City of Fridley Water and Sewer Rate Study. Jessica Cook 9/25/17

Transcription

1 City of Fridley Water and Sewer Rate Study Jessica Cook 9/25/17 1

2 Utility Funds They are Enterprise Funds 1. Should pay for Capital Outlays Operations Replacement Reserves Debt 2. Should be flush with cash 3. Have a minimum of: 6 months of operations (not including depreciation) Following year s bond/debt payments Funding for capital equipment 2

3 Utility Funds Adequate revenue and cash balances in utility funds are important: 1. Maintain the City s Aa2 rating 2. Avoid sudden rate increases in the future 3. Water and Sewer have insufficient cash balances 4. Water and Sewer Utilities are an $8.4 million enterprise of the City 3

4 Key Findings Water Utility Water Rates 1. Usage assumptions are not aligned with actual usage patterns Limited incentive in current rate structure to promote conservation Proposing new tiers based upon actual water usage patterns 2. Continued pressure on cash balances Ending cash 12/31/2017 projected to be $415,000 in water fund $14.7M estimated over capital projects from Take Away: 1. New rate structure is needed to match usage patterns and capital improvements are driving need for rate increases and bonding. 4

5 Existing Residential Rate Tiers June Single Family Residential Billing In Thousand Gallons 1200 Tier 1: 0-20,000 gallons Tier 2: 20,001-40,000 gallons Tier 3: 40,001 60,000 gallons Tier 4: over 60,0001 gallons 5

6 Proposed Residential Rate Tiers June Billing: Single Family Residential Usage In Thousand Gallons Tier 1: 0-8,000 gallons Tier 2: 8,001-16,000 gals Tier 3: 16,001 24,000 gals Tier 4: 0ver 24,000 gals

7 New Rate Structure Benefits Allows indoor essential use to remain as affordable as possible Larger tiers provided for commercial users to recognized their different usage patterns Equitably allocates cost of system to user classes Percent of Percent of Water Used Revenue Generated Residential 38.16% 36.38% Commercial 40.81% 42.09% Multifamily 16.40% 15.13% Irrigation 4.62% 6.40% 7

8 Capital Driving Need for Rate Increases 2016 Water Fund Expenses Capital and Debt 51% Operating 49% Operating Capital and Debt 8

9 Key Assumptions for Water Analysis Future capital costs average $1,130,000 per year $515,000 for street reconstruction projects $170,000 for water treatment plant improvements $120,000 for wells $85,000 for water towers $240,000 for vehicles and other improvements 3% inflation on City s operating expenses 5% reduction in irrigation meter consumption in 2018; steady consumption thereafter No revenue from future redevelopment 9

10 Proposed Residential Water Rates Base Fee $17.45 $18.00 Rate per 1,000 Gallons Rate per 1,000 Gallons Tier ,000 $ ,000 $2.25 Tier 2 20,001-40,000 $2.18 8,001-16,000 $2.59 Tier 3 40,001-60,000 $ ,001-24,000 $3.11 Tier 4 Over 60,000 $2.57 Over 24,000 $

11 Proposed Commercial Water Rates Base Fee Meters < 1 $17.45 Meters < 1 $18.00 Meters 1 and Greater Rate per 1,000 Gallons $17.45 Meters 1 and Greater $50.00 Rate per 1,000 Gallons Tier ,000 $ ,000 $2.25 Tier 2 40, ,000 $ , ,000 $ Tier 3 250, ,000 $ ,001-1,000,000 Tier 4 500,001-1,000,000 $2.98 $3.26 Over 1,000,000 $3.42 Tier 5 Over 1,000,000 $3.55 N/A N/A

12 Proposed Multifamily Water Rates Base Fee $17.45 $18.00 Rate per 1,000 Gallons Rate per 1,000 Gallons Tier ,000 $1.96 All Usage $2.59 Tier 2 20,001-40,000 $2.18 Tier 3 40,001-60,000 $2.39 Tier 4 Over 60,000 $

13 Proposed Irrigation Water Rates Base Fee $17.45 $18.00 Rate per 1,000 Gallons Rate per 1,000 Gallons Tier ,000 $1.96 All Usage $3.88 Tier 2 20,001-40,000 $2.18 Tier 3 40,001-60,000 $2.39 Tier 4 Over 60,000 $

14 Proposed Water Rates All charges increase 3.00% annually after 2018 Increased complexity of rate structure delivers more equity Residential customer using 12,000 gallons per quarter will have a $5.38 increase in their quarterly water bill in

15 Restores Health of Water Fund Bonds issued for Capital Projects 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , Target minimum working capital Actual working capital-cash balance

16 Key Findings - Sewer Continued Pressure to Raise Sewer Rates Due to on-going utility improvements as part of road reconstruction projects, sewer lining, and lift stations $3.9M in capital projects estimated from % annual increases in MCES (Met Council) sewer charges expected over next 5 years Take Away: Future capital needs and MCES cost increases are driving future rate increases and bonding 16

17 2016 Sewer Expenses (excluding depreciation) Other Operating 18% Capital and Debt 2% MCES 80% MCES Other Operating Capital and Debt 17

18 Key Assumptions for Sewer Analysis 3% inflation on City s operating expenses 4% inflation on MCES disposal charges No revenue from future redevelopment Future capital costs average $420,000 per year $50,000 for street reconstruction projects $50,000 for lift station rehabilitation $225,000 for sewer pipe lining $95,000 for vehicles and other improvements 18

19 Proposed Sewer Rates Confirmed need for revenue increases in 2018 Recommending new rate structure in 2018 Variable base fee depending on customer class Base Fees Residential $12.27 $50.00 (includes 8,000 gallons) Multifamily 3 units or less $12.27 $ (includes 24,000 gallons) Multifamily 4 units or more $12.27 $20.00 (no usage included) 3.25% rate increases in 2019 and thereafter Commercial/Industrial $12.27 $20.00 (no usage included) Usage rate increases from $5.23 to $5.70 in

20 Proposed Sewer Rates All charges increase 3.25% annually after 2018 Increased complexity of rate structure delivers more equity Residential customer discharging 12,000 gallons per quarter will have a $2.23 decrease in their sewer bill in

21 Impact on Sewer Fund 6,000,000 5,000,000 Bonds Issued for Capital Projects 4,000,000 3,000,000 2,000,000 1,000, Target minimum working capital Actual working capital-cash balance Target working capital = 6 months operating expenses (excluding depreciation) plus next year s debt

22 Proposed Bond Issues Needed to fund capital projects Not expected to impact bond rating Proposed Bonding Water 1,250,000 1,300,000 1,400,000 0 Sewer 1,190, , ,200,000 Total 2,440,000 1,965,000 1,400,000 1,200,000 This study is not a bonding plan. Each proposed issue should be considered as needed 22

23 23 National Trends

24 Sample Bill Comparison $250 Comparison of 2017 Water and Sewer Charges Residential User (based on 15,000 gallons water and 10,000 gallons sewer per quarter) $200 $150 $100 $50 Sewer Water $0 24

25 Sample Bill Impact Typical Residential Residential Med user-gallons used 12,000 $ Inc % Inc Water Base $ $ usage $ $ Total water portion $ $ $ 5.38 Sewer Base $ $ usage $ $ Total sewer portion $ $ $ (2.23) Total Utility Bill $ $ $ % cents per day

26 Sample Bill Impact Low Volume Residential User Residential - Low Volume User Low user-gallons used 6,000 Water Base $ $ usage $ $ Total water bill $ $ $ 2.29 Sewer Base $ $ usage $ Total sewer portion $ $ $ 6.35 Total Utility Bill $ $ $ % cents per day

27 Sample Impact Small Business Very small commercial Commercial-gallons used 4,000 $ Inc % Inc Base $ $ usage $ 9.56 $ 9.00 Total water bill $ $ $ (0.01) Sewer Base $ $ usage $ $ Total sewer portion $ $ $ 9.61 Total Utility Bill $ $ $ % cents per day

28 28 Commercial Users Commercial Commercial-gallons used 90,000 $ Inc % Inc Base $ $ usage $ $ Total water bill $ $ $ 6.45 Sewer Base $ $ usage $ $ Total sewer portion $ $ $ Total Utility Bill $ $ $ % Commercial-gallons used 8,400, cents per day Base $ $ Usage $ 29, $ 28, Total water bill $ 29, $ 28, $ (1,241.89) Sewer Base $ $ $30 per day usage $ 43, $ 47, Total sewer portion $ 43, $ 47, $ 3, Total Utility Bill $ 73, $ 75, $ 2, %

29 Future Projected Rate Increases Year Water Sewer 2019 and beyond 3% 3.25% 29

30 Conclusions Self-supporting utilities will require revenue increases The City s prior rate increases allow future increases to be moderate, maintaining affordability New water rate structure will align rates with usage patterns New sewer rates will stabilize revenue with higher minimum charges Bonding will be required periodically to finance capital improvements Revisit rates every 3-5 years or prior to major capital investments 30

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