Financial Analysis Requirements & Guidelines

Unless authorized by the MCES Finance Director, MCES staff and consultants should use the following assumptions and methodologies in all financial analysis and budget development.

Rates & Assumptions

Inflation Rates (per year)

Labor (including benefits):	3.5%
Electricity:	5.5% (2008 - 2012), 4% after
Other expenses:	3.0%
Construction (for capital expenses in future years):	4.0% or contract provisions, if available

Discount Rate (to bring future costs to present value)

Discount Rate to use in analysis*	5.0%
*This is the average annual cost of capital (net interest cost of bonds) for the past ten years.

Useful Lives

Buildings/Structures	40 years
Gravity Sewers	80 years
Forcemains (dual-pipes, corrosion-resistant materials)	40 years
Process Piping	30 years
Equipment	Varies, 20 years is typical
Mechanical & Electrical Systems	20 years
Instrumentation & Control	15 years
Mobile Equipment	10 years
Computer Hardware and Software	4 years

Replacement Cost Factor

Factor to use before adjusting for inflation*
Non-mobile equipment	1.25
Mobile equipment	1.00
*This accounts for higher replacement cost due to newer technology, installation, and purchasing equipment separately from the original construction project. Use these factors unless there is compelling reason to use different rates.

Analysis Horizon

Master Plans	50 years
Facility Plans	20 years
Interceptors	50 years
Treatment Plants	20 years
Other Capital Projects	Life of the project's main/major structure
Projects that depend on a specific contract	Contract Term

Terminal Residual Value

For assets that are not fully depreciated at the end of the analysis horizon	Maximum Terminal Value = cost less straight line depreciation to terminal date.
	Minimum Terminal Value = scrap value of materials less demolition costs.
For land (if applicable)	Original land purchase price ( a conservative estimate)

Financial Analysis Methodology

For decision-making, such as alternatives analysis, use incremental cost analysis methodology. For pricing services, use a full cost approach, and consult MCES Finance for additional guidance.

Capital Costs

	As a percent of construction cost
Master/Area Planning - Undeveloped Design Details & contingencies	50%
Facility Planning - Undeveloped Design Details & contingencies	30%
Engineering, Administrative, and Legal costs	20% *
* This is not to be compounded with the above factors (apply the 20% to Capital Costs before the above factors are applied)

Operation and Maintenance Prices (including sales tax)

Electricity (Treatment Plant avg)	$.0625/kwh
Electricity (all other)	$.0675/kwh
Natural Gas - Firm (includes distribution charge)	$10.50/MMBtu
Natural Gas - Interruptible (includes distribution charge)	$7.75/MMBtu
Diesel Fuel	$3.10/gallon
Polymer	Depends on sludge and process
Chlorine (1-ton cylinder)	$510
Sulfur Dioxide (1-ton cylinder)	$500
Caustic Soda	$1.45/gallon
Sodium Hypochlorite	$.70/gallon
Labor Salaries & Benefits - Operations (excludes overtime)	$80,000 (1,800 hours work time per year)
Labor Salaries & Benefits - Maintenance (excludes overtime)	$80,000 (1,800 hours work time per year)

**Greenhouse Gases* (valued at $9 per ton of CO2 equivalent)**

Indirect Carbon Costs (Xcel Energy):
	Electricity:		$.0054 per KWH

Direct (on-site) Carbon Costs:
	From Energy Sources:
		Natural gas:	$.054 per therm
		Distillate fuel oil:	$.073 per therm
		Propane (LPG):	$.060 per therm
		Gasoline:	$.092 per gallon

	From Exhaust (these costs include global warming multipliers):
		Methane:	$207 per ton
		Nitrous Oxide:	$2,790 per ton
*These costs are in addition to the regular cost of these items. Detailed Analysis in Word doc

For questions or suggested additions to this page, contact:

Dan Schueller
Phone: (651) 602-1624
Email: dan.schueller@metc.state.mn.us

Metropolitan Council