HomeMy WebLinkAbout10 Water Rate Study Agenda Item #
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Memorandum
To: Board of Directors
From: Peter Holzmeister
Date: August 27, 2004
Subject: Water rate study
WHY THIS MATTER IS BEFORE THE BOARD: This matter involves employing a consultant to
conduct a study of our water rates and recommend revisions thereto. This is the type of issue
that the board decides.
HISTORY: When the board adopted the budget for 2004 1 recommended a 5% water rate
increase. However, with regard to the commercial metered rate, I recommended that we
abandon the declining block rate in favor of a flat charge per thousand gallons of water used.
The approach I recommended was too simple. It resulted in a huge cost increase for customers
who use greater than the base allowance plus 96,000 gallons of water in a month.
We have not reviewed our metered water rate in many years. We have simply adopted percent
increases in the cost of the various blocks, without evaluating the base fee and the use
allowances. The board agreed to seek proposals from consultants who could help us evaluate
our water rates.
NEW INFORMATION: We received two proposals, one from RW Beck and one from Reiter
Lowry Consultants. We reviewed these proposals at a workshop and it was the consensus that I
list this as an agenda item.
Both consulting firms had the same basic approach. The board appeared to favor retaining
Reiter Lowry Consultants based on their price and capabilities. Attached is a copy of the Reiter
Lowry proposal.
RECOMMENDATION: I recommend that the board accept the Reiter Lowry Consultants
proposal dated July, 2004
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TRUCKEE DONNER
1 PUBLIC UTILITY DISTRICT
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1 Proposal for
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1 Water Rate Review and Update
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1 July 2004
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Reiter - Lowry - Consultants
July 15, 2004
Mr. Peter Holzmeister, General Manager
Truckee Donner Public Utility District
11570 Donner Pass Road
P. O. Box 309
Truckee, CA 96160
RE: Proposal to Conduct Water Rate Study.
Dear Peter:
Thank you for the opportunity to submit our proposal to review your current water rates and
develop new rates. You will note in our resumes and work experience that we offer a specific
experience in performing studies of this nature. As past General Managers and Directors of water
and sewer districts, we have had the experience of developing and just as important of
implementing revised and increased rates and charges. We have developed a keen sensitivity to
the potential impacts on the community and necessity of developing rate structures that fit your
specific community. The art and science of rate setting requires not only the technical skills but
also knowledge of what works in the real world.
Our experience as managers has provided many opportunities to learn that a technically perfect
rate calculation that does not address customer concerns can be of little value and can possibly be
of negative value to the District.
We look forward to the opportunity to be of service.
Respectfully,
Glenn
1
2535 Kenner Blvd,#2A5,San Diego,CA 92127
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TABLE OF CONTENTS
SECTION I - PURPOSE AND PROJECT APPROACH .........................................................3
PURPOSE.......................................................................................................................................... 3
PROJECTAPPROACH....................................................................................................................... 3
StudyObjectives.....................................................................................................................3
Methodology ...........................................................................................................................4
Scopeof Work..........................................................................................................................4
SECTION II - DESCRIPTION OF THE PROJECT TEAM......................................................9
SECTION III - KEY PERSONNEL R) SUMJ ......................................................................... 10
GLENNM.REITER, R.C.E............................................................................................................. 10
GREGGA. LOWRY,P.E................................................................................................................. 14
SECTION IV - REITER LOWRY CONSULTANTS QUALIFICATIONS.......................... 16
SECTIONV - REFERENCES ................................................................................................... 17
' SECTION VI - SCHEDULE AND BUDGET.......................................................................... 18
FEEAND RATE SCHEDULE........................................................................................................... 18
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SECTION I — PURPOSE AND PROJECT APPROACH
PURPOSE
1) To enhance the District's water revenue
2) Identify alternative rate structures which promote equity
' 3) Provide the necessary revenues to enhance operations and preventive
maintenance
4) Develop rates which encourage conservation
PROIECTAPPROACH
Study Objectives
The study will take advantage of as much existing material as possible. Where
new material is required, it will be developed in a manner that assists periodic
updates.
The District has recently acquired two water systems and is experiencing
unusual growth. In addition, the system is relatively complex and costly to
maintain and operate. Environmental regulations and severe weather conditions
increase cost and wear on the system.
The service conditions are further complicated by the nature of the customers;
almost 50% are part time residents, which results in extreme peaking conditions
' during times of high occupancy.
' The system itself is relatively complex with 44 pressure zones and 36 storage
tanks all of which contribute to increased operating costs.
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Methodology
The essential element of a rate study is proper identification of all the costs that
' are attributable to a particular service. This is not only a matter of good business
but necessary for compliance with numerous laws. The public is becoming
keenly aware of the cost of service and expects their water utility provider to
provide outstanding service at low cost.
It is recognized that 600 commercial services are metered and the remaining are
not. Consumption data from the 600-metered services will greatly facilitate the
development of a rate and revenue model. The non-metered services will be
modeled using extrapolated data.
1 Rate and revenue models are essential to demonstrate the financial impact on the
consumer as well as the District. This tool provides the District with the ability
to predict potential problems before a rate is implemented.
Scope of Work
Task 1 - Review of Capital Improvement Program (Oft and Priorities
This review includes an examination of the program costs as well as the timing.
The timing of a CIP is critical in cash management. Large amounts of capital in
' the early years may require borrowing rather than pay as you go. However,
systems with high maintenance and repair costs may benefit from an accelerated
replacement program, which can result in lower maintenance cost and improved
system reliability.
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' Task 2 - Allocation of the Capital Improvement Program to Existing and Future
Users
An essential element of the study is the Capital Improvement Program. It is our
' understanding that the District has a CIP with sufficient detail in order to
determine what portion of the program is a growth-induced cost versus
operational needs.
I is also understood that a life cycle report is available, thus, affording the ability
to include the identification of those capital items with a useful life of less than 20
years and those greater than 20 years. This allows the District the flexibility to
develop a policy as to how much of the capital program should be pay-as-you-go
or debt finance and paid-as-you-use.
Capital items with a useful life of less than 20 years are considered consumable
and should be recovered in the water rate.
Items with a life span of 20 or more years benefit future generations and may be
more appropriately debt financed. This allows a pay-as-you-use funding for
multi generation facilities.
Task 3 - Evaluate Commercial Water and Use-Develop Revenue Model
It is our understanding that the District's water billing system for commercial
accounts has historical consumption by service account for several years. This
consumption history would be included in a rate and revenue model. This
model would be designed to include a service charge and alternative water rates.
It is assumed that the District's current billing system has the ability to export
retail customer usage history, thus allowing accurate modeling on a customer
' basis.
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Task 4 - Allocation of Operating Budget between Fixed and Variable Cost
Components
The budget will be analyzed to determine those costs that are not directly related
to water use and those that are. A service charge matrix will be developed that
demonstrates the financial impact of recovering all or a portion of the fixed costs
for metered accounts. For non-metered accounts the matrix will be used to
demonstrate the impact of varies flat rates and energy charges by pressure zone.
e
Task 5 - Establish Service Charge for Metered Accounts and Non-Metered
Accounts
Based on the results of task 4 alternative services charges will be developed
along with the resulting revenues. Rates and charges are designed to recover the
cost of operation, maintenance, and replacement. The challenge is the
development of a rate structure that can be understood by the consumer as being
fair and equitable to all. The Service charge is designed to recover all or a
portion of the fixed charges as well as recognize the potential demand on the
system by service and type.
Task 6 - Allocate Energy Costs by Pumping Zone
Energy is a major cost of most water utilities. Where there are numerous
pumping zones and high elevations, energy may be the most expensive portion
of the cost of service. Today's consumer expects to pay only for what they
' believe is their fair share. Recognition of pumping zones in the rate structure is
common practice and enhances conservation.
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' The courts have recognized that ascending rate blocks that encourage
conservation do not violate the constitutional provisions restricting the charge
for the "reasonable cost" of providing the service. Funds raised by the
conservation rate block system are used to encourage conservation.
Task 7 - Identification of Additional Maintenance and Operating Costs by
Zone
Task 6 will identify the energy cost per zone. This task will identify the added
costs for maintenance and operation of the pumping stations. Water systems
with many pump stations and pressure reducing valves have higher
maintenance costs. Following the practice of "benefiting users' pay', the district
may wish to include in the zone costs the additional expense of maintaining
pump stations as well as the energy used by them.
Task 8 - Develop Alternative Commodity Rates for Metered and Non-Metered
' Service
Based on the results of the foregoing tasks alternative rates will be developed.
' For metered service, this will include alternative service charges as well as
commodity charges. The service charge can recover all or a portion of the fixed
costs. Recovering all of the fixed costs in the service charge will reduce the
commodity charge and could be counter productive to conservation efforts. The
alternative commodity/flat rates will take into consideration, energy, increased
' maintenance and operations as well as conservation. To encourage conservation
it may be possible to develop a correlation between land use and lot size and
charge accordingly.
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Task 9 - Develop Cash Flow Model
A critical element of the study is the eventual long-term financial impact on the
District. Will the revised rate schedule produce the necessary funds to operate,
maintain, and replace the system? If it is necessary to borrow, will it be sufficient
to service debt. The model will provide the District with a financial planning
ttool that can be readily updated to reflect actual conditions as the District grows.
Task 10- Prepare Rough Draft
A draft report will be prepared describing the results of the foregoing tasks. The
report will provide alternative rate structures for the District's consideration. In
addition, it will be prepared in a manner that lends itself to a presentation to the
' public as well as the District.
Qom�L`
Task 11 Presentation to Staff an Committee '
' The report will be presented in graphic and written form to the staff and
6ovr�
The presentation will be designed in a manner that would be
' suitable for public viewing if the District so desires.
Task 12 Revise Draft
' The draft report would be finalized based on District input.
' Task 13 Presentation to Board of Directors
The final report would be presented to the Board of Directors in graphic and
' written form that is suitable for public review and comment.
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SECTION II - DESCRIPTION OF THE PROJECT TEAM
' The team will be comprised of a project manager, Glenn Reiter, who will concentrate on
the water rate portion of the study. Gregg Lowry will be responsible for quality control.
Evette Ward will be responsible for data collection and analysis.
Glenn will be the primary contact for contract administration and Evette will be the
contact for data collection and scheduling.
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SECTION III - KEY PERSONNEL RESUME
1
GLENNM.REiTER,R.C.E.
' Partner
Reiter Lowry Consultants
Project Assignment Principal-in-Charge
Special Expertise Utility Financing and Analysis. Business Plan
development, Budgeting, Long-range Financial Plans,
Financial Advisor for the issuance of debt, Capital
Finance Planning, AB 1600 Compliance, Connection
Fee Calculations, Assessment Financing, Financial
Modeling, Public Presentations and Hearings.
Education BS Civil Engineering
North Western University Institute of Technology
' Licenses Registered Civil Engineer -State of California
' Class A &SC42 Engineering Contractor
Experience 23 Years Consultant (RLC)
' Prior Employment—22 Years
BACKGROUND
' As co-founder of the firm of Reiter-Lowry-Consultants, Mr. Reiter has continued to
provide financial consulting services to numerous public agencies. The projects involve
demographic analysis, including growth projections, land-use analysis, consumption
patterns, and expected land-use changes. Detailed research is the cornerstone of
integrating the capital improvement program and the construction phasing schedules in
order to develop an understanding of the cash needs of an agency. The effort is the
foundation for the determination of the revenue streams to fund the new growth
portions of the capital improvement programs.
Mr. Reiter has broad experience in assisting public agencies in developing long-range
finance plans and then assisting them in the issuance debt for capital construction. His
' experience in public utilities as a General Manager and Director on a Regional Water
Authority bring to his clients practical as well as technical expertise. He has personally
supervised and implemented rate increases, public works projects, including the
0 supervisions of construction as well as on going maintenance.
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' Mr. Reiter has had extensive experience in the development and implementation of
direct assessments. As General Manager and Chief Engineer of the Otay Municipal
Water District, he developed standby charge assessments based upon benefit
assessment criteria. The system recognized the varying degrees of benefit for specific
properties. Before Prop 218 became law, he also introduced and obtained passage of
legislation amending the standby charge authority for municipal water districts to take
into consideration Otay Municipal Water District's special situation. He subsequently
used this experience in developing programs for other special districts. He has over 35
years of experience in direct assessments.
Mr. Reiter has been responsible for assisting numerous agencies in obtaining multi-
millions of dollars in the financing of public works. His experience, as a past Manager
and Director as well as a consultant, adds insight into the financial workings of
e government. Thus, he is able to develop finance plans that have been favorably received
by the bond insurance and rating agencies providing cost effective and lower interest
rates with material savings in the issuance of debt for public finance.
As a past Manager and Director, Glenn is keenly aware of the public's response to
public finance and he has developed techniques in working with these agencies as well
as the public to develop cooperation and understanding of a public borrowing. He has
been very successful in working with citizens' committees in developing appropriate
revenue streams through the modification or increase in suitable rates and charges to
demonstrate the fiscal soundness of a public financing. This integration of operations
with capital improvement programs in finance provides an unusual service to the client
and one that has led to very successful financings of public works projects.
Mr. Reiter has over 40-years' experience in making presentations before public groups.
His major strength is in communicating the results of these plans, not only to the Board
of Directors, but also to the public. He takes great pride in the fact that he has been a
pioneer in the use of multimedia in public hearings and has developed extensive
graphics capabilities in order to explain projects.
Special Districts
➢ Co-founder and Executive Director of California Special Districts Association
' and Executive Secretary for five years
➢ Author of numerous papers
' ➢ Lecturer on Special District Management and Finance for Special Districts
Seminars
' ➢ Author of papers on Special District Finance and water rates
➢ Past Chairman, Special Districts Advisory Committee/LAFCO
' ➢ Co-Founder of Special District Management Institution
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............. ..... . . .. .. ... .,. ..... _ .
San Diego County Water Authority-Past Positions
➢ Member, Board of Directors
➢ Chairman, Long-Range Planning Committee
➢ Vice Chairman, Engineering and Operations Committee
' ➢ Member, Organization and Personnel Committee
➢ Chairman, Presidents and Members Council
➢ President, San Diego County Water Works Group
Helix Irrigation District
➢ Project/Design Engineer and Resident Construction of the Chet Harrit Dam and
Reservoir system
General Manager of Otay Water District
Significant project planning to keep abreast of rampant growth
' ➢ 4,500 accounts in 1968 to 15,500 in 1981
➢ Completion of six General Obligation Bond issues
' ➢ Completion of four Assessment Districts
➢ Completion of formation of six Improvement Districts
➢ Completion of six Annexations
➢ Total construction of$50 million worth of water and sewer facilities
Extensive California Legislative Activity Since 1969
➢ Author of numerous Senate and Assembly Bills
City of San Diego
➢ Utilities Systems and Planning Engineer- 3 years
Professional Affiliation and Registration
' ➢ Charter Member - National Assoc. of Independent Financial Advisors
➢ General Engineering Contractor's License
➢ American Public Works Association
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➢ Society of American Military Engineers
American Society of Civil Engineers
American Water Works Association
' ➢ Consulting Engineer Association of California
➢ Association of California Water Agencies
' ➢ Registered Civil Engineer, California
i Lieutenant Commander U.S. Navy Reserves, Retired
' ➢ Treasurer, Vice President and President-San Diego Railroad Museum
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.......... .... ............ . .
GREGG A.Lo WRY,P.E.
Partner
Reiter Lowry Consultants
' Project Assignment Technical Reviewer
Special Expertise Financial and Operational Planning, Water/Sewer
' Master Planning, Civil Engineering, Human
Resources Administration, Maintenance
' Management, Budgeting, Training, and Business
Education BS Civil/Environmental Engineering 1972
University of Wisconsin- Madison
Experience 18 Years Consultant (RLC) since 1986
All Prior Employment- 15 years
BACKGROUND
Mr. Lowry has demonstrated the capability of providing creative guidance and vision
in a wide range of subjects. Both technical acumen and administrative proficiency have
enabled him to complete successfully many projects involving strategic financial
planning, benefit assessment districts, standby charge programs, utility rate studies,
maintenance management, human resource administration, records management,
board policy development, operational management, operation procedural manuals,
material/equipment specifications, mapping, and facility history systems. He has an
established reputation as a capable engineer with savvy financial management
experience, and practical hands-on problem solving.
Mr. Lowry's public works management experience began while serving in the Civil
Engineer Corps, United States Navy. He completed assignments in Construction
Contracting and as Director of Public Works. Mr. Lowry completed 20 years of active
' duty and reserve assignments and officially retired in 1995.
Prior to entering his consulting business in 1987, Mr. Lowry served as the Assistant
General Manager of the Rancho California Water District, a complex water and sewer
agency, providing service to 100,000 acres in southern Riverside County. In this
capacity, he was responsible for the direction and guidance of a staff of over 70
personnel. In addition, he was responsible for the long-range planning of capital
improvements and replacements, as well as the annual operating budget of the District.
He developed a sophisticated planning, budgeting, and scheduling system which
' provided an improved management control of the operating, capital, and repair costs of
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the District. Mr. Lowry modernized many of the District's administrative functions,
including personnel management, the public relations program, records retention and
management, committee and Board support activities, etc.
In 1980, Mr. Lowry was appointed Assistant General Manager of the Fallbrook Public
' Utility District. During the following four years, he completed an integrated on-line
business computer system, introduced a long-range operating and engineering
administration maintenance plan, assisted in filing a loan application to the Bureau of
Reclamation for the expansion of the District's Red Mountain Dam, and introduced
scheduling techniques for capital and operating projects.
' As the Engineering Administrator for Otay Municipal Water District, Mr. Lowry was
responsible for planning, scheduling, and organizing the activities of the Engineering
Department, As Special Assistant to the General Manager, Mr. Lowry devised a
computerized project-planning tool which tracked not only the costs (actual to budget),
but gave management the ability to compare the hours used by the staff against the
estimated hours. Projection of total hours, costs, and date of completion were made
more accurate than the traditional approach taken by designers and engineers. The
result of developing this tool was the timely completion of the designs for capital
construction projects.
Positions Held in Public Works Management:
➢ Assistant General Manager of the Rancho California Water District
➢ Assistant General Manager of the Fallbrook Public Utility District Engineering
Administrator for Otay Municipal Water District
➢ Public Works Director for Fallbrook Annex Weapons Station
' ➢ Construction Manager, Beaufort Marine Corp Air Station
Professional Affiliation and Registration
National Assoc. of Independent Financial Advisors
➢ American Society of Civil Engineers
➢ American Public Works Association
➢ National Society of Professional Engineers
➢ Registered Professional Engineer in: California and Wisconsin
➢ Lieutenant Commander U.S. Navy Reserve, Retired
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SECTION IV - REITER LOWRY CONSULTANTS
QUALIFICATIONS
RLC principals have unique qualifications for this study. Glenn Reiter was the General
Manager and Chief Engineer for the Otay Municipal water District for 13 years and a
Director on the San Diego County water authority to 10 years. Since 1981, he has been
in private practice and has conducted numerous studies as noted in the experience
' section.
Once project that deserves particular note was the Arcade Water District now merged
into Sacramento Suburban. The District awarded RLC a contract in 1995 to conduct a
compressive rate study and finance plan followed by a capital replacement financing.
The District was formed in 1954 through aggregation of several small water companies.
The had one rate increase since 1954. However, they managed to accumulate
considerable savings. The new manager was likewise amazed and immediately
recognized that there was a problem. He no sooner took over and discovered that they
were in the leak business rather than the water business. He hired an engineering firm
' to prepare a capital replacement plan. The engineer reported that most of the system
had to be replaced.
OThis would require $80,000,000 + over the next 10-15 years. Their water rate was
' $4.00/Mo flat, no water meters. Once we completed our study, we found it was
necessary to raise immediately rates to $8/Mo with three years of 25% rate increase in
' order to qualify for a $40,000,000 initial loan.
Acting as financial advisor to the District, we were then able to obtain a credit rating,
' bond insurance and sell the bonds to begin work.
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SECTION V - REFERENCES
' City of Ontario- 1999 to present
Ken Jeske Director of Public Works Agency
Mohamed El Amamy Director of Utilities (909) 395-2681
' City of Norco - Ongoing
Joe Schenk Director (909) 270-5626
' City of Corona- 1997 to present
George Henson Director Electric Utility
Don Williams (909) 736-2232
City of Fontana- 2002 to present
Jeff McPherson, Business Services Mgr
Curtis Aaron, Public Services Director (909) 350-6631
Ken Mackey, Attorney (909) 686-1450
Leucadia Wastewater District- Currently underway
Michael Bardin, General Manager (760) 753-0155
' Murrieta County Water District- 2002 to present
' Wayne Spencer, General Manager (909) 677-7667
City of Hesperia - 2002 DIF
' Mike Podegracz, City Engineer
Monte Vista Water District- 1997 and 2002/03
Curtis Yakimow, Finance Director (909) 624-0035
Castaic Lake Water Agency - 1985 to present
Dan Masnada, General Manager (661) 297-1600
Mission Hills Community Service District- 1988 to present
John Lewis, Manager
PBS&J- Mr. Gary Eikermann (760) 753-1120
(Mr. Lowry has partnered with Mr. Eikermann on numerous projects since 1995)
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SECTION VI — SCHEDULE AND BUDGET
' FEE AND RATE SCHEDULE
$150 $75 $55
Task Principal Analyst Admin
Number Task Description Hours Hours Hours
1 Review CIP and Priorities 4
2 Allocate CIP to Existing and Future Users 5
3 Evaluate Commercial Water Use and Develop Use Model 7 3
Allocate Operating Budget Between Fixed and Variable
4 Components 6
Establish Service Charge for Metered and Non-Metered
5 Service 7
' 6 Allocate Energy Charge by Pumping Zone 6
7 Identify Additional M&O Costs by Zone 7
Develop Alternative Commodity Rates for Metered and
' 8 Non-Metered 8
9 Develop Cash Flow Model 6
10 Prepare Draft Report 8
' 11 Presentation to Staff and Committee 8 2
12 Revise Draft 5 1 15
' 13 Presentation to Board of Directors 8
Sub-Total Labor Hours 85 6 15
Labor Cost $12,750 $450 $825
Travel Expense $950
Printing Expense at cost
Misc.
Total $13,700 $450 $825
Grand Total $14,975
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Reiter-Lowry-Consultants Rates and Charges
Effective 6/01/03 through 6/30/04
Federal I.D. Number 33-0417018
Billing Category Hourly Rate
Principal 150
Associate 100
Administrative (Engineer) 100
Associate/Systems Design 95
Analyst 75
Programming 70
Research Assistant 60
Data Input 55
Word Processing 55
1 Mileage 0.35
Out of pocket expenses will be at cost.
' Reimbursable Expenses
' Administrative Service Charge a10.00 per hour (based on
Principals' billing hours)
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