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Home My WebLink About6.a. Water, Sewer, and Stormwater Rate Review Executive SummaryG:\Utilities\Rates\20160919 UC Water Sewer Storm Rates.docx EXECUTIVE SUMMARY Utility Commission Meeting: September 19, 2016 AGENDA ITEM: Water, Sewer and Stormwater Rate Review AGENDA SECTION: New Business PREPARED BY: Christine Watson, Public Works Coordinator AGENDA NO. 6.a. ATTACHMENTS: Rate Models; 2nd Meter Credit Calculation; Samples APPROVED BY: ddj RECOMMENDED ACTION: Motion to Recommend City Council Approval of Water, Sewer and Stormwater Rate Changes for 2017. BACKGROUND WATER UTILITY RATES Staff has completed its annual review of the water utility fund activity and adjusted the model to reflect the proposed changes for 2017 and beyond. Based on this review, staff is proposing a rate increase that will result in an overall net increase of 3.4% to the water portion of the utility bill for the average water user. A detailed calculation is shown in the attached examples. The attached water rate model includes the following items of note: LINES 7-16: Increased fixed rate and base rate 4% annually LINES 17-20: Increased surcharge 0.5% annually to increase revenue in the Capital Investment Fund (CIF). The CIF will contribute more towards the debt service. There has not been an increase in the surcharge for many years. LINES 22-23: Increased meter maintenance fees 0.5% annually (have not been adjusted for many years). Ideally, revenue from meter maintenance fees (Lines 35-38) should offset the cost of meter replacements (LINE 44). LINE 50: Added water tower maintenance in 2018 and 2025 LINE 51: Updated utility equipment purchases LINE 56: Updated water treatment plant costs beginning in 2020. Share cost 75% from Utility fund, 25% from Core/CIF funds. LINE 62: Show estimated revenue from new developments ($6500/acre has not been adjusted in many years) (average $183,000 over last 6 years) LINE 63: Updated connection cost to $2300 for 2017, $2400 for 2018, and 1% annual increase thereafter (has not been adjusted for many years) LINE 69: Show estimated surcharge revenue from larger meters G:\Utilities\Rates\20160919 UC Water Sewer Storm Rates.docx LINE 71: Starting in 2020, add $488,000/year to existing debt to cover 20% of water treatment plant. Starting in 2022, add $191,000/year for Well 17. LINE 72: $800,000 in 2017 for 16-inch watermain associated with 42/52 interchange project LINES 72-73: Starting in 2018, share debt 80% Core, 20% CIF Although it is not shown on the printed spreadsheet, the model was extended to 2034 to ensure that the utility fund remains viable through the duration of all of the anticipated debt payments. The year-end balance in 2034 is estimated to be $6.57 million. The year with the lowest year-end balance is expected to be 2027 ($2.07 million). SEWER UTILITY RATES Staff has completed its annual review of the sewer utility fund activity and adjusted the model to reflect the proposed changes for 2017 and beyond. Based on this review, staff is proposing to increase the fixed rate $0.50 and the usage rate 6% annually. The table below summarizes the rate changes over the past four years. Sewer Rates 2012 Rate (5%) 2013 Rate (5%) 2014 Rate (2%) 2015 Rate (2%) 2016 Rate (4%) 2017 Rate (6%) Fixed Rate $21.00 $22.00 $22.50 $23.00 $23.50 $24.00 Usage Rate $1.58 $1.66 $1.69 $1.73 $1.80 $1.91 The attached sewer rate model includes the following items of note: The model includes an optional Scenario 2 for eliminating 2nd meters and billing for sewer based on Q1 usage. This scenario has been part of the model since the beginning, but has not been shown or discussed in recent years. LINE 8: Adjusted rates to get 2026 year-end balance as close to the annual expenses as possible (Line 32), resulting in a 6% annual increase LINE 9: Adjusted rates to get year-end balance as close to Scenario 1 as possible. A significant rate increase will be needed to maintain the same level of revenue since the number of gallons billed will decrease significantly. The proposed increase is 30% in 2017, and 7% annually thereafter. LINE 19: The calculation detail for a one-time 2nd meter credit is provided as an attachment LINE 27: Met Council charges have fluctuated over the past several years, but 5% per year appears to be a reasonable estimate based on historical data. LINE 31: Staff is still researching and developing a lift station maintenance program. Once a program has been developed, the amount in this line may increase beginning in 2018. G:\Utilities\Rates\20160919 UC Water Sewer Storm Rates.docx STORMWATER UTILITY RATES Staff has completed its inaugural review of the stormwater utility fund activity and created the attached model for consideration by the Utility Commission. The model is similar in nature to the models for the water and sewer rates. Based on a study performed by Springstead, Inc. in 2002, the stormwater rates have been increased 5% annually across all categories for the past 14 years. This new model shows that a 4% annual increase should be sufficient to maintain a viable year-end balance for next 10 years and beyond. SUMMARY In order to illustrate the impact that these proposed water, sewer and stormwater rate changes will have on our utility customers, a comparison was done with five randomly-selected samples, one from each of the following groups: Low user Average user High user Low user with a 2nd meter High user with a 2nd meter The results are shown in the attached samples. Staff is requesting Utility Commission recommendation to the City Council to approve the proposed water and stormwater rate changes, as well as the sewer rate changes for Scenario 1. If that is the recommendation, the changes will be reflected in the 2017 Fee Resolution that is presented to City Council for approval in December.