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FY 2026/27 Utility Fund Forecast & Rates Recommendation September 3, 2026 Audit, Finance, and Enterprise Committee Presenters: Brian A. Ritschel – Management & Budget Director Joe Giudice – Water Resources Director Scott Bouchie – Energy Resources Director Sheri Collins – Solid Waste Director Utility Operations 2 Each utility is operated as a separate business center but treated as one fund Reserve balance provides a safety net for unforeseen conditions Reserve balance can be used to smooth rate adjustments year to year 3 BALANCE NET SOURCES AND USES 20% OR HIGHER RESERVE FUND BALANCE RATE ADJUSTMENTS THAT ARE PREDICTABLE AND SMOOTHED THROUGHOUT THE FORECAST EQUITY BETWEEN RESIDENTIAL AND NON- RESIDENTIAL RATES AFFORDABLE UTILITY SERVICES Financial Principles FY 26/27 Adopted Budget 4 Updated Forecast – Budgeted Rate Adjustments 5 FY 25/26 Year End Estimate Updates 6 • Improvement in net sources and uses from Quarter 3 Year End Estimates to Quarter 4 Year End Estimates • Significant favorable items: • $6.9M Higher than anticipated water consumption • $2.6M Water Treatment and Water Reclamation Plant operating expenses • $2.3M refunding of utility debt service • $2.1M Water commodity purchases (CY 2025 CAP reconcile credit) • $2.1M Solid Waste fleet and landfill charges Water Resources Department Rates Recommendations Joe Giudice – Director Chase Carlile – Deputy Director Erik Hansen – Utilities Financial Analyst Water Program Recommended Rate Adjustments 8 Operating Costs 9 $61.8M $64.0M $73.2M $78.6M $77.9M $91.5M $94.5M $98.3M $101.0M $103.9M $107.3M $0M $20M $40M $60M $80M $100M $120M $140M FY21/22 Actual FY22/23 Actual FY23/24 Actual FY24/25 Actual FY25/26 Estimate FY26/27 Projected FY27/28 Forecast FY28/29 Forecast FY29/30 Forecast FY30/31 Forecast FY31/32 Forecast Debt Service 10 $72.6M $75.0M $75.0M $74.9M $76.4M $3.9M $6.3M $11.1M $15.9M $21.3M $47.9M $49.3M $52.2M $57.1M $67.2M $72.2M $76.5M $81.4M $86.1M $90.7M $97.7M $0M $20M $40M $60M $80M $100M $120M FY21/22 Actual FY22/23 Actual FY23/24 Actual FY24/25 Actual FY25/26 Estimate FY26/27 Forecast FY27/28 Forecast FY28/29 Forecast FY29/30 Forecast FY30/31 Forecast FY31/32 Forecast Existing Debt Service Projected Future Debt Service Rate Adjustments that are Predictable and Smoothed Recommended Rate Adjustments 11 Rate Component Customer Budget Forecast Recommended Rate Adjustment Recommended Rate Adjustment Service Charge All Customers +4.5% +4.0% Drought Commodity Charge All Customers +$0.08 +$0.13 Usage Charge Residential • Tier I (4,000 – 6,000 gallons) +3.5% +3.5% • Tier 2 (7,000 – 14,000 gallons) +3.5% +3.5% • Tier 3 (15,000 – 24,000 gallons) +4.5% +4.5% • Tier 4 (>24,000 gallons) +4.5% +4.5% Commercial +13.0% +13.0% Rate Adjustments that are Predictable and Smoothed Recommended Rate Adjustments 12 Rate Component Customer Budget Forecast Recommended Rate Adjustment Recommended Rate Adjustment Usage Charge Large Commercial +13.0% +23.0% Other Non-residential +12.0% +12.0% Non-residential Landscape +15.0% +15.0% Surcharge Excess Surcharge - General • Tier 1 (>100% – 150% of WWA) +13.0% (>100% of WWA) +13.0% • Tier 2 (>150% of WWA) N/A +23.0% Excess Surcharge - Landscape • Tier 1 (>100% – 150% of WWA) +15.0% (>100% of WWA) +15.0% • Tier 2 (>150% of WWA) N/A +25.0% Excess Water Surcharge 13 Existing Excess Water Surcharge: 0 2 4 6 8 10 12 14 16 December January February March April May June July August September October November kgals Winter Water Average 8 kgals Commercial Landscape Example $2.99/kgal Existing Excess Surcharge Threshold (>100% WWA) Excess Water Surcharge 14 Proposed Tiered Excess Water Surcharge: 0 2 4 6 8 10 12 14 16 December January February March April May June July August September October November kgals Winter Water Average 8 kgals Excess Surcharge – Tier 2 (>150% WWA) Commercial Landscape Example $3.44/kgal $3.74/kgal Excess Surcharge – Tier 1 (>100 – 150% WWA) Historical Excess Surcharge Distribution - Under Proposed Tiers General Commercial 15 59% 19% 22% 0% 20% 40% 60% 80% 100% 2025 Percent of Bills 41% 23% 36% 0% 20% 40% 60% 80% 100% 2025 Percent of Water Consumed 0K 200K 400K 600K 800K 1 2 3 4 5 6 7 8 9 10 11 12 2025 kgals Monthly Consumption by Percent Winter Water Average Historical Excess Surcharge Distribution - Under Proposed Tiers Commercial Landscape 16 39% 16% 45% 0% 20% 40% 60% 80% 100% 2025 Percent of Bills 17% 14% 69% 0% 20% 40% 60% 80% 100% 2025 Percent of Water Consumed 0K 200K 400K 600K 800K 1 2 3 4 5 6 7 8 9 10 11 12 2025 kgals Monthly Consumption by Percent Winter Water Average Equity Between Residential and Non-residential Rates 17 FY 25/26 FY 26/27 FY 27/28 FY 28/29 Estimate Projected Forecast Forecast (parity) (equity) Residential Rate Revenue 53% 50% 48% 47% Non-residential Rate Revenue 47% 50% 52% 53% Residential Consumption 46% 47% 47% 47% Non-residential Consumption 54% 53% 53% 53% 44% 48% 52% 56% Estimate Projected Forecast Forecast FY 25/26 FY 26/27 FY 27/28 FY 28/29 Residential Rate Revenue Non-residential Rate Revenue Residential Consumption Non-residential Consumption Affordable Utility Services High Water Burden 18 0% 1% 2% 3% 4% 5% 2023 2024 2025 2026 2027 (proposed) EPA's Threshold of "High Water Burden" Typical Customer's Annual Water and Wastewater Expenses as a percent of Minimum Wage (yearly) Typical Customer's Annual Water and Wastewater Expenses as a percent of Median Household Income The 4.5 percent threshold is widely used in literature (Cardoso & Wichman, 2022a; Berahzer et al., 2023; Heminger et al., 2023; Mack & Wrase, 2017). Use of the 4.5 percent threshold is largely consistent with the Hours of Labor at Minimum wage metric, which suggests a threshold of one day (8 hours), or 4.6 percent of work hours in a month, assuming a 40-hour work week. Customer Impact 19 Typical Customer Current Bill Prior Forecast Recommended Rate Adjustment Impact to Current Bill Recommended Rate Adjustment Impact to Current Bill Residential (6 kgals/month) $44.64 Service Charge: +4.5% Usage Charge: +3.5% Drought Surcharge: +$0.08/kgal $46.51 (+$1.87) Service Charge: +4.0% Usage Charge: +3.5% Drought Surcharge: +$0.13/kgal $46.50 (+$1.86) Multi-unit Development (6 kgals/month) $41.48 Service Charge: +4.5% Usage Charge: +12.0% Drought Surcharge: +$0.08/kgal $45.12 (+$3.64) Service Charge: +4.0% Usage Charge: +12.0% Drought Surcharge: +$0.13/kgal $45.28 (+$3.80) Commercial – General (9 kgals/month) $87.83 Service Charge: +4.5% Usage Charge: +13.0% Drought Surcharge: +$0.08/kgal $94.51 (+$6.68) Service Charge: +4.0% Usage Charge: +13.0% Drought Surcharge: +$0.13/kgal $94.53 (+$6.70) Commercial – Landscape (33 kgals/month) $235.91 Service Charge: +4.5% Usage Charge: +15.0% Drought Surcharge: +$0.08/kgal $265.09 (+$29.18) Service Charge: +4.0% Usage Charge: +15.0% Drought Surcharge: +$0.13/kgal $266.31 (+$30.40) +4.2% +7.6% +12.9% +4.2% +7.6% +12.4% +9.2% +8.8% Wastewater Program Recommended Rate Adjustments 20 Operating Costs 21 $29.6M $32.0M $37.6M $40.1M $42.7M $47.3M $49.3M $51.1M $52.6M $53.9M $56.7M $0 $10 $20 $30 $40 $50 $60 $70 FY21/22 Actual FY22/23 Actual FY23/24 Actual FY24/25 Actual FY25/26 Estimate FY26/27 Projected FY27/28 Forecast FY28/29 Forecast FY29/30 Forecast FY30/31 Forecast FY31/32 Forecast Millions Debt Service 22 $43.3M $41.5M $38.7M $37.7M $37.9M $5.7M $10.9M $16.7M $22.5M $29.3M $39.5M $37.5M $41.5M $41.1M $43.0M $44.3M $49.1M $52.3M $55.3M $60.2M $67.1M $0M $10M $20M $30M $40M $50M $60M $70M FY21/22 Actual FY22/23 Actual FY23/24 Actual FY24/25 Actual FY25/26 Estimate FY26/27 Forecast FY27/28 Forecast FY28/29 Forecast FY29/30 Forecast FY30/31 Forecast FY31/32 Forecast Existing Debt Service Projected Future Debt Service Rate Adjustments that are Predictable and Smoothed Recommended Rate Adjustments 23 Rate Component Customer Prior Forecast Recommended Rate Adjustment Recommended Rate Adjustment Service Charge Residential +7.5% +7.5% Non-residential +8.5% +8.5% Usage Charge Residential +7.5% +7.5% Non-residential +8.5% +8.5% Customer Impact 24 Typical Customer Current Bill Recommended Rate Adjustment Impact to Current Bill Residential (4 kgals/month) $30.18 Service Charge: +7.5% Usage Charge: +7.5% $32.44 (+$2.26) Commercial (9 kgals/month) $61.70 Service Charge: +8.5% Usage Charge: +8.5% $66.96 (+$5.26) +8.5% +7.5% Energy Resources Rates Recommendations Scott Bouchie – Director John Petrof – Senior Fiscal Analyst 26 Electric Increasing Operating Costs on the Electric Utility 27 $8.1M $8.5M $9.3M $9.1M $10.0M $10.1M $10.5M $10.6M $10.8M $11.0M $11.3M $0 $2 $4 $6 $8 $10 $12 $14 FY 21/22 Actuals FY 22/23 Actuals FY 23/24 Actuals FY 24/25 Actuals FY 25/26 Estimate FY 26/27 Projected FY 27/28 Forecast FY 28/29 Forecast FY 29/30 Forecast FY 30/31 Forecast FY 31/32 Forecast Millions Increasing Debt Service Costs on the Electric Utility 28 $5.0M $5.6M $6.2M $6.4M $6.3M $0.8M $1.3M $1.9M $2.5M $3.0M $3.2M $4.1M $4.8M $4.0M $4.9M $4.8M $5.8M $6.9M $8.1M $8.8M $9.3M $0.0M $1.0M $2.0M $3.0M $4.0M $5.0M $6.0M $7.0M $8.0M $9.0M $10.0M FY21/22 Actual FY22/23 Actual FY23/24 Actual FY24/25 Actual FY25/26 Estimate FY26/27 Forecast FY27/28 Forecast FY28/29 Forecast FY29/30 Forecast FY30/31 Forecast FY31/32 Forecast Existing Debt Service Projected Future Debt Service Millions Total Residential Customer Electric Supply Cost – SRP vs COM 29 SRP/APS Increases 30 SRP – November 2025 Rate Increase • Overall - 2.4% price increase • Average residential user bill impact - $5.61 • Average Usage – 1,117 kWh • Tiered Monthly Service Charge • Tier 1 – Multifamily home - $20 (current) • Tier 2 – Single-family home with average usage - $30 • Tier 3 – Large single-family home user - $40 (About 3% of residential customers) APS – 2025 Rate Case • Rate review process continues through end of 2026 • Average residential user bill impact - $20 per month • Average Usage – 1,000 kWh Residential Electric Bill Comparison 31 Residential Electric Bills 32 Small Average Large Actual – FY 24/25 $64.06 $141.51 $235.10 Actual – FY 25/26 $63.88 $137.49 $228.34 Proposed $61.44 $126.76 $207.93 *Based on weather normalized residential forecasted usage • Lower electric supply costs have assisted in lowering total bill amounts Proposed Residential Electric Rates 33 COMPONENT CURRENT PROPOSED CHANGE PRIOR FORECAST SYSTEM SERVICE CHARGE $20.50 $22.50 $2.00 $3.00 USAGE CHARGE SUMMER per kWh Tier 1 - $0.05336 Tier 2 - $0.05228 Tier 1 - $0.05496 Tier 2 - $0.05437 3% 4% 3% 4% USAGE CHARGE WINTER per kWh Tier 1 - $0.04533 Tier 2 - $0.04741 Tier 1 - $0.04805 Tier 2 - $0.05026 6% 6% 6% 6% MONTHLY BILL (Average Customers) $123.10 $126.76 $3.66 $4.66 EFFECTIVE INCREASE 3.0% 3.8% Commercial Electric Bill Comparison 34 Proposed Commercial Electric Rates 35 COMPONENT CURRENT PROPOSED CHANGE PRIOR FORECAST SYSTEM SERVICE CHARGE Single Phase - $24.72 Three Phase - $30.74 Single Phase - $29.72 Three Phase - $35.74 $5.00 $5.00 USAGE CHARGE SUMMER per kWh Tier 1 - $0.06491 Tier 2 - $0.05109 Tier 1 - $0.06686 Tier 2 - $0.05417 3% 6% 0% 5% USAGE CHARGE WINTER per kWh Tier 1 - $0.05375 Tier 2 - $0.04114 Tier 1 - $0.05536 Tier 2 - $0.04319 3% 5% 0% 5% MONTHLY BILL (Average Customers) $478.36 $490.10 $11.74 $5.00 EFFECTIVE INCREASE 2.5% 1.0% 36 Gas Increasing Operating Costs on the Gas Utility 37 $16.6M $17.8M $19.0M $19.6M $21.3M $22.6M $23.1M $23.5M $23.7M $24.3M $24.9M $- $5 $10 $15 $20 $25 $30 FY 21/22 Actuals FY 22/23 Actuals FY 23/24 Actuals FY 24/25 Actuals FY 25/26 Estimate FY 26/27 Projected FY 27/28 Forecast FY 28/29 Forecast FY 29/30 Forecast FY 30/31 Forecast FY 31/32 Forecast Millions Increasing Debt Service Costs on the Gas Utility 38 $17.6M $15.2M $16.2M $16.4M $16.5M $2.0M $3.2M $4.4M $5.5M $6.6M $8.9M $12.6M $14.7M $14.1M $16.3M $17.3M $19.6M $18.3M $20.6M $21.9M $23.1M $0.0M $5.0M $10.0M $15.0M $20.0M $25.0M FY21/22 Actual FY22/23 Actual FY23/24 Actual FY24/25 Actual FY25/26 Estimate FY26/27 Forecast FY27/28 Forecast FY28/29 Forecast FY29/30 Forecast FY30/31 Forecast FY31/32 Forecast Existing Debt Service Projected Future Debt Service Millions Southwest Gas Increase 39 April 2027 Rate Increase • Approximately 10.69% monthly bill increase for average residential customers • From ~$49 to ~$54 monthly • $5.18 per month Total Residential Customer Natural Gas Supply Cost (Average Customer) – Southwest Gas vs COM 40 Residential Gas Bill Comparison 41 Small Average Large Mesa - Proposed $26.30 $44.63 $75.96 SWG - Proposed $20.35 $48.31 $93.12 Mesa - Current $24.60 $42.28 $72.32 SWG - Current $19.15 $43.65 $82.91 $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 Monthly Bill Proposed Residential Gas Rates 42 COMPONENT CURRENT PROPOSED CHANGE PRIOR FORECAST SYSTEM SERVICE CHARGE SUMMER WINTER $17.31 $20.24 $18.81 $21.74 $1.50 $1.00 USAGE CHARGE SUMMER per therm Tier 1 - $0.7961 Tier 2 - $0.4233 Tier 1 - $0.8319 Tier 2 - $0.4488 4.5% 6% 7% 15% USAGE CHARGE WINTER per therm Tier 1 - $0.7961 Tier 2 - $1.0009 Tier 1 - $0.8319 Tier 2 - $1.0609 4.5% 6% 7% 8% MONTHLY BILL (Average Customers) $42.28 $44.63 $2.35 $2.27 EFFECTIVE INCREASE 5.6% 5.4% Commercial Gas Bill Comparison 43 Small Average Large Mesa - Proposed $111.61 $487.68 $1,438.55 SWG - Proposed $109.54 $556.54 $1,392.52 Mesa - Current $107.46 $475.84 $1,405.53 SWG - Current $104.01 $513.56 $1,331.55 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 Monthly Bill Proposed Commercial Gas Rates 44 COMPONENT CURRENT PROPOSED CHANGE SYSTEM SERVICE CHARGE SUMMER WINTER $47.66 $57.34 $50.66 $60.34 $3 USAGE CHARGE SUMMER per therm Tier 1 - $0.6107 Tier 2 - $0.4584 Tier 1 - $0.6290 Tier 2 - $0.4814 3% 5% USAGE CHARGE WINTER per therm Tier 1 - $0.6614 Tier 2 - $0.6623 Tier 1 - $0.6812 Tier 2 - $0.6955 3% 5% MONTHLY BILL (Average Customers) $475.84 $487.68 $11.84 EFFECTIVE INCREASE 2.5% Manual Meter Reading Fee 45 • Manual Meter Reading Fee for non-AMI meters • Staff trip to read meter, document, provide information to billing • Fee recovers cost of non-standard service • No charge to customers with AMI meter • $60 per meter, per billing cycle Solid Waste Rates Recommendations Sheri Collins - Director Solid Waste Operating Costs 47 $40.9M $45.3M $49.0M $49.5M $51.8M $57.4M $59.2M $60.1M $60.7M $61.8M $63.4M $- $10 $20 $30 $40 $50 $60 $70 $80 FY 21/22 Actuals FY 22/23 Actuals FY 23/24 Actuals FY 24/25 Actuals FY 25/26 Estimate FY 26/27 Projected FY 27/28 Forecast FY 28/29 Forecast FY 29/30 Forecast FY 30/31 Forecast FY 31/32 Forecast Millions MRF Recycling 48 Solid Waste Residential Rate 5.5% Proposed Increase 49 Residential Current Proposed Increase Proposed Total 90-Gallon Trash Barrel $34.99 $1.92 $36.91 Solid Waste Neighborhood Cleanup Program 50 Current Proposed Increase Proposed Total Mesa Green and Clean Fee $1.00 $0.05 $1.05 Solid Waste Total Residential Increase 51 Residential Current Proposed Increase Proposed Total 90-Gallon Trash Barrel $34.99 $1.92 $36.91 Mesa Green and Clean Fee $1.00 $0.05 $1.05 Total $35.99 $1.97 $37.96 Solid Waste Bulk Item Collection 52 Residential Current Proposed Increase Proposed Total Bulk $31.00 $4.00 $35.00 Solid Waste Appliance Collection 53 Residential Current Proposed Increase Proposed Total Appliance $19.00 $4.00 $23.00 Commercial Front Load Trash 6% Overall Rate Increase 54 • Increase base rate • 6-yard trash bin increase from $127.48 to $138.50 • Increase Multi Bin Factor Discount • 2YD, 3YD, 4YD from 36% to 40% • 6YD from 31% to 35% • 8YD from 28% to 31% • Increase fee for out-of-zone collection from $33.00 to $35.00 Commercial Front Load Recycle 9% Rate Increase 55 • Increase base rate • 6-yard bin increase from $107.87 to $117.57 Commercial Roll Off 6% Overall Rate Increase 56 • Increase tonnage rate to follow landfill increase • Increase trash tonnage rate from $51.50 to $55.00 • Increase green waste tonnage rate from $59.82 to $63.32 • Increase haul fee by $5/$11/$12 • 15/20-yard roll off increase from $140 to $145 • 30-yard roll off increase from $150 to $161 • 40-yard roll off increase from $166 to $178 • $21.50 increase for a one-time trash and green waste customer (30 yd) 57 Residential Current Proposed Increase Proposed Total 90-Gallon Trash Barrel $34.99 $1.92 $36.91 Residential Current Proposed Increase Proposed Total Bulk $31.00 $4.00 $35.00 Residential Current Proposed Increase Proposed Total Mesa Green and Clean Fee $1.00 $0.05 $1.05 Residential Current Proposed Increase Proposed Total Appliance $19.00 $4.00 $23.00 Residential Overview 58 Front Load Current Proposed Increase Proposed Total 6Yard Front Load Trash – 1x Week $127.48 $11.02 $138.50 6Yard Front Load Recycling – 1x Week $107.87 $9.70 $117.57 Roll Off Current Proposed Increase Proposed Total 30Yard Rolloff Trash – 1x $454.50 $21.50 $476.00 30Yard Rolloff Green Waste - 1x $479.46 $21.50 $500.96 Commercial Overview FY 26/27 Recommended Rate Adjustments 59 60 Next Steps September 10 - City Council Discussion of Utility Rates September 28 - City Council Action on Notice of Intent November 16 - Introduction of Utility Rate Ordinances December 1 - City Council Action on Utility Rates January 1, 2027 - Effective Date for Utility Rate Changes 61