Oct 17, 2013 - approximately $1.3 million, other water infrastructure capital improvement projects, and annual operating
CITY COMMISSION AGENDA MEMO October 17, 2013 FROM:
Randy D. DeWitt, P.E., Assistant Director of Public Works for Water and Wastewater
MEETING:
November 5, 2013
SUBJECT:
First Reading of an Ordinance Amending Water Rates and Installation Charges
PRESENTER:
Dale L. Houdeshell, P.E., Director of Public
BACKGROUND Amending Water Rates In 2010, the City Commission requested a study of the City’s declining water rate structure to review three issues: (1) determine if all customer class rates were covering the cost of services; (2) determine if rates generated sufficient revenue to cover the operating cost of the water utility; and (3) determine if rates provided sufficient operating reserves. City Administration, working with Springsted, Inc., performed an analysis of the declining rate structure using the “Base Extra Capacity Method” per the American Water Works Association (AWWA) Manual of Water Supply Practices, M1,“Principles of Water Rates, Fees and Charges.” This manual is the industry standard to review requirements for water utilities, cost allocations to customer classes, and water rates. The four customer classes analyzed were Residential, Commercial, Kansas State University, and “Non-Billed” Water (i.e., metered but not billed, which is water used by City facilities). The analysis showed that residential rates (lower volume users) generated revenues that were higher than cost of services while commercial and industrial rates (higher volume users) did not provide sufficient revenues to cover the cost of services. Accordingly, the City Commission directed City Administration to gradually flatten the water rate structure over a five year period, which would align revenues with the cost of services across all customer classes. The water rate structure change would result in higher rates for larger volume users and little change to residential rates. At the end of the five year period (2011 – 2015), cost of services would be more aligned with actual revenues.
In addition to the water rate structure change, overall increases to water rates have been needed over the past several years, and are projected for future years, to cover the cost of the Water Treatment Plant and Wellfield Expansion project annual loan payments of approximately $1.3 million, other water infrastructure capital improvement projects, and annual operating expenses. In 2008, water rates increased 15% to account for upcoming Water Treatment Plant loan payments plus debt payments on water infrastructure completed to accommodate city growth. The 2008 rate increase was the first water rate increase since 1990. Rates were also increased by 7% annually from 2009 to 2012. Amend Installation Charges In 2010, the City’s Code of Ordinances was amended to increase the charges for water service installations to cover the growing costs of labor, materials, and equipment. The amount charged for installations increased from $540 to $1,115.
DISCUSSION Amending Water Rates City Administration has generally followed recommendations from the Springsted, Inc., study for determining the required water rate increases. Proposed increases should be based upon meeting the industry recommended end-of-year cash balance to cover three months of annual operating costs plus one year’s debt service. Recent water projects financed by water rate increases included New and Parallel Water Lines, Heritage Square Water Main Extension, McCall Road 24-inch Water Main, Konza Water Main Extension, and Miller Parkway Water Line. Future projects include Westwood Road Neighborhood improvements, Fourth and Pottawatomie improvements, Skyway Drive Loop, Blue Township Tower and Trunk Main Extension, Marlatt Avenue Low-Service Transmission Main, and numerous other necessary improvement projects. During the 2013 budget process, a 4% water rate increase was anticipated. However, Water Fund revenues through the third quarter of 2012 were higher than projected due to consumption increases driven by growth in customers and drought conditions. Therefore, a 3% rate increase was passed for 2013. For 2013, consumption is down over 23% and Water Fund revenues are down 16% through the third quarter compared to 2012, despite the 3% rate increase. Consumption and revenue decreases are a direct result of having a relatively “average year,” in regards to precipitation and climate, directly following two years in which drought conditions were prevalent. The year-to-date (through the third quarter) consumption for 2013 is still 5% higher than the average consumption for the same time period for 2008-2010, which were “average years.” Even though consumption and revenues are down from 2012, they
are still above those for the “average year.” Based on year-to-date and projected fourth quarter revenues, total revenues for 2013 are projected to be 3% lower than the budgeted amount. In past years, consumption and revenue were projected based on the previous year. In order to better forecast consumption and revenue for the 2014 budgeting process, City Staff utilized a five-year running average to calculate the projected increases in consumption revenues. This should allow for a reduction that effects unpredictable variables, such as precipitation and climate, have on forecasted consumption. During the 2014 budget process, a 4% water rate increase was anticipated. Due to the declining consumption and revenues, City Staff looked at the potential of having a higher rate increase to make up for the lower revenues and to keep the projected fund balance at or above recommended levels for the upcoming years. However, it was determined that a 4% increase should be recommended. See Figure 1 below. Figure 1 – Recommended vs. Projected Fund Balance $9,000,000 $8,000,000 Recommended Fund Balance
$7,000,000
Projected Beginning Fund Balance
$6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 2012
2013
2014
2015
2016
2017
2018
2019
2020
Rate increases of 4% are currently projected for 2015 and beyond, assuming a 1% average growth rate in consumption. However, these proposed future rate increases do not maintain the recommended fund balance and must be evaluated on an annual basis and adjusted accordingl. Table 1 below is a summary of projected rate percentage increases and cash balances from 2012-2018. Table 1 - Fund Balance Projections 2012
2013
2014
2015
2016
2017
2018
7%
3%
4%
4%
4%
4%
4%
Projected Fund Balance
$6,078,284
$6,428,182
$5,141,027
$5,251,116
$4,062,647
$3,349,969
$1,659,449
Recommended Fund Balance
$5,201,732
$4,596,784
$4,744,859
$5,719,766
$5,665,744
$6,670,697
$7,023,800
Rate Increase
Despite the 4% overall rate increase, average residential users (20 units or less) will not have an increase in 2014. The average commercial user (50 units) will see an increase of $4.61 per month. This will be the fourth year of the five-year plan to flatten the water rate structure, so larger residential, commercial, and industrial users (more than 20 units) will absorb the entire rate increase. Table 2 below is a summary of rate increases for 20092014. Table 2 - Water Rates (2009-2014) Inside City - Residential/Commercial
2009
2010
2011
2012
2013
2014
7%
7%
7%
7%
3%
4%
Minimum Charge (0-2 Units)
$7.51
$8.03
$8.03
$8.03
$8.03
$8.03
3-20 Units
$2.19
$2.34
$2.48
$2.48
$2.48
$2.48
21-400 Units
$1.48
$1.58
$1.77
$2.00
$2.11
$2.26
Over 400 Units
$1.19
$1.28
$1.46
$1.82
$1.98
$2.20
Rate Increase
Amend Installation Charges City Staff has reviewed the operational and material costs for the installation of new services connections. The average installation costs for a standard connection (1" copper service line with a ¾" meter), including materials, equipment, and labor, is $1,578. The current installation charge set in the Code of Ordinances is $1,115, which is $463 less than the actual costs incurred by the City. The breakdown of the current average costs for installation is provided in Table 3 below. Table 3 - Water Service Installation Charges Labor and Equpment Costs
$555.00
Material Costs
$1,023.18
Total Costs
$1,578.18
Due to current charges not covering the actual installation costs, it is necessary to increase the installation charge paid to the City for a standard service connection to $1,578. This charge shall be set as the minimum charge for any new water service connections. Service connections that are larger than the standard connection will be charged for the actual cost of installation plus 15%, or the minimum charge, whichever is greater. New Customer Fees City Staff is also planning to change the policy in regards to the minimum number of units used to determine wastewater usage charges for new single-family residential customers for 2014.
Currently, for new customers that have not established a winter-quarter-average (WQA), which is the average water usage during the months of December, January, and February, the charges for wastewater usage is determined by assuming a minimum usage of seven (7) units of water. This minimum number of units represents the average WQA for all residential customers. After a customer has maintained service for a sufficient time period and has established a WQA, they are billed for wastewater using their WQA for water consumption. In 2014, staff is planning to implement a reduction in the minimum number of units charged to new single-family residential customers to five (5) units. This reduction can be implemented administratively, as the minimum units charged is not set by the Code of Ordinances. The City Finance Department anticipates that the reduction will have a minimal impact on revenues for the Wastewater Fund.
FINANCING For 2014, a nominal increase of 4% overall is recommended for water rates to cover operating expenses, debt service, and to maintain adequate cash reserves. A $463 increase for the Water Service Installation Charge is recommended for covering the City’s operational and material costs.
ALTERNATIVES It appears the Commission has the following alternatives concerning the issue at hand. The Commission may: 1. Approve first reading of an ordinance amending applicable sections of Chapter 32 of the Code of Ordinances to increase water rates and installation charges as recommended, effective January 1, 2014. 2. Do not approve first reading of an ordinance increasing water rates and installation charges as recommended, and provide further direction to City Administration. 3. Modify to meet the desires of the Commission. 4. Table the item.
RECOMMENDATION City Administration recommends approving first reading of an ordinance amending applicable sections of Chapter 32 of the Code of Ordinances to increase water rates and installation charges as recommended, effective January 1, 2014.
POSSIBLE MOTION Approve first reading of an ordinance amending applicable sections of Chapter 32 of the Code of Ordinances to increase water rates and installation charges as recommended, effective January 1, 2014.
RDD/dh/ie 13114
Enclosures: 1. Draft Ordinance 2. 2014 Itemized Manhattan Water Service Installation Costs 3. Winter Quarter Average Analysis
ORDINANCE NO. AN ORDINANCE AMENDING SECTIONS 32-46, 32-49, AND 32-50 OF THE CODE OF ORDINANCES OF THE CITY OF MANHATTAN, KANSAS, RELATING TO WATER RATES WITHIN AND OUTSIDE OF THE CITY. NOW THEREFORE, BE IT ORDAINED BY THE GOVERNING BODY OF THE CITY OF MANHATTAN, KANSAS: Section 1. That Section 32-46 of the Code of Ordinances of the City of Manhattan, Kansas, is hereby amended to read as follows: Sec. 32-46. Installation charges. (a)
Prior to the provisions of water service to any property, the following installation charges must be paid to the City. (1) One inch tap and three fourths-inch meter: $1,578 (2) Larger than the one inch tap and three fourths-inch meter: (with $1, 1,578 minimum), cost + 15%.
Section 2. That Section 32-49 of the Code of Ordinances of the City of Manhattan, Kansas, is hereby amended to read as follows: Sec. 32-49. - Rates within city. (a) The following monthly rates for water used within the city and at Kansas State University shall be as follows: (1) First 200 cubic feet, minimum bill ............. $8.03 (2) Next 1,800 cubic feet, per C cf .................... 2.48 (3) Next 38,000 cubic feet, per C cf .................. 2.26 (4) All over 40,000 cubic feet, per C cf ............. 2.20 (b) In addition to the above rates, a surcharge of $0.023936 per 100 cubic feet will be assessed for all water sold at retail for the purposes of financing the state water plan. Section 3. That Section 32-50 of the Code of Ordinances of the City of Manhattan, Kansas, is hereby amended to read as follows: Sec. 32-50. - Rates outside city. (a) Water services outside the city limits must be approved by the city commission. Monthly rates for water services outside the city shall be as follows: (1) First 200 cubic feet, minimum bill ........... $16.06
(2) Next 1,800 cubic feet, per C cf .................... 4.96 (3) Next 38,000 cubic feet, per C cf .................. 4.52 (4) All over 40,000 cubic feet, per C cf ............. 4.40 (b) In addition to the above rates, a surcharge of $0.023936 per 100 cubic feet will be assessed for all water sold at retail for the purposes of financing the state water plan. Sec. 32-50.50.2. - Rates for Konza Valley Water Production and Taxing District. Konza Valley Water Production and Taxing District shall be charged at one and onequarter times the water rates within the city. Sec. 32-50.50.3. - Rates for Riley County Rural Water District No. 1. Riley County Rural Water District No. 1 shall be charged at one and one-quarter times the water rates within the city. Section 4.
This ordinance shall take effect and be in force on January 1, 2014.
PASSED BY THE GOVERNING BODY OF THE CITY OF MANHATTAN, DAY OF _____________________, 2013. KANSAS, THIS
ATTEST:
________________________________________ GARY S. FEES, MMC, CITY CLERK
____________________________ JOHN E. MATTA, MAYOR
2
2014 Itemized Manhattan Water Service Installation Costs Item Crew Leader Maintenance Technician (3 Hours) Backhoe w/ Operator (3 hours) Dump Truck 1-Ton Truck 1" Corporation Stop 1" Type K Copper Pipe 1" Meter Stop 1" Meter Ell 1" X 3/4" Reducer Meter Lind and Ring Full 3/4" Meter Meter Pit MTU
Quantity 1 ea 2 ea 1 ea 1 ea 1 ea 1 ea 42.5 lf 1 ea 1 ea 2 ea 1 ea 1 ea 1 ea 1 ea
Unit Price $ 22.00 $ 54.00 $ 300.00 $ 75.00 $ 50.00 $ 122.00 $ 4.31 $ 140.00 $ 53.00 $ 27.00 $ 135.00 $ 128.00 $ 83.00 $ 125.00 Total
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $
Total Price 22.00 108.00 300.00 75.00 50.00 122.00 183.18 140.00 53.00 54.00 135.00 128.00 83.00 125.00 1,578.18
Winter Quarter Average Analysis Current Winter‐Quarter‐ Average (WQA)
1 unit 2 units 3 units 4 units 5 units 6 units 7 units 8 units 9 units 10 units 11 units 12 units and higher
Sewer Charge
18.85 18.85 21.69 24.53 27.37 30.21 33.05 35.89 38.73 41.57 44.41 47.25 plus
Total Customers Median Customers (2 units to 7 units) Recommended New WQA Average
Number of Customers
514 1,311 1,335 1,561 1,377 1,213 3,917 580 400 278 200 519
4% 10% 10% 12% 10% 9% 30% 4% 3% 2% 2% 4%
13,205 1,356 1,377
100%
Average Number of New Customers Each Year
3,500
Average Number of Customers Moving Each Year
2,000
Estimated Annual Revenue Loss by Changing WQA from 7 Units to 5 Units
As a Percent of Total
$31,240
Represents over half of total on WQA
