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City Council Conference Room
Monday, July 14, 2025| 4:00 pm
FY 2025-26
Utility Rate Workshop #1
04. Next Steps and Key Process Dates
*Questions Throughout*
02. Changes Impacting Prior Cost of Service Study
Agenda
01. Overview of Utility Rate Updates
03. Rate Adjustment Options and Determination
on Direction
Overview of Utility
Rate Updates:
Chandler Water & Wastewater
Major Projects & Rate Impacts
Utility Rate Adjustment History
Last COS Study Transition
Enterprise Funds are
self supporting. Rate
revenue must support
all operating, capital,
debt service and
reserve requirements
The city has rate
models for each
Enterprise fund,
updated annually
to analyze rate
needs
Cost of
Service (COS)
studies
happen every
5-7 years
Average Residential Cost Comparison
for Water, Wastewater and Solid Waste
$75
$101
$111
$112
$120
$132
$135
$153
$-
$50
$100
$150
$200
Based on Tempe Cost of Service July 2024 results at 10,000 gallons single family residential rates for FY 2024-25
Utility Rate Revenue Requirements Needed to
Fund Operating, Capital, Debt and Reserves
A rate increase is needed to maintain the
integrity of our enterprise funds and keep
our systems safe.
The direction needed in this workshop will
be what implementation methodology to
use to share clear customer classification
impacts for public outreach
Capital Plan Inflation Impacts
Data source: The Mortenson Construction Cost Index is calculated quarterly by pricing a representative non-residential
construction project in geographies throughout the country. YTD through May-2025
Utility Construction
project costs
impacted greatly by
inflation
(+35-50% increases)
Construction
Price Index’s new
normal
Cost of Service
data inputs
Issued Final
Report
Major Water Revenue Requirement Drivers
Aging Infrastructure & Operating Cost Increases
Known Water Impacts
•
Increased new cost over 3 years (+$126.7M); 187 miles of highest,
high, and moderate risk watermains, replaced over 30 years
•
New project in FY 2024-25; redundant 48” transmission line
to reduce risk of single failure point ($152.6M)
•
Increased new cost over 3 years (+$168M/+79%) of aging plant
work and filter media in the 10-year CIP ($379.7M)
•
Increased water purchase costs are escalating with CAP and
SRP (+$4.2M ongoing over 4 years)
•
Increased cost of treatment chemicals used daily (+$1.4M
ongoing over 4 years)
•
Power costs are increasing (solar savings will offset rate requirement by
0.5%)
•
New and existing personnel costs increasing as competition for certified
operators increases
Major Wastewater Revenue
Requirement Drivers
Aging infrastructure & Operating Cost Increases
Known Wastewater Impacts
•
Increased to 10 miles of highest risk lines and 7,000 manholes of highest, high, and
moderate risk rehabs over 30 years
•
New project in FY 2024-25; 66” underneath Loop 202 to allow for existing pipe rehab
($40.6M)
•
New project in FY 2025-26; Ocotillo Water Reclamation Facility Influent Pump Station
($31.4M)
•
Increased new cost over 1 year (+$26.8M); aging plant work over 10 years ($219M)
•
Increased cost of treatment chemicals used daily (+$3M ongoing over 3 years)
•
Power costs are increasing (solar savings will offset rate requirement by 1.8%)
•
New and existing personnel costs increasing as competition for certified operators
increases
Other Potential Revenue
Requirement Drivers
Aging Infrastructure & Operating Cost Increases
Unknown Water & Wastewater Impacts
•
New General Plan update and potential regulatory changes will help guide future state of
infrastructure planning for any changes to densities or building up
•
Tariffs may have impact on construction materials, certain chemical costs and media
filter costs, depending on location of origin (will monitor and adjust contracts if needed
•
AMI will help plan timing of needed infrastructure as more frequent flow data will be
available
•
Impacts of Intel’s WATR plant on wastewater treatment and water production levels
which reduces water and wastewater flows and therefore revenues decline in both areas
Utility System Development Fees (SDF)
SDFs are allocated based on projects that are related to growth and are listed in
the Infrastructure Improvement Plan (IIP) adopted in January 2024. In prior
periods, if existing SDF revenues were not sufficient to cover project costs, a
loan was established to fund the project until revenues were received.
*Annual SDF Loan payback revenues help minimize needed rate increase
Utility Area
(All as of June 2025)
SDF Loans
Outstanding
Planned
New SDF
Project
Funding in
CIP
Planned SDF
Revenue/
Loan Repay
FY 2025-26
Planned SDF
Revenue/
Loan Repay
FY 2026-27
Planned SDF
Revenue/
Loan Repay
FY 2027-28
Planned SDF
Revenue/
Loan Repay
FY 2028-29
Planned SDF
Revenue/
Loan Repay
FY 2029-30
Water
$107,942,818
$3M
$3.3M / $5.6M
$2M / $6M
$2M / $4M
$2M / $3.5M
$2M / $2.5M
Wastewater
$116,924,609
$0
$3M / $3M
$3M / $6M
$3M / $5M
$3M / $3M
$3M / $3M
Reclaimed
$22,870,726
$227K
$750K / $500K
$300K / $500K
$200K / $500K
$200K / $500K
$200K / $500K
5-Year Enterprise Funds Fund Balance
Projection & Revenue Requirements
Changes Impacting Prior
Cost of Service Study
Cost of Service (COS) Analysis
Residential
Non-residential
Industrial
Revenue
Requirement
(based on FY 2019-20
data. COS transitioned
over 5 years)
?
Is everyone paying their fair share?
Multifamily
Landscape
Shifting cost burden of revenue requirement to customer classifications differently based on burden on system.
Allows for more accurate reflection of actual cost of providing service to each customer class.
14
Residential
Multi-Family
Commercial
Industrial
Landscape
Cost of Service Benefits
Completed once every 5-7 years
Fair and equitable; the 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
FY 2025-26 is Final Transition to Full COS
Data Impacts
New accelerated replacements of aging infrastructure impacting the CIP
Significant inflationary impacts in capital and operating
New Intel treatment plant and changes to demand (causing lower revenues)
Industrial contributed capital (i.e. Interconnect facility and related O&M)
COS classification impacts are still valid with higher costs
and new projects being greatest impact
The next study is planned to kick off in mid-summer 2026.
Rate Adjustment Options
and Determination on
Direction
Implement 5th year of full Cost of Service (COS) rate increase
Continues using FY 2019-20 data to align COS rate increases
Does not consider inflationary impacts and new projects from beginning of transition
Implement Blended- COS and Across the Board (ATB) rate increase
Continues using FY 2019-20 data to align COS rate increases for anticipated
increase needed based on the prior projection, then;
Additional increase needed for FY 2025-26 applied evenly ATB to all classifications
Implement Across the Board (ATB)
Increase needed (revenue requirement) for FY 2025-26 applied evenly ATB to all
classifications, therefore all classifications increase at the same percent
Allows full inflation and new projects to be allocated over the next COS update
Not Recommended
FY 2025-26 Utility Rate
Adjustment Implementation Methodologies
Utility Rate Adjustments by
Implementation Method
Utility Rate Adjustments by
Implementation Method
Chandler Utility Bill Example: Residential
Rates increase $3-$9
monthly depending on
method of implementation
Estimated based on Tempe Cost of Service July 2024 results at 10,000 gallons single
family residential rates for FY 2024-25 with estimated or known adjustments
Chandler Utility Bill Example: Multi-Family
Rates increase $470-$758
monthly depending on
method of implementation
Assumes 500K gallons, 6” meter, 150 units
Chandler Utility Bill Example: Non-Residential
Assumes 200K gallons, 2” meter
Rates increase $204-$459
monthly depending on
method of implementation
Chandler Utility Bill Example: Industrial
Assumes 300M gallons, 8” meter
Rates increase $306,594-
$825,174 monthly depending
on method of implementation
Chandler Utility Bill Example:
Reclaimed and Landscape
Estimated based on 300,000 gallons with 2” meter
Landscape Meter
*Other cities do not have a reclaimed rate/program
Reclaimed Meter
What Chandler Has Done to Keep Utility Rates Lower
In Summary
Utility rate increases are needed to fund operating, capital, debt
service, and reserve requirements. The following steps have been
taken to minimize rate impacts to residents and businesses:
•
Offsetting rate need with revenue with SDF loan paybacks
•
Adjusted CIP by planning mains and manhole replacements at
a slower rate for water and wastewater aging infrastructure
from 20 year to 30 year to spread costs
•
Evaluated a 38-year spread based on Council request
•
Planned additional of solar infrastructure using one-time
General Fund to generate ongoing future utility electric savings
•
Re-rated facilities to allow for max capacity so as to avoid the
need for additional facilities thereby reducing costs
•
Reducing water purchase costs through conservation
incentives and xeriscaping (does have revenue impact)
Chandler Utility Rate Adjustment Direction
Determine method of implementing rates
prior to public outreach. Allocate revenue
requirement based on:
• Across the Board – uses the same revenue increase
rate for all customer classifications, OR
• Blended Cost of Service - allocating the original
revenue requirement following COS and additional
revenue requirement across the board to all
classifications
Utility Rate Key Process Steps
Date
Council Utility Rate Workshop #1
(Determination on rate adjustment methodology prior to outreach)
Completed
Community Outreach
July-October
Adopt Notice of Intent to Change Rates
Oct. 16, 2025
Council Utility Rate Workshop #2
(Report out on public outreach)
11/10/2025
Public Hearing & Ordinance Introduction
1/8/2026
Final Adoption
1/22/2026
Effective Date for Utility Bills Issued On or After Date
3/2/2026
New COS Study to Determine Each Classification is
Paying What they Should Based on New Use/Cost Data
Mid-Summer
2026
Next Steps
and Key
Process
Dates
Questions?