3/28/2009 PUD Workshop Minutes - Part 1 SATURDAY, MARCH 28, 2009 AT 9:15 AM Mayor Figueras called the meeting to order. RATE DIFFERENTIAL: Engineering and Planning Section Chief Mak Yari stated the original study was completed in 1998-1999. The methodology computes a unit charge for inside and outside customers of the water and the wastewater systems then divides the outside rate by the inside rate to calculate the rate differential. It is an industry accepted methodology designed for privately owned utilities and accepted for use by publicly owned utilities. The methodology uses an accounting method of appropriately allocating four costs: Operation and maintenance, interest expense, depreciation of fixed assets, and net book value of fixed assets (return on investment). Mr. Yari spent a few minutes explaining the concept of some of these items. He also commented on changes that prompted the need for a study, including but not limited to substantial changes in the City limit boundaries, new billing software and a new rate structure. Mr. Yari stated a good bit of time was spent determining if the correct rate of return was being utilized. The three variables to computing the rate of return were the ten-year treasury, the average interest rate and the net book value of assets outside the city. An effort was made to determine if there was a way to control the fluctuation on the rate of return. RATE DIFFERENTIAL Category Study Results Recommendation Water 2.13 2.0 Wastewater .87 1.0 It was noted that the recommended rates would go into effect January 1, 2010 if accepted by Council. Upon inquiry from Council Member Dunagan, Public Utilities Director Kelly Randall commented on a meeting with Hall County during which he was advised that the Commissioners had decided they cannot afford for the City to maintain the Mulberry Creek Project. This has no effect on the city’s operation; however, it was important for everyone to know staff spent a lot of time working on this project. The City had been involved for the benefit of Gainesville-Hall County and would not gain any revenue from this project. Council Member Wangemann stated it would help him to have a sheet in the notebook that tells when the study was completed, the differentials at the time of the study and general comments as to why the differential changed from one study to the next. Chief Financial Services Officer Melody Marlowe stated the final report will contain the information requested by Mr. Wangemann. Council Member Hamrick confirmed the differential rate had been capped noting the actual differential was 2.57. Upon inquiry from Council Member Wangemann, Mr. Yari stated how the assets are allocations, where the water is being used and the actual customers were the major reasons for the rate changing from 2.57 to 2.13. RECESS: 10:00 AM RECONVENE: 10:10 AM RECOMMENDED FUNDING PLAN & RATES: Ben Williams (Jordan, Jones & Goulding) presented the recommended funding plan and supporting rates, fees and charges. He began the discussion by summarizing the headwinds to navigate through the current economic recession as follows: • Community jobless rate doubled • County wide housing permits fell • Conservation rate structure engaged • Level four drought response continues • New customers decline (estimated to be 90% and 93% for water and sewer respectively) • Billing volumes flatten • System revenues stressed • Economic recession period forecasting When will the current economic recession recovery start? Each Council Member answered this question. Additionally, Mr. Williams presented opinions from Georgia State University and the Federal Reserve Chairman. The funding scenario presented today assumes the recovery will begin in July 2010. Mr. Williams noted the City has a responsibility to operate the system regardless of the economic conditions and inflationary costs. Mr. Williams discussed the basic assumptions for the funding plan. There was specific discussion about the revenue bond and the GEFA/SRF coverage ratios noting the basic assumption calculates them at 1.74 and 1.12 respectively. Both are currently meeting the requirements; however the GEFA rate was very close to the requirement. Public Utilities Director Kelly Randall stated he had spoken with GEFA regarding the current situation and they were agreeable to working with the staff. FY2010 FY2011 FY2012 FY2013 FY2014 Totals Gainesville CIP 18,612 16,688 28,082 27,247 16,170 106,799 FUNDING MECHANISMS Bonds 0 1,000 4,250 7,000 6,650 18,900 GEFA 2,005 1,095 8,817 9,022 900 21,839 SRF 0 0 0 0 0 0 Capital Fund 16,607 14,593 15,015 11,225 8,620 66,060 Connection Fees 0 0 0 0 0 0 2009 WS Revenue Adjustments +5.7% +6.0% +6.6% +7.0% +7.1% 2008 Retreat +7.0% +6.5% +6.6% +7.1% (X $1,000) Mr. Williams presented the estimated rate revenue increase schedule as follows: Fiscal Year FY2010 FY2011 FY2012 FY2013 FY2014 Water Differential 2.0 2.0 2.0 2.0 2.0 Inside Increase 5.5% 6.5% 8.0% 9.0% 9.0% Outside Increase 5.5% 6.5% 8.0% 9.0% 9.0% Sewer Differential 1.0 1.0 1.0 1.0 1.0 Inside Increase 7.3% 5.5% 5.0% 4.75% 4.75% Outside Increase 2.7% 5.5% 5.0% 4.75% 4.75% He also presented the recommended rates as follows: January 2009 January 2010 January 2011 WATER Account Servicing Fee $3.63 $7.26 $3.83 $7.66 $4.08 $8.16 Unit Charge per CCF $2.03 $4.06 $2.15 $4.30 $2.29 $4.58 Block 2* (>10 CCF<18 CCF) $2.54 $5.08 $2.68 $5.36 $2.86 $5.72 Block 3* (>18 CCF) $3.04 $6.08 $3.21 $6.42 $3.42 $6.84 SEWER Unit Charge per CCF $5.99 $6.26 $6.43 $6.43 $6.79 $6.79 Oakwood per CCF N/A $6.59 N/A $7.07 N/A TBD *Commercial customers will have their Blocks determined from their winter average use (WAU). Block 2 starts at WAU x 125% and Block 3 starts at WAU x 200%. It was noted that Oakwood is a contract customer and there has already been discussion with them regarding the proposed rates. There was a brief discussion about the typical customer’s bill assuming the water differential is 2.0 and the sewer differential is set at 1.0 for calendar year 2010 – 2011. Mr. Williams presented the following action items for navigating the current economic recession: 1. Scrutinize operation and maintenance as well as capital expenses 2. Continue emphasis on customer service 3. Market to Fieldale, Pilgrim’s Pride and Mar-Jac, the three largest customers 4. Re-evaluate financial indicators monthly 5. Revisit comprehensive financial model (CFM) quarterly Public Utilities Director Kelly Randall stated the financial model would be run again after the operation budget is prepared (September/October timeframe) and he wanted to talk with Council again in November before presenting the proposed ordinances. He recommended changing the sewer differential rate on a gradual basis. The department’s recommendation was presented as follows: Fiscal Year FY2010 FY2011 FY2012 FY2013 FY2014 Water Differential 2.0 2.0 2.0 2.0 2.0 Inside Increase 5.5% 6.5% 8.0% 9.0% 9.0% Outside Increase 5.5% 6.5% 8.0% 9.0% 9.0% Sewer Differential 1.034 1.024 1.014 1.0 1.0 Inside Increase 6.5% 5.7% 5.2% 5.1% 4.75% Outside Increase 4.9% 4.7% 4.2% 3.6% 4.75% The typical monthly bill calculation was presented for the recommended differential rates.