Sewer Utility Rate Study Results

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Sewer Utility Rate Study Results
City of Lake Forest Park
February 17, 2005 Presented by Barbara
Shosten, CPA Financial Consulting Solutions
Group, Inc. 8201 164th Avenue NE, Suite 300,
Redmond, WA 98052 425.867.1802
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Agenda

• Revised 2005 Rates
• Rate Forecast Scenarios
• Without Unsewered Area
• With Unsewered Area
• 100 City Funded
• 50 City Funded and 50 Customer Funded
• 100 Customer Funded
• General Facility Charges

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Meeting Goals

• Provide Council with sufficient information to
• Make a decision regarding the level and structure
  for the 2005 sewer rates.
• Develop a strategy for funding the renewal and
  replacement (RR) of the utilitys
  infrastructure.
• Make a decision whether to proceed with the
  unsewered area project and how much the City is
  going to fund of that project.
• Make a decision regarding the level of the
  General Facility Charges (GFC) for 2005.

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Long-Term Rate Increases
3) DEVELOP RATE REVENUE REQUIREMENTS
Slide shown in the December 9, 2004 presentation
to Council
Making a commitment to raise rates over the next
6 years will allow rate increases to drop to the
weighted average increases in OM (3) and KCDNR
costs (5) after that.
2005-2010
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Total Rate Revenue Increases
Scenario 1 - INITIAL All Cash Funding
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Local Rate Increases by Customer Class
Scenario 1 - INITIAL All Cash Funding
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Revision to the 2005 Cost of Service Rate
Computation

• The reason there was a 33 increase in the
  initial 2005 single family local rate is that the
  new rates were based on 7.5 ccf per month (Non-SF
  is also 7.5 ccf) and the existing rates are based
  on 2.87 ccf per month.
• The revised rates phase in the monthly ccf for
  the cost of service calculations
• 3.9 ccf in 2005
• 5.0 ccf in 2006
• 6.0 ccf in 2007 (600 ccf is the winter average
  ccf for Shoreline WD)
• The impact is that the overall rate revenue
  increase remains the same at 13 but the recovery
  by customer is class is phased in over three
  years.

Scenario 1 - REVISED All Cash Funding
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Revised Total Rate Revenue Increases by Customer
Class
Scenario 1 - REVISED All Cash Funding
Since there is no Metro rate increase in 2006 the
4 increase is for increases in local costs only.
The 11 rate increases from 2007-2009 are needed
because of both higher Metro and local costs.
The analysis assumes 5 Metro increases after
2009.
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Revised Local Rate Increases by Customer Class
Scenario 1 - REVISED All Cash Funding
Note that the new SFR local rate increases are
much lower from 2005 through 2008 than in the
initial forecast but are higher going forward.
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Monthly Rates
Scenario 1 INITIAL - All Cash Funding
Scenario 1 REVISED - All Cash Funding
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Revised Bill Examples for 2005
Scenario 1 - REVISED All Cash Funding
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Bi-Monthly Bill Samples
6) RATE STRUCTURE DESIGN
Slide shown in the December 9, 2004 presentation
to Council
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Funding Scenarios

• Checked scenarios will be presented

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Assumptions for Funding Scenarios

• SCENARIOS 2, 3, 5a, 5b, 5c Capital projects for
  renewal and replacement reduced by 50 from 2009
  through 2015 and 20 from 2016 through 2020.
• SCENARIOS 2, 3, 5a, 5b, 5c Revenue bonds used to
  fund 60 of the lower capital needs from 2009
  through 2020, 100 cash funding after 2020.
• SCENARIO 3 100,000 in REET funding used from
  2005 through 2020.
• SCENARIOS 5a City funds 100 of unsewered area
  projects through sewer revenues. REET funds are
  used to pay for the City match and some of the
  debt service costs from 2005-2008. REET funding
  is repaid with sewer revenues by 2018.
• SCENARIOS 5b City funds approximately 50 of
  unsewered area projects. REET funding is used to
  fund the 15 City match, plus debt service costs
  in excess of payments from affected customers.
  Approximately 50 of the REET funding plus
  interest is repaid by the affected customers. The
  amount not repaid is considered the public
  benefit of doing the project.
• SCENARIOS 5c Affected customers fund 100 of
  unsewered area projects. REET funding is used to
  fund the 15 match, plus debt service payments in
  excess of costs from affected customers. All REET
  funding is repaid by affected customers by 2022.

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Financing Assumptions for Unsewered Area GFCs and
Connection Charges

• SCENARIOS 5a City funds 100 of unsewered area
  projects through sewer revenues. 50 of GFCs are
  paid in cash as projects come online. The
  remaining customers connect at a rate of 10 per
  year and pay with cash. No debt financing is
  assumed.
• SCENARIOS 5b City funds approximately 50 of
  unsewered area projects. 50 of GFCs are paid as
  projects come online with half of the customers
  paying in cash and half financing the connection
  charge. The remaining customers connect within 10
  years and all connection charges are financed by
  the City. The amount financed is the average cost
  of the unsewered area projects with a maximum of
  10 years worth of interest added to the cost. An
  interest rate of 2 and a term of 10 years are
  assumed.
• SCENARIOS 5c Affected customers fund 100 of
  unsewered area projects. Same as scenario 5b.

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Long-Term Rate Increases
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Local Monthly Bill Increases for Single Family
and Non-Single Family
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Monthly Rates
Scenario 1 REVISED - All Cash Funding
Scenario 2 Combination Funding
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(No Transcript)
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(No Transcript)
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Unsewered Area

• Unsewered Area Costs
• All unsewered area scenarios use the same debt
  and CIP assumptions as Scenario 2

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a) In scenario 5a the unsewered area costs are
paid 100 by the City. REET revenue is used
during the construction period for the City match
and debt service. REET is repaid through rate
revenues by 2018. b) and C) The affected
customers pay only the City-wide GFC and the side
sewer costs for an average cost for each customer
of 9,688. d) The cumulative rate increases from
2005 through 2012 are the same as under scenario
2 but are lower over the forecast period because
of the higher revenue stream created by adding
233 (6 increase) new customers without a
corresponding increase in costs. e) The revenues
are higher even with lower rate increases because
of the higher growth. f) and g) The GFC is
higher because when the City constructs the
unsewered area projects the basis of the GFC
increases accordingly. The GFC revenues are
correspondingly higher. h) The RR balance
builds in a similar pattern to scenario 2 with
the ending balance similar to the previous
scenarios.
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a) In scenario 5b the unsewered area costs are
paid 50 by the City. b) and C) The affected
customers pay 50 of the costs and the side sewer
costs. 25 of the customers pay in cash and the
rest finance the costs for an average cost
including interest of 20,827. d) and e) The
short and long-term rate increases for scenario
5b are similar to scenario 5a because REET funds
are used to pay for the City match and the excess
debt, which offsets the lower GFC revenues. f)
and G) The GFCs are lower than in scenario 5a
because only the City funded portion of the
unsewered capital projects can be added to the
basis of the GFC. The GFC revenues are
correspondingly lower. h) The RR balance builds
in a similar pattern to scenario 1 with the
ending balance similar to the previous scenarios.
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a) The affected customers pay 100 of the
unsewered area costs and the side sewer
costs. b) and c) 25 of the affected customers
pay in cash and the rest finance the costs for an
average cost including interest of 36,512. d)
and e) The short and long-term rate increases are
lower because the revenue stream is higher due to
the new customers while the City is reimbursed
for their costs. f) and G) The GFCs are lower
because no unsewered costs can be added to the
basis of the GFC. The GFC revenues are
correspondingly lower. h) The RR ending balance
is similar to the previous scenarios.
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Summary Comments

• Under all unsewered area scenarios the City
  benefits because the revenue stream is increased
  by adding 233 customers (6). It is unlikely that
  there will be a corresponding increase in OM
  costs (except Metro) because there is existing
  capacity in the system to serve these additional
  customers.
• Scenario 5a (City pays 100 of the unsewered area
  projects) is the least risky and is far less
  administratively burdensome than the other
  unsewered scenarios. The rate impacts are higher
  under this scenario but not significantly higher
  due to the higher offsetting GFC revenues.
• Scenario 5a is also the most beneficial to the
  affected customers because the average cost to
  the customer is the lowest.

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General Facility Chargesby Meter Size
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Comparison of GFCs from Surrounding Communities
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TheEnd