Water, Sewer & Storm Rate Study
Council Workshop
Water, Sewer & Storm Rate Study February 5, 2018 Presented by: John Ghilarducci, Principal/ Vice President Sergey Tarasov, Project Manager
Discussion Outline Overview of rate setting process Summary of findings – Revenue requirement – Cost of service – Rate design Next Steps Questions
FCS GROUP
Page 2
Overview of the Rate Setting Process FISCAL MANAGEMENT POLICIES O&M COSTS DEFINE CAPITAL NEEDS & FUNDING:
RATE REVENUE REQUIREMENT NON-RATE REVENUES
COST OF SERVICE Water
Sewer
CUSTOMER
M&S
BASE
PEAK
CUSTOMER
STRENGTH
FIRE
DEFINE CUSTOMER CLASSES
FIXED CHARGES
FCS GROUP
FLOW
ALLOCATE COSTS TO CUSTOMER CLASSES
RATE DESIGN
VARIABLE CHARGES
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Key Assumptions Study focus: FY2018-FY2023 – Projections through FY2037 Customer growth: – Water & Sewer: 0.3% per year – Storm: 0.6% per year FY2017 adjusted budget used as baseline New debt to fund Capital: – Revenue bonds: 20-year term, 5.0% interest, 1.0% issuance cost Capital costs include Renewal & Replacement (R&R) funding of aging system assets for each utility Annual adjustments effective: – March FY2018 (4 months); September FY2019 (9 months); July FY2020 and July thereafter (12 months) Fiscal policies: – Operating (days of O&M): Water 75; Sewer 45; Storm 30 – Capital: Water & Sewer 1.0% of plant in service, Storm $150,000 FCS GROUP
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Revenue Requirement
Revenue Requirement Overview Determines the amount of revenue necessary to meet all utility financial obligations on a stand-alone basis – Operating costs – Capital costs – Financial policies and targets Evaluates existing revenue levels for sufficiency Develops a multi-year rate implementation strategy
FCS GROUP
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Key Components - Water Annual Capital Costs $6,000,000
Description Existing Rate Revenue O&M Expenses Existing Debt Service New Debt Service Total CIP (Inflated)
Water (FY2018-FY2023) $3.76 mil - $3.82 mil $2.93 mil - $3.11 mil $400 k $590 k - $1.51 mil $20,393,453
$5,131,649 $5,000,000
$4,000,000 $3,000,000
$2,963,197
$3,049,828
$3,138,991
$3,230,761
$2,879,027
FY2019
FY2020
FY2021
FY2022
FY2023
$2,000,000
$1,000,000 $FY2018
Total CIP of $20.39 million (inflated to the year of construction) – Includes R&R funding of Valves, Hydrants, Meter and Mains Capital program funded by: – Existing resources: cash reserves, rate funding, LID assessments, CWSRF Loan and infrastructure fee revenues New debt required - $17.00 million – FY2018: $6.50 million – FY2020: $5.00 million – FY2022: $5.50 million Note: FY2018 CIP is based on budget, future years are based on historical annual average costs plus R&R.
FCS GROUP
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Revenue Requirement – Water $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $FY 2018
FY 2020
FY 2021
FY 2022
FY 2023
Cash Operating Expenses
Existing Debt Service
New Debt Service
Reserve/ Capital Funding
Total Existing Revenues
Total Revenue After Increase
Residential Water Sample Bill Monthly Bill (5/8") - 3,500 gallons $ Monthly Difference Proposed Increase
FY 2019
Existing $
FY2018
31.80 $ $
FY2019
FY2020
FY2021
FY2022
FY2023
33.71 $ 35.73 $ 37.87 $ 40.15 $ 42.56 $ 45.11 1.91 $ 2.02 $ 2.14 $ 2.27 $ 2.41 $ 2.55 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Adjustments effective: March FY2018; September FY2019; July FY2020 and July thereafter Key rate increase drivers: – Cost of capital and associated annual debt service
FCS GROUP
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Key Components - Sewer Annual Capital Costs $7,000,000
Description Existing Rate Revenue O&M Expenses Existing Debt Service New Debt Service Total CIP (Inflated)
Sewer (FY2018-FY2023) $3.94 mil - $4.01 mil $3.23 mil - $3.53 mil $570 k - $270 k $680 k - $1.19 mil $15,285,784
$6,640,891
$6,000,000 $5,000,000 $4,000,000 $3,000,000
$2,000,000
$1,630,795
$1,678,473
$1,727,544
$1,778,049
$1,830,032
FY2019
FY2020
FY2021
FY2022
FY2023
$1,000,000 $FY2018
Total CIP of $15.29 million (inflated to the year of construction) – Includes R&R funding of Manholes, Cleanouts, Gravity Mains and Force Mains Capital program funded by: – Existing resources: cash reserves, rate funding and CWSRF Loans New debt required - $9.56 million – FY2018: $3.40 million – FY2020: $3.18 million – FY2022: $3.00 million Note: FY2018 CIP is based on budget, future years are based on historical annual average costs plus R&R.
FCS GROUP
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Revenue Requirement – Sewer $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $FY 2018
FY 2020
FY 2021
FY 2022
FY 2023
Cash Operating Expenses
Existing Debt Service
New Debt Service
Reserve/ Capital Funding
Total Existing Revenues
Total Revenue After Increase
Residential Sewer Sample Bill Monthly Bill - 3,000 gallons $ Monthly Difference Proposed Increase
FY 2019
Existing $
FY2018
44.45 $ $
FY2019
FY2020
FY2021
FY2022
FY2023
48.01 $ 51.25 $ 53.55 $ 55.69 $ 57.92 $ 59.95 3.56 $ 3.24 $ 2.31 $ 2.14 $ 2.23 $ 2.03 8.00% 6.75% 4.50% 4.00% 4.00% 3.50%
Adjustments effective: March FY2018; September FY2019; July FY2020 and July thereafter Assumes the use of $406,000 in reserves in FY2018 Key rate increase drivers: – Cost of capital and associated annual debt service
FCS GROUP
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Storm Considerations Existing Storm rates are not sufficient to meet ongoing obligations – Operating expenses are subsidized by Streets – Capital costs are paid for through the infrastructure fee – All customers pay an equal Storm fee per account Items for consideration: – Transition Storm utility to self-sufficiency • Eliminate Streets subsidy and infrastructure fees – Bill customers based on Equivalent Service Units (ESUs) • Tied to impervious surface area for Non Single Family customers • Very common industry rate structure • Shifts revenue collection from Single Family to Non Single Family (Commercial) customers commensurate with their impervious surface area FCS GROUP
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Storm Scenarios Scenario 1 (S1): – Self sufficient Storm rates starting March FY2018 • Not enough time to convert billing system to ESU billing – Convert to ESU rates starting September FY2019 followed by increases in July of 2020 and thereafter Scenario 2 (S2): – Delay rate implementation until July FY2019, and July of every year thereafter • Allows time for conversion to ESU rates • Requires an additional subsidy to meet expenses in FY2018 of $328,700.
FCS GROUP
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Key Components - Storm Annual Capital Costs $2,500,000
Description Existing Rate Revenue O&M Expenses New Debt Service Total CIP (Inflated)
Storm (FY2018-FY2023) $453 k - $468 k $542 k - $611 k $240 k - $649 k $9,670,078
$2,317,108
$2,000,000
$1,745,598
$1,500,000
$1,000,000 $518,454
$510,866
$525,802
$541,174
FY2020
FY2021
FY2022
FY2023
$500,000
$FY2018
FY2019
Total CIP of $9.67 million (inflated to the year of construction) – Includes R&R funding of Manholes, Catch Basins, Mains Capital program funded by: – Existing resources: cash reserves, rate funding, CWSRF Loan and infrastructure fee revenues New debt required - $3.25 million in S1 or $4.80 million in S2 – FY2019: $1.85 million S1; $2.50 million S2 – FY2020: $1.40 million S1; $1.70 million S2 – FY2022: $0.60 million S2 Note: FY2018 CIP is based on budget, future years are based on historical annual average costs plus R&R.
FCS GROUP
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Revenue Requirement – Storm (scenario 1) $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000
$200,000 $FY 2018
FY 2020
FY 2021
Cash Operating Expenses
New Debt Service
Total Revenues
Total Revenue After Increase
Residential Storm Sample Bill Monthly Bill - per Account $ Monthly Difference Monthly Bill - per ESU $ Monthly Difference Proposed Increase
FY 2019
Existing
FY2018
FY2019
$
26.24 $ 26.83 17.99 $ 0.59 $ 9.23 $ 9.23 218.00% 2.25%
8.25 $ $
FY 2022
FY 2023
Reserve/ Capital Funding
FY2020 $ $ $ $
27.43 0.60 9.44 0.21 2.25%
FY2021 $ $ $ $
28.05 0.62 9.65 0.21 2.25%
FY2022 $ $ $ $
28.68 0.63 9.87 0.22 2.25%
FY2023 $ $ $ $
29.32 0.65 10.09 0.22 2.25%
Note: rates apply on a per Equivalent Service Unit (ESU) basis starting September FY2019.
FCS GROUP
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Revenue Requirement – Storm (scenario 2) $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $FY 2018
FY 2020
FY 2021
Cash Operating Expenses
New Debt Service
Total Revenues
Total Revenue After Increase
Residential Storm Sample Bill Monthly Bill - per Account $ Monthly Difference Monthly Bill - per ESU $ Monthly Difference Proposed Increase
FY 2019
Existing $
FY2018
8.25 $ $
FY2019
8.25 $ 23.99 $ 15.74 $ 8.25 $ 8.25 0.00% 190.75%
FY 2022
FY 2023
Reserve/ Capital Funding
FY2020 $ $ $ $
24.53 0.54 8.44 0.19 2.25%
FY2021 $ $ $ $
25.08 0.55 8.63 0.19 2.25%
FY2022 $ $ $ $
25.64 0.56 8.82 0.19 2.25%
FY2023 $ $ $ $
26.22 0.58 9.02 0.20 2.25%
Note: rates apply on a per Equivalent Service Unit (ESU) basis starting FY2019.
FCS GROUP
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Storm Summary Proposed strategy sets Storm rates to be self sufficient – Eliminates Streets subsidy for operations – Eliminates infrastructure fees for capital use Scenarios for consideration Scenarios Scenario 1 Per Account Per ESU Scenario 2 Per Account Per ESU
Existing
FY2018
$
218.00% 8.25 $ 26.24
$
0.00% 8.25 $ 8.25
FY2019
FY2020
FY2021
FY2022
FY2023
2.25%
2.25%
2.25%
2.25%
2.25%
$ 9.23 $ 9.44 $ 9.65 $ 9.87 $ 10.09 190.75% 2.25% 2.25% 2.25% 2.25% $
8.25 $
8.44 $
8.63 $
8.82 $
9.02
– S1: March FY2018 adjustment, followed by September FY2019 adjustment with conversion to an ESU rate and July adjustments thereafter – S2: July FY2019 adjustment with conversion to an ESU rate and July adjustments thereafter. • Requires $328,700 additional subsidy in FY2018
FCS GROUP
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Storm Residential Survey Monthly Bill Newport (S1 Per Account)
$26.24
St. Helens
$11.33
Newport (S2 Per ESU)
$8.25
Newport (Existing)
$8.25
Florence
$7.57
North Bend
$4.50
Cottage Grove
$4.24
Lebanon
$3.28
Dallas
$2.78
Dalles
$2.00
Sweet Home
$1.00 $-
FCS GROUP
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
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Non Residential Sample Impacts
Description Large Commercial 1 Large Commercial 2 Hotel 1 Hotel 2
Accounts
ESUs 1 1 1 1
147 129 49 38
Monthly Bill Existing Proposed $ 8.25 $ 1,212.75 8.25 1,064 8.25 404 8.25 314
Difference $
1,204.50 1,056.00 396.00 305.25
Notes: 1. Equiv alent Serv ice Unit (ESU) = 2,700 square feet of imperv ious surface area. 2. ESUs w ere rounded to a w hole number for this ex ample.
FCS GROUP
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Cost of Service
Cost of Service An equitable distribution of cost shares that considers utility specific data: – Measures of usage and demand – Planning, engineering and design criteria – Facility requirements Total cost by customer class (equity) Unit costs ($/usage; $/customer) Fundamental question: do cost differences exist to serve different customer classes of service
FCS GROUP
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Cost of Service Process Step 1: Allocate total utility cost by function
Water Utility Functions** Customer Meters & Services Base Demand (average use) Peak Demand (peak use) Fire Protection
Sewer Utility Functions** Customer Flow Strength
Step 2: Assign allocation factors using class specific information Step 3: Allocate costs to customer classes
** Industry Standard Methodologies; AWWA Principles of Water Rates, Fees and Charges, M1 Manual and the Water Environment Federation Financing and Charges for Wastewater Systems Manual 27
FCS GROUP
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Cost Allocation to Functions Water FIRE PROTECTION, $331,153 , 8%
PEAK, $1,736,459 , 44%
FCS GROUP
Sewer CUSTOMER, $634,857 , 16%
METERS & SERVICES, $121,578 , 3%
BASE, $1,160,232 , 29%
TSS, $768,924 , 18%
BOD, $768,924 , 18%
CUSTOMER, $200,826 , 5%
FLOW, $2,519,299 , 59%
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Cost Allocation to Customer Classes - Water Class Single Family Multi Family Commercial Total
$
$
2018 Revenues Existing COSA 1,384,612 $ 1,307,931 $ 314,845 281,328 2,059,296 2,395,021 3,758,754 $ 3,984,279 $
Difference $ (76,682) (33,517) 335,724 225,525
% -5.5% -10.6% 16.3% 6.0%
+ 5.0% of average within COS (industry standard) First cost of service study completed by the City – Cost of service adjustments are warranted – Historical information – continue collecting data and monitoring – Consider phase-in to confirm trends over time
FCS GROUP
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Water Cost of Service Proposed Phase-In Class Single Family Multi Family Commercial Total
2018 COSA
2018 Phase-In
-5.5% -10.6% 16.3% 6.0%
-0.8% -1.6% 11.7% 6.0%
Make progress towards cost of service – Continue collecting data and monitoring – Revisit during next update
FCS GROUP
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Cost Allocation to Customer Classes - Sewer Class Single Family Multi Family Commercial Total
$
$
2018 Revenues Existing COSA 1,738,479 $ 1,433,901 $ 457,649 574,445 1,746,440 2,249,627 3,942,568 $ 4,257,973 $
Difference $ (304,579) 116,796 503,188 315,405
% -17.5% 25.5% 28.8% 8.0%
+ 5.0% of average within COS (industry standard) First cost of service study completed by the City – Cost of service adjustments are warranted – Historical information – continue collecting data and monitoring – Consider phase-in to confirm trends over time
FCS GROUP
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Sewer Cost of Service Proposed Phase-In Class Single Family Multi Family Commercial Total
2018 COSA
2018 Phase-In
-17.5% 25.5% 28.8% 8.0%
0.0% 15.8% 13.9% 8.0%
Make progress towards cost of service – Continue collecting data and monitoring – Revisit during next update
FCS GROUP
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Rate Design
Rate Design
Produce sufficient revenue to meet utility financial requirements Cost based and equitable Collect the target revenue level for each class of service Meet the goals and objectives of the utility Rate design considerations: – Phase-in cost of service overall increases – Eliminate water allowance of 1,000 gallons
FCS GROUP
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Water Rate Design Options Option 1: Across the board – uniform percentage increases to fixed and variable charges – No structure changes Option 2: Phase in towards cost of service – Eliminate allowance for all classes of service – Differentiate rates by class of service (existing rates are the same)
FCS GROUP
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Water Rate Options Description
Existing
Across the Board
COSA Phase-In Multi Family $
5/8"x3/4" 1" 1.5" 2" 3" 4"
$
21.80 28.95 44.10 75.50 112.70 187.35
$
0-1,000 gallons 1,001+ gallons All usage
$
4.00
$
Single Family Monthly Fixed 23.11 $ 18.50 30.69 24.57 46.75 37.42 80.03 64.07 119.46 95.64 198.59 158.99 Variable (per 1,000 gallons) 4.24 4.00
18.50 24.57 37.42 64.07 95.64 158.99
4.00
Commercial $
21.90 29.08 44.30 75.85 113.22 188.21
4.50
Notes: outside city rates hav e an approx imate 1.9 multiplier on fix ed charges and 1.6 multiplier on v ariable charges.
FCS GROUP
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Water Revenue Breakdown Total Revenue
Existing
COSA Phase In
Fixed, 32.38%
Fixed, 38.49% Volume, 61.51% Volume, 67.62%
Residential
Multi Family
Commercial
Residential
Multi Family
19.49%
17.52%
33.71%
32.17%
Commercial
29.06%
41.99% 58.01%
67.83% 66.29% 80.51%
FCS GROUP
70.94%
82.48%
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Water Residential Bill Impacts 1,000 gallons 0.0 1.0 2.0 3.5 5.0 7.0 9.0 11.0 14.0 17.0 20.0
Existing $
21.80 21.80 25.80 31.80 37.80 45.80 53.80 61.80 73.80 85.80 97.80
Across the COSA Board Phase-In $ 23.11 $ 18.50 23.11 22.50 27.35 26.50 33.71 32.50 40.07 38.50 48.55 46.50 57.03 54.50 65.51 62.50 78.23 74.50 90.95 86.50 103.67 98.50
Across the Board $ % $ 1.31 6.0% 1.31 6.0% 1.55 6.0% 1.91 6.0% 2.27 6.0% 2.75 6.0% 3.23 6.0% 3.71 6.0% 4.43 6.0% 5.15 6.0% 5.87 6.0%
COSA Phase-In $ % $ (3.30) -15.1% 0.70 3.2% 0.70 2.7% 0.70 2.2% 0.70 1.9% 0.70 1.5% 0.70 1.3% 0.70 1.1% 0.70 0.9% 0.70 0.8% 0.70 0.7%
Notes: assumes a 5/8" x 3/4" meter.
FCS GROUP
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Water Residential Bill Survey Residential Monthly Sample Bill (3,500 gallons) $55.30
Dalles $43.03
Lebanon Lincoln City
$40.63 $36.03
St. Helens
Waldport
$34.01 $33.71
Newport (AtB) Astoria
$32.99
Newport (COSA Phase-In)
$32.50
Newport (Existing)
$31.80 $28.48
Florence Sweet Home
$26.58
North Bend
$26.10
Cottage Grove
$22.14 $21.06
Dallas -
10.00
20.00 Fixed
FCS GROUP
30.00
40.00
50.00
60.00
Variable
Page 33
Sewer Rate Design Options Option 1: Across the board – uniform percentage increases to fixed and variable charges – No structure changes Option 2: Phase in towards cost of service – Differentiate rates between Single Family and Non Single Family Option 3: Phase in towards cost of service, 100% fixed charge for Single Family – Elimination of the “garden” rate for Single Family
FCS GROUP
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Sewer Rate Options Across the Phase-In Board Monthly Fixed Residential $ 23.90 $ 25.81 $ 23.90 Multi-Family 23.80 25.70 27.56 Commercial 23.80 25.70 27.56 Variable (per 1,000 gallons) Residential $ 6.85 $ 7.40 $ 6.85 Multi-Family 7.85 8.48 9.09 Commercial 7.85 8.48 9.09 Notes: For the months of June through September, Residential usage will not exceed the highest monthly sewer user charge for the first four months of the calendar year. Description
Existing
Phase-In (100% Fixed) $
43.10 27.56 27.56 n/a 9.09 9.09
Common residential rate approaches: – Uniform fixed rate per residence – Winter average usage – Max winter month usage – Actual water usage (with separate irrigation meter) FCS GROUP
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Sewer Residential Bill Impacts 1,000 gallons 0.0 1.0 2.0 3.0 4.0 5.0 7.0 9.0 12.0 15.0 20.0
Existing $
FCS GROUP
23.90 30.75 37.60 44.45 51.30 58.15 71.85 85.55 106.10 126.65 160.90
Across the COSA Phase- COSA 100% Board In Fixed $ 25.81 $ 23.90 $ 43.10 33.21 30.75 43.10 40.61 37.60 43.10 48.01 44.45 43.10 55.41 51.30 43.10 62.81 58.15 43.10 77.61 71.85 43.10 92.41 85.55 43.10 114.61 106.10 43.10 136.81 126.65 43.10 173.81 160.90 43.10
$
Across the Board $ % 1.91 8.0% 2.46 8.0% 3.01 8.0% 3.56 8.0% 4.11 8.0% 4.66 8.0% 5.76 8.0% 6.86 8.0% 8.51 8.0% 10.16 8.0% 12.91 8.0%
$
COSA Phase-In $ % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
$
COSA Phase-In $ % 19.20 80.3% 12.35 40.2% 5.50 14.6% (1.35) -3.0% (8.20) -16.0% (15.05) -25.9% (28.75) -40.0% (42.45) -49.6% (63.00) -59.4% (83.55) -66.0% (117.80) -73.2%
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Sewer Residential Bill Survey Residential Monthly Sample Bill (3,000 gallons) $53.64
Astoria
$53.01
Florence
$48.01
Newport (AtB) Dalles
$46.32 $44.45
Newport (COSA Phase-In) Newport (Existing)
$44.45 $44.39
Lincoln City Newport (COSA Phase-In; 100% Fixed)
$43.10
Dallas
$42.82
St. Helens
$40.04 $39.00
Lebanon
Sweet Home
$32.70 $30.00
North Bend Waldport
$27.37
Cottage Grove
$21.72 -
10.00
20.00 Fixed
FCS GROUP
30.00
40.00
50.00
60.00
Variable
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Rate Affordability Average Monthly Bill as a % of Median Household Income Description Water Sewer Storm Combined
Existing Rates Mo. Bill $ of MHI $ 31.80 0.95% 44.45 1.33% 8.25 0.25% $ 84.50 2.53%
Scenario 1 Mo. Bill $ of MHI $ 33.71 1.01% 48.01 1.44% 26.24 0.79% $ 107.95 3.24%
Scenario 2 Mo. Bill $ of MHI $ 32.50 0.97% 44.45 1.33% 8.25 0.25% $ 85.20 2.56%
Scenario 3 Mo. Bill $ of MHI $ 32.50 0.97% 43.10 1.29% 8.25 0.25% $ 83.85 2.52%
Note: assumes median household income of $40,000 per year.
Scenario 1 based on: – Water/Sewer: across the board – Storm: Scenario 1 Scenario 2 based on: – Water/Sewer: COSA phase-in – Storm: Scenario 2 Scenario 3 based on: – Water: COSA phase-in – Sewer: COSA phase-in 100% Fixed – Storm: Scenario 2
FCS GROUP
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Next Steps Adopt proposed rates effective: – Water & Sewer: March FY2018, September FY2019 and July thereafter – Storm: July FY2019 Continue monitoring Water, Sewer & Storm rates to make sure they follow assumptions incorporated in the study
FCS GROUP
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Questions/Discussion
Water, Sewer & Storm Rate Study February 5, 2018 Presented by: John Ghilarducci, Principal/ Vice President Sergey Tarasov, Project Manager
Discussion Outline Overview of rate setting process Summary of findings – Revenue requirement – Cost of service – Rate design Next Steps Questions
FCS GROUP
Page 2
Overview of the Rate Setting Process FISCAL MANAGEMENT POLICIES O&M COSTS DEFINE CAPITAL NEEDS & FUNDING:
RATE REVENUE REQUIREMENT NON-RATE REVENUES
COST OF SERVICE Water
Sewer
CUSTOMER
M&S
BASE
PEAK
CUSTOMER
STRENGTH
FIRE
DEFINE CUSTOMER CLASSES
FIXED CHARGES
FCS GROUP
FLOW
ALLOCATE COSTS TO CUSTOMER CLASSES
RATE DESIGN
VARIABLE CHARGES
Page 3
Key Assumptions Study focus: FY2018-FY2023 – Projections through FY2037 Customer growth: – Water & Sewer: 0.3% per year – Storm: 0.6% per year FY2017 adjusted budget used as baseline New debt to fund Capital: – Revenue bonds: 20-year term, 5.0% interest, 1.0% issuance cost Capital costs include Renewal & Replacement (R&R) funding of aging system assets for each utility Annual adjustments effective: – March FY2018 (4 months); September FY2019 (9 months); July FY2020 and July thereafter (12 months) Fiscal policies: – Operating (days of O&M): Water 75; Sewer 45; Storm 30 – Capital: Water & Sewer 1.0% of plant in service, Storm $150,000 FCS GROUP
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Revenue Requirement
Revenue Requirement Overview Determines the amount of revenue necessary to meet all utility financial obligations on a stand-alone basis – Operating costs – Capital costs – Financial policies and targets Evaluates existing revenue levels for sufficiency Develops a multi-year rate implementation strategy
FCS GROUP
Page 6
Key Components - Water Annual Capital Costs $6,000,000
Description Existing Rate Revenue O&M Expenses Existing Debt Service New Debt Service Total CIP (Inflated)
Water (FY2018-FY2023) $3.76 mil - $3.82 mil $2.93 mil - $3.11 mil $400 k $590 k - $1.51 mil $20,393,453
$5,131,649 $5,000,000
$4,000,000 $3,000,000
$2,963,197
$3,049,828
$3,138,991
$3,230,761
$2,879,027
FY2019
FY2020
FY2021
FY2022
FY2023
$2,000,000
$1,000,000 $FY2018
Total CIP of $20.39 million (inflated to the year of construction) – Includes R&R funding of Valves, Hydrants, Meter and Mains Capital program funded by: – Existing resources: cash reserves, rate funding, LID assessments, CWSRF Loan and infrastructure fee revenues New debt required - $17.00 million – FY2018: $6.50 million – FY2020: $5.00 million – FY2022: $5.50 million Note: FY2018 CIP is based on budget, future years are based on historical annual average costs plus R&R.
FCS GROUP
Page 7
Revenue Requirement – Water $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $FY 2018
FY 2020
FY 2021
FY 2022
FY 2023
Cash Operating Expenses
Existing Debt Service
New Debt Service
Reserve/ Capital Funding
Total Existing Revenues
Total Revenue After Increase
Residential Water Sample Bill Monthly Bill (5/8") - 3,500 gallons $ Monthly Difference Proposed Increase
FY 2019
Existing $
FY2018
31.80 $ $
FY2019
FY2020
FY2021
FY2022
FY2023
33.71 $ 35.73 $ 37.87 $ 40.15 $ 42.56 $ 45.11 1.91 $ 2.02 $ 2.14 $ 2.27 $ 2.41 $ 2.55 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
Adjustments effective: March FY2018; September FY2019; July FY2020 and July thereafter Key rate increase drivers: – Cost of capital and associated annual debt service
FCS GROUP
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Key Components - Sewer Annual Capital Costs $7,000,000
Description Existing Rate Revenue O&M Expenses Existing Debt Service New Debt Service Total CIP (Inflated)
Sewer (FY2018-FY2023) $3.94 mil - $4.01 mil $3.23 mil - $3.53 mil $570 k - $270 k $680 k - $1.19 mil $15,285,784
$6,640,891
$6,000,000 $5,000,000 $4,000,000 $3,000,000
$2,000,000
$1,630,795
$1,678,473
$1,727,544
$1,778,049
$1,830,032
FY2019
FY2020
FY2021
FY2022
FY2023
$1,000,000 $FY2018
Total CIP of $15.29 million (inflated to the year of construction) – Includes R&R funding of Manholes, Cleanouts, Gravity Mains and Force Mains Capital program funded by: – Existing resources: cash reserves, rate funding and CWSRF Loans New debt required - $9.56 million – FY2018: $3.40 million – FY2020: $3.18 million – FY2022: $3.00 million Note: FY2018 CIP is based on budget, future years are based on historical annual average costs plus R&R.
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Revenue Requirement – Sewer $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $FY 2018
FY 2020
FY 2021
FY 2022
FY 2023
Cash Operating Expenses
Existing Debt Service
New Debt Service
Reserve/ Capital Funding
Total Existing Revenues
Total Revenue After Increase
Residential Sewer Sample Bill Monthly Bill - 3,000 gallons $ Monthly Difference Proposed Increase
FY 2019
Existing $
FY2018
44.45 $ $
FY2019
FY2020
FY2021
FY2022
FY2023
48.01 $ 51.25 $ 53.55 $ 55.69 $ 57.92 $ 59.95 3.56 $ 3.24 $ 2.31 $ 2.14 $ 2.23 $ 2.03 8.00% 6.75% 4.50% 4.00% 4.00% 3.50%
Adjustments effective: March FY2018; September FY2019; July FY2020 and July thereafter Assumes the use of $406,000 in reserves in FY2018 Key rate increase drivers: – Cost of capital and associated annual debt service
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Storm Considerations Existing Storm rates are not sufficient to meet ongoing obligations – Operating expenses are subsidized by Streets – Capital costs are paid for through the infrastructure fee – All customers pay an equal Storm fee per account Items for consideration: – Transition Storm utility to self-sufficiency • Eliminate Streets subsidy and infrastructure fees – Bill customers based on Equivalent Service Units (ESUs) • Tied to impervious surface area for Non Single Family customers • Very common industry rate structure • Shifts revenue collection from Single Family to Non Single Family (Commercial) customers commensurate with their impervious surface area FCS GROUP
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Storm Scenarios Scenario 1 (S1): – Self sufficient Storm rates starting March FY2018 • Not enough time to convert billing system to ESU billing – Convert to ESU rates starting September FY2019 followed by increases in July of 2020 and thereafter Scenario 2 (S2): – Delay rate implementation until July FY2019, and July of every year thereafter • Allows time for conversion to ESU rates • Requires an additional subsidy to meet expenses in FY2018 of $328,700.
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Key Components - Storm Annual Capital Costs $2,500,000
Description Existing Rate Revenue O&M Expenses New Debt Service Total CIP (Inflated)
Storm (FY2018-FY2023) $453 k - $468 k $542 k - $611 k $240 k - $649 k $9,670,078
$2,317,108
$2,000,000
$1,745,598
$1,500,000
$1,000,000 $518,454
$510,866
$525,802
$541,174
FY2020
FY2021
FY2022
FY2023
$500,000
$FY2018
FY2019
Total CIP of $9.67 million (inflated to the year of construction) – Includes R&R funding of Manholes, Catch Basins, Mains Capital program funded by: – Existing resources: cash reserves, rate funding, CWSRF Loan and infrastructure fee revenues New debt required - $3.25 million in S1 or $4.80 million in S2 – FY2019: $1.85 million S1; $2.50 million S2 – FY2020: $1.40 million S1; $1.70 million S2 – FY2022: $0.60 million S2 Note: FY2018 CIP is based on budget, future years are based on historical annual average costs plus R&R.
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Revenue Requirement – Storm (scenario 1) $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000
$200,000 $FY 2018
FY 2020
FY 2021
Cash Operating Expenses
New Debt Service
Total Revenues
Total Revenue After Increase
Residential Storm Sample Bill Monthly Bill - per Account $ Monthly Difference Monthly Bill - per ESU $ Monthly Difference Proposed Increase
FY 2019
Existing
FY2018
FY2019
$
26.24 $ 26.83 17.99 $ 0.59 $ 9.23 $ 9.23 218.00% 2.25%
8.25 $ $
FY 2022
FY 2023
Reserve/ Capital Funding
FY2020 $ $ $ $
27.43 0.60 9.44 0.21 2.25%
FY2021 $ $ $ $
28.05 0.62 9.65 0.21 2.25%
FY2022 $ $ $ $
28.68 0.63 9.87 0.22 2.25%
FY2023 $ $ $ $
29.32 0.65 10.09 0.22 2.25%
Note: rates apply on a per Equivalent Service Unit (ESU) basis starting September FY2019.
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Revenue Requirement – Storm (scenario 2) $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $FY 2018
FY 2020
FY 2021
Cash Operating Expenses
New Debt Service
Total Revenues
Total Revenue After Increase
Residential Storm Sample Bill Monthly Bill - per Account $ Monthly Difference Monthly Bill - per ESU $ Monthly Difference Proposed Increase
FY 2019
Existing $
FY2018
8.25 $ $
FY2019
8.25 $ 23.99 $ 15.74 $ 8.25 $ 8.25 0.00% 190.75%
FY 2022
FY 2023
Reserve/ Capital Funding
FY2020 $ $ $ $
24.53 0.54 8.44 0.19 2.25%
FY2021 $ $ $ $
25.08 0.55 8.63 0.19 2.25%
FY2022 $ $ $ $
25.64 0.56 8.82 0.19 2.25%
FY2023 $ $ $ $
26.22 0.58 9.02 0.20 2.25%
Note: rates apply on a per Equivalent Service Unit (ESU) basis starting FY2019.
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Storm Summary Proposed strategy sets Storm rates to be self sufficient – Eliminates Streets subsidy for operations – Eliminates infrastructure fees for capital use Scenarios for consideration Scenarios Scenario 1 Per Account Per ESU Scenario 2 Per Account Per ESU
Existing
FY2018
$
218.00% 8.25 $ 26.24
$
0.00% 8.25 $ 8.25
FY2019
FY2020
FY2021
FY2022
FY2023
2.25%
2.25%
2.25%
2.25%
2.25%
$ 9.23 $ 9.44 $ 9.65 $ 9.87 $ 10.09 190.75% 2.25% 2.25% 2.25% 2.25% $
8.25 $
8.44 $
8.63 $
8.82 $
9.02
– S1: March FY2018 adjustment, followed by September FY2019 adjustment with conversion to an ESU rate and July adjustments thereafter – S2: July FY2019 adjustment with conversion to an ESU rate and July adjustments thereafter. • Requires $328,700 additional subsidy in FY2018
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Storm Residential Survey Monthly Bill Newport (S1 Per Account)
$26.24
St. Helens
$11.33
Newport (S2 Per ESU)
$8.25
Newport (Existing)
$8.25
Florence
$7.57
North Bend
$4.50
Cottage Grove
$4.24
Lebanon
$3.28
Dallas
$2.78
Dalles
$2.00
Sweet Home
$1.00 $-
FCS GROUP
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
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Non Residential Sample Impacts
Description Large Commercial 1 Large Commercial 2 Hotel 1 Hotel 2
Accounts
ESUs 1 1 1 1
147 129 49 38
Monthly Bill Existing Proposed $ 8.25 $ 1,212.75 8.25 1,064 8.25 404 8.25 314
Difference $
1,204.50 1,056.00 396.00 305.25
Notes: 1. Equiv alent Serv ice Unit (ESU) = 2,700 square feet of imperv ious surface area. 2. ESUs w ere rounded to a w hole number for this ex ample.
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Cost of Service
Cost of Service An equitable distribution of cost shares that considers utility specific data: – Measures of usage and demand – Planning, engineering and design criteria – Facility requirements Total cost by customer class (equity) Unit costs ($/usage; $/customer) Fundamental question: do cost differences exist to serve different customer classes of service
FCS GROUP
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Cost of Service Process Step 1: Allocate total utility cost by function
Water Utility Functions** Customer Meters & Services Base Demand (average use) Peak Demand (peak use) Fire Protection
Sewer Utility Functions** Customer Flow Strength
Step 2: Assign allocation factors using class specific information Step 3: Allocate costs to customer classes
** Industry Standard Methodologies; AWWA Principles of Water Rates, Fees and Charges, M1 Manual and the Water Environment Federation Financing and Charges for Wastewater Systems Manual 27
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Cost Allocation to Functions Water FIRE PROTECTION, $331,153 , 8%
PEAK, $1,736,459 , 44%
FCS GROUP
Sewer CUSTOMER, $634,857 , 16%
METERS & SERVICES, $121,578 , 3%
BASE, $1,160,232 , 29%
TSS, $768,924 , 18%
BOD, $768,924 , 18%
CUSTOMER, $200,826 , 5%
FLOW, $2,519,299 , 59%
Page 22
Cost Allocation to Customer Classes - Water Class Single Family Multi Family Commercial Total
$
$
2018 Revenues Existing COSA 1,384,612 $ 1,307,931 $ 314,845 281,328 2,059,296 2,395,021 3,758,754 $ 3,984,279 $
Difference $ (76,682) (33,517) 335,724 225,525
% -5.5% -10.6% 16.3% 6.0%
+ 5.0% of average within COS (industry standard) First cost of service study completed by the City – Cost of service adjustments are warranted – Historical information – continue collecting data and monitoring – Consider phase-in to confirm trends over time
FCS GROUP
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Water Cost of Service Proposed Phase-In Class Single Family Multi Family Commercial Total
2018 COSA
2018 Phase-In
-5.5% -10.6% 16.3% 6.0%
-0.8% -1.6% 11.7% 6.0%
Make progress towards cost of service – Continue collecting data and monitoring – Revisit during next update
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Cost Allocation to Customer Classes - Sewer Class Single Family Multi Family Commercial Total
$
$
2018 Revenues Existing COSA 1,738,479 $ 1,433,901 $ 457,649 574,445 1,746,440 2,249,627 3,942,568 $ 4,257,973 $
Difference $ (304,579) 116,796 503,188 315,405
% -17.5% 25.5% 28.8% 8.0%
+ 5.0% of average within COS (industry standard) First cost of service study completed by the City – Cost of service adjustments are warranted – Historical information – continue collecting data and monitoring – Consider phase-in to confirm trends over time
FCS GROUP
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Sewer Cost of Service Proposed Phase-In Class Single Family Multi Family Commercial Total
2018 COSA
2018 Phase-In
-17.5% 25.5% 28.8% 8.0%
0.0% 15.8% 13.9% 8.0%
Make progress towards cost of service – Continue collecting data and monitoring – Revisit during next update
FCS GROUP
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Rate Design
Rate Design
Produce sufficient revenue to meet utility financial requirements Cost based and equitable Collect the target revenue level for each class of service Meet the goals and objectives of the utility Rate design considerations: – Phase-in cost of service overall increases – Eliminate water allowance of 1,000 gallons
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Water Rate Design Options Option 1: Across the board – uniform percentage increases to fixed and variable charges – No structure changes Option 2: Phase in towards cost of service – Eliminate allowance for all classes of service – Differentiate rates by class of service (existing rates are the same)
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Water Rate Options Description
Existing
Across the Board
COSA Phase-In Multi Family $
5/8"x3/4" 1" 1.5" 2" 3" 4"
$
21.80 28.95 44.10 75.50 112.70 187.35
$
0-1,000 gallons 1,001+ gallons All usage
$
4.00
$
Single Family Monthly Fixed 23.11 $ 18.50 30.69 24.57 46.75 37.42 80.03 64.07 119.46 95.64 198.59 158.99 Variable (per 1,000 gallons) 4.24 4.00
18.50 24.57 37.42 64.07 95.64 158.99
4.00
Commercial $
21.90 29.08 44.30 75.85 113.22 188.21
4.50
Notes: outside city rates hav e an approx imate 1.9 multiplier on fix ed charges and 1.6 multiplier on v ariable charges.
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Water Revenue Breakdown Total Revenue
Existing
COSA Phase In
Fixed, 32.38%
Fixed, 38.49% Volume, 61.51% Volume, 67.62%
Residential
Multi Family
Commercial
Residential
Multi Family
19.49%
17.52%
33.71%
32.17%
Commercial
29.06%
41.99% 58.01%
67.83% 66.29% 80.51%
FCS GROUP
70.94%
82.48%
Page 31
Water Residential Bill Impacts 1,000 gallons 0.0 1.0 2.0 3.5 5.0 7.0 9.0 11.0 14.0 17.0 20.0
Existing $
21.80 21.80 25.80 31.80 37.80 45.80 53.80 61.80 73.80 85.80 97.80
Across the COSA Board Phase-In $ 23.11 $ 18.50 23.11 22.50 27.35 26.50 33.71 32.50 40.07 38.50 48.55 46.50 57.03 54.50 65.51 62.50 78.23 74.50 90.95 86.50 103.67 98.50
Across the Board $ % $ 1.31 6.0% 1.31 6.0% 1.55 6.0% 1.91 6.0% 2.27 6.0% 2.75 6.0% 3.23 6.0% 3.71 6.0% 4.43 6.0% 5.15 6.0% 5.87 6.0%
COSA Phase-In $ % $ (3.30) -15.1% 0.70 3.2% 0.70 2.7% 0.70 2.2% 0.70 1.9% 0.70 1.5% 0.70 1.3% 0.70 1.1% 0.70 0.9% 0.70 0.8% 0.70 0.7%
Notes: assumes a 5/8" x 3/4" meter.
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Water Residential Bill Survey Residential Monthly Sample Bill (3,500 gallons) $55.30
Dalles $43.03
Lebanon Lincoln City
$40.63 $36.03
St. Helens
Waldport
$34.01 $33.71
Newport (AtB) Astoria
$32.99
Newport (COSA Phase-In)
$32.50
Newport (Existing)
$31.80 $28.48
Florence Sweet Home
$26.58
North Bend
$26.10
Cottage Grove
$22.14 $21.06
Dallas -
10.00
20.00 Fixed
FCS GROUP
30.00
40.00
50.00
60.00
Variable
Page 33
Sewer Rate Design Options Option 1: Across the board – uniform percentage increases to fixed and variable charges – No structure changes Option 2: Phase in towards cost of service – Differentiate rates between Single Family and Non Single Family Option 3: Phase in towards cost of service, 100% fixed charge for Single Family – Elimination of the “garden” rate for Single Family
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Sewer Rate Options Across the Phase-In Board Monthly Fixed Residential $ 23.90 $ 25.81 $ 23.90 Multi-Family 23.80 25.70 27.56 Commercial 23.80 25.70 27.56 Variable (per 1,000 gallons) Residential $ 6.85 $ 7.40 $ 6.85 Multi-Family 7.85 8.48 9.09 Commercial 7.85 8.48 9.09 Notes: For the months of June through September, Residential usage will not exceed the highest monthly sewer user charge for the first four months of the calendar year. Description
Existing
Phase-In (100% Fixed) $
43.10 27.56 27.56 n/a 9.09 9.09
Common residential rate approaches: – Uniform fixed rate per residence – Winter average usage – Max winter month usage – Actual water usage (with separate irrigation meter) FCS GROUP
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Sewer Residential Bill Impacts 1,000 gallons 0.0 1.0 2.0 3.0 4.0 5.0 7.0 9.0 12.0 15.0 20.0
Existing $
FCS GROUP
23.90 30.75 37.60 44.45 51.30 58.15 71.85 85.55 106.10 126.65 160.90
Across the COSA Phase- COSA 100% Board In Fixed $ 25.81 $ 23.90 $ 43.10 33.21 30.75 43.10 40.61 37.60 43.10 48.01 44.45 43.10 55.41 51.30 43.10 62.81 58.15 43.10 77.61 71.85 43.10 92.41 85.55 43.10 114.61 106.10 43.10 136.81 126.65 43.10 173.81 160.90 43.10
$
Across the Board $ % 1.91 8.0% 2.46 8.0% 3.01 8.0% 3.56 8.0% 4.11 8.0% 4.66 8.0% 5.76 8.0% 6.86 8.0% 8.51 8.0% 10.16 8.0% 12.91 8.0%
$
COSA Phase-In $ % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
$
COSA Phase-In $ % 19.20 80.3% 12.35 40.2% 5.50 14.6% (1.35) -3.0% (8.20) -16.0% (15.05) -25.9% (28.75) -40.0% (42.45) -49.6% (63.00) -59.4% (83.55) -66.0% (117.80) -73.2%
Page 36
Sewer Residential Bill Survey Residential Monthly Sample Bill (3,000 gallons) $53.64
Astoria
$53.01
Florence
$48.01
Newport (AtB) Dalles
$46.32 $44.45
Newport (COSA Phase-In) Newport (Existing)
$44.45 $44.39
Lincoln City Newport (COSA Phase-In; 100% Fixed)
$43.10
Dallas
$42.82
St. Helens
$40.04 $39.00
Lebanon
Sweet Home
$32.70 $30.00
North Bend Waldport
$27.37
Cottage Grove
$21.72 -
10.00
20.00 Fixed
FCS GROUP
30.00
40.00
50.00
60.00
Variable
Page 37
Rate Affordability Average Monthly Bill as a % of Median Household Income Description Water Sewer Storm Combined
Existing Rates Mo. Bill $ of MHI $ 31.80 0.95% 44.45 1.33% 8.25 0.25% $ 84.50 2.53%
Scenario 1 Mo. Bill $ of MHI $ 33.71 1.01% 48.01 1.44% 26.24 0.79% $ 107.95 3.24%
Scenario 2 Mo. Bill $ of MHI $ 32.50 0.97% 44.45 1.33% 8.25 0.25% $ 85.20 2.56%
Scenario 3 Mo. Bill $ of MHI $ 32.50 0.97% 43.10 1.29% 8.25 0.25% $ 83.85 2.52%
Note: assumes median household income of $40,000 per year.
Scenario 1 based on: – Water/Sewer: across the board – Storm: Scenario 1 Scenario 2 based on: – Water/Sewer: COSA phase-in – Storm: Scenario 2 Scenario 3 based on: – Water: COSA phase-in – Sewer: COSA phase-in 100% Fixed – Storm: Scenario 2
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Next Steps Adopt proposed rates effective: – Water & Sewer: March FY2018, September FY2019 and July thereafter – Storm: July FY2019 Continue monitoring Water, Sewer & Storm rates to make sure they follow assumptions incorporated in the study
FCS GROUP
Page 39
Questions/Discussion
