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| Water Rates Manual | | ||
Chapter
6
1. PERIOD OF PROJECTION Apart from the existing water rates of a district, new rates are established for the following reasons: Purely, to meet increasing O & M expenses. To make feasible arrears restructuring. To make feasible restructuring of outstanding loans. To
make feasible grant of new loans. 2. CONTENTS OF CASHFLOW To serve its purpose, cashflow projection should contain the following basic information: GENERAL
DATA
(1)
Current Water Sales. The revenues from billed water. This is billed water multiplied
by effective rate multiplied by collection efficiency. (3) Other Receipts. The cash collections from all other sources of funds, computed as current water sales multiplied by the historical percentage (4) Total Cash Receipts. The summation of current water sales, collection of previous years' arrears, and other receipts. c. DISBURSEMENTS. The total amount allocated for expenditures and comprises the following: A. Operating and Maintenance (O&M) Expenses (1) Salaries. The number of employees multiplied by the average salary per month multiplied by thirteen months. (2) Power/Pumping Cost. Total production (cum) multiplied by the power or pumping cost per cubic meter produced. (3) Chemical Cost. Production (cum) multiplied by the historical chemical cost per cubic meter produced multiplied by the escalation factor. (4) Other O & M. Average served connections multiplied by other O&M cost per connection times 12 months.
(C) Equity Contribution. The percentage of equity on total project cost or the absolute amount required from the District as counterpart to LWUA's financing. (D) Capital Expenditures (Capex). For capital outlay to finance the cost of (a) tapping of new service connections, (b) NRW reduction if a Program of Work for the purpose is required, (c) Projects which will allow the WD to continue tapping new connections in cases where design year connections have been reached. (E) Reserves. A standard entry in the cash flow projection, the amount to be disposed of according to particular priorities, usually 3% to 10% of total receipts. Cash disbursements not specifically mentioned above are classed in this group. (F) Tax Provision. Thirty four percent (34%) of the projected Net Income after Interest Charges for Corporate Income Tax, and Franchise Tax computed at 2% of Gross Revenues. d. TOTAL DISBUSEMENTS. The summation of all amounts allocated for expenditures. e. CASH INFLOW (DEFICIT) Cash deficits (disbursements being greater than receipts) shall not be allowed for more than two consecutive years. f. BEGINNING CASH BALANCE. Actual cash/funds balance free of customer deposits, loan and reserve funds g. ENDING CASH BALANCE. The projected cash position of the District. h. WATER RATES. Assists the evaluator in determining whether the periodic rate levels are sufficient to support the cash requirements. Care should be taken to ensure that the rate schedules are placed under the appropriate columns within the period of projection. i. AVERAGE INCOME OF LOW INCOME GROUP & 5% MINIMUM CHARGE CEILING. For comparison, shows whether the rates (minimum charge) are within the capability of the low income group (LIG) to pay. j. ASSUMPTIONS & JUSTIFICATIONS. Indicates the explanations relative to the data and information utilized in the projection. In making assumptions, reference should be made with the district's past data and experience in at least two years of prior operations, except in instances where the district is newly organized or where no data are available. In this case, reference could be made with appropriate industry averages. A sample Cashflow Projection is shown in Figure 6-1.
a. Water District (WD) Collection Efficiency or the ratio of current year collections to current year billings shall be at least 90%. All water rate increases shall be computed on the basis of this percentage or the actual and projected WD performance whichever is higher. b. Non Revenue Water (NRW) shall not be more than 25%. In case the existing level of NRW is greater, a program of work (POW) for NRW reduction, including its required capital expense duly approved by the WD Board for implementation, shall be submitted. The POW shall not be longer than five years. c. WDs with more than 1000 service connections shall have staffing ratio of not less than 1:120. Staffing for WDs with service connections of 1000 and below shall be as follows: Number of Service Connections Maximum Number of Employees 300
and below 5 d. Salaries of WD personnel shall not be projected beyond the level prescribed in the Salary Standardization Law (SSL). In case the SSL level has been reached, salary increases may be allowed only for merit reasons and when legislated. e. Benefits and allowances of WD personnel subject to government regulation shall be limited to that which are allowed. These include representation, extraordinary, miscellaneous expenses and the like. f. Capital expenditures shall give priority to: (1) NRW reduction, (2) service connection growth, and (3) source development. g. For consistency in cash flow projections, inflation and escalation rates shall be as determined by NEDA. | |||
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The
cashflow projection is a basic reference in the establishment and review of water
rates. The cashflow indicates the sufficiency/insufficiency of existing and proposed
rates; determines the need for any rate increase; serves as basis for monitoring
the district's operations; determines the ability of the district to make forecasts;
and presents the district's financial picture for a given period as a consequence
of the rates.