HomeMy WebLinkAbout2024 FCS Rexburg W-WW-Sanitation Utility Rate Study Fee Proposal - V2 UpdatedLetterhead Template w Address
CITY OF REXBURG
UTILITY RATE STUDY
Project Understanding
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. To support
the City’s goals, the rate study offers an integrated financial plan linking costs and revenues to changes in key parameters. 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. The rate study as discussed will include a financial plan
for each system that will evaluate the sufficiency of existing revenue to meet the total annual obligations on a self-supporting basis including current and identified future financial
and policy obligations, operation, and maintenance (O&M) needs, debt service obligations and capital projects needed for repair, replacement, and regulatory compliance. The resulting
plans will serve to establish a blueprint for achieving revenue stability, sufficiency, and cost-based rates.
The tasks noted below are proposed as part of this effort – Tasks 2-6 will be completed for each fund independently. We have organized our work efforts into major tasks that correspond
with the core technical aspects of the utility rate study designed to foster a smooth, informed, and interactive study. This process has been used to successfully complete similar rate
studies and to maximize the opportunity for input and education for involved parties.
SCOPE OF SERVICES
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 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.
Bill frequency analysis to inform conservation-based rate structure
Demand profiles that tie to revenue projections.
Revenue forecast by customer class.
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. Annual cash flow needs will be analyzed 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.
Deliverables
Fiscal policy evaluation with recommendations
Self-supporting multi-year financial plan for each utility.
WW system cost analysis for Sugar City and Teton – develop integrated analysis based on existing terms. Review and identify improvements/changes to existing cost sharing.
Capital funding plan and scenario development.
Baseline financial plan plus up to three (3) rate implementation scenarios.
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 accounts 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 (see table below). The COSA will evaluate how existing
revenue compares to the identified cost recovery by class of service and identify whether cost imbalances are present. An action plan to address imbalances over a multi-year period will
be developed, if necessary.
WATER FUNCTIONS
SEWER FUNCTIONS
SANITATION FUNCTIONS
Customer
Customer
Customer
Base capacity
(avg. demand)
Flow
Collection
Peak capacity
(peak demand)
Strength – Biochemical Oxygen Demand
Disposal
Meters and Services
Strength – Total Suspended Solids
Recycling
Fire
Strength – Other (if applicable)
Deliverables
Water, sewer, and sanitation utility class-based equity evaluation.
Wastewater strength classification and allocation (BOD/TSS) – reconcile and balance to treatment plant reports.
Sanitation – identify total recycling costs.
Cost based unit costs by function, class, and/or service level.
COSA phase-in, if warranted.
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.
Deliverables
Two (2) preferred rate structure alternative, per utility, aligned with identified City priorities.
Residential conservation-based rate structure
Water right surcharge
Water capacity rental charge
Sewer update strength based fees
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 6 | WATER AND SEWER CAPITALIZATION FEE UPDATE (Water & Sewer Only)
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.
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 capitalization fees
will represent the maximum allowable charges that the City may choose to implement.
Deliverables
Functionalized capitalization fees (water: source, treatment, storage, pumping, Transmission/Distribution; Sewer: Treatment, collection (interceptor, lift stations, mains, general)
Water – analysis of costs to evaluate capacity rental charge
Calculate maximum allowable capitalization fee for the water and sewer system.
Schedule of fees.
TASK 7 | PROJECT REVIEW MEETINGS/PRESENTATIONS
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 will be scheduled. We recommend these meetings be conducted in a workshop setting to allow for open dialogue and discussion.
Deliverables
Six (6) staff-level review meetings and two (2) Council presentations.
Development of presentation materials.
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.
Schedule
Completion of the analysis is based on a variety of issues. These issues include timeliness of receipt of requested data/information; quality of data; ability to schedule meetings in
a timely manner; and the ability of the City to provide policy direction for the study to move forward at key study milestones. A specific project schedule that meets the City’s needs
will be developed during the initial project meeting. The City has expressed the need to have rate recommendations in sufficient time for rate implementation effective FY2026 (October
1, 2025).
Budget
Our normal billing practice is to bill based on time and materials actually expended, not to exceed the total budget. We have separated each key task to offer the City flexibility to
select a combination of tasks to meet any budget constraints, and we are willing to work with the City on prioritizing the various tasks based on its current goals / objectives.
Although we have tried to estimate the level of effort by task, the amount billed for any specific task may vary from the estimates shown above depending on the amount of time actually
spent on that task. We propose to complete the task plan outlined above for an amount not to exceed $144,775. This estimate is valid through December 31, 2024 – beyond that date, we
may adjust the estimate to incorporate our prevailing hourly billing rates. If any additional services are required due to unforeseen circumstances and/or conditions, FCS will notify
the City and will obtain the City’s written approval prior to proceeding with any additional work.
bowmanconsulting.com
7525 166th Ave NE, Ste D-215, Redmond, WA 98052
P: 425.867.1802
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