Loading...
HomeMy WebLinkAbout2007-099 Council Resolution• its adoption: Council Member Carlson introduced the following resolution and moved • CITY OF LINO LAKES RESOLUTION NO. 07 -99 RESOLUTION AUTHORIZING A UTILITY RATE STUDY WHEREAS, the last utility rate study was done in 2001, and; WHEREAS, utility rates have remained the same since 2004, and; WHEREAS, the Minnesota Department of Natural Resources (MN /DNR) has been actively promoting the conservation of water resources, including providing incentives through the utility rate structure, and; WHEREAS, City's Comprehensive Water and Sewer Plans indicate the need for additional facilities and infrastructure improvements in the next several years, and for financing such improvements, and; WHEREAS, the City Council has determined a need to perform a utility rate study to develop a rate structure and revenue necessary to address these needs, and; WHEREAS, the City has received a quote from Springsted, Inc. to perform a comprehensive utility rate study for the water and sewer utilities. 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 preformed by Springsted, Inc. at a cost of $27,750, plus expenses. Such cost shall be split equally between the Water and Sewer Funds. Jeff O'Donnell, Acting Mayor Adopted by the Lino Lakes City Council this 25th day of June, 2007. The motion for the adoption of the foregoing resolution was duly seconded by Council MemberReinert and upon vote being taken thereon, the following voted in favor thereof: Carlson, Reinert, O'Donnell The following voted against same: None (Absent - Bergeson, Stoltz) Whereupon said resolution was declared duly passed and adopted. • • • AGENDA ITEM 2D STAFF ORIGINATOR Al Rolek MEETING DATE June 25, 2007 TOPIC Consider Resolution 07 -99 Authorizing a Utility Rate Study VOTE REQUIRED Simple Majority The city staff periodically reviews and suggests adjustments to the utility rates charged to customers for the water and sewer utilities. The last time rates were adjusted was in 2004. Utility rates are set based upon a number of factors. Among these are the cost of providing the service, or operations costs; the cost of extending the utility network, or 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. A key element to be considered in establishing water rates is conservation of the resource. The city is currently in the process of completing a Water Emergency and Conservation Plan. This plan, required by the MN DNR, establishes methods for the city to conserve its water usage to the greatest degree possible and, importantly, plans future infrastructure needs, including sizing of trunk water mains, new wells, storage capacity and water treatment facilities. In addition, the plan establishes guidelines for residential consumption of water. A recommendation will be included in the plan to structure water rates in tiers to encourage water conservation. TKDA is also in the process of completing a feasibility study for water treatment facilities in the city. The measures included in the conservation plan are important to the sizing of the treatment facilities and, therefore, influence the cost of construction. In September, 2006, the city requested and received a proposal from Springsted, Inc. to conduct a comprehensive utility rate study. The proposal has recently been refreshed. 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 recent conservation plan and water treatment feasibility study. Springsted then would evaluate the current data and consider future needs in developing a comprehensive report which would recommend and justify any future rate adjustments. It is necessary to undertake the study at this time to complement the conservation plan and to implement rate structure recommendations and any rate adjustments in 2008. Springsted would need 12 to 16 weeks to complete the study, and would then present their formal report to the City Council. The cost of the study is $27,750, plus expenses, which would be financed equally from the water and sewer funds. A copy of the proposal is attached for your review. Staff is recommending Council adopt Resolution 07 -99 authorizing Springsted, Inc. to complete a utility rate study. A -3 • 1. Adopt Resolution 07 -99. 2. Refer to Staff for further review. 3. Deny Resolution 07 -99. Option 1 • • Work Plan 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 determine the necessary level of user fees and charges 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. Water and Wastewater Fee Study Sprin s ed May 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 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 City of Lino Lakes, Minnesota Water and Wastewater Fee Study May 2007 Page 2 - 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 D 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 ten -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, capacity fees, 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) D 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 D 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 D. If we make a recommendation to increase rates or charges, Springsted will: • City of Lino Lakes, Minnesota Water and Wastewater Fee Study May 2007 Page 3 - 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 D Develop a ten -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 1I1 - Present and Review Draft Report D 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 D We will meet with City to review and discuss the Draft Report in a workshop session D 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 D Springsted will present the Final Report of Findings and Recommendations in a City Council regular or workshop session D We will provide fifteen bound copies of the final study plus one reproducible copy of the final report 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: • Financial Feasibility Study Required Information D Copy of your most recent and previous two years Comprehensive Annual Financial Reports • City of Lino Lakes, Minnesota Water and Wastewater Fee Study May 2007 Page 4 ➢ Copy of your current and previous two years budgets including revenues and expenditures for each utility ➢ A list of the anticipated capital expenditures for the current year indicating item to be purchased or the expenditure to be made, amount, and anticipated funding source for each utility ➢ A listing of all anticipated capital expenditures for the planning period 2008 through the 2018 (or lesser timer period if 2007 to 2017 is not available) indicating item to be purchased, amount, and anticipated funding source for each utility ➢ 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 ➢ Information about Utility sales in terms of volumes and fee revenue for each of your customer classes ➢ 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 Compensation We propose to complete this study as described in this proposal for the lump sum fee of $27,750 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 16 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 70 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: Completion of Task I I Completion of Task III Completion of Task IV 50% 40% 10% 50% 90% 100% • • • City of Lino Lakes, Minnesota Water and Wastewater Fee Study May 2007 Page 5 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. Principal & Senior Officer Officer & Project Manager Senior Associate Associate Support Staff $210 $180 $150 $135 $ 60