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03-22-85 v • MAR 2H 22, 1985 OBSERVATIONS of the BUCCANEER PROPOSAL 41, Meeting - January 31, 1985 Document: "Sales offer to the City of Atlantic Beach" Par: 1 Buccaneer Service Co. , Inc. offers the City to purchase its franchise and assets (the utility) . They are a Private Corp- oration which owns and operates a potable water supply and distribution system as well as a sanitary sewage collection, treatment and disposal system. Par: 2 Buccaneer was originally formed as a Florida general partnership in 1976 and incorporated as a Florida corporation in 1981. - Currently serving 1200 equivalent connections . - Has an additional 800 connections in process or under contract. - Estimates 3500 active connections in late 1986 . Par: 3 - Estimates assets of $3. 9 MM - 90% of which has been installed,. overhauled, or completed since 1982 . Immediate Income to the City Par: 4 - If the A.B. rates are applied, net cash flow would equal $5 M per Month. (After operations, maintenance and debt service costs are paid) Question: Are these costs figured on A. B. Costs or Buccaneer 's? Question: Does anyone know the cost for A. B. to operate the Buccaneer System? Question: What are the actual Buccaneer Costs and Net Revenues? Question: Would any business consider purchasing Buccaneer without reviewing actual financials - and then projecting their own operating costs and profits? Has this study been done before? 'Question : Would it not be vital to know how well they operate their system as to operating costs and net profits? Question: Are they willing to give us their financials for review? Any prudent investor would insist on this before consideration to purchase. Par: 5 - A.B. utility impact fees applied to projected new connections 1986 to 1990 $2 . 5 MM (Net after projected construction costs) . Question: How was this figure arrived at? It 's a formidable sum - and would A.B. not be wise to forecast its own costs - along with some future forecasting on what will be required by the 4011 P.S. C. and E.P.A. - as to reserves for capital improvements - further effluent treatment requirements and other proposed regulations? -1- MARCH 22, 1985 Municipal Ownership of the Utility Par. 6 - Accelerate pay-off of the purchase indebtedness - Question: Assume a miscalculation - and projections are not met - Would the payoff come from other sources of revenue within A.B. - and/or rate increase for services? ?Will we be allowed to increase rates - outside the City without a general rate increase to all users? Par: 7 - Eligible for grants and other funds from• Federal and State agencies - - Question : Is this not pure speculation? Isn ' t the latest information slanted at cut-backs and eliminations of grants? Reduced Rates to the New Customer Par: 8 - Typical households located outside the City will pay less - Question: Is this an act of benevolence - or are we locked in to 11, times the rate - outside the City - and the only way to raise is a general - overall increase for all users? Again - as in Par: 6 - If any of the projections are miscal- culated or there is a change in regulations that would require higher operating costs - would we not be locked into paying off the debt for the Plant either from an overall rate increase or other sources of Revenues from within Atlantic Beach? We certainly cannot levy a special tax outside the City? Enhanced Total System Reliability Par: 9 - Interconnecting the facilities - Question : Would A.B. really need the water capacity from Buccaneer Wells? We have 5 . 38 MGD capacity now - would we even need to use all 4 of the shallower wells? - We 'd still have to purchase them in the package and their value is $437 M (see page 4 Cee & Jenson) . There is also the matter of mairrtainence on the duplicated equipment. If we ran it part time we' d still have to maintain it full time. Question : If we merge the systems, how will we track the Bond payoff based on the Buccaneer system? Economy of Scale of Operations Par: 10 - Combined utility to enjoy operational savings -- Question: Is bigger necessarily better? - Compare Buccaneer with A.B. now, and determine whether the larger or smaller utility is operating better or more efficiently. There is an optimum operating size in any business . -2- • • MARCH 22 ; 1985 Question: Again, as in Par. 9 - there are duplications within the two systems that would not be necessary for efficient operations - What would we do with them? Additional Advantages Par: 11 --- Buccaneer has already constructed a bridge and pier --- Question: From an engineering standpoint, which is better - pipe on a Pier (the Pier has to maintained) - or pipe buried? Question: If the Pier and bridge are to be considered - will they take the extra load? Par: 12 --- Atlantic Beach needs additional and appropriate office space --- Question: Outside the City? - What for? - Is it worth $350 t4 to A.B . ? Is this more duplication? Par: 13 --- Economy of operations per connection will be enhanced -- through working space improvement -- Question: How? - What dollar value? Is it worth $350 M? Tax and Regulatory Costs Deleted Par: 14 --- Private businesses must pay numerouse taxes and fees that government entities do not pay. --- Elimination of these costs will benefit the local tax payer, resident and customer. Question: How would purchasing duplicate items - such as excess office space at $350 M - or excess water capacity at $437 M benefit the tax payers? • Consider other items listed as assets (see Gee and Jenson Pages 4-6) . Page 4: Water System $437 M Mayport Road Widening • 23 M Master Plan 4 M Page 5: Mayport Road Widening 13 M Page 6 : Office and Garage 282 M Fuel System 13 M Phone System 5 M Landscaping 3 M Sign 1 M Inventory 66 M ? Total $847 M of assets that A.B. might not need due to duplications. (There are probably other items) . -3- • MARCt1 22 , 1985 In general: A.B . is , and has been in the sewer business as a matter of convenience to the Citizens . Our experience has not been pleasant. - and certainly not profitable. If we were adept at the sewer business, we would not be under moratorium. A major part of our problems in the past have been the whimsical changes in regulations - and a reluctance to increase rates to pay for expansion and maintenance. The future in the sewer business does not appear to be any more attractive than the past. Regulations continue to change - maintenance and construc- tion costs continue to rise - Grants and Funding are harder to obtain and Regulatory hassle will continue to be a plague. Another consideration is the timing of such a project. We are starting our own expansion program, and our personnel will be under pressure for the next 18 months bringing our new system on line. The February 26, 1985 Touche Ross (Auditor's) report, is a "Forecasted statement of revenue and expenses , and summary of significant forecast assumptions -" (Cover Letter Par: 1) See page 2 of this Cover Letter (par: 3) : "We believe that the underlying assumptions provide a reasonable basis for management ' s forecast. However, some assumptions inevitably will not materialize, and unanticipated events and circumstances may occur; therefore the actual results achieved during the forecast periods will vary from the forecast, and the variations may be material . " Now read par: 4 - there is a very definite consideration: - - "However, the achievement of any financial forecast is dependent upon future events , the occurrence of which cannot be assured" . These same cautions are reported throughout this report and must be considered in the study. How much priority should be given to a proposition requiring $3 . 9 MM in business outside the City? What effect will it have on problems we are currently facing inside the City - such as the re-surfacing and widening of Seminole Road - and Water and Sewer Service west of Mayport Road, or the replacement of old Water and Sewer lines in Royal Palms? .All projects compete for priority with the limited staff and revenues we have to work with. Would we be prudent to allow priority to a project outside the City, when we have many, many concerns inside the City? These observations are respectfully offered for your consideration . I trust they may be of help in the deliberation . Sincerely, \-21/10.-vv;-4 John Morris Commissioner - Atlantic Beach -4-