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4:30 pm | July 20, 2023 Council Conference Room Utility Rate Update Council Work Session Utility Rate Setting Overview 2 Cost of Service (COS) Process Completed Every 4-5 Years City’s Financial Plan Review (completed annually) Cost of Service Analysis (completed every 4-5 years, last update 2021) Rate Design Change Recommendations -If any (1st 2021 COS rate changes 7/1/22 and rate design only Solid Waste) What is the funding requirement? Is everyone paying their fair share? How can our rates help ensure fairness? 3 Wet Utilities Background 4 COS Realignment • 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 • Decision was to transition COS over 5 years, every other year rate changes • Water would be at 100% COS by year 5 and Wastewater at 75% COS by year 5 • Wastewater COS to be re-evaluated at 100% at second rate change • Plan began implementation July 1, 2022 Revenue Requirements Revenue Increases - % Fiscal Year Water Wastewater Reclaimed July 2022 2.0% 4.0% 8.0% 2022 - 23 0% 0% 0% Jan. 2024 5% 6.0% 7.0% 2024 - 25 0% 0% 0% Jan. 2026 7% 6.0% 7.0% Fiscal Year Water Wastewater Reclaimed July 2022 2.0% 4.0% 8.0% 2022 - 23 0% 0% 0% Jan. 2024 7% 8.0% 7.0% 2024 - 25 0% 0% 0% Jan. 2026 7% 6.0% 7.0% Adopted Budget Jan. 2024 Utility Rates Interim Update Projection subject to change Major Driver - Aging infrastructure Water • Total mains 1,238 miles • 10-year CIP $81.6M • Reflects 1-2 miles/year • Proactive replacements based on risk (breaks interrupt plan) • Increasing regulation for TTHM (Trihalomethanes) adds $2M to chemicals • Increasing rate 2% adds ongoing capacity for operations and debt service • Compounds to $5M by year 5 and $11.8M by year 10 with current projections • Allows us to bond for $62M in projects by year 5 and $146M by year 10 Major Drivers – Aging Infrastructure Wastewater • Total pipes & valves 947 miles • 10-year CIP $131.8M • Reflects significant individual projects (e.g.66” Sewer Main) • Reactive replacements based on video/inspections • Increasing regulation for Water Effluent Quality • Increasing rate 2% adds ongoing capacity for operations and debt service • Compounds to $4.8M by year 5 and $11M by year 10 with current projections • Allows us to bond for $59M in projects by year 5 and $137M by year 10 Water Rates Cost of Service Rates Residential Non-residential Industrial Revenue Requirement +7% To ensure everyone is 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 5-Year Transition Plan to 100% COS Volumetric Water Rates Customer Class Existing FY 2023-24 (Jan. 2024) Rate Change % FY 2024-25 FY 2025-26 (Jan. 2026) 100% COS FY 2026-27 FY 2027-28 (Jan. 2028) Across Board Single Family Current FY Projection First 10 Kgal $1.62 $1.66 2.47% $1.66 $1.72 $1.72 $1.84 Next 10 Kgal 2.11 2.15 1.90% 2.15 2.23 2.23 2.39 Next 40 Kgal 2.65 2.73 3.02% 2.73 2.82 2.82 3.01 Over 60 Kgal 3.31 3.39 2.42% 3.39 3.50 3.50 3.75 Multi-Family First 10 Kgal $0.89 $0.91 2.25% $0.91 $0.94 $0.94 $1.00 Next 10 Kgal 1.09 1.13 3.67% 1.13 1.16 1.16 1.24 Next 20 Kgal 1.49 1.55 4.03% 1.55 1.61 1.61 1.72 Over 40 Kgal 2.25 2.31 2.67% 2.31 2.42 2.42 2.59 Includes total revenue recovery projected increases of 7.0% (was 5%) in FY 2023-24, 7.0% in FY 2025-26, and 7.0% in FY 2027-28 All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time Existing Conservation Tiers Existing Conservation Tiers Customer Class Existing FY 2023-24 (Jan. 2024) Rate Change % FY 2024-25 FY 2025-26 (Jan. 2026) 100% COS FY 2026-27 FY 2027-28 (Jan. 2028) Across Board Current FY Projection Non-Residential $2.19 $2.37 8.22% $2.37 $2.63 $2.63 $2.82 Landscape 2.70 3.08 14.07% 3.08 3.65 3.65 3.90 Industrial 2.17 2.37 9.22% 2.37 2.66 2.66 2.85 Includes total revenue recovery projected increases of 7.0% (was 5%) in FY 2023-24, 7% in FY 2025-26, and 7% in FY 2027-28 All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time Volumetric Water Rates (per 1,000 gallons) 12 Base Water Rates Meter Size Existing FY 2023-24 (Jan. 2024) Rate Change % FY 2024-25 FY 2025-26 (Jan. 2026) 100% COS FY 2026-27 FY 2027-28 (Jan. 2028) Across Board Base Charge $ per Bill Current FY Projection 5/8" x 3/4" $9.26 $9.72 4.97% $9.72 $10.38 $10.38 $11.11 3/4" 10.56 11.10 5.11% 11.10 11.85 11.85 12.68 1" 13.49 14.17 5.04% 14.17 15.15 15.15 16.21 1.5" 21.24 22.30 4.99% 22.30 23.85 23.85 25.52 2" 29.90 31.40 5.02% 31.40 33.58 33.58 35.93 3" 63.03 66.19 5.01% 66.19 70.81 70.81 75.76 4" 88.94 93.38 4.99% 93.38 99.92 99.92 106.91 6" 168.88 177.32 5.00% 177.32 189.71 189.71 202.99 8" 255.85 268.65 5.00% 268.65 287.44 287.44 307.56 10" 435.93 457.73 5.00% 457.73 489.77 489.77 524.05 12" 616.03 646.83 5.00% 646.83 692.12 692.12 740.57 Includes total revenue recovery projected increases of 7.0% (was 5%) in FY 2023-24, 7.0% in FY 2025-26, and 7.0% in FY 2027-28 All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time Water Conservation • Tiered rates encourage conservation: low water users pay less per gallon for the water they use, high water users pay more • Chandler offers free water-wise workshops, site visits, and retrofit kits (homes built prior to 1992) • Current and new conservation rebate programs: •Residential and commercial grass removal •Non-functional turf removal •Smart irrigation controller installation •Pursuing grant funding to increase incentives Wastewater Rates Cost of Service Rates Residential Non-residential Revenue Requirement +8% To ensure everyone is paying their fair share Multifamily 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 5-Year Transition Plan to 75% COS Rates Customer Class FY 2022-23 FY 2023-24 (Jan. 2024) Rate Change % FY 2024-25 FY 2025-26 (Jan. 2026) 75% COS Reached FY 2026-27 FY 2027-28 (Jan. 2028) Across Board Current FY Projection Residential Base* $27.65 $28.32 2.42% $28.32 $28.85 $28.85 $30.58 Multifamily Base* $10.57 $12.26 15.99% $12.26 $13.64 $13.64 $14.46 Non-Residential Volumetric** $3.73 $4.24 13.67% $4.24 $4.64 $4.64 $4.92 Customer Charge $8.17 $9.24 13.10% $9.24 $10.11 $10.11 $10.72 * Monthly Charge per Dwelling Unit ** Per 1,000 Gallons Transition to COS over 5-year period including 8% (was 6%), 6%, and 6% increases needed in financial plan All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time 5-Year Transition Plan to 100% COS Rates Customer Class FY 2022-23 FY 2023-24 (Jan. 2024) Rate Change % FY 2024-25 FY 2025-26 (Jan. 2026) 100% COS Reached FY 2026-27 FY 2027-28 (Jan. 2028) Across Board Current FY Projection Residential Base* $27.65 $27.65 0.00% $27.65 $27.65 $27.65 $29.31 Multifamily Base* $10.57 $13.36 22.2% $13.36 $15.38 $15.38 $16.30 Non-Residential Volumetric** $3.73 $4.46 17.15% $4.46 $4.99 $4.99 $5.29 Customer Charge $8.17 $9.79 17.25% $9.79 $10.97 $10.97 $11.63 * Monthly Charge per Dwelling Unit ** Per 1,000 Gallons Transition to COS over 5-year period including 8% (was 6%), 6%, and 6% increases needed in financial plan All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time Reclaimed Water Rates Reclaimed Water Volume Rates 5-Year Projection No interim rate adjustment All Reclaimed Customers Existing FY 2023-24 (Jan. 2024) FY 2024-25 FY 2025-26 (Jan. 2026) FY 2026-27 FY 2027-28 (Jan. 2028) $ per 1,000 gallons $0.75 $0.80 $0.80 $0.86 $0.80 $0.92 Change - $ $0.05 $0.00 $0.06 $0.00 $0.06 Change - % 7% 0% 7% 0% 7% Includes projected increases of 7% in FY 2023-24 and 7% in FY 2025-26 and FY 2027-28 All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time Solid Waste Rates 1% Rate increase generates = $177,400 ongoing and compounds All future year projected rate increases are estimates and are subject to change as market conditions or facility needs change over time Fiscal Year (FY) Adopted Rate Increase Projection Recommended FY 23-24 – Jan 2024 5% 7% FY 25-26 6% 7% FY 27-28 6% 7% Solid Waste Rate Projection FY 2024 Rate Change +7% Residential (was 5%) FY 2024 Cost of Service RSWCC or Bulk • A total of 4 free RSWCC visits or bulk pickups per calendar year • After 4 free, RSWCC is $10 for up to 400 lbs. and bulk pickups are currently $30 Solid Waste Background Solid Waste July 2022 Implementation FY 2022 Rate Change • +3.4% Residential FY 2022 Cost of Service RSWCC • 2 free visits for the 1st 400 lbs, any weight above 400 lbs = $50/ton – then $10/visit • 2 free bulk pickups, then $30 per pickup • Alleyway collection $1.61/month per residence 23 Waste Management collection costs have experienced extraordinary increases, and a contract amendment is planned for July 2023 • One-time payment of $1,068,000 in August 2023 to address new and prior year increases • Recommend an ongoing adjustment to contract of 8.8% ($854,400) to be effective July 2024 • Regular contracted CPI increases thereafter, capped at 3.5% Solid Waste Rate Drivers Solid Waste Fee Updates • Additional/Replacement container charge from $60 to $75 (adjusts to current City cost) • Additional/Replacement Containers for Large Alley size change from $235 to $430 (adjusts to current City cost) • City facility rate at RSWCC to true disposal cost $46 to $50 / ton (adjusts to current City cost) • Additional container collection fee $7.50 to $15 (adjusts to current City cost) • Special collection fee non-alley $17.50 to $18.50 and Alley $25 to $35 (adjusts to current City cost) • Additional Bulk collections above free allocation from $30 to $35 (adjusts to current City cost) • Changes would generate an additional estimated $7,300 for solid waste fund Average Residential Cost Comparison for Water, Wastewater and Solid Waste Estimated based on Tempe Cost of Service July 2022 results at 10,000 gallons single family residential rates for FY 2022-23 plus known Water and Wastewater increases across all Cities and including Chandler’s planned rate increases of 7% for Solid Waste Task or Event Date Public Outreach July 2023 Feedback to Council on Public Outreach August 2023 Notice of Intent Adopted (60 Days prior to Public Hearing) August 17, 2023 Notice Publication in Newspaper (20 days prior to Public Hearing) September 27, 2023 Public Hearing / Ordinance First Read / Resolution to Update Citywide Fee Schedule October 19, 2023 Ordinance Final Adoption (Can go into effect 30 days after adoption) November 9, 2023 Rates Effective for January Billing Cycle January 1, 2024 Rate Adjustment Timeline Questions?