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HomeMy WebLinkAbout15 Water Standby Study Agenda Item # IS.- ­"" TRUCKEE DONNER Public Utility District -1. WORKSHOP To: Board of Directors From: Neil Kaufman Date: January 26, 2010 Subject: Discussion of the Results of the Water Standby Study Performed by HDR 1. WHY THIS MATTER IS BEFORE THE BOARD The Board requested that a study be performed to evaluate water system standby charges. 2. HISTORY In April 2009, the Board awarded a contract to HDR to perform a Water Rate Study. Throughout 2009, Shawn Koorn from HDR conducted a number of presentations and workshops regarding the development of the new water rates. One issue that arose during 2009 involved the standby charge currently levied by the Water Department. The current water system standby charge was imposed in 1991 and has not been updated since that time. In addition, the current water system standby charge cannot be imposed in the Donner Lake and Glenshire areas. The Board subsequently amended the HDR contract to include a study to update the water system standby charges on June 3, 2009. 3. NEW INFORMATION HDR has completed its update to the water system standby charges. Attached is a Technical Memorandum describing the results of the HDR work. At the January 20, 2010 meeting, Shawn Koorn from HDR will present a summary of the study and will be available to answer questions from the Board and the public. Should the Board choose to proceed with an updated water system standby charge, staff will begin to initiate the process in accordance with the requirements of the Uniform Standby Procedures Act and Proposition 218. 4. FISCAL IMPACT There is no direct fiscal impact associated with this workshop item. The 2010 budget anticipates $171,280 in revenue from the existing water system standby charge. 5. RECOMMENDATION Receive this report and provide comment. Michael D. Holley General Manager Technical Memorandum To: Neil Kaufman, Truckee Donner PUD From: Shawn Koorn, HDR Engineering, Inc. Date: 12/17/09 Subject: Water System Standby Charge Calculation Introduction HDR Engineering, Inc. (HDR) has been retained to assist the Truckee Donner Public Utility District(District)with an update to the current water standby charge. The purpose of this memo is to document the calculation of a revised water standby charge. The purpose of the standby charge is to bring equity between existing customers(occupied parcels) and other property owners (vacant parcels) who benefit from and have facilities available to them but have not yet connected to the existing system. By establishing a cost-based standby charge, the District is attempting to shelter existing utility customers from the financial impacts of vacant parcels that have facilities available to them but have not yet connected. The following technical memo will define and discuss the methodologies of developing a standby charge. Defining Water Standby Charges An important starting point in establishing standby or availability charges is to have a basic understanding of the purpose of these charges,along with the criteria and general methodology that are used to establish cost-based standby or availability charges. The American Water Works Association(AWWA)M1 manual defines an availability charge as: "a limited-use charge made by a water utility to a property owner between the time when water service is made available to the property and the time when the property connects to the utility's facilities and starts using the service. "1 The standby or availability charge is intended to provide funds for the construction and maintenance of the facilities that have been made available to the property for their direct benefit but have not been accessed by the property yet. American Water Works Association M-1Manual,page 321. HDR Engineering,Inc. Page 1 of 6 Legal Requirements under California State Law In establishing a standby charge, an important requirement is that they be developed and implemented in conformance with any legal requirements. In particular, many states have established specific laws regarding the establishment, calculation, and implementation of a standby charge. The main objective of most state laws is to assure that these charges are established in such a manner that they are equitable and cost-based. In other cases, state legislation may have been needed to provide the legislative powers to the utility to establish the charges. The laws governing the enactment of standby charge in California are found in the `Uniform Standby Charge Procedures Act', which is codified as California Government Code 54984- 54984.9. The Uniform Standby Charge Procedures Act is comprehensive legislation dealing with the various requirements for imposition of standby charges in California. The statutes deal with the requirements for the calculation of the charges, hearing, and appeal processes. The California Government Code, Section 54984, Uniform Standby Charge Procedures Act, documents the procedures to be followed for a local agency to utilize a standby charge assessment. California Code 54984.2,provides the legislative powers for a utility to establish the charges as follows: "Any local agency which is authorized by law to provide water, sewer, or water and sewer service, and which is providing either or both of those services within its jurisdiction, may fix, before either (a)August 10 of any given year with respect to local agencies the taxes or assessments of which are collected for the local agency by the county or (b) the start of the fiscal year with respect to local agencies the taxes or assessments of which are collected by the local agency, a water or sewer standby charge, or both, on land within the jurisdiction of the local agency to which water, sewer, or water and sewer services are made available for any purpose by the agency,whether the water or sewer services are actually used or not. The governing body of the agency which fixes the charge may establish schedules varying the charge according to land uses, benefit derived or to be derived from the use or availability of facilities to provide water, sewer, or water and sewer service, or the degree of availability or quantity of the use of the water, sewer, or water and sewer services to the affected lands, and may restrict the assessment to one or more improvement districts or zones of benefit established within the jurisdiction of the agency. The charge may be imposed on an area,frontage, or parcel basis, or a combination thereof." The California Government Code, Section 54984.3, Uniform Standby Charge Procedures Act, documents the items to be in the standby charge resolution to be adopted by the governing body. From California Government Code 54984.3 the resolution shall contain the following: (a) A statement that the report of a qualified engineer is on file with the agency and that a standby charge is proposed based upon the report. The report shall include all of the following: (1) A description of the charge and the method by which it will imposed. HDR Engineering,Inc. Page 2 of 6 (2) A compilation of the amount of the charge proposed for each parcel subject to the charge. (3) A statement of the methodology and rationale followed in determining the degree of benefit conferred by the service for which the charge is made. (4) The other factors listed in Section 54984.2 (b) A description of the lands upon which the charge is to impose. Assessor parcel numbers shall constitute sufficient description fro this purpose. (c) The amount of the charge for each of the lands so described. (d) The date, time, and place upon which the governing body will hold a public protest hearing regarding the imposition of the charge, and notice that the governing body will hear and consider all objections or protests, if any, to the proposed charges. In addition the Uniform Standby Charge Procedures Act specifies other procedures as follows: ■ Requires the local agency to give notice of the date, time and place of hearing(54984.4), ■ Requires governing body to conduct a hearing (54984.5), ■ Any landowner making protest must submit in writing to local agency(54984.6), ■ Governing body may continue charge in successive years (54984.7), ■ Governing body may collect charge(54984.8), ■ Local agency may collect interest and penalties on delinquent charges(54984.9) In 1996, the voters of California approved Proposition 218, which required that the imposition of certain charges and assessments by municipal governments requires a vote of the people to change or increase the fee of assessment. Proposition 218 requires the District to mail notice to the record owner of each identified parcel at least 45 days before holding a public hearing. (Cal. Const. Art. XIIID, S 4 (c)). It is important to note that Article XIIID, section 2 (g) defines"property ownership"to include"tenancies of real property"when the tenant is "directly liable"to pay a standby charge. The notice must contain: (a) The total amount charged by the District; (b) The standby charge chargeable on the particular identified period; (c) The duration of the proposed standby charge; (d) The reason for the standby charge; (e) The basis on which the amount of the proposed standby charge was calculated; (f) The date,time and place of the public hearing on the standby charge; (g) A summary of the voting procedures and the effect of a majority protest, including the procedures for the completion,return and tabulation of the ballots and a statement of the standby charge will not be imposed if the ballots submitted in opposition to the standby charge exceed the ballots submitted in favor of the assessment(with ballots weighted according to the proportional financial obligation of the affected property); and (h) A ballot that includes the District's address for receipt of the ballot and a space for the property owner to indicate his or her name, a description of the property, and his or her support or opposition to the proposed increase. (Cal. Const. Art XIIID, S 4(c)-(d)) The discussion within this technical memorandum as it relates to establishing a standby charge and the requirement of Proposition 218 is intended to be a summary of our understanding of the HDR Engineering,Inc. Page 3 of 6 relevant California State Law. This discussion should not be construed as a legal opinon or a complete discussion of California State Law. Prior to adoption of any new fee, HDR recommends that the District have its legal counsel review the standby charge as set forth in this memorandum to ensure compliance with California law. Water Standby Charge Methodologies The standby charge is intended to recover costs from property owners in which service has been extended to the property but property owners have not yet connected to the water system. There are several historical methodologies used to calculate the standby/availability charge. The simplest calculation methodology can be applied when long-term debt has financed the utility's purchase or major capital upgrades to the system. In this case the charge is determined by taking the annual outstanding debt service and dividing by the number of parcels, front footage, etc.,to determine the applicable charge. The District does not have a significant level of debt associated with a purchase of the system, or significant capital upgrades to provide service. Therefore this method is not applicable. However, in addition to capital, or debt costs, a utility may also include the operating and maintenance costs that are applicable to providing water service. Utilizing this method, the total of invested capital less contributions, applicable operation and maintenance costs, debt service, customer billing, and administrative costs can be included to determine the total cost. The difficult aspect of this method is to determine the operating costs that are specifically allocable to providing water service. In some cases the functionalization of costs to specific accounting codes makes this a simple process. However,it can still be difficult to determine the applicable costs in the development of the charge. Another method that can be used to determine the standby charge is to apply a cost of capital approach. Under this method the utility must first identify the depreciation for the related invested capital, developer contributions, and a cost of capital for those assets available to unconnected customers. The cost of capital is multiplied by the total invested capital less depreciation and any contributions to determine the per unit charge. Then this fee is applied to the billing unit,which can be on area, frontage, or parcel basis. Present Water Standby or Availability Charge The District's current water standby charge is imposed on all vacant parcels within its water service area for which water is deemed available, except those parcels of vacant land permanently dedicated exclusively to transportation of persons or property. The other areas that are currently not being charged the standby charge are the areas of Donner Lake and Glenshire. However, in discussion with District staff the proposed standby charge may be applied to both areas. The current charge was calculated in 1991 by Sauers Engineering, Inc. The charge is based on an allocation of the District's 1991 water department operations and maintenance expenses. In 1991 the analysis resulted in$347,404 of operating and maintenance expenses being applicable to the calculation of the standby charge. This represented approximately 16% of the total water budget. The amount of$347,404 divided by total inactive customers of 4,201 results in a per parcel charge of$82.70. The District rounded off the charge to $80.00 per parcel of land HDR Engineering,Inc. Page 4 of 6 regardless of the size of the lot, its use, or its location within the District. This charge has not been updated since 1991. Calculation of the Water Standby or Availability Charge HDR's calculation of the District's water standby charge is based upon the"cost of capital" method described above. The total invested capital(less any contributions) is multiplied by the cost of capital for a total annual cost of capital. District specific financing and planning information were used to determine the charge as detailed below. The first step in establishing the water availability charge was the determination of the total number of parcels. The current number of vacant parcel equivalent units is 2,284. This was provided by the District. The total occupied parcel units of 10,744 were provided by the District. Total parcels (vacant and occupied) for the District is 13,028. Table I Total Number of Parcels 00• Description Parcels Vacant Parcels (1) 2,284 Occupied Parcels 10,744 Total Parcels(1) 13,028 (1)Based on District Provided Data. Once the number of parcels was determined the related capital expenditures or invested capital for those services was identified. Total plant from year ended 2009 plant records less water services,water meters,backflow devices, fire hydrants and work in progress plant amounted to a net invested capital of$76.3 million. Contributed capital was then deducted from net invested plant. Total contributed capital amounts to $19.8 million based on the GASB 34 journal entry to book contributed capital. This equates to approximately 35% of the total plant is contributed. This resulted in plant related to vacant parcels of$56.5 million($76.3-$19.8=$56.5). The total invested capital multiplied by an assumed cost of capital was then determined. The assumed cost of capital was estimated at a rate of 3.5%, or roughly the cost of borrowing or possible earnings/investment rate for a public entity. This calculation results in a standby or availability charge of$151.92 per parcel. Table 2 details the calculation below. HDR Engineering,Inc. Page 5 of 6 Table 2 Summary of Wat- . . Based on Cost of Capital Description Total Total Invested Capital(net of contributions) $5655475282 Cost of Capital(1) 3.5% Total Annual Cost of Capital $11979,155 Total Number of Parcels(2) 131028 Proposed Charge Per Parcel(Debt Service/Parcels) $151.92/Parcel Unit (1)Estimated cost of capital at a rate of 3.5% (2)Total number of parcels from Table 1 above. The District is anticipating the addition of parcels from the Glenshire and Donner Lake areas. The number of parcels to be added from these areas is estimated to be approximately an additional 577 parcels. This would bring the total number of parcels for the District to 13,605 (13,028 + 577= 13,605). The annual rate with 13,605 parcels would be$145.47/Parcel Unit. Conclusions The above analysis indicates that the District may charge up to $151.92/parcel unit. Once the revised fee is adopted, it should not change based upon any inflation or deflation of the economy. The fee is based upon the capital investment made by the District, which is a fixed value. Summary This technical memorandum has provided a summary of the proposed calculation of the District's standby or availability charge based on the proposed methodology. The proposed charge is based on generally accepted methodologies and has attempted to reflect the unique and specific characteristics of the District's system. The calculated charge reflects the maximum charge the District can charge those vacant parcels not currently connected to the water system. Attachments: Exhibit 1 —Calculation Based on Cost of Capital HDR Engineering,Inc. Page 6 of 6 EXHIBIT 1 TRUCKEE DONNER PUBLIC UTILITY DISTRICT WATER SYSTEM STANDBY CHARGE CALCULATION Present Calculation�11 1991 Active 5,537 Standby 4,201 Total Parcels 9,738 Number of Annual Current Parcels Rate Rate 1991 Total O&M $2,151,037 9,738 $220.89 Standby Allocated 16.2% $347,404 4,201 $82.70 $80.00 Proposed Calculation Truckee Donner W/Glenshire&Donner Lake 2010[2] 2010[3] Total Active 10,744 10,744 Standby 2,284 577 2,861 Total Parcels 13,028 13,605 Total Total Number of Annual Number of Annual Parcels Rate Parcels Rate Calculation based on O&M 2009 Total O&M $6,967,736 13,028 $534.83 13,605 $512.15 Standby Allocated 16.2% $1,125,327 2,284 $492.70 2,861 $393.33 Calculation based on Invested Capital Invested Capital[4) $76,316,735 Less:Contributed Capital[5] ($19,769,453) Net Invested Plant $56,547,282 Cost of Capital 3.50% $1,979,155 13,028 $151.92 13,605 $145.47 Notes: [1] Present calculation based on Water System Standby Charge Engineer's Report,February 1991 [2] From District,total to be assessed in 2009-2010 [3] From District,number of parcels in Glenshire&Donner Lake that could be assessed of 577 [4] Invested Capital is 2008 total plant less water services, water meters,backflow,fire hydrant and construction in progress [5]Contributed capital was provided by the District and is from the GASB 34 journal entry to book contributed capital.