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Home My WebLink About12 water metering financing Agenda Item # 12 s UCKEE DON ER Public Utility Di trict WORKSHOP To: Board of Directors From: Bob Mescher Date: June 18, 2008 Subject: Review of Water Metering Financing Options 1. WHY THIS MATTER IS BEFORE THE BOARD AB 2572 requires the District to begin reading residential water meters and billing on a volumetric basis. Implementation of residential meter reading will require a number of Board actions and will have a financial impact on the District. 2. HISTORY In 1991, the Water Measurement Law (SB 229) was enacted. This law required that water meters be installed on all new commercial and residential water connections as of January 1, 1992. SB 229 did not require the retrofit of meters onto previously existing customers. SB 229 does not require that the water meters be read and does not require billing of customers on a volumetric basis. The District has been installing water meters on all new connections since 1992 and is in compliance with this law. On September 29, 2004, AB 2572 was signed into law. A copy of this legislation is attached for your review. AB 2572 requires that the District begin reading the water meters installed since 1992 and commence billing on a volumetric basis by January 1, 2010. AB 2572 also requires that all connections be equipped with water meters and billed on a volumetric basis by January 1, 2025. 3. NEW INFORMATION As discussed at the April 16, meeting there are three phases covering the implementation of residential metering and volumetric billing: • Phase 1 is a pilot program. The District will install or upgrade approximately 500 meters to help the District to validate the Automated Meter Reading (AMR) technology and more accurately estimate the costs of the entire meter project. This phase should be completed by November 2008. Estimated cost of this phase is $266,000. • Phase 2 will achieve compliance with the 2010 deadline of AB 2572. The District will install or upgrade approximately 5,546 meters and begin volumetric billing by 2010. Estimated cost of this phase is $2.0 million. • Phase 3 will achieve compliance with the 2025 deadline of AB 2572. The District will install approximately 6,339 meters and bill all. customers volumetrically by 2025. Estimated cost of this phase is $7.7 million. There is no flexibility in the scheduling of Phase 1 and Phase 2 since the deadline to begin meter reading is January 1, 2010. Three options have been identified regarding the implementation of Phase 3. They are: • Delayed Start - Begin installing meters in 2020. Anticipated completion by 2023 • Gradual - Begin installing meters in 2010. Install approximately 500 meters per year for 12 years. Anticipated completion by 2021 • Expedited - Begin installing meters in 2010. Install approximately 2,000 meters per year for three years. Anticipated completion by 2012 Three potential funding sources have been identified for this work: • Reserve for Future Water Meters Fund. The value of this fund is $1,272,000. However, there is $888,000 of internal loans against this fund for a cash balance of about $384,000. • Outside loans to be repaid by rates. • Pay-as-you-go financing by rates. A number of alternatives were evaluated and are summarized below. These alternatives were based on the following assumptions: • Annual inflation rate of 3.5% of materials and labor. • Interest rates of 4.29% for 10 year loans and 5.46% for 15 year loans based upon May 2008 proposal from Municipal Services Group. • For loans, a fixed surcharge on customer bills would be implemented in 2009 continuing for the term of the loan repayment. • The entire value of the Reserve for Future Water Meters fund ($1,272,000) will be expended. It is assumed that the internal loans would be restored using money from the Land Sales Trust Fund. • Estimated construction cost is $8.7 million. Total project cost of $10 million is assumed to provide a project contingency . Delayed Start The Delayed Start alternative has an estimated cost of $4.87 per month per customer over a 16-year period. This assumes that the surcharge is implemented in 2009 and money is accumulated into a reserve fund until 2020, when it would be needed. As an alternative, a lower surcharge could be implemented initially that would have to be raised in 2020 and continue until 2035. Pros: Lowest monthly charge per customer Can be implemented without incurring additional external loans Cons: Two separate customer classes are created (metered & unmetered) and will remain in place until the remaining meters are installed in 2023. Dual rate structures must be maintained until 2023. Technology selection may lead to lower levels of customer service. Difficulty in measuring and promoting conservation for customers without meters. Gradual implementation The Gradual implementation alternative has an estimated cost of $5.39 per month per customer over a 14-year period. This is essentially a pay-as-you-go scenario. However, a one-year $206,000 internal loan would be needed from the Land Sales Trust Fund. This money would be withdrawal in 2009 and repaid in 2010. Pros: Can be implemented without incurring additional debt Cons: Two separate customer classes are created (metered & unmetered) and will remain in place until the remaining meters are installed in 2021. Dual rate structures must be maintained until 2021. Technology selection may lead to lower levels of customer service. Difficulty in measuring and promoting conservation for customers without meters. Board decision regarding where to start. Expedited Implementation The Expedited Implementation alternative has an estimated cost of $5.88 per month per customer over a 15-year period. This assumes that a fifteen-year$9.6 million loan is obtained that is the repaid by a surcharge implemented in 2009. When the loan is paid off, the surcharge would cease. Pros: Unmetered customers will be eliminated by 2013. Widest range of technology options which will provide higher levels of customer service. Provides tools to maximize conservation efforts. Cons: Highest cost Incurs additional external debt May require temporary staffing to manage installation Given below is the current project timeline: Selection of Implementation Plan - June 2008 Develop RFP/Bid Package for AMR System - June/July 2008 Bidding & purchase of AMR system - July/August 2008 Implement pilot program - Aug to Oct 2008 Bring AMR system on-line - Aug to Oct 2008 Installation of AMR system on remaining meters for AB 2572 compliance - Summer 2009 Develop alternative rate structures - Summer 2009 Finalize rate structure in conjunction with development of FY 2010 budget - Fall 2009 Begin sample billing based on meter reads - January 2010 Full implementation of metered billing for customers with meters - January 2011 Install meters on remaining customers - to be determined As given in this timeline, a direction is needed regarding selection of an implementation plan. An Action Plan will then be prepared for formal consideration at the July 2 Board Meeting. 4. FISCAL IMPACT The fiscal impact of fully implementing residential water metering is significant and may approach $10,000,000. The Water Department's FY 2008 budget includes $265,823 for the Phase 1 Pilot Program. The budget anticipated that this cost would be paid from the cash balance in the Reserve for Future Water Meters Fund. 5. RECOMMENDATION Review this report and provide direction to staff regarding the preparation of an Action Plan. G Mary Cha an, ministrative Services Michael D. Holley General Manager Manager RESOLUTION NO. 88 17 OF THE TRUCKEE DONNER PUBLIC UTILITY DISTRICT CLARIFYING DISTRICT POLICY REGARDING FUNDS COLLECTED FOR FUTURE WATER METERS WHEREAS, pursuant to Resolution No. 79-20, the District established a policy of collecting from applicants requesting water service to homes not previously served by the District a $40 fee to be applied toward the District's eventual system-wide expense of installing residential water meters; and WHEREAS, the fee has since been increased on at least one occasion, and is currently $135 per new residential application; and WHEREAS, at the time of preparing the audit report for the District's 1987 calendar year, the District auditors requested a clarification of the District's policy regarding this fee, to better enable them to finalize the District's audit; NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Truckee Donner Public Utility District as follows: 1. The District hereby determines that it shall require that water meters be installed on all residential services within the District, and that residential customers be charged based on water usage. 2. The District has not yet determined the date for the system-wide installation of water meters, but the District Board intends to set a date, taking into account state law, recommendations of staff, and all relevant facts and circumstances. 3. Funds collected in the past and in the future from applicants requesting water service to homes not previously served by the District shall be used by the District, at the time of system-wide installation of water meters, to defray the total cost of system-wide water metering, and shall not be applied toward the cost of installing a water meter at the residential service of the particular individual who paid the fee. 4. Because the fees will be applied to the system-wide expense of water metering, any such fees charged in the past or in the future shall be nonrefundable. PASSED AND ADOPTED at a regular meeting of the Board of Directors of the Truckee Donner Public Utility District duly RESOLUTION RE WATER METERS POLICY TDPUD\Watermet.res Page 1 called and held in said District on the 6th day of June, 1988, by the following roll call: AYES: Aguera, Maass, white and Corbett. NOES: Sutton. ABSENT: None. TRUCKEE DONNER PUBLIC UTILITY DISTRICT eSn--L. $Y: Corbett, President ATTEST: Susan Craig, Deputy Dist,,elct Clerk RESOLUTION RE WATER METERS POLICY TDPUD\Watermet.res Page 2