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HomeMy WebLinkAboutCity of Rexburg Utility Rate Study - FCS, a Bowman companyCITY OF REXBURG Utility Rate Study August 20, 2024 7525 166th Ave. NE, Ste. D-215 / Redmond, WA 98052 / (425) 867-1802 / fcsgroup.com August 20, 2024 Deborah Lovejoy City Clerk 35 N 1st E Rexburg, Idaho 83440 RE: Utility Rate Study Dear Ms. Lovejoy, The City of Rexburg (City) is seeking to review water, sewer, and sanitation rates and capitalization fees adequate to fund short and long-term operational and capital needs. Rates and fees have historically been established by the City internally. The City's exposure to rapid growth, increasing operating costs from record level inflation and continual need for infrastructure investment make this a good time to solicit an external review. To support the City’s goals, the rate study offers an integrated financial plan linking costs and revenues to changes in key parameters. Our FCS team will work cohesively to bring the City options that clearly outline the cost and rate impacts of varying levels of service that will help inform and guide long-term management decisions in the face of known and unknown challenges facing the City. The financial plan not only establishes a framework for understanding the City’s current operational baseline, it also builds in the flexibility to evaluate changes in key parameters. As the City works to provide essential services in a thoughtful, reliable, responsive, and cost-effective manner, we believe that we are well positioned to help the City successfully adopt rate and capital funding strategies that allow for maintaining service excellence while also being mindful of affordability and equity. Some of the distinct attributes offered by our dedicated team of industry leaders and analytical experts include the following: • We are rate practitioners with direct experience offering the most suitable rate approaches to advance the City’s evolving goals and objectives. • We bring breadth and depth in utility rate experience that is unrivaled having completed over 3,000 utility studies for clients in the Western US. Our qualifications will show the range of experience in similar efforts. • Our project team members are active leaders, participants, and contributors in regional associations and national committees that set the standards for rate-setting including the American Water Works Association and American Public Works Association. • We provide high quality, effective and professional services to our clients. Our project team will bring fresh perspective and guide the City through steady focus and clear communication. • Your project managing principal, Angie Virnoche, presented at the Association of Idaho Cities conference in 2023 on “Discovering the Power of your Rate Study” and in 2024 on “Developing a Public Infrastructure Capitalization Fee”. We look forward to the privilege of working with the City. Finally, this letter serves to confirm that I, Angie Sanchez Virnoche, am duly authorized to execute a contract on behalf of FCS. Please do not hesitate to contact me at (425) 336-4157 or angies@fcsgroup.com if you have any questions. Sincerely, FCS, a Bowman company Angie Sanchez Virnoche Managing Principal Capability to perform projeCt 1UTILITY RATE STUDY FCS WAS ESTABLISHED IN 1988. FCS IS ONE OF THE COUNTRY’S OLDEST AND MOST RESPECTED INDEPENDENT PROVIDERS OF FINANCIAL, ECONOMIC, AND UTILITY MANAGEMENT SERVICES IN THE PUBLIC SECTOR. With over 4,000 engagements for more than 650 government clients, FCS provides best-in-class analytical solutions that offer our clients the clarity they need to solve their most complex issues in ways tailored specifically to their own communities. As a private practice dedicated exclusively to state and local government issues, we have accumulated the expertise and the perspective that makes a real difference for the clients we serve. Each engagement is a highly personalized, entirely customized experience led by one of our most senior principals who will be your partner in building the solutions and outcomes you need. At FCS, we understand that every municipal agency faces its own unique challenges. Our success and reputation comes from the ability to listen to clients and produce customized study results that can be easily implemented and understood by everyone. Our management and technical staff of 35 serve clients throughout the U.S. from four offices located in Redmond and Spokane, Washington, Lake Oswego, Oregon, and Boulder, Colorado. As of July 18, 2024, FCS has officially joined Bowman. Bowman is a leading national professional services firm offering multi-disciplinary engineering, planning, surveying, geomatics, construction management, environmental consulting, landscape architecture, and right-of-way acquisition. This change provides a strong foundation for our firms to merge our comprehensive skillsets while offering the same level of commitment to deliver outstanding project results, build long-lasting relationships and leverage the growth of our organization to serve the ever-changing needs of our clients. FCS has extensive experience with cities throughout Idaho, including Blackfoot, Sandpoint, Moscow, and Chubbuck. Page 10 of this proposal highlights our experience and familiarity with Idaho. CAPABILITY TO PERFORM PROJECT Areas of Expertise UTILITY RATE AND FEE CONSULTING FCS has performed over 3,000 utility finance and rate development projects for local communities including defining revenue requirements with comprehensive financial modeling tools, performing long-term capital management strategies, developing full cost- of-service rates, and legally-defensible connection charges. We work with agencies large and small in urban and suburban areas, rural systems, regions with seasonal/climate sensitivities, and communities with special commercial/industrial needs. We are experts and educators in utility rate policies and practices, and are attentive to legal constraints in every location we work. We have invested time with agency staff, policymakers, stakeholders, and customers to improve your utility’s long-term financial health and integrity. UTILITY MANAGEMENT FCS offers tailored business management solutions. We assist with the formation and merger of utilities, perform cost-benefit analyses, develop strategic business plans, and negotiate complicated wholesale agreements—helping your utility maintain its resiliency in an ever-changing environment. ECONOMIC AND FUNDING STRATEGIES FCS economists help governments create vibrant sustainable communities. We model the fiscal and social return on public investments and provide creative ways of funding projects and services. Challenges turn into opportunities as we support goals aimed at fair housing and job creation. GENERAL GOVERNMENT FINANCIAL ANALYSIS FCS financial consultants specialize in helping local and state governments, regional agencies and public safety entities address and solve issues involving policy objectives, public finance, cost recovery, facility financing and long-term facility reinvestment funding, and organizational performance. We have a broad understanding and specific expertise on local and state government policymaking; how the many different governmental functions are performed; and what role elected officials, the public, community organizations and employees have in making governments responsive to community needs. QualifiCations of projeCt team 2UTILITY RATE STUDY QUALIFICATIONS OF PROJECT TEAM Matt Hobson TECHNICAL ADVISOR Matt Hobson is an FCS senior project manager with 16 years of experience in solid waste cost-of- service and rate analysis, operations management, comprehensive solid waste planning, and expert technical review. Matt has completed rate studies for solid waste collection and disposal utilities across the western United States and Canada. He is the incoming president for the Evergreen Chapter of the Solid Waste Association of North America (SWANA) and has presented at regional and national solid waste conferences since 2013 on topics such as rate-setting principles in waste management, recycling economics, and collection route performance metrics. Matt is located at our Redmond, Washington office. Matt’s project experience includes rate studies for the Idaho communities of Blackfoot, Great Falls, Lewiston, and Moscow, as well as rate study work for the cities of Cheney, Richland, Toppenish, and Walla Walla, Washington, Peoria, Arizona, Sacramento, California, Cheyenne, Wyoming, and Toronto, Ontario. role: Matt will provide technical support as needed on the solid waste rate study. Amanda Levine PROJECT CONSULTANT Amanda Levine is an FCS project consultant with experience in water, sewer, solid waste, and stormwater rate studies. Amanda has assisted clients throughout the Pacific Northwest with revenue requirement and cost-of-service studies, multi-year financial planning, and connection fee development. Amanda has extensive experience analyzing customer billing records, performing in-depth analysis of rate structures, reviewing landfill disposal service agreements, and developing detailed operating expense forecasting. She has worked with communities to develop multi-utility rate studies as well as create customized rate models with infographics and reporting modules specific to clients’ needs. Amanda is located at our Redmond, Washington office. Amanda’s project experience includes rate studies for the Idaho communities of Blackfoot, Coeur d'Alene, and Moscow, as well as the cities of Cheney, Kelso, Pasco, Richland, Toppenish, Woodland, Washington, and Toronto, Ontario. role: Amanda will be responsible for data management, technical analysis, rate modeling, and drafting project deliverables. FCS is promoting a small, focused team who will be available and committed to work on this engagement for its duration. Managing principal Angie Sanchez Virnoche, a nationally recognized expert in utility rates, will anchor your team. She will be supported by technical advisor Matt Hobson and project consultant Amanda Levine. Angie Sanchez Virnoche MANAGING PRINCIPAL Angie Sanchez Virnoche is an FCS principal with over 30 years of experience providing financial and rate development services in a variety of capacities for water, wastewater, stormwater, solid waste and electric utilities. Her project work includes policy development, multi-year financial plans and rate strategies, cost-of-service equity studies, rate design restructuring and modernization, capital funding prioritization, renewal and replacement funding evaluations, cost benefit analyses, reserve analysis, and community education and involvement. She has presented at the Association of Idaho Cities annual conference, most recently in 2024. Angie is located at our Spokane, Washington office. Angie's project experience includes rate studies for the Idaho communities of Blackfoot, Sandpoint, Moscow, Chubbuck, Post Falls, Coeur d'Alene, Rathdrum and Bonners Ferry. Along with other similar rate work for communities in Cheney, Richland, and Walla Walla, Washington, Peoria, Arizona, and Toronto, Ontario. role: Angie will provide overall project management, analytic guidance and policy direction, budget and schedule adherence, and serve as the City’s main point of contact. She will also participate in key meetings with the Council and public. relevant projeCt experienCe 3UTILITY RATE STUDY RELEVANT PROJECT EXPERIENCE WATER, SEWER, AND SANITATION RATE STUDY (2021 - 2022) CITY OF BLACKFOOT, ID FCS performed a rate study for the water, sewer, and sanitation utilities. The main focus of the rate study was to develop a funding plan for the 2023-2030 study period, update the water and sewer availability fees, and conduct a cost-of-service analysis for all three utilities. Project Highlights • Developed a multi-year financial plan evaluating sufficiency of rates to cover operating costs and $73 million in combined future capital projects. • The sewer CIP costs were driven by a need for a new treatment plant and the water CIP was driven by the need for additional storage, a new water shop, and an additional well facility. • Developed rate path that required 3-years of 19% increases for water and 3-years of 25% increases in sewer. Council approved the initial step of these multi-year increases to be revisited annually. • Updated water and sewer availability fees, recommended changes for consistency and administrative ease. • Completed the first water and sewer cost- of-service analysis for the City. • Crafted a unique sewer strength analysis to calculate the unit cost of different strength concentrations. • Designed rates that created a 3-tiered water rate structure for the residential class and cost of service based industrial strength charges. • Determined that the sanitation work included a forecast of new collection routes, operators, and trucks required to support varying levels of growth. • Conducted a peer rate comparison for both rate and availability fee survey. • Completed multiple presentations to the City Council at key milestones. Key Personnel Angie Sanchez Virnoche, Principal Matt Hobson, Project Manager Amanda Levine, Project Consultant Reference Marc Carroll, Mayor (208) 785-2756 mayor@cityofblackfoot.org WATER AND SEWER COST OF SERVICE RATE STUDY AND NEW USER FACILITY FEES (2022) CITY OF SANDPOINT, ID FCS conducted a rate and fee study to assess revenue sufficiency and to evaluate the equity of revenue generation amongst existing customer classes. Project Highlights • Developed detailed rate models, tailored to the City’s fund structure and fiscal policies, in order to perform a twenty-year revenue requirement analysis considering operating and maintenance expenditures, capital costs, existing and future debt requirements, and achievement of identified fiscal policies. • Crafted capital funding scenarios to support over $74 million in water infrastructure investment and approximately $117 million in sewer infrastructure investment. • Performed a cost allocation analysis to create a defensible basis for assigning cost shares and establishing equity for utility customers based on facility requirements as well as customer specific demand requirements. • Developed a multi-year cost of service phase-in strategy to bring customer classes in alignment with allocated costs to serve over a 5-year phase in period. • Updated New User Facility Fees for both utilities to ensure connection charges are in compliance with Idaho approved methodology and representative of infrastructure investment. • Rate structure changes for water included enhancing affordability by shifting tier thresholds allowing for more use in the first and second tiers and eliminating the minimum usage for the residential class. Elimination of seasonal rates for the multi-family class for consistency with other classes and condensed the commercial classes to streamline the rate schedule. • Sewer utility rate changes included development of a residential two-tier flat rate charge to acknowledge low users. Changed the multi-family away from a volume rate to a cost of service based fixed rate per unit and moved the two tier commercial rate to all usage billed at one volume rate. • Five workshops with City Council to present results and gain input at key milestones. Key Personnel Angie Sanchez Virnoche, Principal Reference Sarah Lynds, Finance Director (208) 263-3557 Office slynds@sandpointidaho.gov relevant projeCt experienCe 4UTILITY RATE STUDY WATER, SEWER, AND SANITATION COST OF SERVICE STUDY AND CONNECTION FEE UPDATE (2012-2019) CITY OF MOSCOW, ID In 2012 FCS completed the initial water, sewer and sanitation rate study. In 2019 FCS performed a water and sewer cost of service rate update and connection fee study. A sanitation rate study was completed in 2021 with an update for changing conditions in 2023. Project Highlights • Updated and analyzed the overall multi-year revenue requirements for each utility. • Reviewed fiscal policies and reserve fund balances checking adherence to target range. • Developed capital funding plan to facilitate expected infrastructure investment ($11.8M for water and $23M for sewer). Incorporated annual system reinvestment funding • Complete a cost of service (equity evaluation) to determining the cost burden that each customer class places on each utility system • Redesigned sewer rates from business type to low, medium and high strength categories. • Calculated the maximum General Facilities Charges for each utility. • Evaluated rate options for multi- family recycling collection service. • Worked with City stakeholders to present study findings and incorporate input. Key Personnel Angie Sanchez Virnoche, Principal Matt Hobson, PM - Sanitation Reference Tyler M. Palmer, MPA Deputy City Supervisor (208) 883-7096 tpalmer@ci.moscow.id.us WATER, SEWER, AND SOLID WASTE UTILITY RATE STUDY AND SDC UPDATE (2020-2023 ) CITY OF CHENEY, WA FCS completed a water rate and system development charge study in 2020, with a subsequent rate study for the sewer and solid waste utilities in 2023. Project Highlights • Developed a multi-year rate revenue strategy for each utility including unique capital funding options ($2.7 million from American Rescue Plan Act). • Developed a sewer rate alternative considering funding reclamation facility • Wrote issue papers discussing best practices of utility fiscal policies for financial viability and system development charges (methodology, applicable code and alternative units of assessment.) • Determined how to improve cost equity between customer classes through multi-year rate strategy options. • Completed a multi-year analysis of water sales volumes to inform forecast revenue and rate designs • Aligned alternative rate structures with City priorities – usage tiers targeting 20% reduction of summer peak use, usage tiers phasing in to target use reduction. Eliminate usage allowance for commercial, school and industrial sewer users. • Completed first cost of service study for the solid waste utility – resolved subsidy identified between commercial and residential through multi-year rate strategy • Facilitated work sessions with City’s public works advisory committee and City Council to review results and discuss strategies and recommendations. Key Personnel Angie Sanchez Virnoche, Principal Matt Hobson, Project Manager Amanda Levine, Project Consultant Reference Todd Ableman, Public Works Director (509) 498 9293 tableman@cityofcheney.org WATER AND SEWER FINANCIAL PLAN AND CAPACITY REPLACEMENT FEES (2020-2021) CITY OF CHUBBUCK, ID FCS completed a water and sewer rate study and capacity replacement fee study for the City of Chubbuck. The City was interested in evaluating the sufficiency of current rates along with ensuring the current fees charged would meet the cost of expected growth in the area. The City contracted in 2024 with FCS to complete a sanitation rate study. Project Highlights • Developed multi-year financial plan (20-years with 5-year rate-setting focus) for each utility in support of recently completed Water Facility Plan and Wastewater Master Plan • Incorporated increases in Treatment costs from Pocatello and additional FTE’s required to support growing systems • Reviewed fiscal policies for compliance with industry best practice. • Capital funding plan to support $17.5M water and $9.7M sewer capital costs • Developed alternative rate plans (meet operating deficiency, rate capped, full CIP). • Updated water and wastewater capacity replacement fees – ensure compliance with approved Idaho methodology, recreate missing system assets for both systems and evaluated if sewer fees should remain separate or combined. • Completed four presentations to Council at key milestone review points. Key Personnel Angie Sanchez Virnoche, Principal Matt Hobson, PM - Sanitation Reference Bridger Morrison, Public Works Director (208) 237-2430 bmorrison@cityofchubbuck.us relevant projeCt experienCe 5UTILITY RATE STUDY Additional Experience Client Fiscal Policy Evaluation Revenue Requirement Cost of Service Rate Design Fee / Charge Auburn, WA ••••• Aurora, CO ••••• Bainbridge Island, WA ••••• Bellingham, WA ••••• Bend, OR ••••• Blackfoot, ID • •••• Boise, ID •••• Bonners Ferry, ID •••• Bozeman, MT •••• Bremerton, WA ••••• Burley, ID ••••• Central Orchards Sewer District, ID ••• Central Point, OR ••••• Cheney, WA •••• Centralia, WA ••••• Cheyenne, WY ••••• Chubbuck, ID •••• Coeur d’Alene, ID ••••• Eagle Sewer District, ID •• Eastern Idaho Regional Sewer District, ID ••• Everett, WA ••••• Gillette, WY ••••• Hayden, ID •••• Helena, MT •••• Kent, WA ••••• Lake Oswego, OR ••••• Lewiston, ID ••••• Loveland, CO ••••• Lynnwood, WA ••••• McCall, ID •• Mercer Island, WA ••••• Meridian, ID ••••• Moscow, ID •••• Nampa, ID ••••• Olympia, WA ••••• Plummer, ID •••• Post Falls, ID •••• Richland, WA ••••• Redmond, WA ••••• Sandpoint, ID ••••• Santa Fe, NM ••••• Scottsdale, AZ ••••• Sheridan, WY ••••• Spokane, WA ••••• Tacoma, WA ••••• Twin Falls, ID • Walla Walla, WA ••••• projeCt approaCh and sChedule 6UTILITY RATE STUDY PROJECT APPROACH AND SCHEDULE We are familiar with the challenges growing communities like Rexburg face. Planning for robust growth requires investment in both existing and future infrastructure along with sufficient staffing for operational efficiency. Managing these multifaceted challenges requires a thoughtful approach that combines comprehensive financial planning with the flexibility to adapt to changing conditions all while maintaining equity and affordability. The following work tasks include the rate study (revenue requirement, cost-of-service and rate design), in addition to the capitalization fee noted in the City’s RFP. RECOMMENDATIONS AND COMMUNICATIONS In performing the rate study, we propose to complete the water, sewer and sanitation studies concurrently. Each task noted below will be completed for each utility, unless otherwise noted. We have organized our work efforts into major tasks that correspond with the core technical aspects identified in your scope of work and process points designed to foster a smooth, informed, and interactive study. This illustrated process has been used to successfully complete similar rate studies and to maximize the opportunity for input and education for involved parties. We have found that the most successful rate studies are the ones that emphasize regular communication and collaboration with staff and the City Council throughout the rate study process. Task Plan TASK 1 | INITIAL PROJECT MEETING An initial project meeting will be scheduled at the commencement of the project with the consultant and the City project team. Meeting participants would include a representative from departments that can address issues related to finance, engineering, operations, customer service, and administration. The intent of the meeting is to confirm the goals and objectives of the overall rate study and focus the efforts of the project team. The items covered at the meeting include reviewing the scope of work; identifying project objectives, expectations and deliverables; outlining the project schedule and key milestone review points; and discussing appropriate lines of communication. deliverables • Project schedule with task completion and key milestone review points. • Identification of project team communication leads. • Schedule standing project check-in meetings. • Approved project work plan. task 1 Key point This initial meeting will establish a foundation for the project, focusing the efforts of the project team on the key issues to be addressed and resolved during the study process. It will cover the project scope, objectives, deliverables, schedule, and appropriate lines of communication. TASK 2 | DATA COLLECTION & CUSTOMER STATISTICS VALIDATION FCS will provide a data needs list encompassing historical and projected revenue, expenses, fiscal policies, capital plans, fund balances, comprehensive planning documents, and customer billing data. The data will be reviewed, analyzed, and validated for inclusion in the study process. This task includes a detailed customer billing statistics validation. Individual customer data including number of accounts, meter size, usage patterns (annual use, peak use, etc.) will be evaluated and validated against actual revenues collected. This revenue reconciliation will identify anomalies to be corrected prior to developing future revenue and customer counts and use / demand projections. Validation of the customer statistics data set with customer demands and revenue generation is critical to the rate study as it establishes the foundation for all of the major analytical phases (revenue requirement, cost of service and rate design). deliverables • Validated financial, engineering, and customer usage data that serves as the primary inputs for the study. • Validated customer statistics with accounts, demand and revenue generation. • Demand profiles that tie to revenue projections. • Revenue forecast by customer class. task 2 Key point Validating the data used in the study promotes analytical consistency and integrity throughout the rate study process. The process can uncover data anomalies that would otherwise impact the forecast and allocations developed in the study. The analysis completed as part of the validation process will help address the effectiveness of meter minimum, overage and sanitation can charges of the City’s current rate structures. projeCt approaCh and sChedule 7UTILITY RATE STUDY TASK 3 | REVENUE REQUIREMENT This task establishes a sustainable, multi-year financial management plan that meets the projected total financial needs of each system through the generation of sufficient, sustainable revenue. This task analyzes annual cash flow needs by identifying expenses incurred to operate and manage each system including cost increases resulting from changes in staffing and/or enhanced programs or initiatives, existing contract cost arrangements, capital repair/ replacement needs, new and existing debt repayment obligations, and fiscal policy achievement. Alternative rate strategies and scenarios will be developed that may consider operational changes, capital prioritization, and overall infrastructure funding approaches for long term capital needs. These scenarios can be used to ultimately inform decision making and optimize proposed rate strategies. Capital costs are a significant factor when evaluating rate needs. We regularly partner with both JUB Engineers, Inc. and Keller Associates, Inc. who are both currently working with the City. We would be happy to work with the City’s consulting engineers should external support be required to supplement the rate study. deliverables • Fiscal policy evaluation. • Self-supporting multi-year financial plan. • Capital funding plan and scenario development. • Baseline financial plan plus up to three (3) rate implementation scenarios. task 3 Key point This analysis enables the City to determine how existing rate levels meet the current obligation of each utility on a self- supporting basis. Revenue capacity for capital funding will be identified and increased as needed to meet upcoming capital needs. The financial planning toolset offers the flexibility to evaluate and quantify the sensitivity associated with changes in key underlying assumptions (inflation rates, capital timing, funding, cost changes, etc.) allowing the City to anticipate future challenges in revenue and expense imbalances and make a plan for corrective action, if needed. TASK 4 | COST OF SERVICE The cost-of-service analysis (COSA) involves allocating utility costs to customer classes based on a methodology consistent with industry-accepted ratemaking principles. This analysis establishes a defensible basis for assigning cost shares and defining “cost equity” among the City’s customers in a way that is tailored to the unique characteristics of the City’s water, sewer and sanitation systems and customers. The COSA must account for differences in the character and nature of service provided to various customer classes when defining “equitable” cost recovery. The COSA develops a series of functional allocations that distribute cost pools to classes of customers linked to a proportionate share of costs required to serve their demand. Specific consideration will be given to total utility costs in relationship to the functions identified below. WATER FUNCTIONS SEWER FUNCTIONS SANITATION FUNCTIONS Customer Customer Customer Base capacity (avg. demand)Flow Collection Peak capacity (peak demand) Strength – Biochemical Oxygen Demand Transport Meters and Services Strength – Total Suspended Solids Disposal Fire Strength – Other (if applicable)Recycling The COSA evaluates how existing revenue compares to the identified cost recovery by class of service. In addition to evaluating existing classes of service, this task can look at alternative user groups to address any costs that are driven by a subset of customers. This granularity can address imbalances in areas experiencing increasing demand or where costs are incurred to serve customers with higher service demands. This analysis will determine whether cost imbalances are present and develop a corrective action plan to address imbalances over a multi-year period if necessary. deliverables • Water, sewer and sanitation utility class-based equity evaluation. • Cost based unit costs by function, class, and/or service level. • COSA phase-in, if warranted. task 4 Key point This analytical exercise will identify the cost to serve each customer classification within each system. The results will identify any warranted shifts in cost burden that could improve equity between customers from the existing rate structure. It also identifies the unit cost for each cost category that helps to inform the rate design process. Any new customer classifications identified as part of the study process will be evaluated independently for equity. We understand this may be the first cost of service study the City has completed, which may result in the need for significant shifts among classes. These results can compound the impacts of aggregate increases resulting from the financial plan. projeCt approaCh and sChedule 8UTILITY RATE STUDY Recognizing the need to balance the objective of equitable cost recovery with other objectives such as rate affordability, this task will include the development of a plan to phase in any shifts resulting from the COSA. Alternatively, we will work with the City to prioritize the study objectives to be accomplished in the short- term with others to be addressed at a future time. TASK 5 | RATE DESIGN The rate design process involves developing rates (including both fixed and variable charges) for each customer class that recovers its allocated cost. In addition to serving as a mechanism for cost recovery, the City’s rate structures are a valuable tool for promoting key objectives such as revenue stability, conservation, and affordability. Recognizing that the City’s priority of these objectives can change over time, this task includes the selection and development of two (2) alternative rate structure per utility. The rate alternative will be designed to generate sufficient revenue to meet the revenue requirement forecast and address any material inequities identified in the COSA findings. In addition, rate designs will be consistent with the City’s fiscal policies and billing system capabilities. Finally, an affordability assessment will be performed to understand the impact of any rate design changes on lower income brackets. Looking at the typical metric of median household income, in addition to the emerging City- specific metrics related to Hours at Minimum Wage (HM), this additional metric will provide an additional measure of affordability of the rate changes under consideration. deliverables • Two (2) preferred rate structure alternative, per utility, aligned with identified City priorities. • Schedule of water, sewer and sanitation rates for each class. • Bill impact analysis that shows the number of and degree to which different customers are impacted by rate design changes. • Affordability analysis. • Comparative survey of sample monthly bills for up to five (5) jurisdictions of interest to the City. task 5 Key point Rate design enables innovative approaches represents the cost recovery and can be a tool for sending the appropriate price signals to meet City priorities and objectives. The priority of this task will be to evaluate existing rate structures and suggest modifications to refine alignment with the City’s current priorities such as conservation, revenue stability, equity and affordability. Detailed review of the City’s billing statistics will aid in highlighting the current customer usage profiles and how to best structure rates for maximum effectiveness. TASK 6 | WATER AND SEWER CAPITALIZATION FEE UPDATE Capitalization fees are one-time fees for new or redevelopment used to recover a proportional share of the value of facilities required to provide service. In the 2015 Idaho Supreme Court Case: NIBCA v the City of Hayden the Court referenced a methodology and calculation used in Loomis v. City of Hailey for calculation of capitalization fees. The court held that the fee must be based on the cost of replacing the pipe and equipment that is in the ground today (i.e., the value of the existing system) and the value of the system should represent that portion of the system capacity that the new user will utilize at that point in time. Ultimately, future capital projects are not allowed in the capitalization fee calculation until they are constructed and placed in service. Since the Court’s ruling, the methodology presented in the following table has been used by municipalities in Idaho to update their capitalization fees: METHODOLOGY Gross Present Day Replacement Value of System Less: Outstanding Bond Principal Less: Unfunded Depreciation = Net Present Day Replacement Value ÷ Number of Users Current System Can Support = Total Capitalization Fee per equivalent unit The capitalization fee analysis will calculate gross present day replacement value of each system and identify allowable deductions for bond principal and unfunded depreciation to determine net present day replacement value. FCS will then work with City staff to determine the number of users the current systems (water and sewer) can support. The updated Cap Fees will represent maximum allowable charges that the City may choose to implement. Adopting charges less than the maximum is a viable option, particularly as part of a multi-year strategy to phase in the full cost of the calculated fee. deliverables • Calculate maximum allowable capitalization fee for the water and sewer system. • Schedule of fees. task 6 Key point Capitalization fees establish an equitable and defensible charge assessed on new development based on state law and applicable industry guidelines. Revenue from capitalization fees also provides a funding source to support the utility’s capital program. projeCt approaCh and sChedule 9UTILITY RATE STUDY TASK 7 | PRESENTATIONS AND COMMUNICATION The success of a rate study relies on an open and involved process for informing and educating the City Council and ratepayers on the rate study process. This task includes our attendance and participation in up to six (6) review meetings with City staff. We propose review meetings be conducted remotely when possible to minimize budget. Two (2) meetings with the City Council, including development of presentation materials. We recommend these meetings be conducted in a workshop setting to allow for open dialogue and discussion. As needed, the City may request as an optional task, assistance with public communication. We have assisted utilities with one-page information sheets, newsletters, frequently asked questions, on-line bill calculators, dedicated rate study webpages and open house forums. deliverables • Six (6) staff-level review meetings and two (2) Council presentations. • Development of presentation materials. task 7 Key point Our collaborative approach has outlined key milestone review points for City staff to examine key assumptions and alternative strategies before finalizing the study. We will develop understandable and graphically driven informational materials and tools to roll out a multi-year utility rate schedules geared to help the City achieve specified project objectives. TASK 8 | DOCUMENTATION A written draft and final report documenting the rate study process, methodology, key assumptions, results, and recommendations will be provided. The electronic model will provide the technical exhibits. deliverables • An electronic copy of the draft and final reports. • Copy of the Excel based rate model for each utility. • Copy of the capitalization fee model for the water and sewer utility. task 8 Key point The City will have a document that outlines the rate study process for future reference and use. Although our approach views the study process as a continual and evolving plan, the City will have a document that outlines the study findings as a baseline for future reference and comparison. CHALLENGES ANTICIPATED AS PART OF THE STUDY . A typical comprehensive rate study takes six to nine months to complete. Some challenges that come up during the rate study process are – quality of data provided is not sufficient requiring multiple iterations to process data, format of data provided – ideally data should be provided in a format that can be cut, pasted and summed easily (e.g. budget in excel v. pdf), data is unavailable, customer detailed statistics difficult to access from billing system, timely review and feedback from City staff, timely scheduling of meetings. All of the items listed can be worked around with proper communication, templates examples of data being requested and standing-meetings to ensure all team members are on the same page regarding what is needed by a specific milestone date. Schedule The City has communicated via the August 2nd email that a set of rate adjustments are going through the Council process for October 1, 2024. The proposed schedule for this study assumes the project is completed for rate implementation effective FY 2026 (10.1.2025) with notice to proceed commencing in October 2024. A final project schedule will be developed during the initial project meeting. Technical Tasks Mtg Oct/24 Nov/24 Dec/24 Jan/25 Feb/25 Mar/25 Apr/25 May/25 Jun/25 Jul/25 Aug/25 Sep/25 Task 1: Initial Project Meeting 1 Task 2: Data Collection & Validation (inc. customer stats) Task 3: Revenue Requirement 2 Task 4: Cost of Service 1 Task 5: Rate Design 2 Task 6: Capitalization Fee Updates (Water and sewer)1 Task 7: Presentation and Communication 2 Task 8: Documentation (Draft and Final)0 projeCt approaCh and sChedule 10UTILITY RATE STUDY FAMILIARITY WITH IDAHO STATUTES For over 35 years FCS has been working with local Idaho cities to determine the best solutions for their utilities. Working with the local jurisdiction attorneys, we work to understand the state statutes and local laws that affect our Idaho clients. Relevant governing statutes "utilized" during the rate study process include: • Idaho Code Title 50, Chapter 10 - Finances contains the main authorizing codes applicable to rate studies. Section 1030 allows the City “to prescribe and collect rates, fees, tolls and charges”. Section 1032 also states “all such works shall be and always remain self supporting”. • 2015 Idaho Supreme Court Ruling in North Idaho Building Contractors Association v. City of Hayden identifies the methodology to calculate capacity fees. FCS worked closely with Given’s Pursley during this case to provide expert testimony on behalf of the City. • Idaho Code Title 63 Section 1311(1). “The fees to be collected shall be reasonably related to, but shall not exceed the actual cost of the service being rendered.” • Title 63 section-63-1311A. No taxing district may make a decision approving a fee increase that is in excess of five percent (5%) of the amount of the fee last collected or a decision imposing a new fee, unless it first holds a hearing upon such proposed fee increase or fee imposition at a regular or special meeting of the district’s governing body and after it gives public notice of such hearing in the manner provided in this section.” We continue to monitor state and local laws and issues to ensure the methodologies used and recommendations provided are in compliance. FCS is also a bronze partner of the Association of Idaho Cities. We have exhibited and presented at numerous Association of Idaho conferences, including in 2024 when managing principal Angie Sanchez Virnoche presented “Developing a Public Infrastructure Capitalization Fee” and in 2023 when she presented “Discovering the Power of your Rate Study.” Some of Angie's project experience in Idaho includes: • Coeur d'Alene, ID - Water Rate and Capitalization Fee Studies • Coeur d'Alene Airport - Sewer Rate Study • Blackfoot, ID - Water, Sewer, and Sanitation Rate Study • Boise, ID - Geothermal Rate Study • Bonners Ferry, ID - Electric Cost of Service Rate Study, Water and Sewer Rate Study (current contract), and Litigation Support (ongoing) • Chubbuck, ID - Water and Wastewater Financial Plan, and Capacity Replacement Fee Study, 2024 contract for Sanitation Rate Study. • Hayden Area Regional Sewer Board - Financial Plan and Rate Forecast, Capacity Fees • Hayden, ID - Sewer Operations and Maintenance Rate Study, Sewer Capacity Fee Update, Capitalization Fee Litigation Support • Hayden Lake Irrigation District, ID - Rate and Capitalization Fee Study • Kootenai-Ponderay Sewer District - Financial Plan and Rate Forecast, New User Facility Fees • Moscow, ID - Water and Sewer Cost of Service Study, Water and Sewer Rate Update, General Facilities Connection Fee Study, Sanitation Rate Study. • Post Falls, ID - Water and Water Reclamation Capacity Fee Study, Sewer Financial Plan, Sewer Rate Modeling • Sandpoint, ID - Water and Sewer Cost of Service Study, Wholesale Water Analysis and New User Facility Fees • Twin Falls, ID - Pressure Irrigation Water Connection Fee Analysis projeCt approaCh and sChedule 11UTILITY RATE STUDY Thank you for taking the time to review our qualifications.