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HomeMy WebLinkAboutWater Board - Minutes - 04/21/2011Water Board Chairperson City Council Liaison Gina Janett, 493-4677 David Roy, 217-5506 Water Board Vice Chairperson Staff Liaison Steve Balderson, 223-7915 Brian Janonis, 221-6702 Roll Call Board Present Chairperson Gina Janett, Vice Chairperson Steve Balderson, Board Members Becky Goldbach, Phil Phelan, Steve Malers, Lori Brunswig, Brett Bovee, and Brian Brown Boa rdAbsent Board Members Johannes Gessler, Reagan Waskom, and Duncan Eccieston Staff Present Brian Janonis, Jon Haukaas, Susan Smolnik, Patty Bigner, The team includes Lynn Adams, Levidy Adams Consulting, and Scott Burnham and Joseph Mancinelli, R. W. Beck, Inc. The same information was also presented to the Electric Board on Apr. 6,2011. As a result of an Electric Board suggestion, a weighting matrix has been added. Principles reflect all four utilities, and objectives were shared by service unit or department. Mr. Burnham and Mr. Mancinelli have extensive experience with this type of work all over the country and are in tune with financial strategies best practices. Ms. Adams confirmed the Utility is doing this the right way in basing it on a sound, long-term strategy. Without the guidance of a long-term strategy, rate fluctuations can be confusing to customers. The types of risks utilities are typically subjected to are identified in the philosophy and principles document. A strategy for the Utility has been formed by Utilities Executive Director Brian Janonis from two key drivers: Plan Fort Collins’ Vision and Policy and the Utilities for the 2lt Century initiative. Economic principles reflect a “bottom up” approach (cost of service, financial planning, and rate design) to support strategic alignment direction from the key drivers. Existing policies pertaining to the wet utilities (water, wastewater, and storrnwater) include: - Section XII-6 of City Charter: Maintains Utilities as separate enterprise funds. - City Finance Philosophy: Sustainability and Triple Bottom Line; long-term vision and budgeting. - Climate Action Plan (2008) Goals: Blueprint for making progress in reducing greenhouse gas emissions. - Water Supply and Demand (2003) Policy: Currently being updated. Ties directly to rates in the area of rate incentives for efficient use. - Drinking Water Quality 2003 Policy. Recommendations: - An unbundled cost of service analysis is recommended to identify key cost components. (Note: This does not mean an unbundled rate structure is recommended). - Base more of the Utilities’ fixed costs on fixed charges to stabilize the revenue stream. - Make use of the concept of “gradualism”. Rate design can become complicated to send the price signal. There seems to be a contradiction between sending the price signal, yet keeping the design simple and understandable. Board discussion. Hon do the principles afft’ct rate-setting and how much weight do they corn’? Principles are approved by Council; theii Council may want to set a rate that’s not iii line with the l11i1liPle.$. Future Councils will have the prerogative to adopt a different direction, hut the principles and philosophy document provides an important guideline and structure around the decision-making process. The document reJrs to “sound economic/financial integrity “. What does financial integrity mean? Are bonds a part of ihe/Inancial integrity scheme, or is ii a “pay as you go” approach? Water Board Minutes 2 April 21, 2011 Mr. Mancinelli noted the goal to establish the Utility’s strength and viability for some time to come; various mixes may be used to that end. Rates reflect our philosophy. High financial integrity can be achieved with either approach - debt or pay as you go. An underlying piece is not defined here on ourphilosophyfordeveloping rates. “Growth paying its own way” is afinancialphilosophy, and there is not discussion here oftaking on debt or not. Utilities Executive Director Brian Janonis noted the assumption that we will take on debt. For example, depending on the nutrient regulations, a S60 million plant upgrade may be required. Then this document should reflect an assumption that debt is pan ofthe stmtegy It’s djfticult to comprehend what costs are involved. How can asset management make it more transparent? Howfaralong is the process and how does ftfit in with risk and transparency? It will take years to get asset conditions and valuations determined. Is cost incurred because unexpected expenses come up whereas asset management puts us on proactivefooting? Yes. Asset management will allow us to determine expiration dates and plan expenses fifty years in advance. The revenue versus conservation priorities seem to contradict each other. ft mined a lot the last iwo summers which hun revenues. The Utility also shares the imponance ofconservation with customers. What is the main message then? The Utility budgets based on an average precipitation year, so it’s a balancing act between the wet and dry years. Reserve funds are used to supplement revenue in a wet year, and excess revenues received in a dry year are used to replenish the reserves. ft would be helpfulfor the message to state that Utilities likes conservation and will use reserve funds to balance the budget between wet and dry year. The impact of conservation is accounted for in the budget Afew months ago, the Board considered rates, and aformerboardmemberencouragedUtilities to pay down debtfaster. The Board recommended the rates go up and discussed afundamental philosophy to have goingforward-is debt incurred and howfastshoulddebtbe retired ifso? This principle should be included rather than a vague concept like ‘financial integrity”. Regulatory changes cause large, somewhat unexpected expenses. Then other expenses are expecte4 such as capital expenditures to address undersized stormwater capacity in Old Town. A $60 million plant upgradefornutrient regulations may be approached with debt, where other approaches can be usedforprojectslikestormwatermitigation. The Water Conservation Plan, adopted by the State, has not been adopted by City CounciL Do we need to seek Council adoptionforft to be listed as a policy in these documents? Even though it isfunde4 by not having the current Council adopt it, afuture Council may not recognize it. The Water Conservation Plan is subordinate to the Water Supply and Demand Management Policy, which will be adopted by Council. The Plan does not have specific language about rate structure. Is credit receivedfor having a tiered rate structure as a means ofsupponing conservation? It is recognized on the demand side. Water Board Minutes 3 April 21,2011 With philosophy and statements in the dociunent, would it tell the consultant team who is working on a rate design that we are building rates in order to fund water conservation programs or is that secondary? The Utility spends hundreds of thousands of dollars on sprinkler audits, conservation prograins, etc. Mr. Mancinelli responded that rate structure supports a longer-term financial plan. and a financial plan is designed to cover infrastructure replacement, support financial viability, etc. It takes time to build up reserves. The Utility will have greater ability to build cash and minimize debt if major expenditures in the future can be predicted. A declining block rate structure would be contradictory. When we talk about metrics and measuring success of conservation programs, a number on the electric and water bill provides a measurement. Does the City provide any community information (tracking goals, such as river flows) and does it make sense to share that with the public to know how well we ‘re doing? In other words, what about using the bill to share “big picture” infàrmation? Mr. Janonis noted the Utility does a lot to share that information through press releases, annual reports, and other means which describe what we are doing to achieve our conservation goals. Due to great variability with the weather and other impacts, it’s best to aggregate the information on an annual basis. Conveying the perception of value to the public is important, such as the high quality ofour drinking water. When the Utility has to raise rates, it would be nice if it asn ‘t approached and described as “due to nutrient regulations “, but rather communicate it in ci way that makes citizens fel good, such as “we want to keep our river clean “. Mr. Janonis noted the Utility can improve our communications and relating steps to outcomes. The same concept applies with “growth pays for itself”. Many citizemisfel that growth needs to pay fr itself; so the Utility could fcus the message there rather than on the fw citizens who want to stop growth. A board member questioned how “ftiir and equitable” in the philosophy applies to the stormnwater utility when some citizens who don ‘1 receive the services have to pay flood insurance and stormwaterfes. Assessment ofstormwaterfes could be mnoreftiir and equitable. Mr. Janonis agreed, and this topic is part of the floodplain regulations discussions underway now. The Board discussed the prioritization of the core principles. Principles are ranked for evaluating rate options. Utilities managers who ranked them struggled to prioritize them, as they are all important, and the order of importance may change for different scenarios. Council will ultimately decide how to balance the decisions around rates. A board member does not see cinything in the principles related to the environmental aspect f the Triple Bottom Line (TBL). If the intention is to use ci TBL approach, there must be a way to measure environmental meaning. Ms. Adams noted there is a mix of TBL concepts among the list. Is the practice ofmakingpayments in lieu of taxes (PILOTs) broadly used by utilities across the country? Also, the City collects sales tax on electricity. Why is sales tax not collected fir water or anything else? City Code allows the electric utility to collect sales tax and does not allow collection of tax by the other utilities. I)eputy City Attorney Carrie l)aggett noted water utilities Water Board Minutes 4 April 21, 2011 are much more geared toward public health and salèty; sanitation, clean drinking water and stormwater are all vital to public health and safety, and electricity, while also having a public health and safety component, is not as closely tied. Mr. Mancinelli has not encountered a municipal utility that doesn’t have some type of PILOT program. The future of the housing industry will bring adi’ance,nents such as smart houses and infrastructure that old houses don ‘t have, and retrofYtting old houses will be a long, difficult process. A board ,ne,nberThvors time of use rate structure to avoid the ‘‘haves and have notes” syndrome. Mr. Mancinelli responded that these reasons are behind the importance of this exercise, and decisions that impact customers will have to be made. The decisions ahead are not the “status quo” type of decisions of the last one hundred years. Technology is finally coming to the utility business, and a lot of changes are ahead. In order for the pricing structure to aid in demand side management programs, the rates have to go up. The Board also discussed removing numnbersfromn the prioritization list, although item 1 and 2 were noted as absolutes, and adding “natural”to “efficient use of resources Staff anticipates proposing a resolution and will take this to the May 10 Council work session. If the policy looks to be in order, at a regular Council meeting in whatever time frame makes sense, the Council could adopt the policy by resolution, and the Water Board will see it in its final form. Board Member Bovee moved that the Water Board recommend that City Council consider approval of the proposed Financial Strategy and Rate Design Philosophy, consistent with staff’s recommendation and this Board’s recommended changes (noted below). Board Member Phelan seconded the motion. The Board recommends the following changes to the Rate Design Philosophy and Principles document: 1. Adoption of the Water Conservation Plan as a Council-adopted policy. 2. Discussion of “pay as you go” versus debt philosophy. 3. Remove rankings on the prioritization list. 4. Add “natural” to “efficient use of resources”. It was noted that Vice Chairperson Balderson (and other board members) favors/may favor ranking the prioritization list. Vote on the motion: It passed unanimously. Instream Flow Committee Recommendation The Instream Flow Committee has been meeting for two years and studied whether or not a numeric figure can he assigned to instrearn flows in the Poudre River. Plan Fort Collins has a goal statement supporting adequate instrearn flows, Policy ENV 24.5 “Coordinate to Provide Adequate Instreani Flows”. The committee would like the full board to pass a recommendation to Council to move this policy forward by: a) appointing a lead staff department (suggest Natural Resources Department since this not as pertinent to the Utilities mission as it is to the Natural Resources mission; 2) devoting people and financial resources to it; and 3) adopting an action Water Board Minutes 5 April 21, 2011 plan to include a feasibility study. The Board will share information with the new oversight group on how to conduct an instream flow committee. Board discussion: Board members fi i’or cal/mg it a feasibility study. This may not be pure/v an issue of putting water toward environmental concerns; water may already be in the system, and the issue may be that ii’e need to operate diffrentlv through partnerships/or the desired outcome. There nun’ be a tendency to polarize around this issue. Ecological, recreation, cmd scenic aspects are mentioned in Policy ENV 24.5 which supports a multi-use river, and it is important in the approach. Water diversion analysis (owners of difftrent uses, mapping, etc.) is important. This piece o/the study may help arrive at that information. Policy ENV 24.5 talks about ecological /imnctionalit, recreation, cmd scenic, cimid the Instreanz F/ow Work Plan refrs to ecology. It will be more inclusive if it wraps ciii the l)ieces in, not just the ecological element. It would make the discussion broader than just ecological, cimid the Policy itself should be quoted. Afèasibility study cciii be a red//ag/or an activity trap that’s going to cost ci lot of nmonev and take a lot oftime. Deputy City Attorney Carrie Daggett asked whether this was also intended to address features of a needs assessment (impact of different flows in the river, needs met by different flows, etc.). Chairperson Janett sees this as comparable to the Climate Action Plan, ii’hich looked at a range of goals and collected ci lot of data be/are they narrowed it down. She assumes this study ‘i’ould include analysis a/a range of/eve/s of water. Enhanced/low regime alternatives (flow enhancement roadmap) indicate alternative/lows, so it is included. The Policy statement dif/rs from the work plan in terminology of “adequate” versus “enhanced”. The message being presented may polarize parties from the start. It was suggested to add a statement in the introduction o/the concern, and then keep the rest of it neutral to avoid polarization. Chairperson Janett moved that the Water Board recommend to City Council that Council take action to implement Policy ENV 24.5 of the newly adopted Plan Fort Collins by putting resources toward it, designating a lead agency (Natural Resources Department), and to adopt a work plan to implement a feasibility study (attached as an illustration of the type of study needed). Board Member Bovee seconded the motion. Vote on the motion: It passed unanimously. Committee Reports Engineering Committee (Vice Chairperson Balcierson): The committee will meet in May on the asset management plan. Water Board Minutes 6 April 21, 2011 Water Conservation and Public Education Committee (Board Member P/ic/an): Dr. Roesner from Colorado State University presented on grey water at yesterday’s meeting. Legislative, Fi,zance and Legal Committee (Board Member Goldbach): The committee will meet next week to study nutrient regulations in different states. Water Supply Coninmittee (Board Member Gessler): The committee was briefed on the rental water system. Their May meeting will include George Wallace and members of the Larimer County Agricultural Board on water sharing. Staff Reports The Monthly Water Resources Report was included in packets. Other Business None Adjournment The meeting was adjourned at 7:50 p.m. Submitted by Robin Pierce, Utilities Administrative Services Supervisor Fort Collins Utilities Approved by the Board on 7)9Q 4 L. , 2011 Signed: Qbi’n P;’Lce Board Secretary Date Water Board Minutes 7 April 21, 2011 Harriet Davis, Bill Switzer, Robin Pierce, Dennis Bode, Carrie Daggett, and Phil Ladd Guests Lynn Adams, Levidy Adams Consulting; Joe Mancinelli and Scott Burnham, R. W. Beck, Inc.; Mel Hilgenberg Meeting Convened Chairperson Gina Janett called the meeting to order at 5:32 p.m. Public Comment None Approval of March 17. 2011, Minutes Board Member Brown moved to approve the March 17, 2011, minutes. Board Member Goldbach seconded the motion. Board Member Brunswig proposed a correction to the minutes on page 6 under CIPO Update. * Correct: “lives” to “lived” in Avery Park. * Correct: “water was not in this area” to “water was in this area”. The motion to approve the minutes was withdrawn. The recorder will listen to the tape to authenticate content, and then the summary may be expanded. Rate Design Philosophy and Principles (this section finished; do not change) (Presentation available upon request) Customer and Employee Relations Manager Patty Bigner introduced the R. W. Beck, Inc. consulting team who has been retained to develop strategic financial principles to support rate design. The purpose of this work is to develop understanding of how existing policies and strategies align with core principles to support future rate changes. Water Board Minutes I April 21, 2011 Fort Collins Utilities Water Board Minutes Thursday, April 21, 2011