2028 Revenues $19,727 $28,168 $41,847 Wholesale Power 14,527 20,382 29,694 O&M + A&G + G.R. Taxes 2,093 2,831 3,963 Capital 592 845 1,255 Debt Service 712 712 712 Franchise Fee + Utility taxes 2,179 3,112 4,623 Net Cash Flow ($376) $286 $1,599 25 WHH Enterprises, Inc

Base Case Renewal of Franchise Financial Evaluation Franchise Fee + Utility tax 2008 $2,179k 2018 $3,112k 2025 $4,623k 20 Year Present Value To City = $40 million 26 WHH Enterprises, Inc

Base Case Financial Analysis - Summary Internal Rate of Return Cost of Money Net present value of investment @ 7% Net present value of investment @ 4.5% Net Present value of franchise fees + utility taxes @7% Net Present value of franchise fees + utility taxes @4.5% 10.19% 4.50% $5.8 million $13.5 million $31.6 million $40 million 27 WHH Enterprises, Inc

SUMMARY RESULTS Cost of money 4.5% Hurdle Rate 7% Not feasible Break-Even Feasible Compelling X 0% 2% 4% 6% 8% 10% Internal Rate of Return 28 WHH Enterprises, Inc

Conclusions Purchase of the distribution system is financially feasible (compelling range) Synergies with existing operations should improve economics of ownership. Not considered Financial results are very sensitive to power supply costs. Purchase increases local control FPL concessions may improve value of franchise renewal 29 WHH Enterprises, Inc

Recommended Next Steps Recommend duel path, i.e. negotiate renewed franchise including purchase option. Refine financial evaluation of purchase option Refine replacement cost less depreciation analysis Commence discussions with alternate power supply providers (PEF, OUC) Commence discussions with distribution services providers Begin discussions with NSB to explore mutually advantageous relationships (power supply, distribution svcs, other) 30 WHH Enterprises, Inc

Questions & Answers 31 WHH Enterprises, Inc

Severance and Reintegration Schematic 32 WHH Enterprises, Inc

33 WHH Enterprises, Inc

34 WHH Enterprises, Inc

35 WHH Enterprises, Inc