From:
Crisp, Dale
To:
Allen, Russell
Cc:
James, Perry;Jackson, Donna;Massengill, Robert;Waldroup, Kenneth;McCauley, Jeff ; Alford, Jennifer;Brown,
Nicole;Lex Warmath;Melissa Levin;Doug Carter;Buchan, Edward;Williams, Cinnamon; Alford, Cathy;
Watkins, Marva
Subject:
SPECIAL AGENDA ITEM: Water and Sewer Rate Increase for Remainder of FY 09 and FY 10 - AdditionalInformation
Date:
Thursday, April 16, 2009 12:40:20 PM
Attachments:
Public Utilities CIP.docRaleigh PU Rate Options 4-16-09.pdf Connection Fees Inreases vs. Revenue.xlsCapacity Fees 2009 Major NC systems.xlsCapacity Fees 2009 Summary Wake County Towns.docCapacity Fees 2009 Spreadsheet.xlsw-s bill comparision @ 6ccf.xlsw-s bill comparision @ 8ccf.xlsMemo on credit rating gradations--DEC.docRate History and CIP FY 83- Current.xlsMonthly Water Sewer Charges Chart for Council Meeting - 3-17-09.xls
As a result of the discussion by the City Council of the subject Special Item at the April 7
th
Councilmeeting, staff reviewed the back-up material provided to the City Council in their agendanotebooks and confirmed that some City Councilors did not receive the comprehensive reportthat was prepared on April 2
nd
by City staff and consultants to fully address questions andrequests for information that had been previously directed to staff when the Council firstdiscussed this subject issue at their March 17
th
Council meeting. In order to be sure that all theCouncilors received the entire report, you forwarded the report to them via e-mail on April 8
th
.Also, as a result of the April 7
th
City Council meeting discussion of the proposed water and sewerrate increase item, some additional questions and requests for information were made by CityCouncilors that the April 2
nd
report did not address. These additional questions and request foradditional information were referred to City staff. The following report is to respond to thosequestions and requests.Regarding the City Council’s questions about the final recommendations from the WaterConservation Advisory Council (WCAC) for the remaining items City Council referred to them, theWCAC has now completed their discussion of these items and their final recommendations arebeing submitted to the City Council as a separate agenda item for the April 21
st
Council meeting.Regarding the City Council’s questions about the Public Utilities Department’s CapitalImprovement Program Plan (CIP), the Council set a special City Council meeting workshop onApril 27
th
for a detailed discussion of the current and revised CIP with staff. However, theattached table is a summary of the totals of the updated detailed CIP information which we willpresent on the 27
th
. City staff and consultants have used this revised CIP data to generate w/srate analysis and develop funding options that City Council has requested.We have developed three funding options for the revised FY 2010 CIP total of $914,864,000. Therate analysis summaries from Raftelis Financial Consultants, the City’s current w/s rateconsultants, for each of these options are also attached to this report. Our goal in preparing theseoptions has been for the w/s rate increases to return as soon as possible to the w/s rateincreases that had been the City’s planned increases prior to the w/s revenue shortfall caused bythe wet weather conditions, water conservation efforts and economic / customer growthdownturn. In general terms, all three options modeled by Raftelis include the reduced annualdepartment wide operating budget expenses along with the reduced CIP discussed previously,but still assumes the switch to tiered w/s rates and monthly billing initiative on Dec. 1, 2009 andthe Dempsey E. Benton Water Treatment Plant start-up in Feb., 2010, plus includes theadditional w/s acreage fee re-imbursement revenue and water capacity sales revenues for FY 10and FY 11.
Option #1 – Maintains the 15% w/s rate increase discussed with Council last year when the FY2009 budget was adopted for FY 2010 effective on July 1, 2009 and very conservativeconsumption / customer growth percentages we have seen this year. This option results in a 21%w/s rate increase in FY 11 effective July 1, 2010, but returns us to the previously indicated 9% inFY 12, 7% in FY 13 and 7% in FY 14. This type of very high w/s rate model results in FY 11 iswhat led City staff to recommend a higher and earlier w/s rate increase (17% on May 1
st
) thanwhat was previously projected.Option #2 - Maintains the 15% w/s rate increase in FY 10 effective on July 1, 2009 and veryconservative consumption / customer growth percentages in FY 10 and FY 11, but assume a 3%growth for the last 3 years of the projection period, plus $6 million per year in “new w/s connectionfee” revenue beginning in FY 2011 and beyond, which would require a $2,500 per w/s connectionincrease by that time in new w/s connection fee revenue. This produces the desired results of a9% w/s rate increase in FY 11 effective July 1, 2010 and also returns to the previously indicated9% increase in FY 12, 7% increase in FY 13 and 7% increase in FY 14.Option #3 – Implement the 17% w/s rate increase effective on May 1, 2009 and maintain for all ofFY 10, plus assume a less conservative consumption / customer growth percentages in FY11(i.e. 3.5% growth per year for the remaining projection period), plus $4 million per year in “newconnection fee” revenue in FY 2011 and beyond, which would require a total of a $1,500 increaseby then. This also results in a 9% w/s rate increase in FY 11 effective July 1, 2010 and alsoreturns to the previously indicated 9% in FY 12, 7% in FY 13 and 7% in FY 14.As you can see, options #2 and #3 moderates the future w/s rate increases back to the previouslytargeted levels, but in order to do so relies on additional revenue from proposed sizeableincreases in the cost of new w/s customer connections to the City’s water and sewer system. Inthe April 2
nd
report to City Council, City staff recommended a $500 increase in the connection feetotal for FY 2010 and a $500 increase in FY 2011 for a total increase of $1,000 per connectionphased over a two year period. Option #2 actually requires a total increase of $2,500 perconnection over the same two year period and option #3 a total increase of $1,500 perconnection over this same period. Attached is a table that indicates the additional revenue thatwould be generated at varying increases in the connection fee totals at varying numbers of newconnections per year. We have assumed a conservative number of new w/s connections over thenext two years at 2,500 per year for the rate analysis options #2 and #3 connection fee totalincreases.The City Council has indicated an interest in phasing in any increase in new w/s connection feesor “w/s capacity fees”, therefore an increase of $500 in FY 2010 and an additional increase$1,000 in FY 2011, as outlined in option #3 would meet this phase in goal. In the April 2
nd
reportto Council, we updated the information on the current capacity charges for the major w/s systemsacross N.C. and the Triangle area w/s systems for the current fiscal year (2009) and I haveattached that information again to this report. I also added a spreadsheet (copy attached) foreasier direct comparison of this information. As you can see, Durham and Winston-Salemcontinue to report that they have no w/s capacity fees. Of the 13 w/s systems who reportedhaving a w/s capacity fee, Charlotte’s is currently the lowest at $1,835 for a single familyresidence and Holly Springs the highest at $8,000. The average capacity fee among those 13systems that have such a fee is $3,573 and the average of all 15 system surveyed is $3,096. Asyou know and as we have previously reported to City Council, Raleigh does not have aconnection charge named “w/s capacity fee”.However Raleigh’s current various w/s connection charges that do the same things that weunderstand these other w/s systems use their “capacity fees” to do, which is to provide revenue tofund their W/S Capital Improvement Programs, just as we use our various w/s connection fees,we simply do not call them “capacity fees”. The sum of Raleigh’s connection fees is $1,666 for FY2009. As you know, at the March 17
th
Council meeting these fees were updated for FY 2010, withan effective date of July 1, 2009. At the April 7
th
Council meeting, a $200 increase in the Sewer
Nutrient Fee was approved to fund the Water Conservation Incentive Initiative, effective July 1,2009. These increases raise the w/s connection fee total effective on July 1, 2009 to $1,938. IfCouncil chooses option #3 above which implements the 17% w/s rate increase effective on May1, 2009 and the phased additional connection fee increases for FY 2010 of $500 and $1,000 inFY 2011, the w/s connection fee totals would then be $2,438 and $3,438, respectively. Both ofthese total w/s connection fees values are still very competitive with the “benchmarked” w/ssystems averages for FY 2009.City Council requested information regarding the cost to the “average” or typical residentialcustomer if the 17% w/s rate increase is approved. Historically we have considered the “average”or typical residential customer uses 8 ccf per month of w/s service. This is approximately equal to6,000 gallons per month. However, our billing data now indicates with a “water conservationminded residential customer base” likely resulting from the exceptional drought experience of FY2008, our “average” residential customer is using 6 ccf per month or approximately 4,500 gallonsper month. Attached is a summary table that compares the current w/s rates to the proposed 17%increase rates for the current “average” residential customer using 6 ccf per month. As you cansee, that “average” residential customer will pay $10.06 more per two month billing cycle period,equal to $5.03 per month or $60.36 per year with a 17% w/s rate increase than they currentlypay. As discussed earlier, we had originally projected that a 15% w/s rate increase would benecessary on July 1, 2009 rather than the 17% w/s rate increase now requested for May 1, 2009.The cost difference between these two different rate increases to the “average” residentialcustomer is also shown on the attached summary table. For a billing cycle the difference is $1.23,for a month the difference is $0.62 and for the entire 14 months of time difference, given the twomonth earlier effective date that has been proposed, the amount is $17.50.For comparison purposes, I have also prepared a summary table based on a residential customerwho still uses 8 ccf per month and the cost differences are shown in a similar format to thepreviously described table and results. While the projected increases are greater with the higherwater and sewer consumption values as you would expect, they are not significantly higher.Additional questions were raised by Council regarding the financial impact of the City W/S UtilityFund’s AAA revenue bond credit rating being downgraded in gradations. I have attached a reportmemo regarding this issue also from the City’s Chief Financial Officer, Perry James, and we haveasked the City’s financial consultants at DEC who contributed to the report to attend the April 27thCity Council CIP workshop meeting in case there are additional questions regarding bond ratings.Finally there was discussion by the City Council at the April 7
th
meeting about the history theCity’s Public Utilities CIP. Attached is a 25 year history spreadsheet that we have prepared thatcompares the w/s rate increases to the Public Utilities Department’s adopted total CIP funding. Asyou can see, the City has raised w/s rates in previous years at levels equal to or greater than the15% and 17% increase implemented last year and proposed for FY 2010. Also, you can see thatthe CIP planning period has grown from 5 years to 10 years to now 15 years and that theinvestment needed has increased with these greater planning periods as well as a result of thesignificant amount of comprehensive engineering studies that have been performed in recentyears at City Council direction to access the condition and necessary improvements for entirewater supply, water treatment, water distribution, sewer collection, wastewater treatment andreuse water systems of the seven service areas of the Raleigh Public Utilities Department since2000. The specific titles of the reports and studies that were used to guide our preparation of theCIPs over the last few years are listed below along with the City’s engineering consultant firmsthat performed the work and when these were either completed or most recently updated.
W
ater Quality / Water Supply & Distribution System Master Plan Update Plan -Hazen& Sawyer Feb 2008
EM Johnson Water Treatment Plant Expansion Engineering Report - Hazen &Sawyer - May 2007
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28PU SI Water and Sewer Rates
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| Upload Date: | 04/20/2009 |
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