January 25, 2021

COUNCIL WORK SESSION – WATER RATE STUDY

CITY OF GALESBURG, IL
E R I C C A L L O C C H I A , E X E C U T I V E C O N S U LTA N T
 Water Rate Study Background
• Firm Background
• Study Scope of Work
AGENDA Study Results
• Revenue Requirements
• Customers and Consumption
• Financial Plan
• Rate Alternatives and Bill Impacts

Key Issues and Next Steps

• Customer Affordability
• Next Steps

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 WATER RATE STUDY BACKGROUND
• Study Goals:
̶ Develop a long-term financial plan that maintains the financial health of the City’s
Water Enterprise Fund
̶ Update the rates and fees charged to the City’s customers based on defensible
industry standards
• Study Guiding Principals
̶ The City’s water utility must be financially self-supporting.
̶ The City’s water rates shall be sufficient to ensure the funding of an appropriate level
of system rehabilitation and replacement
̶ The City shall maintain appropriate reserves to provide for contingencies and
unplanned expenses
̶ The City’s water rates shall be kept as low as possible over time
̶ The City’s water service should be affordable for all customers, especially the City’s
low-income customers

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 REVENUE REQUIREMENTS – O&M EXPENSES
• Day-to-day expenses of the $6.00

Millions
system $5.00 $4.64 (-0.6%) 0.9% 2.1% 2.1% 2.1% 2.1%

• FY 2019 Actual, FY 2020 and

$4.00
FY 2021 Budget Other Charges

• Escalated based on $3.00 Commodities

Contractual Services
appropriate indices $2.00 Personnel Services

• Aligned with median

industry operating ratios $1.00

($1,951/MG, $366/Account) $0.00

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025

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 REVENUE REQUIREMENTS – CAPITAL IMPROVEMENT PLAN (CIP)
• 10-Year CIP: $28.6 Mil.
$6.00

Millions
$4.99
̶ PAYGO = $16.6 Million $5.00
$4.22
̶ IEPA Loans = $12.0 Million $4.00 $3.76 $3.72
$3.40 $3.51
• Investments spread
$3.00
appropriately among $2.01
asset type (Pipes, $2.00
$1.36
Treatment, Pumps, etc.) $1.00 $0.67 $0.54 $0.46
• Total level of investment $0.00
sufficient for system size FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030

and value
PAYGO Funded Projects IEPA Loan Funded Projects Average Capital Spending: $2.6 Million

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 REVENUE REQUIREMENTS – DEBT SERVICE
• Current Debt outstanding balance of $2.50

Millions
$2.19 $2.19

about $13.7 million and annual $2.00

$1.99 $1.99

payment of about $1.38 million

$1.78 $1.78
$1.58
$1.51

• New Debt: $1.50 $1.38 $1.37 $1.38

̶ 2022 AMI Meters: $3.0 M $1.00

̶ 2024 Grand Ave.: $3.0 M

̶ 2026 Transmission Main: $3.0 M $0.50

̶ 2028 Transmission Main: $3.2 M $0.00

̶ All new debt assumed to be 20-year IEPA FY FY FY FY FY FY FY FY FY FY FY
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Loans @ 3.0% interest Existing Debt Service New Debt Service

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 RETAIL/WHOLESALE CUSTOMERS AND CONSUMPTION
• The City currently bills a monthly Meter Size Inside Outside Pipeline Sprinklers Wholesale Total
Facility Fee that includes no 5/8, 3/4 11,773 204 11 77 1 12,067
water and a per CCF rate for all 1"-2" 313 8 17 32 1 371
water consumption 2"-4" 139 7 1 2 2 152
4"-6" 6 - - - 3 9
• Inside City customers represent
6"+ 2 1 - - 3 6
97% of the City’s accounts and
Total Accounts 12,234 220 29 111 10 12,605
represent 95% of the City’s CCF
Usage
Billable Usage (CCF) Inside Pipeline Outside Sprinklers Wholesale Total
• Wholesale rates are governed by
Commercial 321,486 8 7,652 6,278 - 335,424
contract that limit the City’s
Residential 670,478 2,745 12,306 5,135 - 690,664
ability to alter their structure
Government 198,869 1,336 4 165 309,392 509,766
and rates in a manner
Industry 8,379 - 25,196 - - 33,575
inconsistent with regular
Total Usage (CCF) 1,199,212 4,089 45,158 11,578 309,392 1,569,429
Inside/Outside City rates

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 REVENUE REQUIREMENTS PROJECTION (FY 2020 RATES)
• Projected revenue requirements vary between $9.3 M and $7.0 M
• Current FY 2020 Revenues cannot support annual cash needs
• Water Fund Cash Balance would nearly be exhausted by FY 2026.
$10.00
Millions

$9.00

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Operating Expenses Existing Debt Service
New Debt Service PAYGO Capital Projects
Total Revenues (FY 2020 Rates)

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 FINANCIAL PLAN – BASE OPTION
• Adjust Fire Protection rates based on AWWA standards
• Increase Inside/Outside/Wholesale Facility Fees and Consumption Rate per CCF by 3.0% per year.

$10.00 $10.00
Millions

Millions
$9.00 $9.00

$8.00 $8.00

$7.00 $7.00

$6.00 $6.00

$5.00 $5.00

$4.00 $4.00

$3.00 $3.00

$2.00 $2.00

$1.00 $1.00

$0.00 $0.00
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Actual Actual Actual Projected Projected Projected Projected Projected Projected Projected
Operating Expenses Existing Debt Service FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
New Debt Service PAYGO Capital Projects
End of Year Water Cash Balance Minimum Recommended Cash Balance
Total Revenues (FY 2020 Rates) Total Revenues (Financial Plan)

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 FIRE PROTECTION RECOMMENDED RATES
• NewGen calculated the City’s Meter
Size
Accounts FY 2020
Updated
FY 2021
Recommended
FY 2021
appropriate Fireline Fee revenue using 2" 2 $8.75 $46.53 $4.31
AWWA standards 3" 1 $10.50 $55.84 $12.53

• Inputs: 4" 52 $12.25 $65.14 $26.71

6" 80 $15.75 $83.76 $77.58
̶ Population 8" 31 $19.25 $102.37 $165.32
̶ Average Day Pumping (gpd) 10" 4 $24.50 $130.29 $297.31
̶ Maximum Day Pumping (gpd) 12" - $29.75 $158.21 $480.23

̶ Meter Flow Differentials (i.e. the difference
between meter capacity)
• Based on the analysis, NewGen
recommends a 431% Increase in Fireline
revenues
• The “Updated” Column above assumes the City increases
revenues but does not change the meter differentials.
• The Recommended column generates the same FY 2021
revenues and uses AWWA standard meter differentials.
• If the City chooses not to increase Fireline revenues, then
retail/wholesale rates would need to increase 2.0% more in
FY 2022. All other projected increases may then remain the
same.

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 RATE ALTERNATIVES – REVENUE NEUTRAL
 Facility Fee Alternative 1: Reduce Inside City Facility Fee to $8.00 per month, adjust all other Facility Fees and per CCF
rates to maintain revenues.
 Facility Fee Alternative 2: Change the City’s Facility Fee structure to a per unit fee.
 CCF Rate Alternative 1: Change the City’s per CCF Rate structure to include 4 CCF per account for each customer.
 CCF Rate Alternative 2: Change the City’s per CCF Rate structure to include 4 CCF per unit for each customer. This change
is only assumed in addition to Facility Fee Alternative 2.
5/8” Meter Facility Fee Inside Outside Pipeline Sprinklers Wholesale
FY 2020 per Meter $15.91 $31.82 $15.91 $3.18 $31.82
Facility Fee Alternative 1 (FY 2021 per Meter) $8.00 $16.00 $8.00 $1.60 $16.00
Facility Fee Alternative 2 (FY 2021 per Unit) $14.45 $28.90 $14.45 $2.89 $28.90

Unit rate per CCF Inside Outside Pipeline Sprinklers Wholesale

FY 2020 $2.50 $5.00 $2.75 $2.50 $1.70
Facility Fee Alternative 1 (FY 2021) $3.50 $7.00 $3.85 $3.50 $1.79
Facility Fee Alternative 2 (FY 2021) $2.50 $5.00 $2.75 $2.50 $1.70
CCF Rate Alternative 1 (FY 2021 usage over 4 CCF per Meter) $3.71 $7.43 $4.09 $3.71 $1.79
CCF Rate Alternative 2 (FY 2021 usage over 4 CCF per Unit) $4.03 $8.05 $4.43 $4.03 $1.79

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 CUSTOMER BILL IMPACTS – MEDIAN INSIDE CITY CUSTOMER
5/8” Meter, 1 Unit, 4 CCF FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
Current Rate Structure $25.91 $25.91 $26.69 $27.49 $28.31 $29.16
$ Change $0.00 $0.78 $0.80 $0.82 $0.85
% Change 0.0% 3.0% 3.0% 3.0% 3.0%

Facility Fee Alternative 1 $25.91 $22.00 $22.66 $23.34 $24.04 $24.76

$ Change ($3.91) $0.66 $0.68 $0.70 $0.72
% Change (-15.1%) 3.0% 3.0% 3.0% 3.0%

Facility Fee Alternative 2 $25.91 $24.45 $25.18 $25.94 $26.71 $27.51

$ Change ($1.46) $0.73 $0.76 $0.78 $0.80
% Change (-5.6%) 3.0% 3.0% 3.0% 3.0%

CCF Rate Alternative 1 $25.91 $15.91 $16.39 $16.88 $17.39 $17.91

$ Change ($10.00) $0.48 $0.49 $0.51 $0.52
% Change (-38.6%) 3.0% 3.0% 3.0% 3.0%

CCF Rate Alternative 2 $25.91 $14.45 $14.88 $15.33 $15.79 $16.26

$ Change ($11.46) $0.43 $0.45 $0.46 $0.47
% Change (-44.2%) 3.0% 3.0% 3.0% 3.0%
Note: Each alternative is independent of each other alternative (except CCF Rate Alternative 2). Impacts shown here
are for individual changes only and may be different if both a Facility Fee and CCF Rate alternative are chosen.

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 CUSTOMER BILL IMPACTS – OTHER CUSTOMER CLASSES
$58.41 $27,332.20
FY 2020 $38.41 FY 2020 $37,566.10
$20.91 $3,966.10

$58.41 $27,332.20
Current Rate Structure Current Rate Structure
$38.41 $37,566.10
FY 2021 FY 2021
$20.91 $3,966.10
$67.50 $28,626.47
Facility Fee Alternative 1 Facility Fee Alternative 1
$39.50 $52,533.24
FY 2021 FY 2021
$15.00 $5,493.24
$56.95 $27,228.90
Facility Fee Alternative 2 Facility Fee Alternative 2
$36.95 $37,514.45
FY 2021 FY 2021
$19.45 $3,914.45
$64.19 $28,685.06
CCF Rate Alternative 1 CCF Rate Alternative 1
$34.48 $55,762.49
FY 2021 FY 2021
$15.91 $5,845.21
$66.80 $28,581.76
CCF Rate Alternative 2 CCF Rate Alternative 2
$34.58 $60,404.11
FY 2021 FY 2021
$14.45 $6,280.54
$0.00 $20.00 $40.00 $60.00 $80.00 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000
Family of Six Family of Four Single Person Typical Wholesale Large Government Large Healthcare

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 CUSTOMER AFFORDABILITY – MEDIAN INSIDE CITY CUSTOMER
% of Customers Exceeding 2.0% of Household Income (5/8” Meter, 1 Unit, 4 CCF)
25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
FY 2020 Rates FY 2020 Rates + 3.0% FY 2021 Facility Fee FY 2021 Facility Fee FY 2021 CCF Rate FY 2021 CCF Rate
Alt. 1 Alt. 2 Alternative 1 Alternative 2

Based on 2019 income data from United States Bureau of Labor Statistics. 4 CCF allows an average City household (2.14 people) 46 gallons per
day per person.

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 NEXT STEPS
• If the Council decides to maintain the current rate structure, then
NewGen’s recommendation is to begin adjusting rates effective in
FY 2022
• Rate structure alternatives may be implemented in FY 2021 with no
impact on projected revenues
• Prior to any alternative rate structure implementation:
̶ The City should test the new rate structure within its billing software
̶ The City should reach out to key large users whose bills would increase
under certain alternative rate structures

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THANK YOU!
ERIC CALLOCCHIA
EXECUTIVE CONSULTANT
443-951-4207
ECALLOCCHIA@NEWGENSTRATEGIES.NET
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