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HomeMy WebLinkAboutWater Board - Minutes - 03/26/1993WATER BOARD MINUTES March 26, 1993 3:00 - 5:28 PM Water & Wastewater Utility Conference Room 700 Wood Street City Council/Water Board Liaison Loren Maxey Staff Suoport Person Mike Smith Members Present Neil Grigg, President, Mark Casey, MaryLou Smith, Ray Herrmann, Tim Dow, Tom Brown, Paul Clopper, Dave Frick, Terry Podmore Staff Rich Shannon, Mike Smith, Wendy Williams, Dennis Bode, Ben Alexander, Jim Hibbard, Scott Harder, Andy Pineda, Jim Clark, Keith Elliston, Beth Voelkel, Molly Nortier, and Alan Krcmarik, City Finance Guests Gene Schleiger, Northern Colorado Water Conservancy District George Reed, Citizen Observer Members Absent Dave Stewart and Tom Sanders (excused) President Neil Grigg opened the meeting. The following items were discussed: Minutes Ray Herrmann moved that the minutes of February 19, 1993 be approved as distributed. After a second from Tom Brown, the Board voiced unanimous approval. Update: Northern Colorado Water Conservancy District Gene Schleiger from the Northern District, distributed copies of the snow -precipitation update, the Spring Water Users Meeting agenda, 1993 Precipitation within NCWCD and Storage Comparison, a Uniform Quota Study, and Timeline for implementation. WATER BOARD MINUTES March 26, 1993 Page 2 He announced that the Spring Water Users Meeting will be held on April 7 in Fort Collins at the University Park Holiday Inn. The Keynote speaker will be Senator Hank Brown. Registration will be at 7:30 A.M., the meeting will begin at 8:15 and end after lunch this year. From past experience it seemed that most people left after lunch anyway, so the afternoon session has been dropped in favor of an earlier starting time. He updated the Board on snow/precipitation amounts. Over the last month in the southern part of the state, 10-15% of the snowpack has been lost, he said. However, in the northern area, "we've picked up about 5%, so we are up around 102%." There's an additional handout that compares precip. from 1992 and 1993. As far as system storage, Granby is at 36%, Horsetooth is 79% and Carter is 97%. Mr. Schleiger wanted to spend more time on the Uniform Quota Study which he distributed. He explained that the small rural domestics get hit especially hard in a wet year when the District issues a 50 % quota. CBT water is primarily the only supply they have, so they have a hard time making ends meet in those years. The District has been studying this for some time, and is trying to come up with a solution for this problem. He then referred to a single sheet which showed the timeline of when the District will hold public hearings and meetings. The District Board will plan on making some kind of final resolution of this at their September meeting. Another handout provided background and the thought processes that were involved in developing the study. Within that information he said it is interesting to note that if the District were to issue a guaranteed 70% quota to municipal and industrial users, it would actually make more water available to the agricultural community. "In years when we would be issuing a 90 or 100% quota, the municipalities would still be locked at 70% if that was the option they chose," he noted. As the District is envisioning the uniform quota now, it is going to be a voluntary program. Entities would be given the opportunity to sign up to participate. Through the hearings there will be some discussion, he is sure, as to the length of time that will be required for entities to participate; probably somewhere between the 5-10 year range. "We wouldn't be able to allow people to be jumping in and out trying to out -guess what the Board was going to do," so people who decide to participate will be asked to make a long term commitment. Neil Grigg pointed out that attached to the study is a policy paper on the NCWCD policy during times of drought. The date of publication is November 17, 1992, with a revision on January 10, 1993. "Was 1992 the first time it was put down on paper like this?" "I believe so," Mr. Schleiger responded. When Fort Collins was doing its own drought study, staff tried to explain to the Board how the quota was set, etc., Dr. Grigg recalled. "I had the impression that it was a definite procedure; I'm glad to see it written down like this." WATER BOARD MINUTES March 26, 1993 Page 3 The drought policy is another issue that will require some discussion during the hearings, Mr. Schleiger said. Basically the District's perspective at this point is that even though we would enter into an agreement with a 70% quota, if we had a long term drought where, physically, the District could not deliver that amount of water, everybody would take the same percentage of cuts in delivery. In other words, "we wouldn't issue the 70% to the municipalities and industries while the farmers got 35%. If we reached that point, we would have to make it as equal as we could," he stressed. He believes that there will be a lot of discussion about this, especially from the ag. community. "They will probably see this as favoring municipalities and industries at their expense, but that's not what the modeling shows." The data show that out of the 50-60 year period there was only one year that it would actually reduce by about 2 % what would be available to the users. In the long run it will be to their benefit, he contends. The District could go to a 75 % quota, but "I don't think the ag. community would buy that because the historic average is only 72%." Tim Dow asked if the District has a priority system in times of shortages, "or do you always treat your users on an equal basis, either in quantity or percentage?" In the 27 years Mr. Schleiger has been with the District shortages have occurred at the Boulder Creek supply and a couple of times at the St. Vrain Supply Canal out of Carter Lake on down to the St. Vrain River. Basically what the District does is go into a pro rated share when it's been physically impossible to deliver due to capacity constraints. "If your initial allotment was 40% of the water on the system, you received 40% of available space of the supply that was in there, but I don't ever remember having to pro rate out of Horsetooth," he said. Mark Casey wanted to know how that selection would be made if the District went with the fixed program or the one that fluctuates. "Would that actually be tied into the water right, or if you sold the water right, could you decide again?" "It would be tied in," Mr. Schleiger replied, "so that anybody that purchased it would be locked to the remaining years of that contract whatever it happens to be." Mr. Schleiger personally wonders how this program will affect the rental market because if the City of Fort Collins, for instance, chooses to go with a 70% and the District issues a 90% quota, there is an additional 20% that Fort Collins will not have available to rent. At the spring water users meeting both Bill Farr and Bill Bohlender are going to give presentations on this, along with John Scott. This issue will be thrust into the public forum arena for basically the first time at the users meeting. He acknowledged that there will be a considerable number of questions that the District will have to answer about the uniform quota study. Dr. Grigg pointed out that the timeline has the District going through the September board meeting when there will be a decision on the proposal. Does that mean that everybody is going to have to make their choices before that or is it going to be open to sign up later? "I'm not sure about that," Mr. Schleiger replied. "I don't think a decision has been reached. I would WATER BOARD MINUTES March 26, 1993 Page 4 think there would be a short period of time for people who participated in the '94 water year. I don't think we will be able to allow them to go up to the first of April to decide whether they want to participate. Once we get beyond that I would see that it would be possible for people to join maybe on a once a year basis. Exactly what the dates will be, I'm not sure," he concluded. Would it be a problem if somebody wanted to split their water; half of it one way and half of it the other? Mike Smith asked. "I don't think that's a problem," Mr. Schleiger replied. He said,there has been some discussion about that, and he hasn't heard anything that would preclude someone from doing that. Mr. Schleiger went on to say that SB130, the Water Enterprise Bill dealing with Amendment 1, has cleared both the House and Senate as of Wednesday, and is awaiting the Governor's signature. It has undergone a number of amendments since he last saw it. City Charter Changes Utilities Director Rich Shannon introduced this item by saying that staff mailed two sets of information to Board members recently on Charter Amendment No. 1. Staff believes this amendment could have a significant impact on the way the utilities are managed. "For the purpose of the discussion today we will try to reserve our comments to responding to questions that deal with the impacts on utility operations," he said. "As staff members, we will be walking a fine line between telling you what we think the facts are, as best we can judge them, and not trying to lobby you so we cross the line into campaign reform act problems," he stressed. "This is a significant issue and in your roles as Water Board members, you need to be, and should want to be made aware of this, and you may or may not want to advise the City Council how you feel about it. Your role is to advise City Council. I'm not saying you should, but traditionally that's how it is done." He went on to say that the closest example of this was the quarter -cent sales tax for open space in the last election. The Parks and Recreation Board wanted to be active in campaigning for that. They were advised by the City Council that legally they are allowed to do that, but procedurally they were encouraged by the Council to let their opinions be known to the Council rather than as the Board going to the general public, he explained. The real purpose of this discussion today is to make certain that the Water Board is familiar with the impacts of passage or defeat of this Charter change. WATER BOARD MINUTES March 26, 1993 Page 5 President Grigg referred to the memo in the packets which discussed the facts of the Charter amendment. Dr. Grigg had discussed this with several people including the City Attorney's office to determine the legality of "our doing anything as a Water Board." He also discussed the issue with Mayor Kirkpatrick to follow up the discussion of the Water Board about the protocol of the Board advising the City Council. The Mayor basically thought that the Board should be taking a pro -active stance in advising the City Council, but advising the Council doesn't always mean "just asking them if they would be willing to receive our advice. It might mean even talking to them through the newspapers. In other words, there may be various ways we could be advising the City Council." Dr. Grigg tried to contact the Board's Council liaison Loren Maxey about this, but he has been out of town. "I got the idea from my other discussions that within the bounds of reasonable judgement as a Water Board, it would probably be okay with the City Council if we provide our advice in appropriate ways, maybe even when they don't agree with us; and there is disagreement on the Council about this change, having to do with the State's Amendment 1. Dr. Grigg said he wrote a letter to the Coloradoan and the Triangle Review in support of Charter Amendment No. 1. "It should be published in a few days," he said. His basic reason for supporting the amendment is that "it looks like a good way of doing business." The utilities as a separate enterprise have the ability to issue the debt. "My idea of the way utilities should be run is that they ought to be run as businesses. If everything has to be voted on by the public, you are not running them in a business -like basis. I realize that there are a lot of other implications and the negative side that came out in the mailings from staff, expressed some of those." He said that he thinks it's entirely appropriate for the Board to discuss any aspect of this that they would like. Tom Brown said he had questions "because he didn't clearly understand the information." He thinks the graph that staff sent out provided a good focus for his questions. "What limits revenue to the second level on the graph under this new amendment assuming that the Charter change does not pass, and we are living under the TABOR amendment; what is it that's limiting revenue to this level?" he asked. "The constraints in Amendment 1 are reflected in two items," Rich Shannon replied. One is the metro area's consumer price index, so theoretically that went up 3% in a given year, plus the increase in property evaluation. Growth produced an increase of 1 1/2% - 2% in property assessed values, so you have a combination of 4 1/2% - 5% growth. "Of course our opinion is that the demand on water utilities doesn't necessarily correlate that directly with those two items." "So as the town grows it is figured into the additional property value increases because the houses were constructed," Tom Brown continued. "It's not fair to say that that's the logic," Mr. Shannon replied. "That is the effect, not the logic of amendment No. 1. Amendment No. 1 intentionally excluded enterprises, but the calculations we've shown here do suggest that if we had to live under those constraints, and if we went through the last ten years and recreated those constraints, we estimate how much money we would have over -collected." "So the population increase is in these numbers to the extent that WATER BOARD MINUTES March 26, 1993 Page 6 you estimated they would increase the value of the total real property value?" Mr. Brown asked. "Real estate evaluation is reflected in there, and the CPI," Mr. Shannon replied. "Not just the rate of increase," Mr. Brown said. "It's the percent of property evaluation; it does not have anything to do with population," Mr. Shannon stressed. "It is my understanding that we look at the total assessed valuation one year and total assessed valuation the next year, and the percent increase," he explained. City Finance Director Alan Krcmarik said that's not the way it is calculated. It's not a percentage growth of assessed evaluation from one year to the next, he explained. What the amendment says is you look at the additions to your taxable property value, and that's not an assessed value, it's an estimated market value. There are only two ways that can happen: either you build something new or you annex some additional land into the City. So the appreciation or depreciation that occurs on an existing home is not calculated into the base at all. "Except to the extent that it shows up on the CPI, but that's indirect," Mr. Brown added. Tom Brown asked what the difference in revenue represents over these years. What have we been spending that money on; the additional money over what we would have collected if we were constrained to what the amendment would have required? The big issues are we have had rate increases, Rich Shannon replied, and secondly we have had growth in water consumption that is a function of what industries need (Anheuser-Busch being the obvious example) which would throw us way out of whack for any 4% or 5% growth in water consumption or wastewater needs. The majority of that is probably related to the capital projects, Mike Smith explained, where we have to borrow money and increase debt service, which increases spending, and also means you have to increase revenue to cover the additional spending. Where do PIFs come in? Mr. Brown asked. That's included in there, Mr. Smith replied, because it's considered revenue. Are they in the total revenue and the constrained revenue? Mr. Brown continued. The actual revenue is all revenue, Mike Smith answered. What is the constrained revenue? Mr. Brown asked. It's what's calculated as what we could have collected. We didn't differentiate between the PIFs and operating revenues. (This is where the microphone of the tape recorder became partially disconnected resulting in severe static.) Another important point was brought up regarding the possible ramifications of revenue constraints; the idea that, due to revenue constraints, developers would sign up for capacity. Then, if voters approved issuance of debt, the City would let developers know each November whether capacity would be available. Paul Ciopper related that he has written a letter in support of the Charter change. Tom Sanders was not present at the meeting, but it was understood that he also wrote a letter in support of the amendment. Their letters will appear in the newspapers soon along with Neil Grigg's. WATER BOARD MINUTES March 26, 1993 Page 7 After some further clarifications, Tim Dow moved that the Water Board communicate to the City Council their support for Charter Amendment 1 because passage of this amendment is important for the continued efficient management of the Utility. After a second from Ray Herrmann, the Board unanimously approved the motion. Preliminary 1994 Financial Program Scott Harder, Financial Analyst, presented a draft 1994 financial program that included some preliminary recommendations and ideas. The presentation included a general overview of Utility finances and an outline of programs that could be developed for the Water & Wastewater Utility over the coming years. He asked the Board members to feel free to jump in any time with questions or comments. He started by proposing some enhancements to the Utility's current net income policy included in the financial policy section of the budget report each year. Many utilities are moving to a more formal or rigorous revenue requirements policy, both to demonstrate appropriate protection of the public's assets, as well as segregating those costs that we incurred for growth, and the costs incurred on behalf of existing customers. The Utility is considering a revenue requirements policy that would recover 100% of O&M, PILOT, debt service, and minor capital from user rates. Minor capital, as you might know, is the cash equivalent of depreciation. As such, this policy is essentially one to fully fund depreciation through our rates. Considering the ability of the Utility to attract capital at reasonable rates, it's becoming more important to demonstrate to investors and customers reasonable recovery of the full cost of providing water and wastewater service. As part of this policy, and perhaps as an internal guideline for setting rates and examining rate adjustments, we would like to target specific financial performance criteria. "These were developed from interviews I have had with Standard & Poors and Moody's, and is based on average criteria they look at when rating utility bonds," Mr. Harder related. First, let's consider minor capital or renewal or replacement expenditures. It's a function of the age of the assets, but they like to see somewhere in the neighborhood of 2 to 2 1/2% of gross fixed assets. For capital reserves they like to see at least 50% of annual operating expense, which we do; we have a multiple of that in our operating capital reserves. They like to see debt service coverage of over 1.6 times. Currently we are right about there, maybe a little bit less. And Standard & Poors and Moody's like to see us meeting our additional bonds tests as called out in any particular covenants or agreements we've made when we've issued bonds. We are proposing that the staff work with the Water Board, or a Water Board committee, in such a policy, or perhaps looking at some changes to our existing policy that might formalize some of the things we want to do with rates. WATER BOARD MINUTES March 26, 1993 Page 8 If you look at how such a policy, or such a policy goal might impact the operations of the Utility, let's look at the water fund. Mr. Harder prepared a schedule showing the 1993 budget and 1994 projected and 1995 projected revenues and expenses. "We have budgeted gross water revenue requirements of $16.5 million in 1993, projected to be $16.9 million in 1994, and just about $17 million in 1995," he said. Less non -operating revenues results in net revenue from rates of somewhere between $14 and $14.8 million during those years. "You'll note that with the rate increases we have scheduled, we'll be collecting operating revenues in the range of $13- 15 million, showing a deficiency in '93 of about a million dollars." That means that we expect to be using some money from reserves in this budget year to finance some portion of our minor capital needs. Those reserves were built up from several sources. With the rate increases indicated, we could probably turn that deficiency around to show about a quarter of a million dollar excess from rates by 1995. "This assumes cost center budget increases of 4% in both '94 and '95, and rate increases of 4.9% in '94 and 5.6% in '95." he added. He next reviewed wastewater fund finances for which he prepared a similar schedule. The numbers are a little smaller, he said. We're looking at budgeted gross revenue requirements of $12.2 million in '93, increasing to $14.6 million in 1995. This is primarily due to about $1.5 million in additional debt service beginning next year on the loan we took out to construct the wastewater treatment plant expansion. Subtracting non -operating revenues from those that would be available to us to finance some of these costs, we are looking at net revenues from rates in the range of $8-10.7 million. "With the rate increases we have scheduled, we're looking to collect between $8.4 and $10.2 million in that time period, showing that though we are expecting an excess in this year, we are expecting a little bit of a deficiency in '94 and '95," he said. With a policy in place as described above, we could project an excess or positive balance by 1996. This is with an 8.9% rate increase in '94 and 7.2 % in 195. "Note that our cost center budget increases would be only 2% in '94, and 4% in '95." Next Mr. Harder turned the Board's attention to the results of some cost of service analyses he has performed. He developed a fairly comprehensive computer model, both for water and wastewater, that essentially takes average maximum usage characteristics by class, and looks at how the Utility incurs costs across different functional categories. For instance, the cost we incur to handle the flow; the costs to handle a particular wastewater strength; and the cost we incur to handle the solids that we must collect and dispose of from the wastewater treatment process. WATER BOARD MINUTES March 26, 1993 Page 9 "Cost of service is a very tricky business," he contends. "I am of the opinion that if you hire five consultants to do five different cost of service studies, you will get five different answers," he added. It is something that a utility should do regularly; perhaps at least every two years, he suggested. Cost of service should also be balanced against other policies and other strategies pursued by the Utility. For instance, conservation strategies are often at odds with cost of service results. Cost of service will often support a declining block rate schedule, whereas an economic incentive to conserve water would require an inclining block rate. On the water side he used a base -extra capacity methodology which is very similar to the one used by Black & Veatch when they did the water cost of service study five years ago. This is a methodology mostly used in the industry and supported by AWWA. On the wastewater side he used a modified capacity demand methodology, significantly modifying the approach taken by Brown & Caldwell. One important consideration for cost of service is to come up with appropriate revenue requirements from rates, and view those revenue requirements as manageable chunks of money that need to be recovered from specific customer classes. "I've used a Utility Basis approach to analyze revenue requirements and to allocate those revenue requirements to our classes of customers," he explained. Utility Basis is often used in a regulatory environment where you must demonstrate that you are receiving only a fair return from your customers over and above the full cost of providing service. Private utilities are often regulated using a Utility Basis approach. The Utility Basis allows you to analyze depreciation, O&M, and return on rate base in functional cost categories that make sense from a customer perspective. The Utility Basis is the sum of operations and maintenance expense, depreciation, and a reasonable return on rate base. The return on rate base should be related to our cost of capital for inside city customers. Perhaps an additional return on equity could be added to that for outside city customers. "This is the approach Denver takes," he said. "They take this thing to the nth degree in an effort to segregate the costs incurred by ring suburbs that are growing, versus city costs incurred by a static customer base." A 10.2% return on equity was used in the analysis. Coupled with cost of capital, which is 6.5 % for water and 5.6% for wastewater, results in a weighted return on rate base of 8% for water and 7.2% for wastewater. Mr. Harder then shared some of the results, for which he prepared two graphics. The graphic displays existing and cost of service revenues by customer class. The purple color showed the existing total revenues collected by existing rates from each customer class. These existing revenues have been adjusted for an assumed 4.9% rate increase in 1994. WATER BOARD MINUTES March 26, 1993 Page 10 "The yellow bars indicate what the cost of service suggests those rates should be to collect the full cost of providing service to each customer class," he continued. Also note that perhaps CSU may be due a substantial increase in water rates. "We only allocate transmission and trunk costs to CSU because they maintain their own distribution system on campus." However, by the same token, we meet CSU's peak hour demands. "You'll note that outside city customer classes all indicate a decrease in rates, suggesting that from a cost of service point of view, even charging a reasonable return on equity, that we still have a little difficulty supporting a 50% rate differential to outside city customers," he said. Cost of service also indicates that commercial rates might need to increase more than single family rates. Multi -family rates might increase more slowly relative to single family rates, and duplex rates might increase at a slower rate than single family rates. In general, these preliminary cost of service results should be considered general indicators of the direction that rates should move. The results are extremely sensitive to peaking factors, usage rates, and program budgets. Minor changes in budgetary conditions or usage rates affect cost of service greatly. "In fact you would see different results if we used 5 years of history instead of 3 years," he stressed. For the wastewater cost of service side, Mr. Harder presented a similar graphic. "You will note that there are some differences between what the cost of service indicates and what current rates are for several customer classes," he began. They should again be considered general indicators of how our rates should be revised. "You will notice that for Laporte Sanitation District, which is charged an outside city rate, the cost of service does not support that high a rate. Cherry Hills is the best deal in town and could, from a cost of service point of view, be paying more than they do." Again, we see that outside city rates might be increased more slowly than rates inside the city. Inside city commercial and multi -family customers could stand increases relative to single family customers, and duplex customers could stand a decrease. "I might add that the wastewater cost of service results are based on a winter quarter consumption basis." The most rigorous basis for allocating costs for customer classes is based on the measured water usage for the winter months when irrigation is insignificant. As for recommendations on 1994 rate increases, they should be considered preliminary. Staff will be coming back to Water Board, working through appropriate committees, to formalize the recommendations. This is likely to be followed up by a work -session with Council. WATER BOARD MINUTES March 26, 1993 Page 11 On the water side, it is recommended to delay consideration of seasonal or conservation rates that might include an inclined block structure, until a larger portion of our customer base is metered. "We might want to pursue some adjustments to Anheuser-Busch on the water side, and perhaps equalize the West Fort Collins and Fort Collins -Loveland rates to some extent. We are also interested in pursuing multi -year adjustments to duplex, multi -family and commercial rates." On the wastewater side, we may be interested in pursuing an adjustment to Cherry Hills rates, and multi -year or phased adjustments to inside city rates. At this point Mr. Harder turned from cost of service to talk about some other potential financial programs. There is considerable latitude in what programs could be developed depending on the policy goals of Council, and the interests of the Water Board and staff. He illustrated the first idea with a graphic showing the income of Fort Collins households. There are about 6,000 households in Fort Collins with a gross annual income of less than $10,000 a year: the defined federal poverty level. "If the water bill is analyzed as a percentage of gross annual income, assuming average rates of water use, you note that as income goes down, water bills as a percentage of gross annual income increase dramatically. The water bill impacts below poverty level households pretty severely." Mr. Harder is proposing a social welfare policy that would subsidize subsistable level water usage. This Indoor Water Assistance Rate shifts the cost of a portion of water used by poverty level households from that group to the Utility's other customers. "This would subsidize what I would call minimum sanitary usage, preliminarily defined for this analysis to be 7,000 gallons per month." We envision a program where the applicant would have to be metered, and would present documentation approved by other social welfare programs such as food stamps, aid for families with dependent children, or welfare. "Perhaps we could even structure a two tier rate depending on their income, or maybe target just one single rate in that low income category." He stressed that this is an idea staff is presenting to the Board for their information at this point. "We are not asking for action on this today, and would expect that such a program would take more than one year to develop. That's why we are looking for preliminary input today, and the coming months, so staff can take the appropriate steps to start evaluating it further," he emphasized. Mr. Harder estimated that the fiscal impact of that program could be approximately $300,000 per year, or a little less than $.50 per typical single family dwelling per month. The administrative impact would be significant since there would be a screening process to make sure that a particular homeowner or household dweller is eligible for the program. It would also involve some monitoring to make sure that the income status does not change. There were a few comments from the Board on this, particularly stressing the need for further information and research. WATER BOARD MINUTES March 26, 1993 Page 12 Mr. Harder then proposed to phase out the outside city water rate differential. This idea was based on the cost of service work and from financial planning staff has been doing in evaluating capital needs five or ten years down the road. "This is essentially a symbolic gesture," he said, "but in our minds it could foster additional regional discussion and cooperation among the City, the districts and other potential regional partners to cooperate and perhaps eventually jointly own, or operate, and benefit from future large capital projects. It's also a concept that supports the urban growth area boundary concept. In phasing this out, staff would ask that Council hold outside city rates as constant as possible until inside city rates catch up. This is projected to be somewhere in the neighborhood of 6-7 years. "Perhaps we would have more opportunities for regional cooperation, and hopefully some of our potential regional partners would view us as a good neighbor." It is estimated that over a six -year phase out period, the fiscal impact would be approximately $.80 per average single family customer per month. The long term fiscal impact would be lower per unit capital costs which would result from spreading the cost of future projects, including wastewater treatment plant No. 3, to a larger customer base. "A third idea for a program, and this is something we would like your opinion on fairly quickly so we could move to implement this in 1994, would be to revise our commercial wastewater surcharge categories." Currently we have 35 different categories based on average BOD and TSS levels by industry group. There are problems administering such a program. We have a low participation rate with a limited means of tracking changes in business use, and also get into the business of making fine distinctions such as the difference between a sit-down restaurant and a fast-food restaurant. One thing that is going to help us with this program, and increase our participation rate, is an opportunity that we have started talking about with ICS (the City's Information and Communication Services group). We are currently developing a means to begin tracking Standard Industrial Classification (SIC) information through our Customer Information System (CIS). That information is now tracked through the City sales tax system. What we are looking for is a one time down -load of that information to CIS for our use. As part of this program, we are evaluating a program to replace the 35 surcharge rate codes with a two-tier structure keyed to SIC codes. We may have a "Low" surcharge category comprised of 20-30 some -odd SIC codes. We are looking at some 235 properties being affected. A second medium surcharge category is expected to include a half dozen SIC codes affecting about 100 properties in the City. We would also prepare a list of special SIC codes that pose a significant potential impact on the wastewater treatment system. Those cases should be handled on a case by case basis. This is particularly true since some of the industrial treatment technologies have advanced significantly over the past few years. It's likely that there would be significant variability among properties in that high strength category. WATER BOARD MINUTES March 26, 1993 Page 13 Revising the surcharge categories results in a positive fiscal impact. There is the potential for about a 10% increase in commercial revenues, somewhere in the range of about $100,000 a year, with a negligible impact on other customers' rates. There would be a significant administrative impact to get the program up and running, and it would take some customer interaction. "We would be contacting customers, and sending out mailings to effected properties to make sure that the SIC code information we have is consistent with their business use. There would be some on -going administrative support to verify changes in SIC code information. Another idea, which is a very innovative concept in the water utility industry, is the idea of a revenue stabilization fund. It's something that would alleviate the difficulty of budgeting and setting rates based on a worst case or 1-in-20 wet year scenario. This is a fairly new idea, and is being looked at by Philadelphia and New York as a means of maintaining their financial integrity, and performing to minimum debt service coverage criteria. We would use this concept primarily as a management tool to avoid problems of maintaining or attaining minimum target financial performance criteria, but also to operate our utility more from a average year basis instead of a worst case basis. This idea is very new in the industry and again, staff is interested in the Water Board's opinion. It will take more research to, develop such a concept and integrate it into our accounting and financial management system. We feel that the positive fiscal impacts include a stabilized net income, reduced need for an operating expense adjustment, minimized risk of below -target financial performance, and enhanced ability to provide economic incentives to conserve without additional financial risk. Mr. Harder concluded his presentation by taking a short look ahead at some of the things that may be affecting the Utility in the short and longer -term. In the short term, we have the Charter amendment coming up for a vote in a couple of weeks, and depending on what happens there, "we might be back to you with a whole new set of ideas and problems we need to work out if indeed Amendment 1 is a constraint we on doing business." Also in the short term, it might help to look at a rate stabilization fund; separate accounting for usage of plant investment fees; and enhancing our fixed asset accounting system, both to get a more accurate picture of our depreciation expense and to tie that in with an inventory maintenance and capital project systems. In the longer term, there are some things we would look at from a financial perspective. These include a revision of our 1986 bond covenants which are fairly restrictive in terms of issuing additional debt. Second is regionalization and some of the ideas we may have to start thinking about to build future capital projects. WATER BOARD MINUTES March 26, 1993 Page 14 President Grigg thanked Scott Harder for his comprehensive and interesting presentation. He was certain that there will be considerable discussion on each of the items at a future session when there will be more time to go into detail, as well as written material for the Board to refer to. Because there were still agenda items to cover and little time for them, he suggested that the Board return to this item at another meeting. Mr. Harder had suggested earlier that it would be helpful for staff to work with a Water Board committee in firming up or establishing policies on cost of service items. President Grigg asked for volunteers who would be interested in serving on this Ad Hoc committee. Ray Herrmann, Tim Dow, Mark Casey, and Neil Grigg, as the ex-officio member, were selected as members of the Cost of Service Committee. Dave Stewart's name was also mentioned as a possibility. Cross Connection Control Program According to the Agenda Summary, Municipal Ord. No. 165, 1986, prohibits cross connections, and requires users of City water to install, at their expense, back flow prevention devices. It also authorizes and directs the City Manager to establish a program to control and eliminate cross connection hazards. In 1991, funding was approved to establish a Cross Connection Control Administrator position, which was filled in December of that year. Since that time, staff has developed rules and regulations outlining the requirements of the program. Meetings were held with other effected City departments, and an external review team consisting of representatives of local businesses was formed to evaluate the program and its impact on the Utility's customers. The City Attorney's office reviewed the proposed rules and regulations and made modifications where appropriate to support the requirements of the City Code. The finalized version of the Cross Connection Control Rules and Regulations was available for the review of the Water Board Engineering Committee, and also distributed to the Water Board as a whole. The Utility is developing a public education campaign using printed information, public presentations to industries and possibly radio advertisements. The City Attorney's Office prepared two ordinances, the first of which modifies Section 26-189 of the Municipal Code requiring City Council to adopt these proposed rules and regulations instead of being promulgated by the City Manger as currently stated in the Code: The City Attorney thinks this change will enhance enforcement should the need arise. Following is the text of the revised ordinance: The City Manager is authorized and directed to conduct surveys as to the extent of cross - connection problems and establish a program to control and eliminate cross -connection hazards. The Council may, upon recommendation of the City Manager, adopt by WATER BOARD MINUTES March 26, 1993 Page 15 ordinance, such supplemental rules and regulations as may be necessary to implement and administer the cross -connection control program. It shall be unlawful for any person to violate any such rules and regulations enacted by the City Council pursuant to this section. The second ordinance, if recommended by the Water Board, formally adopts the Cross Connection Control Rules and Regulations. The Water Board Engineering Committee met on March 24th to review the proposed Rules and Regulations, and found the requirements to be reasonable in light of the state and federal regulations governing the quality of water supplied to their customers by public water supply systems. The Engineering Committee recommended that staff look into the following issues: 1. Ask the City Attorney about wholesale water and the requirement for protection at the tap. This would apply not only to the Utility's wholesale customers, but also our large customers that prefer containment vs. isolation techniques for protection. 2. Recommend that information be made available regarding the economic impacts of this program on the Utility's large users. The Engineering Committee stated that staff did a good job on the manual and they would support and recommend its adoption. After a short discussion, Tim Dow moved adoption of the first ordinance, concurring with the Engineering Committee's recommendation. MaryLou Smith seconded the motion. Tom Brown related his concerns about the second ordinance, the adoption of the rules and regulations. He had questions about the domestic use part of it, not commercial use, in which annual inspection for back flow values would be required. He contends that the need for that has not been articulated. Other Board members agreed that an annual inspection seemed somewhat unreasonable. The Board subsequently decided to postpone a decision on the ordinance governing the rules and regulations, until it is looked into further. Tim Dow agreed to amend his motion to say that a recommendation on the second ordinance would be delayed until staff can investigate further some of the Water Board's concerns. The Board voted unanimously to recommend adoption of the first ordinance and delay recommendation of the second ordinance. WATER BOARD MINUTES March 26, 1993 Page 16 Staff Reports Treated Water Production Summary Andy Pineda reported that "for the month of February, the City used approximately 1300 ac-ft of water. This was 88% of the projected average use," he said. Joint Meeting with Regional Water Boards Molly Nortier reminded Board members that the dinner meeting will be held on Thursday, April 8 at the Marriott Hotel. Social time will be from 6:30 - 7:00; dinner from 7:00 - 8:00, and the meeting from 8:00 - 9:30. She asked that those planning to attend let her know their choice of entree by Monday, April Sth. President Grigg encouraged Board members to attend. Update on Water Board Work Plan Board members received copies of the plan in their packets. Due to the limited time for discussion, Dr. Grigg asked that the Board review this at another time. Committee Reports There were no standing committee reports. Council/Water Board Water Quality Committee Meeting Tim Dow reported that at the last two meetings the Committee has been working diligently on a draft policy. They hope to complete the policy within the next two meetings. Regional Water S=ly Strategy Update No report Since there was no further business, the meeting was adjourned at 5:28 PM. Water Boart Secretary