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12-16-1992 Utility AppraisalsTO: Councilmember THRU: THRU: CITY OF OKEECHOBEE MEMORANDUM DATE: Dec. 16, 1992 SUBJECT: Utility Appraisals FROM: John J. Drago, City Administrator` Mayor Kirk asked that I forward the enclosed review of the three appraisals from our consultants. I plan to meet with Mayor Kirk to discuss these reviews and develop alternatives for the County to consider. -A....) RMA Reese, Macon and Associates, Inc. City of Okeechobee 55 S.E. 3rd Avenue Okeechobee, FL 34974 Attn: Mr. John J. Drago, City Administrator Re: Utility System Appraisal Dear Mr. Drago: Per your request, we have reviewed the three proposals forwarded regarding the referenced work. Our comments on each are as follows: Allied Appraisal Services, Inc. There is not a great deal to comment on in this proposal. We certainly agree with their assessment that a fee cannot be fixed until the scope is defined in greater detail. We are curious as to what basis will be used to establish value of the functional groupings, or for that matter the equipment. Is it done on the basis of replacement cost, original cost depreciated over some pre established lifetime, or some other method? We do not feel that office furniture and equipment will be the most significant value of the system and, therefore, warrant the most detailed analysis. The proposed methods do not include consideration of revenue stream, which may be appropriate. It should be determined whether this firm has performed evaluations of this nature for the purpose of system purchase, rather than insurance assessments. Deighan appraisal Associates, Inc. We have a number of questions regarding the approach proposed by this firm. Please see our previous letter on this subject. Based on the information presented, this firm obviously has an understanding of the project requirements. However, we are still not clear as. to how certain types of information will be utilized or other items "reconciled For instance, if the cost to rehabilitate a given system component to excellent condition exceeds its depreciated value based on a pre established normal useful life, does this result in a net negative value? If so, is this reasonable for a component which is routinely and reliably functional? We agree that the scope needs to be refined. December 9, 1992 9121 N. Military Trail Suite 207 Palm Beach Gardens, Florida 33410 Ph. (407) 625 -6660 FAX (407) 625 -6664 City of Okeechobee Mr. John J. Drago Page 2 The approach proposed by this firm appears to more closely parallel the "Deighan" process than the "Allied" concept. Therefore, most of our questions directed toward the "Deighan" proposal are also valid for this approach. We do note that there are certain items discussed in the Utility System Record Checklist which do not seem relevant to this project. (ie.) construction contracts and payment record for the original WTP (probably not available), construc inspection reports, hydrogeologic reports, anything related to the PSC (this entity is not PSC regulated). We understand the checklist is probably generic and these items, therefore, are known to be not required for this effort. In summary, we believe it is premature to try to indicate which of these firms is proposing the most reasonable approach. The range in pricing ($20,000, $55,000, $63,000) indicates to us that there is insufficient clarity as to what specifically is required. In fact, most of the proposals state that further scope definition is necessary. We urge the City and County to jointly develop a mutually agreed upon, detailed, scope for this work and, then, solicit proposals from qualified firms. The scope should also establish the minimum qualifications requirements for firms to submit. The above approach will allow a more fair analysis for each firm and a better comparison of fees. wdr -546 92 -109 Richard T. Creech, Inc. If you have questions or wish to discuss this further, please call. Very truly yours, William D. Reese, P.E. Post-It- brand fax transmittal memo 7671 locomen To 'Feoen F 1 RGC5t. Co "R M Co. r, 1 iV 1 04 f P.. Dept. 1 Phone. Fax aR1 I(4 t(GaLA, FOX' DtC 10 92 10: 02 PEESE MACON ASSOC. RMA Reese, Macon and Associates, Inc. City of Okeechobee 55 S.E. 3rd Avenue Okeechobee, FL 34974 Attn: Mr. John J. Drago, City Administrator Re: Utility System Appraisal Dear Mr. Drago: p, c,1 you December 9, 1992 Per your request, we have reviewed the three proposals forwarded regarding the referenced work. Our comments on each are as follows: Allied Appraisal Services, Inc. There is not a great deal to comment on in this proposal. We certainly agree with their assessment that a fee cannot be fixed until the scope is defined in greater detail. We are curious as to what basis will be used to establish value of the functional groupings, or for that matter the equipment. Is it done on the basis of replacement cost, original cost depreciated over some pre established lifetime, or some other method? We do not feel that office furniture and equipment will be the most significant value of the system and, therefore, warrant the most detailed analysis. The proposed methods do not include consideration of revenue stream, which may be appropriate. It should be determined whether this firm has performed evaluations of this nature for the purpose of system purchase, rather than insurance assessments. Deighan appraisal Associates, Inc. We have a number of questions regarding the approach proposed by this firm. Please see our previous Ietter on this subject. Based on the information presented, this firm obviously has an understanding of the project requirements. However, we are still not clear as.to how certain types of information will be utilized or other items "reconciled For instance, if the cost to rehabilitate a given system component to excellent condition exceeds its depreciated value based on a pre established normal useful life, dots this result in a net negative value? If so, is this reasonable for a component which is routinely and reliably functional? We agree that the scope needs to be refined. 9121 N. Militant Trail Suite 207 Palm Beach Gardens_ Florida 3.1di (L DEC 10 '92 10:03 REESE, MACON ASSOC. P.02 City of Okeechobee Mr. John J. Drago Page 2 Richard T. Creech, Inc. The approach proposed by this firm appears to more closely parallel the "Deighan" process than the "Allied" concept. Therefore, most of our questions directed toward. the Deighan" proposal are also valid for this approach. We do note that there are certain items discussed in the Utility System Record Checklist which do not seem relevant to this project. (ie.) construction contracts and payment record for the original WTP (probably not available), construction inspection reports, hydrogeologic reports, anything related to the PSC (this entity is not PSC regulated). We understand the checklist is probably generic and these items, therefore, are known to be not required for this effort. In summary, we believe it is premature to try to indicate which of these firms is proposing the most reasonable approach. The range in pricing (S20,000, S55,000, S63,000) indicates to us that there is insufficient clarity as to what specifically is required. In fact, most of the proposals state that further scope definition is necessary. We urge the City and County to jointly develop a mutually agreed upon, detailed, scope for this work and, then, solicit proposals from qualified firms. The scope should also establish the minimum qualifications requirements for firms to submit. The above approach will allow a more fair analysis for each firm and a better comparison of fees. wdr -546 92 -109 If you have questions or wish to discuss this further, please calL Very truly yours, William D. Reese, P.E. RMA Reese, Macon and Associates, Inc. City of Okeechobee 55 S.E. Third Avenue Okeechobee FL 34974 Attn: John J. Drago, City Administrator Re: City Utility Appraisal Dear John, November 30, 1992 As requested, we have reviewed the draft scope /proposal from Deigham Appraisal Associates, Inc. for the referenced work. The scope proposes to use a three pronged methodology to establish value. The concepts set forth in the scope seem to be sound enough, but leave a number of very important questions, as follows. 1. Under the "cost approach" the specifics of the mechanics used to establish physical deterioration, functional obsolescence and economic obsolescence must be addressed. In short, how does the firm propose to quantify these items? 2. Under the "income approach" we do not think this system is unique because it is not rate regulated. Also, we are not clear what is meant by the statement that the "contributed portions....do not generate revenue Obviously, they do generate revenue since this revenue is the basis for retiring bonded indebtedness. Perhaps the author's mean profit. 3. Under the "income approach" we are not certain how the proposer intends to consider costs required to rehabilitate or replace" the system. 4. We agree that the "sales comparison approach" is too dependent on the uniqueness of each system and circumstances to offer a meaningful basis. 9121 N. Military Trail Suite 207 Palm Beach Gardens, Florida 33410 Ph. (407) 625 -6660 FAX (407) 625 -6664 Mr. John J. Drago November 30, 1992 Page 2 5. We agree that it will be necessary to reconcile the three or more methods to establish a value. It is necessary for the proposers to identify specifically how this will be done and what items will form the basis for the reconciliation. The proposed scope provides a good starting point for discussions. We do believe it is very important for all parties to be agreeable to the specifics of the approach in order for the value of the result to be maximized. 92 -109 If you have questions or wish to discuss this further, please call. Very truly yours, William D. Reese, P.E. -9E 1S:S3 TO: John Drago cc: Bill Reese FROM: Phil Gonot DATE: December 8, 1992 SUBJECT: Utility Appraiser proposals Deighan Appraisal Associates, Inc. PMG ASSOCIATES 631 Pot P Ytt c7 a Ju. ECONOMIC, MARKETING AND r.^ArdjGEMENT CONSULTANTS (ORANDT3M I have read the three proposals submitted by the County for the appraisal of the City's utility system. As a general comment, I feel it is not possible to accurately evaluate the proposals since none of the three submitted a detailed sccpe. The generalities expressed could lead to differences in interpretation creating additional problems in the future. I believe that it is essential to list specific tasks to be completed, the methods in which these tasks will be addressed and the data sources to be used. In this way, there will be no misunderstandings in the future. Specific comments on the three proposals are: Allied appraisal Services, Inc. The utility experience of this firm appears quite limited. Although they may have experience in insurance appraisal of public buildings, the evaluation of the utility system is more complex and specialized. The opening paragraph of their letter states that they will provide services relative to the valuation of a sewerage and waste water treatment plant... It appears to me that this firm does not fully comprehend the required services. The scope portion of this proposal does point out three methods of valuation. However, there are no details to determine if the process to be used is acceptable. The Cost Approach procedure is one appropriate method. However, the proposal states that they would reconcile the historical/ original cost and replacement cost. No specifics are made of how this reconciliation will occur. It is also important to establish a true replacement cost as an individual method. Replacement cost identifies the funds required to recreate the system today. To completely ignore this rrethod.is improper. ',enn wi tAI nktn ,PI I T nccflcict f1_1=Ar1.4 f`1 r1RII'i 3naa9 LfI(Kl 7_Sn1n At2- 08 -92 15:54 The Sales Comparison Ap_ razor: has nc value ever. as a "rest of reasonableness" as defined in the proposal. To include meaningless information in the analysis could lead to analytical problems. The Income Approach based on future revenue streams is an appropriate method of valuation. More specifics are required to determine the appropriateness of the methodology to be used. On the second page of the project description, the second paragraph contains several misstatements of fact and a possible duplication of previous efforts. These issues generate concern over the approach to be taken and its reasonableness. The City's utility system is not unique for public systems, none of which are rate regulated. All portions of the system contribute to the generation of revenues since they are all interrelated. Rehabilitation costs are recognized in the Cost Approach, to consider them again here may be double counting. These issues indicate clearly that the proposer's experience lies with privately -owned utilities and not public utility systems. Without specific identification of the tasks to be completed, it is difficult to determine if the analysis would be appropriate. Richard T. Creech, Inc. FMG ASSOCIATES 631 P02 As stated previously, details are not included in the proposal making the comparison difficult. Use of high school students in this analysis is not appropriate due to the complex nature of the subject. It is understandable to wish to provide internships, but not in this case. The proposal also includes use of an outside bond consultant, which may not be necessary. Physical Evaluation using replacement cost noting deterioration of the system is proper. However, the loss should be based on actual deterioration, not a reduction based on chronological age alone. The Economic Approach method should be based on the revenue stream that is attainable. Using an approximation of bonded indebtedness does not state the value of the system. Post It'► brand fax transmittal memo 7671 I of Pages 3 To 6 y A -I 1 o From n o/J Al, 4/ ed Co. Ca Dept. Phone 4 p/ —aJ LC) Fax ?t 76 -/GSG Fax# 2.4'/ /SG DEC 1 '92 Uo :49 I iEFFERaWILLARD INC AAAAAAAAA Knepper& Willard. inc. n• =r ir'...,'t ziff''.:. December 14, 1992 Mr. John J. Drago City Administrator City of Okeechobee 55 S.E. Third Ave. Okeechobee, Florida 34974 Re: Review of Proposals to Okeechobee County for Valuation of the City's Sewer and Water Systems Dear Mr. Drago: As requested, we have reviewed the three (3) proposals to the County for valuing the City's utilities systems. Of the three firms proposing, in our opinion, only one seems to have any relevant experience, or appears to demonstrate any depth of experience in similar valuations. We believe the County could have identified other firms more qualified than those offered for consideration. Some brief comments on each Allied Appraisal Services, Inc. Richard T. Creech, Inc. P. This proposal mentions only the wastewater treatment plant in the opening paragraph. It allows only 57500 for "Sewerage and Waste Water Collection and Distribution Network This obviously does not reflect enough attention to pipelines and pumping stations and it is unclear whether the water system is even being considered at all. Remaining discussion seems to miss the mark and we have a concern if this proposer has any idea what is to be accomplished. It appears that they intend to concentrate on structures and treatment facilities, not recognizing the extent of assets in the remainder of the systems. The proposer admits he doesn't have enough information about needs, objectives or scope of services and that this is not a "firm quotation The team is comprised of an appraiser, general contractors and machinery and equipment appraisers. There is no representation in engineering or public utilities accounting. Their experience List of three projects are not at all similar to the City's system. None of the personnel identified on the project team appear to have any significant experience in this type of work. The lead firm experience seems to be in general civil engineering and site development work, with very little background in public utilities 30301'& Rocky Point Drnre West Hillsborough (813) 281 -0120 Suite 570 Pinellas (813) 821291 Tampa. 'tondo 33607-5905 FAX (813) 281 -1156 DEC 15 '92 03:50 KNEFFER:WILLARD INC AAAAAAAAA P.2 /3 Mr. John J. Drago December 14, 1992 Page 2 engineering. In the associated firm, only one individual with any apparent expertise is mentioned and he isn't shown as being committed to the project team. Additionally, they indicate the use of student interns. This is too important to the City to be used as a training exercise. The team doesn't offer any appraisal, accounting or other areas of expertise beyond engineering. The engineering experience shown in the proposal is very limited in conducting similiar valuations. The submitted information appears to be more of an expression of interest than a proposal or scope of services. It is doubtful what the outcome may be, given this level of uncertainty as regards the assigned personnel and apparent level of understanding. Deighan Appraisal Associates, Inc. This team illustrates more experience and capabilities than either of the other two, but perhaps not as much applicable experience as others the County could have contacted. The information provided is still not detailed and specific enough that the City should feel comfortable in committing to accepting the outcome of their proposed appraisal. As noted in the information provided, a formal scope has not been established. However, even though they have proposed a scope of services, some portions should be taken exception to by the City, i.e.; the uniqueness of the City's system, and the apparent intention to evaluate as if this were a private system. Some representation on the project should be in the area of public utilities accounting. Again, none of the proposals is detailed enough to fully analyze or evaluate. It appears that information provided by the County did not sufficiently delineate the work to be performed. This is further evidenced by the wide range of fees proposed $20,000.00 to $63,000.00). We recommend that the City and County jointly develop a request for proposals, adequately addressing the scope of services and establishing selection criteria. The City needs to be comfortable with the assumptions made and the two approaches (replacement cost and income) and needs to have some input as to methods of depreciating equipment, useful life of the various components, and other valuation criteria. There are a number of firms in this state who engage in this type of evaluation, but there is no indication that a wide solicitation of proposals was undertaken by the County. Knepper &Willard. inc. DEC Z5 '9Z 08 :51 KNEPPEPaWILLARD INC AAAAAAAAA P.3 /3 Mr. John J. Drago December 14, 1992 Page 3 Considering the importance of this project, the City should have more input and more opportunity to review the methodology and assumptions made during the course of the study. Further, the City needs to be comfortable with the credentials of the selected firm. Otherwise, a serious impact to the City's welfare may result. Very truly yours, KNEPRER WILLARD, INC. Daniel S. Willard, P.E. Knepper&Willard. inc.