Streetcar Water Main Costs - Cincinnati Water District

2.0 GCWW SYSTEM VALUATION GREATER CINCINNATI WATER WORKS Report on System Valuation & District Formation Feasibility

Support of City infrastructure is valued based on engineering estimates for projects required by the City of Cincinnati under a number of initiatives, detailed in Figure 5. The subway maintenance subsidy assumes GCWW will fund maintenance and improvements to the City’s subway tunnel through which the utility has placed some mains. It assumes approximately $2.5M will be required twice during the next ten years to address maintenance issues in the tunnel. It also assumes the cost of moving the mains out of the tunnels after 12 years, beyond which it is assumed the cost benefit of continued maintenance declines enough to warrant movement of the mains rather than continue maintenance on the tunnels. The adjustment is considered a reduction in value because the utility anticipates bearing the maintenance Support of City Infrastructure Items Value in millions costs of the tunnel and movement of the mains. LESS: subway maintenance subsidy $ (16.0) LESS: add'l cost from street car infrastructure

$

(7.6)

The street car infrastructure initiative LESS: cost of manhole raising $ (14.0) reflects the estimated cost of moving LESS: cost of moving mains for City $ (80.2) mains that are located under the Total $ (117.8) assumed path of the street car railways. Figure 5 It is assumed this expenditure will be required within the next five to six years. The adjustment represents a reduction in value as the utility anticipates moving these mains at no cost to the City. The cost of raising manholes following street repairs reflects GCWW’s annual budget of $350,000 for such activity, inflated using the general inflation factor of 3.0 percent per year for 75 years and discounted back to today’s value using a 5.0 percent discount factor. The net present value of this expense represents a reduction in value to the enterprise because the utility performs this function at no cost to the City, at the City’s request. GCWW does not fund such improvements in areas outside the City. The cost of moving mains for the City reflects the annual budget of $2.0M inflated using the general inflation factor of 3.0 percent per year for 75 years, and discounted back to today’s value using a 5.0 percent discount factor. The movement of these mains is driven by the economic development process, or other City sponsored efforts. The net present value of this expense represents a reduction in value to the enterprise because the utility performs this function at no cost to the City, at the City’s request. GCWW does not fund such improvements in areas outside the City. Free water for City institutions, as shown in Figure 4, is valued based on the amount of revenue foregone by GCWW, assuming this policy continues should a district be formed. The value of free water in 2007 amounted to approximately $988,000, with the largest customers including the zoo, the park board, and the Cincinnati Recreation Commission. Assuming an annual revenue inflation factor of 4.0 percent over a 75 year period, the cumulative net present value of this benefit is $53.2M using a 5.0 percent discount factor. GCWW does not fund similar policies outside the City. The outside city rate differential represents the cost of maintaining the current differentials for 75 years, assuming this policy continues should a district be formed. If the City rate differential were terminated, approximately $11.0M in revenue would need to be provided by users of the system to cover the utility’s revenue requirements. If this amount were distributed proportionately, Inside City customers would need to produce $3.7M more per year. Assuming a revenue inflation factor of 4.0 percent over a 75 year period, the cumulative net present value of this benefit is $197.2M using a 5.0 percent discount factor. The final adjustment represents the cost of maintaining the policy of reduced rates for welfare institutions. This adjustment is based upon what qualifying welfare accounts would pay if they were charged the full retail rate for their level of service and consumption. Welfare institutions inside and outside the City currently benefit by about $800k per year in reduced charges for service. Assuming this benefit continued for 75 years, Black & Veatch

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February 23, 2009