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HomeMy WebLinkAboutMemo - Mail Packet - 4/23/2024 - Memorandum From Jen Dial Re: April 9, 2024 Work Session Summary – “Water Supply Requirements And Pre-1984 Non-Residential Water Allotments”Utilities electric · stormwater · wastewater · water 222 Laporte Ave. PO Box 580 Fort Collins, CO 80522-0580 Page 1 of 3 MEMORANDUM Date: April 16, 2024 To: Mayor and City Councilmembers Through: Kelly DiMartino, City Manager Tyler Marr, Deputy City Manager Jason Graham, Director of Water Utilities From: Jen Dial, Water Resources Manager Subject: April 9, 2024 Work Session Summary - ‘Water Supply Requirements and Pre-1984 Non-Residential Water Allotments’ BOTTOM LINE The purpose of this memo is to document the summary of discussions during the April 9, 2024 Work Session on Water Supply Requirements (WSR), Excess Water Use surcharges (surcharges), and pre-1984 non-residential allotments. All Councilmembers were present. DISCUSSION SUMMARY Water Supply Requirements Staff provided background on the need for WSR fees to help ensure the ability to meet current and future demands. WSR fees have been in place since the mid-1960s but the fee methodology has evolved, with the most recent revision and fee increase happening in 2022. Staff presented four alternatives, each using a Hybrid methodology, to calculate a WSR:  Market-based, 30% contingency, 20% safety factor  Cost-based, 30% contingency, 20% safety factor  Market-based, 30% contingency, no safety factor  Cost-based, 30% contingency, no safety factor Staff discussed these options and included a proposed recommendation for the ‘Cost-based, 30% contingency, 20% safety factor’ methodology at an estimated fee of $71,800 per acre-foot. Staff noted that determination of the adjustment factor in the ‘Cost-based’ analysis for the buy-in component and a market value update for the incremental component are still underway. Staff will provide an updated analysis on the final fee and further recommendation to Council at the July 16 W ork Session. The discussion included numerous questions regarding the Halligan Water Supply Project.  Staff confirmed that both existing and future customers will need an expanded Halligan Reservoir. Staff also confirmed the project cost is reflected in the WSR fee and DocuSign Envelope ID: 58044971-8731-493A-B095-EC6BB493F799 Page 2 of 3 increases to existing customers rates. Council agreed the Halligan Project is important for existing customers for drought mitigation.  There were questions regarding the breakdown of Halligan Project costs between existing and future customers and how the water fund is managed. Staff clarified development fees will not cover all the costs of the Halligan Project and ratepayers will also contribute to costs, particularly in the near-term regarding issuing debt and the need to cover debt service payments. Rates are expected to increase but a higher WSR helps reduce the degree of future increases. The collection of development fees over the next 50 years will help lessen the impact on ratepayers.  Council will receive a Halligan Project update at the July 9 Work Session. There was also discussion regarding Utilities’ WSR amounts (in acre-feet) compared to neighboring water providers because Utilities requires a lower dedication for some developments (specifically multi-family) and higher for others (specifically restaurants). Overall, Council was supportive of staff’s recommendation for a ‘Hybrid, Cost-based, 30% contingency, and 20% safety factor methodology’ and suggested the engagement efforts could be scaled back given the modest increase of the fee. Assignment of Pre-1984 Non-Residential Allotments Staff provided a history of assigning allotments, emphasizing there are approximately 1,000 pre- 1984 non-residential accounts (one-third of non-residential customers) that do not have an allotment. Staff recommended assigning allotments to these customers for consistency, fairness, and more conservation opportunities. There were four methodologies presented for calculating an allotment with staff recommending a ‘Hybrid’ methodology. Discussion included questions on how many customers could benefit from conservation initiatives to avoid surcharges and the breakdown of types of business likely to be impacted. In general, Council supported staff’s recommendation to implement a Hybrid methodology. Staff will follow up with more detailed impacts of this approach and responses from engagement. Engagement Plan There was support for the engagement plan and the noted potential of scaling back should the WSR fee adjustment remain minimal. There was acknowledgement that engagement would be key for those non-residential accounts being assigned allotments by whichever method. NEXT STEPS Staff will work to provide the final WSR fee for the recommended methodology, consider revising the WSR engagement plan based on that fee, collect feedback from the likely-affected customers on the WSR fee and assignment of allotments, as well as further develop a proposed plan for implementation. These items, in addition to follow up on questions from this Work Session (listed below), will be presented at the July 16 Work Session. DocuSign Envelope ID: 58044971-8731-493A-B095-EC6BB493F799 Page 3 of 3 FOLLOW-UP ITEMS Staff will follow up with additional information on the following questions: Water Supply Requirements  Is a 20% safety factor for the WSR fee a standard among other regional water providers?  Are the contingency and safety factors redundant?  What percentage of the city does the Utilities water service area cover?  Was the full ‘buy-in’ methodology ever used previously?  Why are the different inputs of the water fund not tracked separately (e.g., put into one big pot)?  How much of the Halligan Project will be paid for by existing customers?  What is the breakdown of fees on a customer’s bill?  What WSR fee was used in the base rate setting?  Why are our dedication amounts so low for a multi-family development and so high for a restaurant compared to other water providers?  Are we disincentivizing residents to remodel/redevelop? Allotments  How many customers (of the 181 mentioned on slide 25) that would potentially be subject to surcharges under the Hybrid methodology benefit from conservation programs to avoid surcharges? What is the breakdown of types of businesses likely to be impacted?  How many restaurants go over their allotment currently? Are we “right-sizing” restaurant allotments?  Are City accounts with allotments staying within their allotment? How often are they going over their allotment? DocuSign Envelope ID: 58044971-8731-493A-B095-EC6BB493F799