At the October meeting, the Muscatine Power and Water Board of Trustees received and reviewed the Utility’s 2022 Operating Budgets and 10-Year Financial Projections (2022-2031). The budgets show expenses maintaining at recent years’ levels to complete large maintenance projects and fund major capital projects to support community betterment, as well as investments in system reliability.
“The 2022 budget assumptions are designed to meet the evolving needs of customers at the lowest possible cost, support our strategic plan and achieve financial targets,” commented General Manger Gage Huston. “The budgets reflect ongoing efforts to keep expenses at adequate levels while still maintaining our core values of safety, customer service and reliability. All three of the utilities are making capital improvement investments aimed at maintaining long-term reliability and improving customer experience.”
The table below shows a high-level view of proposed 2022 budget numbers for each of the Utilities
2022 Operating Budget Summary ($M)
|Description||Electric Utility||Water Utility||Comm. Utility||MPW Total|
The 2022 Operating Budget includes these major Utility projects:
- Line 106 161 kV Transmission Line. MPW will be working to complete the construction of the 161 kV line north of Muscatine in 2022. In 2021, acquisition of easements was completed, and material purchases and construction started. Remaining construction and substation development, accounting for about 50% ($8.6M) of the $17.1M project, is budgeted in 2022. Line 106 is the first construction of a new high voltage transmission line for MPW in decades.
- Powering the Future (“PTF”). Important and time-consuming work to develop and implement PTF plans occurred in 2021. MPW is moving forward with a 24-30 MW solar project on the Grandview Well Field with Ranger Power as the developer. Significant work remains on finalizing the power purchase agreement and planning for the interconnection of the project to MPW’s transmission system.
Development of the combined heat and Power (“CHP”) natural gas-fired unit is still in the early stages given the end-of-2027 target date for completion. MPW Staff presented a plan that showed estimated capital expenditures and expenses for development, construction and later operations of the CHP unit in the 10-year Projection. Those estimates will continue to be refined as MPW studies the project. Costs for preliminary design have been included in the 2022 budget, pending results of the continued investigation.
- Grandview Avenue Corridor Improvement Project. The 2022 budget includes $840k for undergrounding utilities, in support of the City’s improvement of Grandview Avenue Corridor.
- Customer Information/Billing System (“CIS”). A project to change out MPW’s CIS is planned to be complete in late 2022 or early 2023. With an overall project cost of $2.2M, expenditures are planned in 2022 and 2023. Costs for this project will be allocated to all three utilities.
- West Hill Sewer Separation Phases 5A & 5B. The 2022 budget includes $314K to continue with water system infrastructure replacements in conjunction with the City’s sewer separation activities.
- West Hill Pumping Station Project. $180K is included in the 2022 budget to upgrade the existing, aged pumping station facilities near the West Hill Reservoir.
- Lorenz St. Water Main Replacement. $160K is included in the 2022 budget to replace an aged and undersized water main section on Lorenz St.
- Inside Plant and Outside Plant Enhancements. $724K has been included in the 2022 budget for ongoing network and outside plant improvements. Plans continue to complete a $1.3M project to extend fiber services to areas along Highway 22 east of town; $60K is budgeted for 2022 to complete engineering design. MPW was awarded up to 40% grant reimbursement upon completion of the project in 2025 that will reduce the $1.3M cost.
A 10-year Financial Projection was also given to the Trustees for review at Tuesday’s meeting. Utility Staff developed a comprehensive plan of major infrastructure projects and enhanced service offerings for Muscatine community residents in the coming years.
“Looking ahead several years gives the Utility, and ultimately our customers, a vision for how MPW is investing in our community’s future for continued growth and prosperity,” said Huston. “Our goal is to have utility rates below state and national averages wherever possible, while providing a benefit to our customers of high service reliability delivered with outstanding local customer service.”
Key issues in the 10-year Financial Projection for each Utility are summarized below.
The Electric Utility is facing many significant changes in the coming years as it strives to achieve its Powering the Future goals. Major investments in the transition of Muscatine’s power supply are included in the ten-year projection, including the costs of integrating the 24-30MW local solar farm, completion of the $17.1 million transmission line construction, and development of the gas-fired CHP generating unit. While the details of the CHP unit are still under investigation, one potential configuration was used for the sake of the projection.
Net income for the Electric Utility is consistently negative, primarily driven by high depreciation
($91.8M over ten years) in part to ensure existing net plant in coal-fired generation is written off by the end of anticipated remaining lives of those units, and for significant expenses to decommission and demolish the coal-fired units ($26.9M in projection period). While net income is negative in many years, cash flow is projected to achieve cash reserve targets.
MPW is planning to keep electric rate increases modest at 2% per year except for 2024-25, which are at 3% per year. One result of the high capital expenditure and high cash expenses is the need for financing. MPW Staff is assuming an approximate $80M, 20-year bond at 4.5% interest will be required during the projection to fund the Powering the Future investments.
The Water Utility plan is to continue to meet service needs, invest in the system and keep rate increases modest. Total planned capital expenditures in the projection total $19.2M, which is $1.4M less than the $20.6M that was shown in the 2021-30 projection.
Assumptions for rate adjustments are consistent with prior year’s projection: 4% per year in 2022-23, 3% per year in 2024-25, then 2% per year thereafter. It’s important to note the rate increases are moderated despite the fact that the loss of water sales to the Power Plants starting in 2023 (>$0.25M net income reduction for Water Utility), by itself, could support a ~3% increase for all remaining customers. A scenario is also included to show the estimated effects of providing water supply for certain water users in Louisa County. This scenario shows a potential increase to Water Utility cash of about $1.2 million over the course of the projection.
With the completion of the Fiber-to-the-Home (“FTTH”) project, the Communications Utility has relatively stable and positive net income through the projection period and average capital expenditures that are much lower than the last few years’ experience. Rates for Communications services continue to be driven by escalating programming costs and routine reinvestment in infrastructure. Rate increases are only included for video service, with a focus on maintaining margins on that business segment. The projection includes the Highway 22 East project that is supported by the 40% capped grant. This projection also includes a scenario that evaluates options to revamp internet package offerings that would increase entry-level speeds to better leverage the new FTTH infrastructure.
“As a non-profit organization, all income generated from consumers and outside revenue streams is reinvested into infrastructure and operations, as well as capital improvement projects outlined in the 10-year Projection,” said Mark Roberts, Director of Finance & Administrative Services. “These efforts provide for community betterment now, but also serve to minimize financial disruptions when possible emergency maintenance costs arise.”
Following budget discussions, the Trustees were informed the Utility had been awarded the American Public Power Association’s (APPA) Smart Energy Provider designation. MPW received this award for the second time by demonstrating a commitment of – and proficiency in – energy efficiency, distributed generation, and environmental initiatives supporting the goal of providing safe, reliable, low-cost and sustainable electric service.
The Utility was also selected for recognition in the APPA’s Excellence in Public Power Communications awards. Submissions and award designations include:
- Website submission – MPW website was awarded the APPA Award of Excellence
- Print submission – MPW Annual Report earned the APPA Award of Merit
- Video submission – Powering the Future Strategic Initiative Video earned the APPA Award of Merit
“We are honored and thrilled to be recognized,” shared Erika Cox, Director of Customer & Technology Experience. “Our Utility staff is small, but a powerhouse of talent. We appreciate the APPA recognitions.”
Roberts reported on the September financial results for the Utility. MPW net income for the month was better than budget: $637K compared to a budgeted $127K loss. All three utilities were above budget, with the biggest difference being the Electric Utility having net income at $346K, which was $498K above budget. Roberts said, “Sales to Electric customers were strong because September was a very warm month, which was part of the reason revenues from our customers were $263K above budget.”
Lastly, the Trustees were provided an end-of-quarter update on the Utility’s strategic plan. Huston commented “Although the numerous projects are wide-ranging in scope, each one is intended to support continued economic development opportunities for the Muscatine community. MPW is committed to provide utility infrastructure and services that support business and industry growth while keeping rates as low as possible. This combination makes Muscatine the best place to live, work, play and stay.”
Following the monthly Powering the Future update to the Board, Erik Reader, President and CEO of the Greater Muscatine Chamber of Commerce & Industry, shared his perspective. “At MPW’s recent open house, I learned first-hand how their balanced approach is keeping rates low for businesses and residents. From seeing this, I know they are keeping all of us in mind and have thought through how the plan will affect all customers.”
In other Board action:
- Approved payment for the September 2021 expenditures and transitions.
- A public meeting for the 2022 Annual Operating Budgets was set for November 30, 2021 at 5:28 p.m.
- The 10-year Financial Projections were received and placed on file.