Thursday, December 07, 2017

Stripes Changing Under Proven Operator Renter

Stripes Convenience Stores provided an update on its plans for 207 potentially orphan sites, 45 of which are in the San Angelo area.  Their press release stated:

DALLAS , Dec. 5 , 2017  --  Sunoco LP  signed definitive agreements with a commission agent to operate the approximately 207 retail sites located in certain West Texas , Oklahoma and New Mexico markets, which were not included in the previously announced transaction with 7-Eleven, Inc. Conversion of these sites to the commission agent is expected to occur in the first quarter of 2018.
The press release referred to details in an investor presentation.

The slide above states:


● A signed agreement with a proven operator for the 207 West Texas sites as a commission agent
          • The conversion of sites is expected to occur in Q1 2018
          • Commission agent is a proven profitable channel within our fuel distribution portfolio

● Key elements of commission agent model • Commission agent operates retail locations
          • Generates stable rental income through SUN’s continued ownership of real estate
          • Captures a material portion of fuel margin less a commission to the agent
          • Provides optionality for future asset sales
          • Commission agent operations are included in targeted 50% reduction in overhead

● Opportunity to capture upside of West Texas growth via commission agent terms

● Delivers on coverage (~1.1x) and leverage (~4.5 - 4.75x ) goals
         • Significant EBITDA retention, immediate accretion to distributable cash flow/distribution coverage
          • The commission agent model, developed early in the West Texas sales process, is high-value alternative to asset sale
          • Best option based upon the analysis of balancing EBITDA retention and after-tax cash proceeds
          • Combined with the 7-Eleven transaction, allows for debt reduction, redemption of preferred equity and repurchase of common units

In January 2016 Stripes operations were a key value driver for Sunoco LP.   West Texas Stripes, under their new name, will be operated by a renter who must give a good chunk of their gasoline profits to the landlord.  How might that impact service?

Will Alvin New end up as part of the "proven operator" team?  It remains to be seen.

Tuesday, December 05, 2017

Why San Angelo Citizens Did Not Get Water Rebate

The City of San Angelo's Water Fund continues to surprise.  First, it came in at $6.7 million.  That's $1 million higher than prior numbers released to the public.  The city took nine adjustments worth nearly $3.2 million to get the fund balance down to $3.6 million.  

City Council expressly approved only $1.2 million of these adjustments.  The remaining $2 million were characterized as "any typical year end audit adjustments" by the City's Finance Director.

I'm not sure how a Ford Ranch carryover is a typical year end adjustment as the city bought the ranch in November 2016.  That's after the start of the 2106-2017 fiscal year which ended 9-30-17.

City staff did not supply this information to Council and elected officials did not inquire when provided the opportunity.  Given the public's longstanding concern about water rates one might expect staff and council to be proactively transparent in the use of water funds.

Citizens can see the math.  The water fund increased $6.1 million in the last fiscal year, much of it due to our paying our water bills.  Most of that increase, $5.9 million, came in the last five months May, June, July, August and September.  

Another surprise is the city has additional accounting periods for the fiscal year ended 9-30-17.  This document shows a period 13 and period 14.  These year end close financial statements are not shared with City Council or the public.  How can elected officials or the public be aware of important information if it isn't shared?  They have to ask.

Friday, November 24, 2017

City Council Rejects Water Rebate: Rate Increase Vote Next?

San Angelo's City Council continued the decade long string of not offering water rebates to citizens, despite raising water rates at least five times since 2007.

The City enacted water rate increases in 2007, 2011, 2016 and 2017.  Another water increase is coming January 1, 2018.
2007 - Average increase of $13.22 per month
2011 - Average increase of $14.75 per month
2011-2016 - Additional fees of $5.42 per month added.
2016 - Average increase of $5.88 per month
2017 - Average icrease of $6.56 per month.
2018 -Average increase of $7.32 per month
Two more rate increases are planned for 2019 and 2020.  Combined they total $7.96 per month. 

By 2020 San Angelo's City Council will have increased citizen water bills by $61.11 to $79.08 per month.   That's a 340% rate hike over 14 years, an annual 24% increase.

Why no rebate?  One factor is the city shifts water money around before its time to consider a rebate.  Consider this historical fact from Fitch Ratings, the city's bond rating agency:

In 2011 the City conducted a "one-time transfer of $3.5 million into general fund reserves from the water utility." 
Consider what Finance Director Tina Dierschke told Council on 11-21-17:

"The estimated fund balance is our fund balance from September 30th in the Blue Book and we've also taken out the carryovers Council approved in the last meeting as well as any typical year end audit adjustments so that we have a better picture of where the water fund balance really stands."
The Blue Book showed nearly $5.8 in Water Enterprise fund balance as of 9-30-17.  Not once Councilperson asked how that number declined to roughly $3.6 million.  Those with a good memory would recall a $1.2 million carry forward for utility work for street projects.

That leaves $1 million explained away as a typical audit adjustment.  In addition, there was no discussion on the $4 million administrative line item or the $3.5 million in transfers from the water fund for the fiscal year ended 9-30-17. 

I wrote my City Council representative asking about the evaporation of $2.2 million in water funds.  I've heard nothing back.  That was also council's response when asked "any questions?" on this agenda item.  Silence.  Nothing. 

Saturday, November 18, 2017

Water Fund Dries Up: No Rebates Again for Citizens


A cold, dry wind blew $2.2 million from the City of San Angelo's main water fund.  It went from nearly $5.8 million as of September 30th to $3.6 million, according to city finance staff.

The Water Operations Fund estimated fund balance (after estimated year-end adjustments and carryovers) as of September 30, 2017, is $3,585,477 (unaudited).
The memo to City Council refers to a fund that does not exist in accounting documents.

What does exist is the Water Enterprise Fund.  As of 9-30-17 it showed:

The first question is what happened to the $2.2 million?  Staff should clearly explain any adjustments or carryovers to Council and the public.

The goal for the water operations fund is 75 days of expense budget, or $4,781,532.
The goal is to have 75 days cash to meet operating expenses, which came in at $18.8 million for 2016-2017.  The city's water enterprise budget was $4.5 million higher than it actually spent.

Council could consider a different analysis using the City's Bluebook numbers, one that would produce a small rebate for customers.

This is an accounting discussion that involves operational definitions, what numbers mean and how they are figured. City Council's tacking this item will be informative for citizens.

The water rebate comes after two other water related items, raising the deposit for an account by 186% to $100 for most new users and charging 18% interest on late bills.  These are items G and H on the regular agenda.  The water rebate is item L, the last item on the regular agenda.

Most citizens don't have time to show up to council to share their thoughts, especially for items at the end of the regular agenda.  Should any of these issues be important to you please contact your city council person.

Update 11-24-17:  Members of City Council asked no questions on this topic.  Their silence can be viewed here starting at 1:51:25..

Wednesday, November 08, 2017

Council Voted to Increase Water Deposit 186%

San Angelo City Council voted unanimously to raise the water deposit from $35 to $100 for the water meter used by 82% of its customers.  The increased deposit would only apply to new customers.  It would not impact existing users, according to city staff.

Citizens endured repeated large increases in water bills for the past decade, as rates increased multiple times and new fees were added.  Staff said the logic in charging larger deposits was to reduce deadbeat customers.  Yet, the city sends only 2.2% of its annual water revenue to collections each year.

Staff did not share that the city's water fund of $5.7 million is way over its $3.1 million budget.  Citizens funded $2.6 million or 84% more than the city planned.

Five years ago Council entertained a water rebate in its first meeting in November.  This Council nearly tripled the water deposit for most new customers.

The twisted part of the presentation involved using other aspects of the utility bill, sewer, trash and stormwater to push for the higher deposit.

Between the four operating funds the city has over $21.5 million in fund balance as of 9-30-17.  None of this was shared with City Council before it voted to raise the deposit significantly.  Fiscal year end numbers were available as they were shared with the Development Corporation on October 25th.

One has to dig to get the wider story from City Hall.  I'm not sure our current council likes to get their hands dirty.  Thanks to them new water customers will write much bigger deposit checks come January 1.

Sunday, November 05, 2017

Year End Financials Late to City Council

City of San Angelo Finance Director Tina Diershke presented year end financial statements to the Development Corporation on 10-25-17.  Staff will not have that information for City Council on Tuesday, even thought their meeting comes nearly two weeks after the Development Corporation.

Why might this be important?  Citizens expressed concerns about expensive water and trash bills to elected officials.  Several councilpersons seemed interest in current fund balances for those funds during at least one budget meeting.  City staff avoided direct questions and offered nearly year old budget projections vs. actual year to date figures.

November is the time City Council entertains a water bill rebate.  It won't be November 7th. 

Saturday, November 04, 2017

Citizen Water Rebate Not on Council Agenda for 11-7-17

Five years ago City Council discussed a customer water rebate during their first meeting in November (11-6-12).  That topic is not on the agenda for the November 7, 2017 Council meeting.  With one month left in the fiscal year the city held $4.6 million in the main Water fund.  That should be up significantly given September water revenue was nearly $2.6 million.