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HomeMy WebLinkAbout2012-051 Council Resolution• CITY OF LINO LAKES RESOLUTION NO. 12 -51 AUTHORIZING UTILITY RATE STUDY WHEREAS, the City Council has determined a need to perform a utility rate study to evaluate the financial operations of the Water and Sewer Enterprise Funds; and WHEREAS, the last rate analysis was completed in 2008; and WHEREAS, in February, 2012, the City requested and received a proposal from Springsted, Inc. to conduct a comprehensive utility rate study. The study would include reviewing current and background utility data, including historical financial information, volumes, capital improvements, debt service requirements, policies and practices, growth trends and reviewing engineering studies, including the water conservation plan; and WHEREAS, the proposed study will provide recommendations for the water and sewer user rates, water and sewer trunk area charges, sanitary sewer unit charges, and watermain unit charges; and WHEREAS, in order for Springsted, Inc. to accurately complete the study, we recommend retaining WSB & Associates to prepare the following: o Water Demand /Sewer Flow Population Projections o Water /Sewer Capital Improvement Plan o Replacement, Operations, and Maintenance Plan • NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lino Lakes, Minnesota, that a Utility Rate Study is hereby authorized to be performed by Springsted, Inc. at a cost of $25,800, plus expenses and WSB & Associates is authorized to perform the above mentioned engineering services at a cost not -to- exceed $16,000. Such cost shall be split equally between the Water and Sewer Funds. Adopted by the Council of the City of Lino Lakes this 25th day of June, 2012. The motion for the adoption of the foregoing resolution was introduced by Council Member 0' Donnell and was duly seconded by Council Member Roeser and upon vote being taken thereon, the following voted in favor thereof: O'Donnell, Roeser, Rafferty, Stoesz, Re Allt none The following voted against same: ATTEST: e Bartell, City lerk Jeff R- = ''Mayor CITY COUNCIL AGENDA ITEM 5A • STAFF ORIGINATOR: Rick DeGardner, Public Services Director MEETING DATE: June 25, 2012 TOPIC: Consider Resolution 12 -51 Authorizing a Utility Rate Study VOTE REQUIRED: 3/5 • INTRODUCTION In February, 2012, the City requested and received a proposal from Springsted, Inc. to conduct a comprehensive utility rate study. The study would include reviewing current and background utility data, including historical financial information, volumes, capital improvements, debt service requirements, policies and practices, growth trends and reviewing engineering studies, including the water conservation plan. Springsted, Inc. then would evaluate the current data and consider future needs in developing a comprehensive report which would recommend and justify any future rate adjustments. The last rate analysis was completed in 2008. BACKGROUND Utility rates are set based upon a number of factors. Among these are the cost of providing the service (operations costs), the cost of extending the utility network (infrastructure costs), financing and servicing of debt, and the cost of replacing worn facilities and systems (referred to as depreciation or replacement costs). Other considerations in setting rates are regulatory guidelines, conservation measures and rate comparisons with other area communities. The proposed study will provide recommendations for the water and sewer user rates, water and sewer trunk area charges, sanitary sewer unit charges, and watermain unit charges. In order for Springsted, Inc. to accurately complete the study, we recommend retaining WSB & Associates to prepare /update the following: o Water Demand/Sewer Flow Population Projections o Water /Sewer Capital Improvement Plan o Replacement, Operations, and Maintenance Plan WSB & Associates proposes to perform the above mentioned engineering services for a not -to- exceed fee of $16,000 (We will be billed at the customary hourly rates). The cost for Springsted, Inc. to conduct the utility rate study is $25,800, plus expenses, which would be financed equally from the Water and Sewer funds. We anticipate Springsted, Inc. would present their formal report to the City Council this fall. RECOMMENDATION Staff is recommending Council adopt Resolution No. 12 -51 authorizing Springsted, Inc. to complete a utility rate study and WSB & Associates to provide supporting engineering services. ATTACHMENTS • Water and Wastewater Fee Study Update Proposal from Springsted, Inc., dated February, 2012. • Estimate of Professional Engineering Services from WSB & Associates, dated June 13, 2012 PIsiI NII�III! • Sp � �� n s ed ra • • Water and Wastewater Fee Study Update Work Plan February 2012 Objective(s) The purpose of this study is to assist the City of Lino Lakes in evaluating the financial operations of its Water and Wastewater Utilities to update the necessary level of user fees, area charges, and trunk fees that will provide adequate cash flow to pay for current plant expenditures, anticipated future operating and maintenance expenses, debt service including principal and interest, utility improvements asset replacement, and adequate cash reserves. Rate recommendations will reflect the each Utility's recent cost experience as well as anticipated future costs during the nominal period for which rates are projected. Springsted completed a rate analysis for the City in 2007. This analysis would update that study and make adjustments to rates and fees based on activity since 2007. Task 1 - Review Background Information ➢ Internal review of background information: — Review historical financial information, volumetric rates, basic facility charges, contractual charges and other fees and charges that provide sources of revenue for each utility — Review the current allocation of costs to functional cost components and to rates and charges for each utility — Review any current allocations of capital costs to connection and other charges and fees for each utility — Review current and historical billing data for each utility — Review current funding practices, funding sources and policies related to financing capital improvements for each utility — Review and update the City's existing capital improvement plan for each utility identifying the sources of funding for each improvement — Review any existing debt service coverage requirements for both senior and subordinate debt and the impact of adding additional debt to finance new capital improvements for each utility — Review ordinances, policies and practices related to user fees, connection fees and other charges for utility services City of Lino Lakes, Minnesota Water and Wastewater Fee Study Update • February 2012 Page 2 • • — Review the historical growth of the customer base and projections for anticipated growth for each utility — Review any engineering studies, cost of services studies and other relevant studies related to each utility — Review the planning period to be used in the study ➢ Analyze information and develop preliminary availability fees for each utility and cost of service analysis for each utility — Analyze the information to identify any omissions and/or inconsistencies and collect additional information, as needed — Develop projected customer growth and future service demands based upon the existing systems and anticipated growth — Project the cost of providing services for each utility Task 11 - Conduct Study ➢ Develop a financial projection of each Utility that integrates all anticipated revenue sources, including interest on the cash balance, anticipated operating expenditures including existing and projected new depreciation, anticipated capital expenditures, existing debt service, projected debt service for identified projects and changes in the customer base over the planning period: — Develop a five -year forecast of revenues and expenditures for each Utility to determine the adequacy of revenues provided by existing rates — Evaluate the impact of anticipated capital improvement financing options on rates, fees and charges — Develop recommendations for the financing of the anticipated capital improvements based on the above impact analysis — Identify the overall change in revenue required to provide for adequate funding for major capital improvement programs, to meet all recurring annual operating and capital expenditures, to cover all debt service requirements, to comply with any existing revenue bond covenants, and to maintain sufficient cash balances and capital reserves (as defined by the City) for each Utility The projections will be made using an income statement approach and will include a yearly cash flow analysis — Develop preliminary rate schedules for each Utility that provides revenue recovery at levels necessary to support the Utility's operation as defined above. Rates developed will include user fees, area charges, connection charges and other fees and charges that provide sources of revenue to the Utility — Perform a sensitivity analysis to illustrate the impacts of adverse assumption changes (e.g. future growth, operating costs) ➢ Evaluate each Utility's current service fees and charges to determine whether there are additional service fees and charges that are currently not assessed and that may be applicable to the Utility's provision of services and, conversely, whether there are fees and charges that can be reduced or eliminated City of Lino Lakes, Minnesota Water and Wastewater Fee Study Update • February 2012 Page 3 ➢ Project the fiscal impact of proposed changes to fees and charges on each Utility's current rates, fees and charges — Develop recommendations for any changes to fees and charges, together with the impact on current rates and charges — Make recommendations for changes in existing ordinances, resolutions and policies necessary to implement any new fees and charges recommended ➢ If we make a recommendation to increase rates or charges, Springsted will: — Evaluate and compare the proposed fee structure with the Utility's current fee structure and with the fee structure of at least three other similarly -sized local government utility operations in the area — Prepare sample bills for a minimum of 6 customers from representative customer classes, comparing existing rates and charges to proposed rates and charges — Review and make recommendations for changes needed in existing ordinances, resolutions and policies ➢ Develop a five -year financial projection of capital expenditure needs related to growth that integrates all anticipated revenue sources, anticipated capital expenditures, and existing and projected debt service over the planning period: — Develop preliminary availability fee that provides revenue recovery at levels necessary to support the capital needs — Perform a sensitivity analysis to illustrate the impacts of adverse assumption changes (e.g. future growth) Task III - Present and Review Draft Report ➢ Springsted will prepare a Draft Report of Findings that will contain our findings and recommendations. This review document will form the core of our final report. We will submit fifteen bound copies plus one reproducible copy to the City for their review and comment > We will meet with City to review and discuss the Draft Report in a workshop session ➢ Based on our discussion and review of the Draft Report, Springsted will make modifications or changes, incorporating the City's comments into the final report, as appropriate. Task IV - Present and Review Final Report ➢ Springsted will present the Final Report of Findings and Recommendations in a City Council regular or workshop session > We will provide fifteen bound copies of the final study plus one reproducible copy of the final report • City of Lino Lakes, Minnesota Water and Wastewater Fee Study Update 411 February 2012 Page 4 Expectations In order to conduct this study, the City will need to designate a staff member to serve as a project manager. This person will be responsible for assisting Springsted with gathering accurate and timely data needed to complete the project and to assist in arranging for required meetings. At a minimum the following information will be needed to complete the study: • • Utility Rate Study Update Required Information ➢ Copy of your most recent and previous two years Comprehensive Annual Financial Reports (already have) ➢ 2008 -2011 actuals (by line item) ➢ 2011 and 2012 budget including revenues and expenditures for each utility (by line item) ➢ 2012 beginning cash balance in each fund ➢ A listing of all anticipated capital expenditures for the planning period 2012 through the 2022 (or lesser timer period if 2012 to 2022 is not available) indicating item to be purchased, amount, and anticipated funding source for each utility ➢ Information related to the current customer base for the utility by customer class including number of customers, sales volume by type of service /charge /revenue source, and total revenue ➢ Copy of your current depreciation schedule and depreciable life use for various assets ➢ Copies of any current policies related to capital expenditures and/or funding for them including special assessments ➢ Copies of any current policies related to fund balances and /or cash balances ➢ Copies of existing debt schedules for any outstanding debt, i.e. bonds, equipment certificates, lease- purchase agreements where Springsted was not the Financial Advisor ➢ Information related to the anticipated growth in both residential and commercial /industrial utility sales during the planning period ➢ Current schedule of user fees and charges ➢ Copies of any engineering studies, cost of services studies and other relevant studies related to each Utility and this study City of Lino Lakes, Minnesota Water and Wastewater Fee Study Update • February 2012 Page 5 Compensation We propose to complete this study as described in this proposal for the lump sum fee of $25,800 exclusive of any out -of- pocket expenses such as travel and copying. This amount would include up to three on -site meetings. We will complete the study within 10 -12 weeks of receiving the notice to proceed provided that all necessary information is made available to Springsted in a timely manner and that City staff is available for required meetings. This draft schedule does not anticipate any unforeseen delays or other circumstances that would result in a later completion date. Should any unforeseen delays or circumstances arise, Springsted can draw on its staff of 60 professionals to keep the project on schedule to the greatest extent possible. Springsted would invoice the City for work completed based on the following schedule: Npfrel Completion of Task II Completion of Task III Completion of Task IV 10% 100% Should the City request and authorize additional work outside the scope of services described in this proposal or additional revisions beyond those agreed upon at the discussion and review of the draft report and preliminary model, we would invoice the City at our standard hourly fees. Title Rate Principal & Senior Officer Officer & Project Manager Senior Associate Associate Support Staff $220 $190 $155 $145 $ 65 • • A, WSB & Associates, Inc. June 13, 2012 Infrastructure • Engineering • Planning • Construction Rick DeGardner 600 Town Center Parkway City of Lino Lakes Lino Lakes, MN 55014 Re: Estimate of Professional Engineering Services Water and Wastewater Fee Study Update City of Lino Lakes, Minnesota Dear Mr. DeGardner: 701 Xenia Avenue South Suite 300 Minneapolis, MN 55416 Tel: 763 -541 -4800 Fax: 763 - 541 -1700 On behalf of WSB & Associates, Inc. (WSB), we are pleased to submit this proposal to the City of Lino Lakes to provide professional engineering services as they relate to the a Rate Study for the City's water and sewer trunk area charges, sanitary sewer unit charge, watermain unit charge, and user rates. It is our understanding that the study will be conducted by Springsted Inc. and that WSB will be providing information to them for use in the rate study. A delineation of tasks to be performed by WSB & Associates, Inc. and by the City follows directly. Assumptions related to these same items are also delineated in a subsequent section. WSB Tasks WSB will be responsible for the following tasks: Task 1— Water /Sewer Rate Philosophy Task 1.1: Determine the Water and Sewer Rate Philosophy This task will include the review of the existing philosophy and incorporate any changes required following discussions with the City. Task 2 — Water Demand/ Sewer Flow and Population Projections Task 2.1: Determine Developable Areas and Associated Water Demand and SewerFlow Per Type of Area From the land use map and the population projections a water demand and sewer flow associated with each land use type will be determined. Average day demands, peaking factors, and water losses will be estimated. Population projections are necessary for water and sewer trunk area charges, sanitary sewer unit charge, and watermain unit charge projections. QlUserslrick.degard erlAppDatalLocallMicrosoJllWindowslTemporary Internet Files1Content .Outlook■LIXIVIRSQILTR PROP- 061311 -rate smdy.doc • June 13, 2012 Page 2 Task 2.2: Estimate Consumption /Sewage Generation Trends Estimate consumption/generation trends for residential and commercial /industrial uses and other uses. Task 2.3: Estimate Future Water Demands /Sewage Flows Based on City provided land use and population projections, determine future water demands /sewer flows per year. Future demands /flows are necessary for user rate projections. Task 3 — Water /Sewer Capital Improvement Plan, Funding Options Task 3.1: Prepare Capital Improvement Plans Prepare an annual CIP and 10 -year CIP for the water and sewer systems based on present day values. The CIP will document needed improvements and the timeframe in which they should be completed, along with associated costs. Task 3.2: Recommend Funding Alternatives Using the list of recommended capital improvements and the revised philosophy in Task 1, make general recommendations regarding funding the improvements through various fees (e.g. utility user, trunk, and water /sewer access fees). Task 3.3: Prepare CIP Prepare a draft and final memo summarizing recommended capital improvement plans and funding options Task 4 — Replacement, Operations, and Maintenance Plan Task 4.1: Prepare Estimated Infrastructure Replacement Schedule Prepare an estimated annual replacement budget based on the age and condition of the existing infrastructure. Task 4.2: Prepare Estimated Operations and Maintenance Prepare an estimated annual replacement budget based on the age and condition of the existing infrastructure. For this task, we will need assistance from the City staff to project the annual expenses based on historical expenses. Task 4.3: Recommend Funding Alternatives Using the list of recommended replacements, operations, and maintenance costs and the revised philosophy in Task 1, make general recommendations regarding funding the replacements through various fees (e.g. utility user, trunk, and access fees). City of Lino Lakes Tasks In order to complete our tasks, we will need the City to provide the following: • Provide a designated project contact person. • Provide answers to specific project questions, provide requested information, and make decisions regarding project direction during the course of the project. C: I Usersbl ckdegardn erlAppDotalLocal∎Micros fiIWindowslTempormy Internet F les \Contem.OutlookNMXIVIRSQILTR PROP - 0613/2 -rare study.doc • June 13, 2012 Page 3 Fee We propose to perform the tasks as defined above for a not -to- exceed fee of $16,000. We will bill at our customary hourly rates. Agreement If you are in agreement with the scope of services, please have the City block of this letter signed and return a copy to WSB. Our receipt of an executed copy will be WSB's authorization to proceed. Monthly project invoices for services and reimbursables are due within 30 days after receipt of WSB's invoice. Should the City request additional services outside of the above scope of services, we will work with you to establish a revised scope and fees. Thank you for the opportunity to be of service to you. If you have any questions or comments, please call us at (763) 541 -4800. Sincerely, WSB & Associates, Inc. Nancy Zeigler, PE Senior Project Manager ACCEPTED: City of Lino Lakes By: Title: Date: 61 Userslrick. degardnerlAppOatalLoca lLNicrosoftlWindowslTemporary Internet Fi les1ContentOutlookWIXIVIRSQ'yTR PROP- 061312 -rate study.doc