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Home My WebLink AboutCouncil Presentation 06/18/2019 Water and Water Reclamation Rate Studyt Marana Water Department June 18, 2019 Water and Water Reclamation Rate Study 1 Agenda 1.Rate-setting process 2.Water financial plan and rates 3.Water Reclamation financial plan and rates 4.Water and Water Reclamation Bill Comparisons 5.Next Steps 2 Study goals and objectives •Multi-year financial plan, cost-of-service, and rates which sustain the long-term financial health of the water and water reclamation utilities ›Securing of current and future water resources ›Fund system improvements ›Fund preventative maintenance programs ›Develop and fund a reserve policy ›Ensure timely payment of annual debt obligations ›Development of rates that provide revenue stability and promote conservation 3 Water &Sewer Bill Index Water and wastewater bills are increasing nationwide 4 Consumer Price Index Drivers for increases •Energy costs •Aging and additional infrastructure •Increased regulatory pressures Previous rate increases •Previous rate increase plan initiated in 2013 ›Water –April 2014 (+6.5%) (cumulative 6.5%) –January 2015 (+6.5%) (cumulative 13.4%) –January 2016 (+4.7%) (cumulative 20.6%) –January 2017 (+4.7%) (cumulative 27.9%) ›Water Reclamation –April 2014 (increased to match Pima County) 5 t 1. Rate-setting process 6 Industry publications provide the framework •American Water Works Association,Manual M-1, Principles of Rates, Fees, and Charges •Raftelis Financial Consultants,Water and Wastewater Finance and Pricing •Water Environment Federation,Financing and Charges for Wastewater Systems 7 The rate -setting process 8 Financial Plan Cost-of-Service Rate Design 1 What level of revenue is needed to meet expenditures, reserves, and bond covenants? Is each customer class paying their equitable share?2 How should costs be recovered?3 Step 1: Financial plan 9 Revenues at Existing Rates and other income Projected number of customers, consumption, and revenues O&M & Capital Budget Forecast of expenditures Financial Policies Apply financial policies which inform the cash flow analysis Capital Funding Sources Rates, Debt, Capacity Fees Identify level of rate revenue, bonds and fees for financing capital projects Cash Flow Analysis Summary of projected revenues, expenditures and rate increases Revenue Increases Adjust revenues to meet annual expenditures and financial policies Step 2: Cost -of -service analysis •Determines cost to provide service to each customer class based on the demands they impose on the utility •Recognizes customer classes’ differing service characteristics •Costs will vary by customer class 10 Water Wastewater •Average demand •Peak demands •Number of customers by class •Number of meters by size by class •Billable contributed flow •Number of customers by class Step 2: Cost -of -service analysis A multi -step process 1.Determine revenue required from rates 2.Assign operating and capital costs based on system facility or function in the system which incurs that expense 3.Allocate those costs based on how facilities are designed and operated within system 4.Distribute allocated costs to customer classes based on their demand characteristics 11 Step 3: Rate design •Method of recovering the cost to provide servicefor each customer class •Water and wastewater rate designs typically consistof a monthly fixed charge and a volumetric rate •Fixed charge ›Meter maintenance and meter reading ›Customer service, billing, and collection, general admin ›Portions of salaries and benefits and other general fixedexpenses (utilities, uniforms, office equip., maintenance,etc. ›A component of capital costs –readiness to serve 12 Step 3: Rate design •Volume rate, $ per 1,000 gallons ›Water volume rate generally recovers the cost to collect, treat, and distribute water to customers ›Wastewater volume rates generally recover cost to collect, treat, and recharge of treated effluent 13 Water and Water Reclamation utility general assumptions •Each utilities’ financials are separated into funding for operations and funding for capital projects ›Operating cash flow –Shows the ability of rates for each utility to meet annual O&M, debt, transfers to the capital fund, reserves and debt service coverage ›Capital cash flow –Shows the ability of bond proceeds and rate revenue required to meet annual capital costs •Study period: FY20 –FY24 •Test year rates: FY20 14 t 2. Water 15 Water Financial planning assumptions 16 •Forecast period: FY20 –FY24 •FY19 number of accounts: 8,094 ›Over 95% of accounts are residential •Annual account growth: 5.5%; 470 accounts •Projected consumption: Based on historical customer billing data from FY17 and FY18 •Target operating reserves: 90 days O&M Class Accounts Single family 7,677 Multi-family 16 Commercial 147 Government 21 Irrigation 117 Standpipe 56 Hydrant 60 Total 8,094 Water Operating fund cash flow summary Item FY20 FY21 FY22 FY23 FY24 Rate Revenue Increase 5.5%5.5%5.5%5.5%3.0% Cumulative Rate Increase 5.5%11.3%17.4%23.9%27.6% Ending Balance, $ millions $2.78 $2.28 $1.98 $1.89 $2.29 Target Reserves, $ millions $1.43 $1.57 $1.66 $1.76 $1.81 Unrestricted, $ millions $1.34 $0.71 $0.32 $0.13 $0.47 Debt Service Coverage 1.99x 2.12x 2.38x 2.64x 3.32x 17 Water operating fund cash flow summary $ millions 18 Water FY20 revenue requirement $ millions 19 Water Comparison FY20 cost of service to FY20 revenue under existing rates 20 Customer Class FY20 Cost of Service FY20 Revenue Under Existing Rates Change -$ Residential -Single Family $3,383,620 $3,603,181 ($219,561) Residential -Multi Family $89,292 $92,465 ($3,174) Commercial $226,465 $244,594 ($18,129) Government $55,085 $46,367 $8,718 Irrigation $376,129 $421,831 ($45,702) Hydrant $239,920 $213,381 $26,539 Fire Service $24,054 N/A $24,054 Standpipe $36,617 $7,571 $29,046 Groundwater Res.$850,674 $377,109 $473,566 Total Utility $5,281,856 $5,006,498 $275,357 Fire Service –new fee •Standby service •Provided to customers with private hydrants, standpipes, or sprinkler systems •Fire service fee improves equity between customer classes •Fee is based on cost of service analysis 21 Groundwater resource fee •Current fee ›$0.50 per 1,000 gallons applied to all water usage •Proposed charge based on cost of service analysis and recovers ›CAP expenses ›Withdrawal fees ›Long term storage credits •Proposed fee ›$1.13 per 1,000 gallons applied to usage and water customers 22 Existing Proposed Water Existing and proposed service charges $ per bill Meter Size FY19 FY20 FY21 FY22 FY23 FY24 Monthly Service Charge 5/8"$19.09 $15.96 $16.84 $17.77 $18.75 $19.31 3/4"$19.09 $16.69 $17.61 $18.58 $19.60 $20.19 1"$46.35 $17.79 $18.77 $19.80 $20.89 $21.52 1.5"$50.44 $26.17 $27.61 $29.13 $30.73 $31.65 2"$58.62 $42.95 $45.31 $47.80 $50.43 $51.94 3"$79.07 $65.56 $69.17 $72.97 $76.98 $79.29 4"$139.05 $96.93 $102.26 $107.88 $113.81 $117.22 Fire Service 4"$0.00 $13.70 $14.45 $15.24 $16.08 $16.56 6"$0.00 $39.80 $41.99 $44.30 $46.74 $48.14 8"$0.00 $84.82 $89.49 $94.41 $99.60 $102.5923 Existing Proposed Water Existing and proposed volume rates $ per 1,000 gallons Customer Class FY19 FY20 FY21 FY22 FY23 FY24 Residential –Single Family 0 –10,000 gallons $3.11 $3.15 $3.32 $3.50 $3.69 $3.80 10,001 –20,000 gallons $4.33 $4.41 $4.65 $4.91 $5.18 $5.34 20,001 –30,000 gallons $5.63 $5.67 $5.98 $6.31 $6.66 $6.86 30,001 –40,000 gallons $6.94 $7.09 $7.48 $7.89 $8.32 $8.57 Over 40,000 gallons $9.97 $10.23 $10.79 $11.38 $12.01 $12.37 Multi, Comm, Ind, Gov $3.82 $3.96 $4.18 $4.41 $4.65 $4.79 Irrigation, Hydrant Water $4.33 $4.31 $4.55 $4.80 $5.06 $5.21 Standpipe $4.33 $20.94 $22.09 $23.30 $24.58 $25.32 Groundwater resources charge $0.50 $1.13 $1.19 $1.26 $1.33 $1.37 24 Existing Proposed Water Typical residential water bills •5/8” meter •7,000 gallons usage 25 Period FY19 FY20 FY21 FY22 FY23 FY24 Cost of Service Rates Monthly Bill $44.36 $45.92 $48.41 $51.09 $53.89 $55.50 Change -$$1.56 $2.49 $2.68 $2.80 $1.61 Existing Proposed Water Typical commercial water bill (Small) •5/8” meter •8,500 gallons usage 26 Period FY19 FY20 FY21 FY22 FY23 FY24 Cost of Service Rates Monthly Bill $55.81 $59.23 $62.49 $65.97 $69.58 $71.67 Change -$$3.42 $3.26 $3.48 $3.61 $2.09 Existing Proposed Water Typical commercial water bill (Large) •2” meter •63,000 gallons usage 27 Period FY19 FY20 FY21 FY22 FY23 FY24 Cost of Service Rates Monthly Bill $330.78 $363.62 $383.62 $405.01 $427.17 $440.02 Change -$$32.84 $20.00 $21.39 $22.16 $12.85 t 3. Water Reclamation 28 Water Reclamation Financial planning assumptions 29 •Forecast period: FY20 –FY24 •FY19 number of accounts: 4,278 ›Over 90% of accounts are residential •Account growth: 7.5% per year; 300 accounts •Billable volume: Based on historical customer billing data from FY17 and FY18 •Target operating reserves: 60 days O&M Class Accounts Single family 4,228 All other 50 Total 4,278 Water Reclamation Operating fund cash flow summary 30 Item FY20 FY21 FY22 FY23 FY24 Rate Revenue Increase 7.0%7.0%5.0%5.0%5.0% Cumulative Rate Increase 7.0%14.5%20.2%26.2%32.5% Ending Balance, $ millions $1.30 $1.24 $0.97 $0.79 $0.74 Target Reserves, $ millions $0.25 $0.26 $0.28 $0.30 $0.32 Unrestricted, $ millions $1.05 $0.98 $0.69 $0.49 $0.43 Debt Service Coverage 117%140%156%173%193% Water Reclamation Operating fund cash flow summary $ millions 31 Water Reclamation FY20 Revenue requirement $ millions 32 Water Reclamation Comparison FY20 cost of service to revenue under FY20 existing rates 33 Customer Class FY20 Cost of Service FY20 Revenue Under Existing Rates Change -$ Residential $1,470,486 $1,415,503 $54,984 Multifamily $43,813 $33,125 $10,688 Commercial $60,342 $31,741 $28,601 Government $33,969 $23,005 $10,964 Total $1,608,611 $1,503,374 $105,236 •Multifamily, commercial and governmental cost of service based on actual water use. Water Reclamation Existing and proposed rates Existing [1]Proposed [2] 34 Customer Class FY19 FY20 FY21 FY22 FY23 FY24 All Customer Classes Monthly Fixed Charge, $/bill $12.63 $14.26 $15.26 $16.02 $16.82 $17.66 Volume Rate, $/Kgal $4.71 $4.59 $4.91 $5.16 $5.42 $5.69 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. Existing (1)Proposed (2) Water Reclamation Typical monthly residential bills 5,236 gallons (7 ccf ) 35 Period FY19 FY20 FY21 FY22 FY23 FY24 Bill $37.29 $38.29 $40.97 $43.04 $45.20 $47.45 Change -$$1.00 $2.68 $2.07 $2.16 $2.25 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. Existing (1)Proposed (2) Water Reclamation Typical monthly commercial bills (Small) 5/8” Meter 8,500 gal (11.4 ccf) 36 Period FY19 FY20 FY21 FY22 FY23 FY24 Bill $34.77 $53.28 $57.00 $59.88 $62.89 $66.03 Change -$$18.51 $3.72 $2.89 $3.01 $3.14 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. Existing (1)Proposed (2) Water Reclamation Typical monthly commercial bills (Large) 2” Meter, 63,000 gal (84 ccf ) 37 Period FY19 FY20 FY21 FY22 FY23 FY24 Bill $257.55 $303.43 $324.59 $341.10 $358.28 $376.13 Change -$$45.88 $21.16 $16.51 $17.18 $17.85 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. t 4. Water and Water Reclamation Bill Comparisons 38 Existing (1)Proposed(2) Bill Comparison Typical residential water and wastewater bills •5/8” meter •7,000 gallons water use •5,236 gallons (7 ccf ) billable wastewater volume 39 Period FY19 FY20 FY21 FY22 FY23 FY24 Water Bill $44.36 $45.92 $48.41 $51.09 $53.89 $55.50 Wastewater Bill $37.29 $38.29 $40.97 $43.04 $45.20 $47.45 Total $81.65 $84.21 $89.38 $94.13 $99.09 $102.95 Change -$$2.56 $5.17 $4.75 $4.96 $3.86 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. Existing (1)Proposed(2) Bill Comparison Typical commercial water and wastewater bills (Small) •5/8” meter •8,500 gal (11.4 ccf) Water Use 40 Period FY19 FY20 FY21 FY22 FY23 FY24 Water Bill $55.81 $59.23 $62.49 $65.97 $69.58 $71.67 Wastewater Bill $34.77 $53.28 $57.00 $59.88 $62.89 $66.03 Total $90.58 $112.50 $119.48 $125.85 $132.47 $137.70 Change -$$21.92 $6.98 $6.36 $6.63 $5.22 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. •2” meter •63,000 gal (84 ccf ) Water Use Existing(1)Proposed (2) Water Typical commercial water and wastewater bills (Large) 41 Period FY19 FY20 FY21 FY22 FY23 FY24 Water Bill $330.78 $363.62 $383.62 $405.01 $427.17 $440.02 Wastewater Bill $257.55 $303.43 $324.59 $341.10 $358.28 $376.13 Total $588.33 $667.05 $708.21 $746.11 $785.45 $816.15 Change -$$78.72 $41.16 $37.90 $39.34 $30.70 [1] Existing volume rate based on winter quarter average billable water volume for residential and commercial classes. [2] Proposed residential volume rate is based WQA and Proposed commercial volumetric rate is based on actual billable water use. Community monthly bill comparison Single family residential 5/8” meter 7,000 gallons water; 5,326 gallons (7 ccf ) wastewater 42*Based on rates currently in effect for each community. Study goals and objectives •Multi-year financial plan, cost-of-service, and rates which sustain the long-term financial health of the water and water reclamation utilities ›Securing of current and future water resources ›Fund system improvements ›Fund preventative maintenance programs ›Develop and fund a reserve policy ›Ensure timely payment of annual debt obligations ›Development of rates that provide revenue stability and promote conservation 43 Next Steps •August 13 –Regular Council meeting –post the notice of intent for the public hearing •October 15 –Public Hearing and potential adoption •January 1, 2020 –rates go into effect •Public outreach will take place between August 13 and October 15 •Open houses, stakeholder meetings, website updates, social media plan, direct mailings 44 t Thank you 45