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Home My WebLink AboutMemo - Read Before Packet - 4/9/2024 - Memorandum From Jen Dial Re Revision To Agenda Item Summary And Presentation Submitted For The April 9, 2024 City Council Work Session Agenda Item #2 Water Allotments Page 1 of 2 Utilities electric · stormwater · wastewater · water PO Box 580 Fort Collins, CO 80522 970.212.2900 V/TDD: Dial 711 for Relay Colorado utilities@fcgov.com fcgov.com/utilities MEMORANDUM Date: April 8, 2024 To: Mayor and City Councilmembers Through: Kelly DiMartino, City Manager Tyler Marr, Deputy City Manager Jason Graham, Executive Director of Water Utilities From: Jen Dial, Water Resources Manager Subject: Revision to Agenda Item Summary and presentation submitted for the April 9, 2024 City Council Work Session Agenda Item #2 Water Supply Requirements, Excess Water Use Charges, and Non-Residential Allotments BOTTOM LINE This memo is regarding a change, based on recent information, to data in a table and corresponding graph that was in the Agenda Item Summary and presentation that submitted for ‘Water Supply Requirements, Excess Water Use Charges, and Non- Residential Allotments. BACKGROUND In the table below, ‘Fort Collins Loveland’ Water Fee ($/acre-feet) of $85,700/acre-feet (column 3) should be $120,000/acre-feet and the Cost ($) of $1,310,200 (column 4) should be $1,228,200. The preceding paragraph that references this table should also state $1,228,200 instead of $1,310,200. DocuSign Envelope ID: 71FAF9E6-AEAB-41D9-96AB-FD4B16D69079 Page 2 of 2 The slides that have been revised for the presentation are attached. NEXT STEPS This revised information will be presented at the April 9 Council Work Session. DocuSign Envelope ID: 71FAF9E6-AEAB-41D9-96AB-FD4B16D69079 Headline Copy Goes Here Utilities Water Resources Manager Jen Dial Executive Director of Water Utilities Jason Graham 4-9-2024 Water Supply Requirements and Pre-1984 Non-Residential Water Allotments Heather Young Utilities Community Engagement Manager Headline Copy Goes HereCouncil Work Session Purpose 1.Build shared understanding of the history and purpose of Water Supply Requirement fees and pre-1984 non-residential water allotments. 2.Share staff’s analysis of potential methodologies for Water Supply Requirement fees and assigning pre-1984 non- residential water allotments. 3.Share staff’s planned customer engagement for 2024, including a timeline and identification of impacted parties. 4.Answer Council questions and confirm direction and timing.2 Headline Copy Goes HerePurpose – Water Supply Requirements and Water Allotments A form of Water Supply Requirements (WSR) and water allotments has been in place since the mid-1960s. The purpose is to: •Ensure secure water sources and protect the watershed •Provide a financial mechanism to ensure current and future assets are adequate to meet community water supply and service needs •Balance current needs and supply and future potential needs and acquisitions 3 Headline Copy Goes HereTimeline April 9 Work Session April/May Aug./Sept.2025Oct./Nov.June/July TBD Work Session ImplementationWater Commission and Other Boards Continue Engagement TBD First and Second Reading Regular Meetings May Council Finance Committee Initiate Engagement July 16 Work Session Planning & Zoning and Other Boards Wrap Up Engagement 4 Headline Copy Goes HereProgress Check-in August 2023 Work Session Summary •Provide clarification on the need for additional future water rights •Provide Council new options to consider •Develop a City-wide team to analyze and develop a solution that reflects economic and community values •Engage with Boards and Commissions and impacted parties to ensure the recommended path forward captures the community’s concerns, challenges and opportunities Current Project Plan •Interdepartmental team created •Develop options using various methodologies •Additional analysis including future water rights needs •Full outreach plan including feedback group 5 Headline Copy Goes HereWater Supply Requirements, Water Allotments, and Dedication Water Supply Requirement Fee paid by new development and some redevelopment to ensure adequate water dedication to serve. Residential and Non - Residential Customers Water Allotment A volume of water dedicated to a non -residential user. Two-thirds of non - residential accounts have assigned allotments. Based on WSR Excess Water Use Surcharge A charge assessed to non -residential accounts with allotments when they exceed their allotment. Based on Allotment 6 Headline Copy Goes HereWSR Methodology •All regional water service providers have a version of a WSR development fee •Total fee varies based on water rights portfolio, infrastructure and ability to support existing and future customers to meet community values •Water scarcity and demand drive the cost of acquiring new water and impacts the value of our water rights portfolio 7 Headline Copy Goes HereWater Fund Inputs Water Utility Rates Rates paid by existing customers make up approximately 95% of the water fund revenue. Development/Redevelopment Fees New development and redevelopment within the water service area make up approximately 5%. Development/Redevelopment The rate of development can be unpredictable and water costs can play a part in where development occurs. Future Storage Cost Future storage has been identified through the Halligan Water Supply Project. Costs estimates of this project have doubled. Water Rights Additional water rights necessary to meet 2065 projected demands. Additional Storage Storage is needed for existing and future use. 5% 95% 8 Headline Copy Goes HereQuestions for Council Water Supply Requirements 1.What questions do Councilmembers have on the potential methodologies and analysis of setting a WSR fee and associated surcharge? Non-Residential Allotments 2.What questions do Councilmembers have regarding assigning allotments to non -residential customers that do not currently have allotments? 3.What questions do Councilmembers have on the potential methodologies for calculating allotments for non - residential customers? Overall Plan and Timeline 4. What feedback do Councilmembers have on the overall plan and timeline for implementation? 9 Headline Copy Goes Here Jen Dial, Utilities Water Resources Manager WSR Pricing Methodologies Headline Copy Goes HereOverview of Methodologies Full Buy-In •Cost of the entire existing water supply system which is expected to serve all existing and future customers. •Future customers buy in to the entire current system (total value of system/total yield). Incremental •Cost to expand the water supply system to serve future customers. •Only reflects the cost of future water rights and infrastructure. Hybrid •Includes a “buy -in” component for the current water supply system and an “incremental” component for the future water system needs that have not yet been purchased or built. •Acknowledges future customers will use portions of the current and future water supply systems. 11 Headline Copy Goes HereWSR Historical Methodology ›Re-evaluating options within the hybrid methodology ›Different from August proposal ›Market vs. cost-based valuations ›Analysis of current risk factors (contingency/safety) 2002-2017 ›2018: $17,300/AF using hybrid method with market-based costing ›2020: $21,500/AF, updated costing ›2021: $22,145/AF, added 3% inflationary increase 2018-2021 ›$68,200/AF, same methodology with updated yields 2022-current ›$6,500/AF , based on Colorado Big - Thompson (CBT) prices 2025-future 12 Headline Copy Goes HereCurrent Methodology Overview HYBRID Buy-in Existing water rights and infrastructure Incremental Future water rights and infrastructure Total cost to increase reliability of water supply Note: Future water supplies do not provide adequate reliability without existing portfolio 13 Headline Copy Goes HereWater Supply Requirement Fee WSR = Existing Water + Future Water rights & Infrastructure Can determine past purchase prices and costs. Options on how to value: •Market price in today’s dollars •Cost of what was paid plus an adjustment factor Buy-In Existing Water Rights and Infrastructure Incremental Future Water Rights and Infrastructure Requires modeling and predicting costs of future water supply needs. Options on how to value: •Market-based •Contingency •Safety factor 14 Headline Copy Goes HereHybrid Method Pricing Options *Contingency: Captures uncertainties in future costs **Safety factor: Captures uncertainties in future demand and supplies (e.g., climate change, development types, etc.) Method Cost Considerations Market-based 30% contingency* 20% safety factor** $116,500/AF •Current approach with updated costs •Highest impact to developers Market-based 30% contingency $97,100/AF •Safety factor removed Cost-based, 30% contingency 20% safety factor $71,800/AF •Development costs reflect Utilities’ investment in water rights proactively (since late 1800s) Cost-based 30% contingency $59,900/AF •Safety factor removed •Lower than current fee •Highest impact to existing customers 15 Headline Copy Goes HereMulti-Family Total Water Supply Requirement (Indoor & Outdoor) 2024 Multi-Family 100 bedrooms, 64 dwelling units, 30,504 sq. ft. lot area, 5,535 sq. ft. irrigated area Provider Dedication Amount (acre-feet) Water Fee ($/acre-feet)Cost FC Utilities (CB,30%C,NoS)4.27 $59,900 $255,800 Westminster 6.88 $40,400 $278,300 FC Utilities (CB,30%C,20%S)4.27 $71,800 $306,600 Greeley 7.29 $51,500 $375,300 FC Utilities (MB,30%C,NoS)4.27 $97,100 $414,600 FC Utilities (MB,30%C,20%S)4.27 $116,500 $497,500 Loveland 10.62 $47,380 $503,200 East Larimer County 11.07 $60,600**$670,900 Ft. Collins Loveland 15.29 $120,000 $1,228,200 **For larger developments,East Larimer County Water District only allows 30% of its WSR to be met with cash and the remainder must be met with acceptable water rights, thus the cash equivalent listed here is based on the market value of acceptable water rights. *MCS=Market-based, 30% contingency, 20% safety factor; CCS=Cost-based, Contingency, 20% safety factor; MC=Market-based, contingency, no safety factor; CC=Cost-based contingency, no safety factor 16 Headline Copy Goes HereComparison to Other Providers 15.29 AF 11.07 AF 10.62 AF 4.27 AF 7.29 AF 4.27 AF 6.88 AF 4.27 AF *MCS=Market-based, 30% contingency, 20% safety factor; CCS=Cost-based, Contingency, 20% safety factor; MC=Market-based, contingency, no safety factor; CC=Cost-based contingency, no safety factor FC Utilities (CB,30%C,NoS) Westminster FC Utilities (CB,30%C,20%S) Greeley FC Utilities (MB,30%C,NoS) FC Utilities (MB,30%C,20%S) Loveland East Larimer County Ft. Collins Loveland Multi-Family (100 bedrooms, 64 dwelling units, 30,504 sq. ft.lot area, 5,535 sq. ft.irrigated area) 17 Headline Copy Goes HereComparison to Other Providers 1.25 AF 1.25 AF 1.25 AF 1.62 AF 1.72 AF 0.70 AF 0.79 AF 1.00 AF *MCS=Market-based, 30% contingency, 20% safety factor; CCS=Cost-based, Contingency, 20% safety factor; MC=Market-based, contingency, no safety factor; CC=Cost-based contingency, no safety factor Loveland East Larimer County Ft. Collins Loveland Westminster FC Utilities (CB,30%C,NoS) Greeley FC Utilities (CB,30%C,20%S) FC Utilities (MB,30%C,NoS) FC Utilities (MB,30%C,20%S) Typical Restaurant (2,800 sq. ft.) 18 Headline Copy Goes HereSummary: Hybrid Method Pricing Options Method Cost Considerations Market-based 30% contingency* 20% safety factor** $116,500/AF •Current approach with updated costs •Highest impact to developers Market-based 30% contingency $97,100/AF •Safety factor removed Cost-based, 30% contingency 20% safety factor $71,800/AF •Development costs reflect Utilities’ investment in water rights proactively (since late 1800s) Cost-based 30% contingency $59,900/AF •Safety factor removed •Lower than current fee •Highest impact to existing customers 19 Headline Copy Goes HereQuestions for Council - WSR 20 What questions do Councilmembers have on the potential methodologies and analysis of setting a WSR fee? 01 Headline Copy Goes Here Jen Dial, Utilities Water Resources Manager Methodology for Assigning Remaining Non-residential Water Allotments Headline Copy Goes HereWater Allotment Overview •Proposing to assign allotments to ~1,000 accounts that do not have one (1/3 of total) •Not proposing additional WSR costs •Allow time to adjust use to avoid surcharges 1965-1984 •Required volume based on tap size •Began to assign allotments to non- residential accounts 1984 •Allotments based on business type •Assigned allotments to new development and any redevelopment •Requirement was burdensome and revised to only apply to those with additional water service 2022 •Required volume of water based on acre of land served •No allotments were assigned 2024 22 Headline Copy Goes HereWhy Update Now? •Consistency •Same requirement for all customers •Fairness •Customers without allotments can use as much water as they desire without surcharges •Does not capture costs for water supply system use that is above what was paid for through a WSR fee •A higher WSR fee and surcharges increases the inequity between customers who are subject to surcharges and those who are not •Conservation •Programs and incentives for customers that would regularly go over their allotment 23 Headline Copy Goes HereAllotment Methodology Overview Method Description History Impacts Hybrid (Tap and Avg. Use) Selects the greater between average historical use and tap credit Have not assigned this way •Lowest impact •Could assign a higher allotment than needed making it difficult to identify inefficiencies Tap Credit Assigns a volume based on meter size Most current allotments assigned with this methodology •Could underestimate allotment resulting in potential unwarranted surcharges Average Historical Use Assigns a volume based on average historical water use per tap (e.g., 5 years) Have not assigned this way •Could assign a lower allotment compared to the volume received with a tap credit, undervaluing WSR •Could assign a higher allotment than customer needed making it difficult to identify water use inefficiencies Business Type Assigns based on business type and specific use (e.g., # rooms in hotel, square footage of restaurant, landscape details, etc.) Current methodology for setting allotments •Best reflects actual water use need •Limited data to fully evaluate impacts (44 customers assigned this way) •Time-intensive process 24 Headline Copy Goes HerePotential Impacts 25 Headline Copy Goes HereQuestions for Council – Assigning Non-Residential Allotments 26 What questions do Councilmembers have on the potential methodologies for calculating allotments for non-residential customers? 02 03 What questions do Councilmembers have regarding assigning allotments to non-residential customers that do not currently have one? Headline Copy Goes Here Heather Young, Utilities Community Engagement Manager Customer Engagement Headline Copy Goes HereWork Directly with Impacted Parties •Involve impacted parties in developing and refining alternatives for: •WSR •EWU surcharges •Allotment assignments •Goals: •Keep impacted parties informed of project timeline, how to be involved, and decisions made •Seek input on potential impacts to customers and community members Phase 1 (April – June) Broad engagement and feedback collection Phase 2 (July – Sept.) Refine proposal and incorporate feedback Phase 3 (Oct. – Dec.) Seek adoption 28 Headline Copy Goes HereImpacted Parties •Market-rate developers •Affordable housing developers •Water-intensive businesses (breweries, restaurants, etc.) •Homeowner’s Associations •Commercial real estate •Commercial water customers •With allotments •Without allotments •Irrigation only 29 Headline Copy Goes HerePlanned Communications and Engagement Opportunities •Council Work Sessions •Boards and Commissions •Email communication •Existing e-newsletters •Seek input from community groups at existing meetings •Community Engagement Group •Business meetings •Webinar for impacted allotment customers 30 Headline Copy Goes HereQuestions for Council – Project Plan and Timeline 31 04 What feedback do Councilmembers have on the overall plan and timeline for implementation? Headline Copy Goes Here Summary Headline Copy Goes HereQuestions for Council Water Supply Requirements 1.What questions do Councilmembers have on the potential methodologies and analysis of setting a WSR fee and associated surcharge? Non-Residential Allotments 2.What questions do Councilmembers have regarding assigning allotments to non -residential customers that do not currently have allotments? 3.What questions do Councilmembers have on the potential methodologies for calculating allotments for non - residential customers? Overall Plan and Timeline 4. What feedback do Councilmembers have on the overall plan and timeline for implementation? 33 Headline Copy Goes Here Questions? 34