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City Council Conference Room Monday, August 4, 2025| 4:00 pm FY 2025-26 Utility Rate Update Discussion Continued 02. Follow-up Items from Prior Work Session Agenda 01. Recap of Adjustments Presented 03. Rate Implementation Methodology Options and Direction 04. Next Steps and Key Process Dates Recap of Adjustments Presented Average Residential Cost Comparison for Water, Wastewater and Solid Waste $75 $112 $115 $120 $134 $139 $155 $162 $- $50 $100 $150 $200 Based on Tempe Cost of Service July 2025 results at 10,000 gallons single family residential current rates 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 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 impacts of increased capital replacements, operating costs and capital project costs is driving the rate requirement. The direction needed in this workshop will be what implementation methodology to use to share clear customer classification impacts for public outreach Review of Follow-up Items from Prior Work Session Looking Back: Utility Rate COS Study Alignment Result Original findings for Water indicated Residential and Multi-Family were slightly subsidizing other classifications Looking Back: Utility Rate COS Study Alignment Result Original findings for Wastewater indicated Residential subsidizing other classifications Industrial Classification 22 Industrial Businesses with at least one meter designated as Industrial Aligned Data Centers (Chandler) Propco LLC Air Products & Chemical Allied Waste Transportation Inc. Applied Materials Inc Avnet Inc Bowman Consulting Chandler Air Services Chandler HFP II LLC CRP III Chandler Airport LLC Dr Horton Inc Emerald On 87 LLC FCL Builders Arizona LLC Ferguson Enterprise LLC First Electronics Gila River Indian Community (Lone Butte) Intel Corp Microchip Technology Inc NXP USA Inc. Rogers Corp South Bay Circuits Inc True Up Companies, LLC Unbound 165 LLC Utility SDF Fund Balances SDFs are allocated based on projects that are related to growth and repayments are made to normalize the impact of these revenues. *Annual SDF Loan payback revenues help minimize needed rate increase Utility Area SDF Fund Balance (All as of July 1, 2024) SDF Fund Balance at Year End FY 2025-26 Balance at Year End FY 2026-27 Balance at Year End FY 2027-28 Water $11,981,465 $9,077,000 $3,000,000 $0 Wastewater $3,010,516 $0 $0 $0 Once fund balances reach zero, any annual revenues will be used to continue to pay outstanding loans keeping the fund balances at or near $0 5-Year Enterprise Funds Fund Balance Projection Fund balances is being drawn down to support Pay-go capital, One-time and Ongoing O&M, and Debt Service Fiscally prudent planned drawdown of fund balance is considered in annual rate analysis Rate Adjustment Options and Determination on Direction A change from rate adjustments every other year to every year would affect estimated planned rates as follows for Water & Wastewater FY 2025-26 Utility Rate Adjustment Timing Methodology 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 Implement Blended (COS/ATB blended rates) 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 ATB and Blended for one or the other Use ATB with one utility, and Blended for another FY 2025-26 Utility Rate Adjustment Implementation Methodologies Utility Rate Adjustments by Implementation Method Utility Rate Adjustments by Implementation Method Current average residential bill of $75 is $37 lower than closest valley city Prior year A-OK donations were $25,509. An additional $25,000 could assist customers most at risk Chandler Utility Rate Adjustment Direction Determine method of implementing rates prior to public outreach, and allocate revenue requirement based on: Determine method of implementing rates prior to public outreach and allocate revenue requirement 1.Across the Board (ATB) – uses the same revenue increase rate for all customer classifications, OR 2.Blended Cost of Service - allocating the original revenue requirement following COS and additional revenue requirement ATB to all classifications 3.Blended Cost of Service mixed with ATB - allocating the original revenue requirement following COS and additional revenue requirement across the board to one utility, and full ATB to the other Advise on timing of future utility rate changes (every other year or annually) Utility Rate Key Process Steps Date Council Utility Rate Workshop #1 (Determination on rate adjustment methodology prior to outreach) Completed Community Outreach August-October Adopt Notice of Intent to Change Rates 10/16/2025 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?