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Council Conference Room Monday, November 1, 2021 | 4:00 p.m. FY 2021-22 Cost of Service Study Results for Water, Wastewater, and Reclaimed 1 • Background Leading to Today • Review City Utility Financial Plan • Review Raftelis Utility Cost of Service (COS) Analysis / Results • Next Steps – Implementation Timeline Agenda 2 Background Leading to Today City Financial Policy requirements •Annually review the Financial Utility Rate Models •COS reviewed every 4-5 years to accurately charge rates by class and rate structures Last COS Realignment implemented FY 2017-18 •Identified misalignment between COS and revenue generated by customer class •Implemented 1st year and next planned increase averted Changes that affect COS update •Changes in overall customer usage characteristics and demographics •Capital projects/system expansions •Data improvements •Rate structure changes 3 Cost of Service Process Completed Every 4-5 Years City’s Financial Plan Review Cost of Service Analysis Rate Design Change Recommendations (If any) What is the funding requirement? Is everyone paying their fair share? How can our rates help ensure fairness? 4 Historical Rate Changes by Customer Class 10-Year History Utility Customer Class FY 2013-14 Across the Board FY 2015-16 Across the Board FY 2017-18 COS Implemented Water Single Family 0% 0% 0.7% Multi Family 0% 0% 0.3% Non-Residential 0% 0% 3.9% Landscape 0% 0% 5.4% Industrial 0% 0% 3.0% Wastewater Single Family 9% 9% 3.7% Multi Family 9% 9% 20.9% Non-Residential 9% 9% 10.1% Reclaimed Reclaimed Customer 18% 18% 15% 5 Additional Background Aging infrastructure • Review of aging infrastructure is a normal activity for utility systems • Investments are timed with infrastructure life cycle to ensure service continuity and safety • Since Enterprise Funds are self supporting, planning for growth and replacements through rates is vital 6 Financial Plan Review 7 Financial plan results Revenue Increases - % Fiscal Year Water Wastewater Reclaimed 2021 - 22 2.0% 8.0% 8.0% 2022 - 23 0% 0% 0% 2023 - 24 2.5% 8.0% 7.0% 2024 - 25 0% 0% 0% 2025 - 26 4.0% 6.0% 7.0% City’s established financial model was found to be complete and accurate meeting forecasted Enterprise Fund expenditures with the above Enterprise Fund revenue rate increases Fiscal Year Water Wastewater Reclaimed 2021 - 22 2.0% 4.0% 8.0% 2022 - 23 0% 0% 0% 2023 - 24 2.5% 6.0% 7.0% 2024 - 25 0% 0% 0% 2025 - 26 2.5% 6.0% 7.0% Adopted Budget (Pre-Intel Adjustments) Updated (Post-Intel Adjustments) Effective July 1, 2022 8 Financial plan results Updated Revenue Increases - $ Fiscal Year Water Wastewater Reclaimed Water 2021 - 22 $1.1M $1.8M $138K 2022 - 23 $0.00 $0.00 $0.00 2023 - 24 $1.4M $3.1M $132K 2024 - 25 $0.00 $0.00 $0.00 2025 - 26 $1.6M $3.5M $143K 9 Financial Plan Results Key rate drivers Debt service related to capital program • Water treatment and production plant improvements • Water reclamation facility improvements • Focus on aging infrastructure and replacements • Main replacements • Well construction and rehabilitation • Sewer assessments and rehabilitation • Advanced wastewater treatment Operations and Maintenance (O&M) • Water purchase cost increases • Utility and chemical increases 10 Cost of Service Analysis and Results 11 Cost of Service Benefits • Fair and equitable, approach most commonly utilized in Water and Wastewater industry • More accurately reflects actual cost of providing service to each customer class • Distributes revenue requirements to customer classes based on their proportional units of service • Customers in each class are assumed to have similar usage characteristics or impact to system 12 Cost of Service Analysis Residential Non-residential Industrial Revenue Requirement ? Is everyone paying their fair share? Multifamily Landscape Shifting cost burden of revenue requirement to customer classifications differently allows for more accurate reflection of actual cost of providing service to each customer class 13 Water Cost of Service Findings 14 FY2021-22 Revenue at Existing Rates Compared to COS Results ($millions) Customer Class FY 2021-22 Revenue Recovery at Existing Rates FY 2021-22 Revenue With 2% and COS Required Revenue Change Required % Revenue Change Single Family $29.7 $29.1 ($0.6) -1.7% Multi Family $3.7 $3.6 ($0.1) -2.7% Non-Residential $5.2 $5.4 $0.2 3.8% Industrial $8.0 $8.6 $0.6 7.5% Landscape $7.8 $8.8 $1.0 12.8% Total $54.4 $55.5 $1.1 2.0% Landscape and Industrial COS are largest COS “re-alignments” needed Transition to COS alignment typically achieved over a 3-5 year period 15 FY2021-22 Revenue at Existing Rates with 2% Increase Across the Board Compared to COS ($millions) Customer Class FY 2021-22 Revenue With 2% Across the Board FY 2021-22 Revenue With 2% and COS Required Revenue Change Required % Revenue Change Single Family $30.2 $29.1 ($1.1) -3.6% Multi Family $3.8 $3.6 ($0.2) -5.3% Non-Residential $5.3 $5.4 $0.1 1.9% Industrial $8.2 $8.6 $0.4 4.9% Landscape $8.0 $8.8 $0.8 10.0% Total $55.5 $55.5 $0.0 0.0% Landscape and Industrial COS are largest COS “re-alignments” needed Transition to COS alignment typically achieved over a 3-5 year period 16 COS Realignment Plan • It took us many years to get out of alignment, so we would not correct misalignment in one year • A 5-year projection of revenue requirements was completed, which included the additional projected rate increases needed • Recommendation is to transition COS over 5 years 17 FY 2025-26 COS Post Transition Results ($millions) Includes total revenue recovery projected increases of 2.0% in FY 2021-22, 2.5% in FY 2023-24, and 2.5% in FY 2025-26 Customer Class FY 2025-26 Revenue at Existing Rates FY 2025-26 Revenue With Rate Increases and COS $ Difference from COS Indicated Revenue Adjustment Single Family $30.2 $31.2 $0.9 3.1% Multi Family $3.7 $3.8 $0.1 2.1% Non-Residential $5.3 $5.8 $0.5 9.4% Industrial $10.5 $11.7 $1.2 11.4% Landscape Service $8.0 $9.4 $1.4 17.7% Total $57.8 $61.9 $4.1 7.2% 18 Volumetric Water Rates COS 5-year transition plan Customer Class Existing FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 Single Family First 10 Kgal $1.60 $1.62 $1.62 $1.64 $1.64 $1.66 Next 10 Kgal 2.08 2.11 2.11 2.13 2.13 2.16 Next 40 Kgal 2.62 2.65 2.65 2.69 2.69 2.72 Over 60 Kgal 3.27 3.31 3.31 3.35 3.35 3.39 Multi-Family First 10 Kgal $0.87 $0.89 $0.89 $0.90 $0.90 $0.91 Next 10 Kgal 1.07 1.09 1.09 1.11 1.11 1.12 Next 20 Kgal 1.47 1.49 1.49 1.52 1.52 1.54 Over 40 Kgal 2.21 2.25 2.25 2.28 2.28 2.32 Includes total revenue recovery projected increases of 2.0% in FY 2021-22, 2.5% in FY 2023-24, and 2.5% in FY 2025-26 19 Customer Class Existing FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 Non-Residential $2.11 $2.19 $2.19 $2.28 $2.28 $2.37 Landscape 2.55 2.70 2.70 2.89 2.89 3.08 Industrial 2.08 2.17 2.17 2.27 2.27 2.37 Includes total revenue recovery projected increases of 2.0% in FY 2021-22, 2.5% in FY 2023-24, and 2.5% in FY 2025-26 Volumetric Water Rates COS 5-year transition plan (per 1,000 gallons) 20 Base Water Rates COS 5-Year Transition Plan Meter Size Existing FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 Base Charge $ per Bill 5/8" x 3/4" $9.07 $9.26 $9.26 $9.49 $9.49 $9.72 3/4" 10.35 10.56 10.56 10.83 10.83 11.09 1" 13.22 13.49 13.49 13.83 13.83 14.17 1.5" 20.82 21.24 21.24 21.77 21.77 22.31 2" 29.31 29.90 29.90 30.65 30.65 31.41 3" 61.79 63.03 63.03 64.61 64.61 66.22 4" 87.19 88.94 88.94 91.16 91.16 93.44 6" 165.56 168.88 168.88 173.10 173.10 177.42 8" 250.83 255.85 255.85 262.25 262.25 268.80 10" 427.38 435.93 435.93 446.83 446.83 458.00 12" 603.95 616.03 616.03 631.43 631.43 647.22 Includes total revenue recovery projected increases of 2.0% in FY 2021-22, 2.5% in FY 2023-24, and 2.5% in FY 2025-26 21 SFR Meter COS Bill Impact for Average Account (Monthly Amount with Base Charge) Includes total revenue recovery projected increases of 2.0% in FY 2021-22, 2.5% in FY 2023-24, and 2.5% in FY 2025-26 Customer Type FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2025-26 W/O COS Single Family Residential Base Meter 5/8” Consumption (Assumes Avg 12K) Total Bill $ 9.07 20.16 $29.23 $ 9.26 20.42 $29.68 $ 9.26 20.42 $29.68 $ 9.49 20.66 $30.15 $ 9.49 20.66 $30.15 $ 9.72 20.92 $30.64 $ 9.72 22.26 $31.98 Implementing COS allows all bills to realign at a slower pace 22 SFR Inside City Bill Impact Assumes 12,000 Gallon Usage on 5/8” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Water Rates 23 Multi-Family Inside City Bill Impact Assumes 500,000 Gallon Usage on 6” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Water Rates 24 Non-Residential Inside City Bill Assumes 200,000 Gallon Usage on 2” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Water Rates 25 Landscape Inside City Bill Impact Assumes 200,000 Gallon Usage on 1” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Water Rates 26 Industrial Inside City Bill Impact Assumes 312,000,000 Gallon Usage on 8” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Water Rates 27 Recommendation: Water COS Rates Transition over 5 years to full cost of service for all customer classes 28 Wastewater Cost of Service Findings 29 FY2021-22 Revenue at Existing Rates Compared to COS Results ($millions) Customer Class FY 2021-22 Revenue Recovery at Existing Rates FY 2021-22 Revenue With 4% and 100% COS Required $ Revenue Change Required % Revenue Change Single Family $26.3 $23.1 ($3.2) -12.2% Multifamily $3.3 $4.5 $1.2 36.4% Non-Residential $16.2 $20.0 $3.8 23.5% Total $45.8 $47.6 $1.8 4.0% All Customer Classes need COS realignment Transition to COS alignment typically achieved over a 3-5 year period 30 FY 2021-22 Revenue at Existing Rates with 4% increase Across the Board Compared to COS ($ millions) Customer Class FY 2021-22 Revenue With 4% Across the Board FY 2021-22 Revenue With 4% and 100% COS Required $ Revenue Change Required % Revenue Change Single Family $27.4 $23.1 ($4.3) -15.7% Multifamily $3.4 $4.5 $1.1 32.4% Non-Residential $16.8 $20.0 $3.2 19.0% Total $47.6 $47.6 $0.0 0.0% All Customer Classes need COS realignment Transition to COS alignment typically achieved over a 3-5 year period 31 COS 5-Year Transition Plan • It took us many years to get out of alignment, so we will not correct alignment in one year • A 5-year projection of revenue requirements was completed, which included additional projected rate increases needed • Recommendation is to transition over 5 years reaching a goal of 50% COS alignment 32 FY 2025-26 COS Post Transition Results at 50% COS ($ millions) Customer Class FY 2025-26 Revenue at Existing Rates FY 2025-26 Revenue With Rate Increases and 50% COS Difference from COS Indicated Revenue Adjustment Single Family $25.7 $29.4 $3.7 14.4% Multifamily $3.2 $3.8 $0.6 18.0% Non-Residential $21.0 $25.1 $4.1 19.6% Total $49.9 $58.3 $8.4 16.9% All Customer Classes need COS realignment Transition to COS alignment typically achieved over a 3-5 year period Transition to COS over 5-year period including 4%, 6%, and 6% increases needed in financial plan 33 COS 5-Year Transition Plan to 50% COS Rates Customer Class FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2025-26 W/O COS Residential Base* $27.32 $28.24 $28.24 $29.67 $29.67 $31.18 $31.92 Multifamily Base* $9.76 $10.22 $10.22 $10.92 $10.92 $11.66 $11.40 Non-Residential Volumetric** $3.49 $3.66 $3.66 $3.92 $3.92 $4.19 $4.08 Customer Charge $7.65 $8.02 $8.02 $8.59 $8.59 $9.19 $8.94 * Monthly Charge per Dwelling Unit ** Per 1,000 Gallons Transition to COS over 5-year period including 4%, 6%, and 6% increases needed in financial plan 34 SFR Inside City Bill Impact (50% COS) Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Wastewater Rates 35 Multi-Family Inside City Bill Impact (50% COS) Assumes 150 Units Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Wastewater Rates 36 Non-Residential Inside City Bill (50% COS) Assumes 200,000 Gallon Usage on 2” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Wastewater Rates 37 Industrial Inside City Bill Impact (50% COS) Assumes 312,000,000 Gallon Usage on 8” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates Wastewater Rates 38 Recommendation: Wastewater Transition over 5 years to 50% cost of service for all customer classes 39 Reclaimed Water Findings 40 Reclaimed Water Rate Analysis • Background • Only one customer rate/class • Supports operations and a level set amount towards reclaimed capital costs • Not everyone in Chandler can use reclaimed • Used by large open spaces south of Pecos Road • Golf courses, City parks, schools, and greenbelts within neighborhoods • Industrial cooling uses • Benefit • Use of Reclaimed reduces the total water resource necessary to serve the City • Goal • Continue to ensure rates support reclaimed operations and contributes to reclaimed capital costs and considers alignment with value of our water resource 41 Reclaimed Water Volume Rates 5-Year Projection All Reclaimed Customers Existing FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 $ per 1,000 gallons $0.69 $0.75 $0.75 $0.80 $0.80 $0.85 Change - $ $0.06 $0.00 $0.05 $0.00 $0.05 Change - % 8% 0% 7% 0% 7% Includes projected increases of 8% in FY 2021-22 and 7% in FY 2023-24 and FY 2025-26 42 Reclaimed Water Bill Impact for an Average Account (Monthly) Customer Type Reclaimed Water Billing (Average Acct) FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 City of Chandler (Accounts 83) (Avg Consump/Acct 271K) $186.99 $203.25 $203.25 $216.80 $216.80 $230.35 HOAs green spaces (Accounts 95) (Avg Consump/Acct 1,167K) $805.23 $875.25 $875.25 $933.60 $933.60 $991.95 Schools (Accounts 5) (Avg Consump/Acct 1,110K) $765.90 $832.50 $832.50 $888.00 $888.00 $943.50 Includes projected increases of 8% in FY 2021-22 and 7% in FY 2023-24 and FY 2025-26 43 Reclaimed Water vs. Landscape Rate Comparison- 5 Year Projection Service Existing FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 Potable $/1,000 gallons (used for Landscape) $2.55 $2.70 $2.70 $2.89 $2.89 $3.08 Reclaimed $/1,000 gallons (used for Landscape) $0.69 $0.75 $0.75 $0.80 $0.80 $0.85 Reclaimed Rates as a % of Potable Landscape Rates 27.1% 27.7% 27.7% 27.7% 27.7% 27.6% Includes projected increases of 8% in FY 2021-22 and 7% in FY 2023-24 and FY 2025-26 Reclaimed rate is keeping pace with potable 44 Reclaimed Water Rates Inside City Bill Impact Assumes 100,000 Gallon Usage on 1” Meter Based on FY 2021-22 rates for Chandler; the comparison cities are FY 2020-21 rates 45 Recommendations: Reclaimed Water Continue to ensure rates support reclaimed operations and contributes to reclaimed capital costs and considers alignment with value of our water resource 46 Peer Combined Utility Survey 47 Combined SFR Utility Bill Comparison Assumes 12,000 Gallon Usage on 5/8” Meter Gilbert also charges an Environmental Fee of $4.28 to every utility account 48 Combined Multi-Family Utility Bill Comparison Assumes 150 Units or 500,000 Gallon Usage on 6” Meter 49 Combined Non-Residential Utility Bill Comparison Assumes 200,000 Gallon Usage on 2” Meter 50 Combined Industrial Utility Bill Comparison Assumes 312,000,000 Gallon Usage on 8” Meter 51 Strategy/Timeline Implementation Steps Time Frame Work Session with Mayor and Council November 1, 2021 Public Outreach – Single Family, Multi Family, Landscape (HOAs, Golf Courses, Schools), Non-Residential & Industrial Nov 2021-Jan 2022 Feedback to City Manager/Council on Results of Outreach February 24, 2022 Adopt Notice of Intention to Increase Rates March 24, 2022 Conduct Public Hearing for Water, Reclaimed Water, Wastewater, and Solid Waste Rate Increases May 12, 2022 Introduce Ordinance to Increase Water, Reclaimed Water, Wastewater, and Solid Waste Rates May 12, 2022 Adopt Ordinance to Increase Water, Reclaimed Water, Wastewater, and Solid Waste Rates May 26, 2022 Date COS Rates Become Effective July 1, 2022 52 Questions? 53