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Home My WebLink AboutPACKET Town Board Study Session 2014-11-11 Tuesday, November 11, 2014 TOWN BOARD 5:00 p.m. – 6:30 p.m. STUDY SESSION Rooms 202/203 5:00 p.m. Dinner Served. 5:10 p.m. Trustee Comments & Questions. 5:20 p.m. Future Study Session Agenda Items. (Board Discussion) 5:30 p.m. Utility Rates 101. (Superintendent Boles) 6:30 p.m. Meeting Adjourn. “Informal discussion among Trustees concerning agenda items or other Town matters may occur before this meeting at approximately 4:45 p.m.” AGENDA November 25, 2014  CANCELLED December 9, 2014  Discussion of Community Service Grants  2014 Objectives – Review of Progress  Discussion of Request for Additional Funding to Support the Scottish/Irish Highland Festival and Visit Estes Park December 23, 2014  CANCELLED January 27, 2015  Discussion of Enforcement of Vacation Home Regulations Items Approved – Unscheduled: (Items are not in order of priority)  Review of the Accelerated Development and Design Process Used for Parking Structure  Review of Draft Policy on Public Forums  Discussion of Vision for Downtown  Dangerous Buildings Code First Draft Review – First Step in Consideration. Draft will be Presented to the Board Prior to Taking Out to the Public and Stakeholders  Discussion of Town Owned Fish Hatchery Property  Dangerous Buildings Code Final Review – Final Draft to be Presented to the Board After Public Input has been Completed and Incorporated  Possibility of Joining the RTD  Logo Discussion  Parking Structure Design Revisions – Review After Bids are Received Study Sessions Items for Board Consideration:  Review of Flood Plain Fees – Discussion Only – Should This Go to CD/CS or Study Session  Discussion of Proposed Bear Ordinance – Requested by PD  Discussion of How to Better Involve and Reach Out to the Hispanic Members of the Community Future Town Board Study Session Agenda Items November 11, 2014 November 11, 2014Presented by:Cil PierceSenior Project Manager and Financial AnalystWater Rate StudyRates 101 SessionTown of Estes Park 2Overview of the Presentation•Water Utility “Rates 101”Why a Rate StudyMethodologyRatesBoard goals and policies•Questions, discussion, and policy direction 3“Rates 101” 4Purpose of the Study•Evaluate the adequacy of existing water rates–Develop rate transition plans, as necessary•Review the cost of service–Allocate utility costs equitably between customer classes•Review current water rate structures–Contemporary and cost-based•Develop proposed rate structure recommendations–Meet the goals and objectives of the Town•To maintain a financially healthy and sustainable utility4 5What is “Generally Accepted”?5 6Overview of the Rate Setting ProcessRevenue RequirementCost of Service Rate DesignCompares the revenues of the utility to its expenses to determine the overall level of rate adjustmentEquitably allocates the revenue requirements between the various customer classes of serviceDesign rates for each class of service to meet the revenue needs of the utility, along with any other rate designgoals and objectives6 7Overview of the Revenue Requirement•Determines the levelof rate adjustment necessaryCompares utility revenues to expenses•No transfer of funds (subsidy) from other Town funds•Rates need to support operationsUtility is analyzed on a “stand‐alone basis”•Generally accepted method for municipal utilitiesUtilizes the “cash basis” methodology•Typically a fiveyear periodReviews a specific time period•Adequate funding for renewal and replacement•Maintain prudent reserve levelsUses prudent financial planning criteria7 8Details of the Cash Basis+O&M Expenses+Taxes/Transfer Payments+Debt Service (P+I)+Capital Projects Funded from Rates=Revenue Requirements–Miscellaneous Revenues=Balance Required from Rates=Total Capital Improvements–Outside Funding SourcesLong-Term DebtGrowth Related FeesReservesGrants=Capital Projects Funded from Rates(i + Term)=>AnnualDepr. Exp.8 9Overview of the Revenue Requirement(Cont’d)Prudent Financial Planning CriteriaDebt service coverage ratiosTarget “minimum” reserve levelsAdequate rate funded capitalCapital Funding PlanProper uses of growth‐related fees/revenuesMaintain existing infrastructure9 10Financial Policy Reserves•Operating Reserve – 90 days of O&M expenses–2014 – approximately $800,000•Capital Reserve – 2% of fixed asset value–2014 – approximately $500,000•Unrestricted balance – available for capital projects, other needs 11Sneak Peak at Key Assumptions of the Water Revenue Requirement•Starting point is the 2014 budget•Revenues projected at growth rate of 1% •O&M expenses escalated on average at 3% annually–Inherent difference between growth in revenues and growth in expenses–New FTE positions in 2016 and 2017•Department goal to do projects in-house•Possible 3.5% - 5% rate adjustment for new staff•Capital funding analysis–Current capital plan – pay as you go to start•Will analyze potential for new debt in the future•Projects costs are approximately $1 million/year 12Cost of Service12 13Overview of Cost of ServiceWhat is cost of service?•Analysis to equitably allocate the revenue requirement to the various customer classes of serviceWhy cost of service•Generally accepted as “fair and equitable”•Avoids subsidies between customer classes•Revenues track costs•Can provide an accurate price signalObjectives of Cost of Service•Determine if subsidies exist•Develop average unit costs13 14Water Utility Cost of Service ProcessCommodityRelatedCapacityRelatedCustomerRelatedResidentialCustomersCommercialCustomersResidentialCommercial- Sources of Supply- Distribution- Pumping-Etc.ALLOCATIONDISTRIBUTIONTotalExpensesFUNCTIONALIZATIONResidentialResidentialCommercialCommercial14Note: Applies to both O&M and infrastructure (asset) costs Bulk WaterCustomersBulk WaterBulk WaterBulk Water 15Cost of Service ResultsEquitable allocation of costsAverage unit costsCost‐based rates15 16Rate Design16 17Typical Rate Setting Goals and Objectives•Revenue sufficiency•Revenue stability•Easy to understand (customer)•Easy to administer (Town)•Affordability •Economic development•Encourage efficient use of the resource•Equitable & non-discriminating (cost-based)•Legally defendableThere are always trade-offs between goals and objectives17 18Rate Design ProcessReflect the findings of the revenue requirement and cost of service analysesMeet the pricing goals and objectives of the TownProduce sufficient revenues to meet the target revenues of the utility, and each class of serviceCost‐based and equitable rates•Projecting rates for a more predictable 3-year period.18 19Current Industry Trends•Declining consumption •Seasonality of the Town‘s demographicsCustomer consumption patterns•Increases revenue stability•Reflects majority of fixed costs on the systemPressure to move towards fixed charges•Balancing impacts to the customer through rate designsCustomer bill impacts19 Water Utility Cost Structure‐Fixed•Does not vary with sales• Salaries, debt service, etc.• Typically 80‐95% of costs‐Fixed•Does not vary with sales• Salaries, debt service, etc.• Typically 80‐95% of costs‐Variable•Varies with water sales•Power, chemicals, etc.• Typically 5 ‐20% of costs‐Variable•Varies with water sales•Power, chemicals, etc.• Typically 5 ‐20% of costs20 Rate Structure ComponentsFixed Charges•Various names; meter charge, customer charge, minimum charge, etc.•Promotes revenue stability•Recovers customer related costs, plus other “fixed” costs of the system21Meter SizeRate Per Month3/4-inch $10.001-inch $16.701 1/2-inch $33.302-inch $53.303-inch $100.004-inch $170.00 Rate Structure Components(Cont’d)Variable ChargesBased on metered consumptionPreferred by customersFour basic types of variable rate structures22 Overview of the Current Rate StructureRural has a 60% rate differential from urban rates23Present Rates Fixed VolumeUrban CustomersMeter Charge39%5/8" $21.083/4" 21.081" 23.161‐1/2" 28.142" 31.623" 72.534" 101.65Volumetric Charge (per 1,000 gallons)61%Residential Volumetric Charge $4.44CommercialVolumetric Charge $4.32Pumped FlowVolumetric Charge $6.22Bulk WaterVolumetric Charge $4.97Volume Surcharge 2.83Spruce ‐ Volume Surcharge 6.03Present Rates Fixed VolumeRural CustomersMeter Charge5/8" $33.7655%3/4" 33.761" 37.091‐1/2" 45.072" 50.613" 116.064" 162.66Meter Charge (per 1,000 gallons)45%Residential Volumetric Charge $7.10CommercialVolumetric Charge $6.92Pumped FlowVolumetric Charge $9.94Bulk WaterVolumetric Charge $7.95Volume Surcharge 2.83 24Water Rate Design Options•Increase meter charges – to increase revenue stability•Implement meter equivalencies – the larger the meter, the more capacity available, the larger the impact to the system = a higher base rate/meter charge–Gradual transition option•Review option of private fire sprinkler rates•Proposed rates will be for 2015 through 2017 25Next Steps…25•Receive comments/questions and policy direction from the Board•Develop and present draft results of study to PUP Committee–Outline rate structure options and gain policy guidance•Present results and recommendations–Tentative PUP Committee Meeting – December 11th–Tentative Board Meeting January 27th–Final results and rates•THANK YOU!425-450-6261 cil.pierce@hdrinc.com