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HomeMy WebLinkAboutWater Board - Minutes - 12/19/1986MINUTES Water Board December 19, 1986 Members Present Norm Evans, President, Henry Caulfield, Vice President, Jim O'Brien, Stan Ponce, Neil Grigg, Dave Stewart, Tom Moore, Ray Herrmann (alt.), Jo Boyd (alt.) Staff Present Rich Shannon, Mike Smith, Dennis Bode, Webb Jones, Tom Gallier, Linda Burger, Andy Pineda Guests Marvin Winer, Project Manager, Wastewater Rate Study, Brown and Caldwell Members Absent MaryLou Smith, John Scott, Tom Sanders President Evans opened the meeting. The following items were discussed: Minutes Henry Caulfield modified the last sentence, the final paragraph on p. 6 of the November 21, 1986 minutes, to read as follows: Mr. Caulfield, backed by Paul Eckman's legal expertise, assured the Board that a positive vote on the agreement as a stockholder would not preclude our objecting in the Water Court on the water quality issue or any other issue as a City, "if we have made appropriate reservation at the time the City votes on its stock." The November 21, 1986 minutes were accepted as corrected. The minutes of the special Water Board meeting of December 5, 1986, were approved as written. Update on WSSC/Thornton Agreement Rich Shannon summarized what had occurred relative to the agreement. Staff carried the message of the Water Board to the Council. Since the last Water Board meeting the City had attempted to reach agreement with Thornton and WSSC. A memo summarizing the negotiations was sent to Board members. The negotiations were unsuccessful. At the City Council meeting, Dr. Evans spoke for the Water Board as did Mr. Caulfield. Today, at the stockholder's meeting, the City voted no for its 17.9 shares. Later in the meeting we will receive word as to the outcome of the vote. Mr. Shannon advised the Board that the next step will be "how we want to approach Water Court." Page 2 Water Board Minutes December 19, 1986 Water Supply Opportunities Update Mike Smith announced that at the Tuesday night City Council meeting, the Council approved the purchase of the waters which the Water Board recommended: that included the 1350 units from J. Moody via Craig Harrison; the 330 units from Hugo Anderson; the 99 units from Shirley Koch; and 105 shares of North Poudre. Staff will be closing on those purchases within the next couple of months. Mr. Smith was pleased by the Council's acceptance of these purchases. Mr. Caulfield stated that, furthermore, the Council did not indicate that they considered these purchases to be "the top." They appear to be open to the Board's recommending further action. Mike Smith added that Council is also ready to see the Water Supply Policy Report. Mr. Smith informed the Board that staff and the sub -committee will be meeting within the next few weeks to try to finalize the report. At this point it was announced that staff had just learned that 90% of the vote at the WSSC stockholder's meeting was in favor of the agreement with Thornton. Wastewater Rate Study Presentation Mike Smith reviewed the background for the study. He said that more than a year ago, the staff embarked on doing a wastewater rate study following up on the water rate study, to get our rates in line with the cost of service approach. The City hired the firm of Brown & Caldwell Engineers with Marvin Winer working out of their Pleasant Hills office in northern California, as the Project Manager for the study. A final draft of the study was distributed to Board members prior to the meeting for their perusal. Mr. Winer will review the draft for the Board. Our objectives, Mr. Smith stated, are to review the draft and try to revise it for its final form and also to expose the Board to some of the policy issues that will be discussed at a later meeting. In accordance with the Utility's request, Marvin Winer of Brown & Caldwell, completed a revision of the draft wastewater rate study. The proposed rates and charges are based on cost -of -service philosophy and are applicable over the 5-year study period, years 1986-1990. Full consideration was given to the cost -influencing factors of inflation, system usage, and the proposed capital improvement program. No attempt has been made to "smooth" the rates via either changing the timing of the capital improvement program or staging the rate changes. It is Brown and Caldwell's recommendation that the 1986 rate schedule be kept in effect until a rate increase is required. This should not be until some time after 1990. Mr. Winer prefaced his presentation by saying that the study is relatively complicated, so he plans to go through it in a fairly detailed manner to make certain that everyone understands the development. Basically, what the consultant has tried to accomplish is define the annual revenue requirements or costs associated with running the wastewater utility on a self supporting basis. Those revenue requirements were developed by the staff with only minor input from Brown & Caldwell. Having developed those revenue requirements, the Consultant allocated those requirements to certain functional categories. A wastewater utility is designed to remove certain constituents --in the case of the Fort Collins Utility, the BOD or the oxygen Page 3 • Water Board Minutes December 19, 1986 demand components, suspended solids and flows. The EPA, which governs revenue programs for facilities that have been in part constructed from grant funds, require at a minimum that you allocate costs to flow, suspended solids and some measure of oxygen demand, either BOD, COD, TOC or some other elements. In the Fort Collins case, industrial users are monitored and determine their COD loadings, and the City measures BOB loadings at the plant. Fortunately they are correlated. Brown & Caldwell has basically designed a rate study that is based on each customer class and in the case of large industrial users, their contribution to flow, BOD and suspended solids. They developed those characteristics of each customer classes' contribution to flow, BOD, SS, Connections, and Units. Mr. Winer added that probably there should be another category called number of monitorings for those customers who are involved in the pretreatment program whose wastes are monitored. B&C obtained the revenue requirements for a five year period, from 1986-1990 from the staff. They allocated those costs to the same functional categories they used to characterize the customer's wastewater discharge flow, BOD, SS, infiltration/inflow and monitoring. They used that information to develop unit costs by taking those costs allocated to the various functional categories and divided it by the total amount of that particular functional category. Those same unit costs were applied to every single user within the service area. The consultants then developed rates and service charges for several alternatives --they developed rates and charges for residential customers based on a flat rate for each of the five residential categories. They developed them for the case where you might want to charge based on winter water use or annual discharge. They developed an alternative where, in addition to the monthly service charge, you would apply a quantity charge and derive those costs of flow from the residential class from either their contribution to total annual use or winter water use. They developed a monthly service charge for a quantity charge for all commercial and industrial users, again the charge being based on either water use or winter water use. In the case of water use, the fact that all the water is not discharged as wastewater, was taken into account. Finally, they developed those users charges based on either the alternative that you recover the costs from outside the City customers in a similar manner as inside the City customers or you continue to charge them a 50% surcharge. Mr. Winer emphasized that everything hinges on the allocation of costs of the functional categories. They did this and came up with a low allocation to BOD and suspended solids which he explained later. They came up with what is an average allocation to flow, BOD and SS and did the whole study over again for that particular case to see what the sensitivity was of the rates to the allocation to the functional categories. He went on to say that they used winter month water use as a surrogate for estimating wastewater discharge. All of the information comes from wastewater utility records. The report summarizes the flow information for inside and outside the City wastewater discharge contributions from each customer class. Page 4 Water Board Minutes December 19, 1986 Having determined the base wastewater discharge, they did some calculations and determined that they obtained excellent agreement meaning that the 180 and 200 mg/L for BOD, and SS for the residential customers was probably pretty accurate. He then showed a table summarizing the wastewater flows relative to the design capacity for the initial two years and for the 5-year study period. The first bit of information used in the rate study was the total summary of the numbers of units (number of connections is displayed elsewhere), flow, BOD and SS, both on a daily basis and on an annual basis. This same table is used for every year of the study period. Revenue requirements were supplied to B&C by staff. Mr. Winer showed a table indicating O&M expenses, actual for 184, revised for '85, proposed for this year and projected on out for the remainder of the years in the study period, broken down into components which would allow them to allocate costs. Another table displayed the summary of the Revenue Bond Debt Service in dollars; another item was our annual revenue requirements. He pointed out that in 1990 when the City pays off the 175 bond issue, the debt service goes down significantly. The next table showed a summary of other capital costs, capital projects as budgeted by staff and includes capital projects, minor capital and contract reduction expenses, and in the next table they summarize the annual revenue requirements which is broken up into 0&M, net debt service and net capital costs. They are relatively constant over the five year period except for 1987 when they are significantly lower because of lower capital costs. Having developed the user characteristic and defined all the revenue requirements, the next thing the consultant did was allocate costs to functional categories. This was the pivotal point in the rate study. "It is what makes a rate study equitable, if there is such a thing," Mr. Winer added. You allocate costs to those treatment parameters that the facilities are designed to treat. Then you allocate those costs back to the customers commensurate with their contributions to those functional categories. The consultant began with the assumption that your costs can be divided into both fixed and variable costs. The fixed costs vary according to the allocation of the plant. The variable costs are generally flow related -- chemicals or power that are independent of BOD or SS in most cases. You must determine what part of your plant is allocable to BOO and SS removal. They came up with a rough calculation that is approximated in most communities where the treatment plant is allocated 50% flow because it is sized to meet flow requirements and 25% BOD and SS. This is a quasi -engineering approach. Economists like to say that the treatment plant is there because you have to remove BOD and SS and therefore you should probably allocate all of the costs of the treatment plant to those parameters even though it is sized and therefore the costs are based on the flow. They want to give the message to the customer that they are discharging BOD and SS and therefore should be charged for it. That usually impacts large users so B&C usually employs the Page 5 • • Water Board Minutes December 19, 1986 engineering approach that it is really sized for the flow and thus a portion of the cost is allocable to flow. For the whole wastewater system, they came up with an allocation of 78% flow and 11% each to BOD and SS. They subsequently did the entire study again for a 60-20-20 allocation to see what impact it would have and the impact was negligible to almost everybody except for 5 users. The greatest impact is to large industrial users. He explained that this leads you to make a political decision on whether to allocate those costs to them and charge them relatively high rates as opposed to perhaps charging a couple of cents a month to residential customers and possibly encouraging industry in your area. B&C did it both ways. Mr. Winer showed a table which is an allocation of annual revenue requirements for 1986. The costs on the bottom line will be used in developing the unit costs. They will take the amount that is allocated to the flow and BOD and SS on a design basis. The next table related the summary of the allocation of 0&M requirements to various treatment parameters for 1987 through 1990, and the next table with allocation of capital requirements, which are fixed because none of them are allocated to annual contributions. The final table in Chapter 4 shows a summary of annual revenue requirements allocated to the various treatment parameters for 1987 through 1990. These were the numbers used to develop the unit costs. The first step in designing the rates and charges in determining those unit costs was the annual revenue requirements allocated to those functional categories. Because we anticipate charging outside -city customers 50% higher rates than inside the City customers, we multiplied their contributions to flow, BOD, and SS by 1.5 and therefore, every number in the unit figures is the sum of the inside customer's contribution plus 1.5 times the outside user's contribution, plus the infiltration/inflow. These unit costs, derived from a formula he described from one of the tables, are then used to determine the cost allocable to I&I. The consultants treated infiltration/inflow like another customer. Since we can't send them a bill, he explained, "we calculated total costs allocable to I&I -- then we spread it over all other users according to either connections or dwelling units." The feeling is that using units gives a greater share of the cost to multiple family dwelling units that usually occupy a greater impervious area than a single family residence. Mr. Winer pointed out a table, the derivation of metered single family rates for 1986, to explain how they arrived at the monthly rate for inside and outside customers, which is not significantly different from the current rate. He talked briefly about recommended rates for calendar years 1986 - 1990, and compared the options of basing the quantity charge on actual water use or winter quarter use. He then indicated some of the pluses and minuses of doing this. If you did it on actual water use, you effect some sort of conservation because now the summer bill is higher than the winter bill. However, it impacts cash flow as you get more revenues in the summer even though the user is not discharging more to the sewer system. Basing it on winter water use, you get the same revenues every month for wastewater. Page 6 Water Board Minutes December 19, 1986 The final table in the report is a comparison of estimated revenues by customer class. -- not an exact comparison. They know what revenues will be generated at the proposed rates. They made some assumptions in calculating what revenues would be generated at current rates. Basically, the table shows that you are collecting about 15% less revenues with current rates than the proposed rates. "You can actually'stay with the current rate for another year," he explained, "although you may not collect according to the cost of service indicated in the report." Nevertheless, you would recover on a relatively equitable basis. He pointed out several areas where there were inequities in the rates. He also commented on each industry and what they would pay. Henry Caulfield asked about inflow and infiltration and who pays for it. Mr. Winer explained that the cost is usually allocated by connections or units. Dr. Boyd commented that, historically, Fort Colins has an enormous increase in infiltration in the summer months when the ditches are running, which presents a problem in oversizing of the plants to handle this load. Mr. Winer admitted that in his presentation, he probably should have addressed that more fully. Everything in the report is based on what they call average dry weather flows. Dr. Boyd cited the statistic from the report showing a 2.2 mg. or better than 20% on dry weather flow. In summer time, she said, it is many times higher. Mr. Winer explained that if they based it on higher flows, they would get a larger total number instead of the 12 mgd which is the total flow for waste -water discharge and I&I. This would result in smaller unit costs. "The dollar value is still the same, replied Dr. Boyd, "We would still have to allocate it to the people who can pay -- Mr. Infiltration doesn't pay." Mr. Winer explained that he was dealing with average flows; there are probably some customers tha£ peak, but you can't deal with peaks unless you know everybody's peaks. "The I&I peak you can ascertain pretty easily," Dr. Boyd contends. Mr. Winer said, "It doesn't affect the dollar amount." Henry Caulfield commented that in the introductory letter from the report they gave future capital requirements. They were reflected in a table for 1990. He asked what staff has in mind there. Mike Smith answered, "minor improvements to the system." Dave Stewart commented that the gallons per day for the metered and unmetered appear to be the same. He would think that the metered would have less usage than the unmetered. Mr. Weiner responded, "Obviously we don't know what single family unmetered discharge is. Our guess is that the normal way the unmetered customer uses excess water is on outside irrigation. Generally speaking there is not much within the house to use more water." Since this is a winter use figure, they surmised that whether metered or unmetered, the customers use about the same amount of water. Henry Caulfield asked how other cities which are metered handle this basing it on winter use. He assumes that it is desirable to have a fairly constant figure throughout the year. Mr. Winer replied that in 90% of the cases, the charge is based on monthly water use. In every monthly or bi-monthly billing period, water use is multiplied by the factor for that customer class, and then times the rate, so it is based on water use and that results in fluctua-ting revenues. In the summer, they are essentially paying on outside water use and in the winter they are paying for less than their actual in-house use. Most Page 7 • • Water Board Minutes December 19, 1986 utilities have the reserves necessary to meet those cash flow requirements. Mr. Weiner doesn't know of any major utility that bases it on a winter month usage. He went on to say that of almost all of the utilities he is referring to, the largest class is residential and almost all of them are charged a flat rate, so 80 - 90% of their revenues are fixed anyway; thus, there is not a large change in revenue requirements. "If you should meter all your residential and base it on a quantity charge, and then base it on water usage, you would have an enormous change between summer and winter," he explained. Mr. Caulfield wonders how you handle that problem because that wouldn't be understood by the public. Dr. Boyd added, "It wouldn't be very logical since your waste discharges are the same summer and winter." Mr. Caulfield asked if many cities that Mr. Winer is aware of have a metered water usage rate, but a flat rate for sewage. "Yes, Most of them" was Mr. Winer's response. Even though all classes are metered, they will recover costs from residential users on a flat rate, even for multi -family in some cases, with a cost per unit. Dave Stewart asked how the revenues change if the industries follow up on pre-treatment and reduce the strength to a domestic wastewater. Mr. Winer explained that everything was predicated on the fact that BOD and SS won't easily be changed. If they do that, then obviously what happens is you go back to the giant computer program and you put in the new mg/L loadings and if they are lower, that lowers their rate. The unit costs get larger and the other people pick up those costs that way. "So it's being put back on the residential customer," Mr. Stewart commented. He asked, "Wouldn't the reduction of treating BOD and SS by pretreatment cost less?" Mr. Winer replied that in the long run, those costs are going to remain about the same. If you could effect a large reduction in BOD and SS say in a community where you had 400 large industries, the variable costs, not the fixed costs of treating BOD and SS would go down. Dr. Boyd clarified that most of our costs are fixed costs and the small amount of variability for cleaning up BOD and SS would not be significant. Neil Grigg asked, "Are we not to distinguish between two aspects of pre-treatment here -- one to meet a pre-treatment ordinance so we don't get damaging things that the plant can't handle and the other to do pre-treatment to take some of the load off the plant.?" Mr. Winer stated that the first part is mandatory because there are things you can't discharge, and if you do, sludge disposal changes dramatically and those costs have to be allocated back. Mike Smith explained that the City has a surcharge for excess BOD, COD and SS over and above domestic waste. Dr. Boyd added that in a way you are saving money if industry cleans their wastes ahead of time even though you don't get it in direct billing, because you can delay enlarging your plant for a few years. Mike Smith commented that removal of BOD can be a "catch 22" because sometimes the wastewater is too diluted and we don't meet the permit requirement of reduction of BOD. Neil Grigg asked if the surcharge program is required by EPA. It began about 10 years ago, Mr. Smith replied. There was also an industrial cost recovery charge which was later repealed. Page 8 Water Board Minutes December 19, 1986 Dave Stewart asked, when we even out the irregularities, are the revenues recommended the ones required? Mr. Winer pointed out in the report, the rates on the table for 1986. What he is recommending is that the City adopt this rate because the revenue requirements for this year are $4.4 million. They vary between 5.3 and 5.5 for the next three years, but the last year they are 4.6, so you would have a large drop in rates which would not be advisable. The revenue requirements are about the same in '89 or '90 that they are now but B&C is assuming a 3% growth rate, the economy not being as good as it was, and that growth in 1989 might not be appropriate. If you don't get 3% growth, you won't get the revenues with 1989 rates no matter which of the 5 cost recovery alternatives you use; the revenues recovered from them will be the same. Neil Grigg recalled that Mike Smith indicated that there would be some policy issues that would come up for discussion at a later time. Mr. Smith responded that some of the issues they outlined were: the 1 1/2 times rate for out -of -City customers, the way of charging customers on an annual water use basis, winter quarter consumption or a flat rate for residential. Dr. Grigg asked about this earlier and Mr. Winer said the revenues were the same, so why would it matter? Mr. Smith replied that you mainly impact the individual customer. His cash flow would be different. Frankly, the staff prefers the winter quarter consumption, he said. It maintains the cash flow and is easy to explain to the customer. There are advantages sometimes to the annual use with commercial customers. Dr. Grigg asked if Mr. Winer considers our current rates inequitable. "Yes," he replied, "but it's hard to see exactly because the rates designed in this report for this year, derive greater revenue requirements. If you applied the ratio, and multiplied everything by that, you would find that the percentage recovery from each customer cost would still be different. Neil Grigg said that it appears to him that the policy issues that arise from how we are going to charge these particular industries are at least as important as the others Mr. Smith named. Mr. Smith replied, "yes, that was the last issue we planned to name." The basic purpose of the study was to look at cost of service and the net result of that is that we have some commercial customers, according to the cost of service, who aren't paying their fair share. Dr. Boyd asked if we have been undercharging or subsidizing them for a number of years. According to the results of this report, Mr. Smith confirmed that they haven't been paying their fair share, so other customers have been subsidizing them. Mr. Winer related that this is not unusual. In fact, in the case of the restaurants, he developed a case where the rates would triple because they didn't have a surcharge. The restaurants complained so much in this particular city that charges were handled a different way and their rates only doubled. This is not unusual for restaurants when they are not charged for BOD and SS. Page 9 • Water Board Minutes December 19, 1986 • Dr. Grigg suggested that we need additional tables like table 5-9 which shows the results of the alternative analyses (the 78-11-11, the 60-20-20, and the 50% outside city surcharge). Mr. Winer contends that one of the problems of going to 60-20-20, is there is no basis for it. Dr. Grigg stated that the basis of the 78-11-11 is that you think that is where the costs are according to cost of service. Mr. Weiner said, yes, based on allocating half the treatment plant cost of flows and a one fourth each to BOD and SS. To do it another way would be a departure from everything else he has done. It would reflect badly on the report, he contends. Mr. Winer indicated that the 50% surcharge for the outside the city customer may not be legal. On a grant funded facility, the purpose of the facility is a regional facility according to EPA, and you have to base your costs on cost of service. It depends on the region. The region here may not closely monitor these things. He felt he had to raise this inequity issue because, at some future time, somebody else may raise it and ask whether the consultant who did the study said anything about it. Norm Evans commented that that might also be a function of a dissatisfied customer wanting to raise the issue. Dr. Evans thanked Marvin Winer for his thorough presentation. "It gives us something to ponder," he concluded. Since there was no further business, the meeting was adjourned at 4:50 p.m. Water Board Secretary