HomeMy WebLinkAboutAgenda Bill PresentationPart1 11/1/2010DATE:
TO:
FROM:
SUBJECT
November 1, 2010
Pr0W,nta tt'4)-w
Honorable Mayor and Members of the City Council through City Manager
Pamela Tuft, Interim Director, Department of Water Resources & Conservatt
Water and Wastewater Financial Plan and Rate Study
RECOMMENDATION
It is recommended that the City Council receive a presentation on the Draft Water and
Wastewater Financial Plan and Rate Study and provide direction as appropriate.
BACKGROUND
In 2007 the City adopted rate plans for both the water and wastewater utilities. The final year of
the term of the 2007 report begins January 2011 and anticipates previously approved rate
increases of 5 %.for Water, and 13% for Wastewater, respectively. In June 2009 the City
contracted with.the Reed Group, to prepare financial plans and rates studies for the water and
wastewater utilities to address system needs for the five -year period beginning with the 2012 rate
year.. The Study includes analysis of ongoing operation and maintenance activities, debt service
obligations, short-term capital improvement projects, and ongoing revenue requirements, and
provides recommendations for modified rate structures and rate adjustments. A recommendation
summary is provided on page 10 of the Study.
DISCUSSION:
Completing construction and initiating operation of the Ellis Creek Water Recycling Facility
afforded the opportunity to include the first year of full operation (FY 09/10) into this Rate
Study. The previous fiscal year (FY 08/09) reflected the operation of the Hopper Street
Treatment Plant concurrently with the start-up of the Ellis Creek Facility. Having a full year of
operation plus; an adopted budget for the second year (FY 10/ 11) provided a complete picture of
existing and conditions and costs for inclusion in the rate analysis process, and
provided Reed Group and City staff a basis for reconsidering revenue requirements for the
2011' rate year. As those requirements appear less than previously anticipated, the five -year
financial,, plan and. rate recommendations presented i the Study anticipate modifying previously
approved increases in the Wastewater fund and address 2011 through the 2015 rate years.
The Executive Summary of the Study outlines: the purpose of the work effort; the five -year
financial plan for both utilities; recommendations for both utilities; and summarizes the
Agenda Review:
City Attorney Finance Director City Manager
recommended rate structures for each utility. The Draft Study recommends reducing the
wastewater increase,,approved in 2007 for rate year 2011 from 13 % to 9 %, and proposes only
cost of- living (CPI) „ and capital improvement (CIF) adjustments for the following four rate years.
No change to the previously approved water rate adjustment of 5% for the 2011 rate year is
recommended; adjustments based on cost of living (CPI) increases and pass through of Sonoma
County Water Agency rate increases, if implemented, are proposed for all five rate years.
It should be noted that the provision of potable waterand, the collection, treatment, and disposal
of wastewater is a critical service requiring safe operation 24 hours a day, 7 days a week, 365
days a year without extended system. interruption or failure. It should also be noted that the Reed
Group and City staff evaluated reducing: reserves in these funds to determine whether such
reductions would result in lesser rate adjustments for water and wastewater. It is possible, by
reducing reserves below the level's recommended in the Study to greatly offset the need for the
cost -of- living adjustment components of both rate adjustment recommendations. Reducing
reserves to a 15 percent level, rather than the 25 percent recommended by the study would
reduce reserves to $1,486,000 in Water and $1,414,000 in Wastewater, respectively. Reducing
reserves to such levels is not prudent. The age of most of'the community's distribution and
collection system, including pump stations and tanks, is advanced enough that emergency repairs
and replacements are eminent possibilities. 1n addition, accidents, such as downed power poles
can and have also triggered the, need for emergency repairs or replacement. To put the cost of
such 'repairs into context, reconstructing one pump station. can cost between $2 and $4 million,
dependent upon size and flow demand. Regardless of accidents, unexpected failures, or natural
disasters, the system must operate and be maintained in.a mariner to ensure compliance with all
regulatory requirements. For these reasons, no reduction to the 25 percent reserve levels is
recommended.
Bob Reed of The Reed Group will attend the Council's November 1, 2010 meeting and provide
the Council with a presentation regarding the Rate Study. Both.Mr. Reed and City staff will be
available to answer the Council's questions regarding the study and utility system needs, and to
receive comments and direction as appropriate.
Dependent on Council direction staff will proceed with the, preparation of appropriate outreach to
the community, public notice, and legislation for future Council consideration of adjustments for
the 20.11 through 2015 rate years.
FINANCIAL IMPACTS
The financial impacts associated with proceeding with adoption of the recommendation
identified in the Draft Rate-, Study, is discussed in the Five -Year Financial Plan analysis section,
which provides background, definition of funding and rate structures and cash flows within the
two utility funds, assumptions reflected in the analysis for the report, customer and account
characteristics, capital improvement program funding, long -term debt financing, operating
reserves, and conclusions and' recommendations. The intent of the Study was to achieve fiscal
sustainability for both utilities for the five -year study period and beyond.
ATTACHMENTS
1. Draft Water and Wastewater Financial Plan and Rate Study