Paul Loomis, Mayor
Al Kunisch, Vice Mayor
Paula Abbott, Council Member
K.C. Carter, Council Member
Bill Garner, Council Member
Barry Gillaspie, Council Member
Salette Latas, Council Member
Council Member Abbott arrived at 5:35 p.m. and Council Member Gillaspie arrived at 5:40 p.m.
Water Utility Director Philip Saletta introduced the Water Utility Commission members that were present: Betty Shapiro, Dave Powell, Bob Milkey and Winston Tustison.
Mr. Saletta then reviewed a Power Point presentation highlighting the following:
WATER UTILITY FUNDS
~ Enterprise Fund
- Operating Fund
- Revenues from base and commodity rate
- Funds personnel, operations and maintenance
- Funds existing system improvements
- Pays Debt Service
- Purchase of Water companies and Central Arizona Project (CAP) Water
- Existing system improvements
~ ALTERNATIVE WATER RESOURCES DEVELOPMENT IMPACT FEE FUND (AWRDIF)
- Funds Reclaimed Water and CAP Water Development
- Revenues are from AWRD Impact Fees (new customers) and Groundwater Preservation Fees (GPF) (existing customers)
- Pays debt service for Reclaimed Water System
- Payment to Central Arizona Water Conservation District (CAWCD) for reallocated CAP Water
MAYOR & COUNCIL WATER POLICIES
~ Pertinent Elements
- Self supporting with rate based revenues
- Debt service coverage ratio of 1.30
- No transfer of excess revenues to General Fund
- Cash reserves of at least 5% of budget
- Reduced or subsidized rates will be paid by General Fund
- Cost of Service Approach (Oro Valley Water Utility uses American Water Works Association (AWWA) rate setting principals and methodology)
- Water rates and charges reviewed annually
- Avoid sudden or large scale shifts in rates (minimize rate shock)
- Rate structure to encourage water conservation
- Rates to encourage use of reclaimed water
SOURCES OF REVENUES AND REVENUE REQUIREMENTS (Projected FY08/09)
~ Sources of Revenues
- Base rate $ 3,464,405 28%
- Commodity Rate $ 8,083,611 66%
- Interest Income $ 283,671 2%
- Other fees & charges $ 450,000 4%
TOTAL $12,281,687
- Groundwater Preservation Fee (to AWRDIF) $1,656,556
~ Revenue Requirements
- Personnel $2,527,259 22%
- Operations/Maintenance $2,898,727 25%
- Power Costs 1 $1,174,781 10%
- Water Management Costs $1,473,324 13%
- Debt Service $3,597,362 31 %
TOTAL $11,671,453
RATE STRUCTURE & FINANCIAL RISK
- Tiered rate structure encourages conservation
- Need to balance base rate & commodity rate to met revenue requirements
Base Rate:
- Recovers fixed costs, capacity, ability & readiness to serve
- Low base rate:
- Creates additional risk from volatility of revenue stream
- Commodity rate needs to be higher
- High base rate:
- Exceeds fixed costs & creates system inequity in terms of usage
Commodity Rate:
- Recovers costs associated with volume of water pumped
- Tiers need to be balanced with number of customers in each tier
- If only a small number of customers are high water users then significant revenues may not be derived from upper tiers.
CUSTOMER ANALYSIS:
- 64% of all customers use 10,000 gallons or less per month
- 31% of all customers use 5,000 gallons or less per month
- Customers are already using low amounts
- Average customer uses 9,000 gallons per month
- The upper tiers may not generate enough revenue to assure revenue requirements are met.
- In order to balance the tiers, meet revenue requirement and debt service coverage ratio, a more extensive analysis is required.
Water Utility Administrator Shirley Seng reviewed the following:
PRELIMINARY FINANCIAL SCENARIOS
- Five year revenue and expense projections
- Key assumptions:
- Growth, reclaimed system, existing & future debt
- Tucson Water increase for reclaimed water
- Tucson Electric rate increase
- CAP water delivery system debt service
- Phase-in Groundwater Preservation Fee
- Levelize rate increases in future years (minimize rate shock)
SCENARIO 1 (As presented in Water Rates Report)
- Four tier rate structure
- 5% increase in base rates & commodity rates for potable and reclaimed water
- Adjust usage in tiers for various meter sizes
- Increase potable construction water rate from $6.00 to $6.25 per 1,000 gallons
- Reclaimed construction water rate equal to reclaimed commodity rate
- Groundwater Preservation Fees
- Potable customers $0.15 increase per 1,000 gallons
- Reclaimed customers $0.05 increase per 1,000 gallons
SCENARIO 2
- Five tier structure
- No increase in base rates
- Variable increases in commodity rates increasing with tiers for potable and reclaimed water
- Adjust usage in tiers for various meter sizes
- Increase potable construction water rate from $6.00 to $7.50 per 1,000 gallons
- Reclaimed construction water rate equal to reclaimed commodity rate
- Groundwater Preservation Fees
- Potable customers $0.15 increase per 1,000 gallons
- Reclaimed customers $0.05 increase per 1,000 gallons
SCENARIO 3
- Five tier structure
- Decrease in base rates
- Variable increases in commodity rates increasing with tiers for potable and reclaimed water
- Adjust usage in tiers for various meter sizes
- Increase potable construction water rate from $6.00 to $7.50 per 1,000 gallons
- Reclaimed construction water rate equal to reclaimed commodity rate
- Groundwater Preservation Fees
- Potable customers $0.15 increase per 1,000 gallons
- Reclaimed customers $0.05 increase per 1,000 gallons
COMPARISON OF SCENARIOS (5/8" X 3/4" Meter)
Gallons Existing Rates Scenario 1 Scenario 2 Scenario 3 5,000 $25.65 $27.56 $26.70 $25.71 10,000 $40.24 $43.52 $43.79 $42.80 15,000 $56.29 $61.02 $65.00 $64.00 20,000 $76.14 $82.52 $91.11 $90.10 40,000 $169.26 $182.92 $229.11 $227.10
CUSTOMER ANALYSIS
FY 2008-09 Scenario 1 Scenario 2 Scenario 3 SFR 0 5/8 " 9,000 Gals. 9,000 Gals. 9,000 Gals. Water Rates 4.4% 4.9% 2.2% GPF 3.7% 3.6% 3.7% Total Impact 8.1% 8.5% 5.9% Monthly Bill $40.02 $40.19 $39.20 Monthly Increase $2.99 $3.16 $2.17
Discussion followed regarding:
~ The Water Utility uses American Water Works Association (AWWA) rate setting principles.
~ Percentage of water used for construction is between 1% and 2%.
~ Additional analysis regarding impact to customers with large meters (i.e. La Cholla Airpark, Northwest Hospital, Ventana Medical, Homeowners Associations (HOA).
~ Shifting CAP water delivery costs out by one year (provides additional time to phase in Groundwater Preservation Fee (GPF).
~ Some HOAs have requested switching to a smaller meter size. The Water Utility is not actively promoting but an analysis of systems/billing is done if requested. Newer areas are sized appropriately but older areas are looking at downsizing meters where possible).
~ Backflow prevention devices must be installed if reclaimed water is used.
~ N.A.C. Construction is using reclaimed water on the La Canada Drive widening project and Public Works is using reclaimed water for street cleaning.
~ Discussion regarding the Scenarios and Key Elements as presented.
~ Discussion regarding requirements of State Statutes for Notice of Intent and Public Hearings.
~ Incentives to reduce water use. Look at opportunities with respect to conservation and rewarding low water users.
~ Base rates are used to cover fixed costs/revenue requirements. Cost of delivery system is fixed and the Water Utility must recover fixed costs to balance.
~ Explanation of the Central Arizona Groundwater Replenishment District (CAGRD) Fee
Mayor Loomis recessed the meeting at 6:48 p.m. The meeting resumed at 6:53 p.m.
Water Utility Director Philip Saletta reported that the Notice of Intent to increase the Alternative Water Resources Development Impact Fees (AWRDIF) was approved by the Town Council on May 7, 2008 and is being considered further due to Senate Bill 1406. He stated that this Notice began the formal process to increase these fees but does not set or modify fees. He stated that the public hearing is scheduled for July 16th and the reports have been made available for public review.
Mr. Saletta presented the background for the AWRDIF process:
~ Revised analysis in response to proposed legislation and at Council’s request.
~ Water Utility Impact Fee Analysis for the AWRDIF was prepared and updated by Red Oak Consulting.
~ Fees are based upon meter size.
~ Ultimate fees reduced based upon adjustment for no incremental increases.
~ Council requested annual report to review fees (annual check on revenues collected and how growth affects these revenues).
Mr. Saletta further reviewed the relationships between the Potable Water System Development Impact Fee (PWSDIF) and the Alternative Water Resources Development Impact Fee (AWRDIF).
~ PWSDIF - Based on Water System infrastructure capital costs for new development (transmission mains, booster stations, water storage, etc).
~ AWRDIF - Based on raw water supply, transmission and treatment infrastructure capital costs required for new development of reclaimed and CAP water.
~ Balancing Capital Costs and Revenues between new and existing customers:
AWRDIF - Future Customers: 7,000 Acre Feet (61%) CAP and Reclaimed water $85,156,000 Impact Fees.
GWPF (Ground Water Preservation Fees) - Existing Customers: 4,500 Acre Feet (39%) CAP and Reclaimed water $54,444,000.
Mr. Saletta further reviewed the major milestones for the Town’s Reclaimed Water Project highlighting the completion of Phase 1 construction in October 2005 and the projected completion of construction of Phase 2 for July 2008. He also reviewed the Central Arizona Project (CAP) Delivery System milestones and explained that this is a joint project of the Northwest Water Providers (Oro Valley, Marana, Metro Water and Flowing Wells Water) which will provide the future delivery of CAP water from the canal at Interstate 10 and Tangerine Road.
Mr. Saletta reviewed the proposed and current AWRD Impact Fees. He then reviewed the proposed draft Ordinance language and highlighted the following:
~ Repeals existing ordinance and replaces it with new table and language.
~ Fee based on meter size for Single Family Residential (SFR), Commercial and irrigation.
~ Calculated for Multi-Family Residential and Turf.
~ Includes annual escalation based on Construction Cost Index from Engineering News Record.
~ Includes a request for a variance if a meter is required to be increased from a 5/8 inch meter to a 3/4 inch meter solely due to the installation of a fire sprinkler system.
~ Public Hearing will be held on July 16.
~ Council’s consideration of Ordinance on September 3rd.
~ If adopted by Council, the fees will be effective on December 2nd.
Discussion followed regarding:
~ Current cost of 5/8 and 3/4 meters (5/8 inch-$200 and 3/4 inch-$250 which is charged separately from the AWRD fees).
~ Automatic meter readers (AMR) (hand-held devices currently being used by the Water Utility).
~ Fire sprinkler variance for existing customers - Would not charge for the 3/4 inch meter if documented for fire sprinkler system installation.
~ Building Safety standards provide fixture count/meter size compatibility in homes.
~ Existing fees would remain in place until new fee is effective.
~ Turf uses and concerns about school usage. (Some schools will be going to reclaimed water but if new schools come in and if they have more than 2 acres of turf irrigation, they would have to meet requirements of the Ordinance unless Council provides for a variance for schools. Variance can be provided for after approval of the ordinance as long as fees are not higher than were provided for in the Notice of Intent).
~ Timing of Ordinance, Notice of Intent and meeting State Statutes.
~ Senate Bill 1406 - Incremental increases now in place become subject to two year moratorium if the Senate Bill passes. The increase that expected in September 2009 would not be effective until September 2011 for newly approved subdivisions.
~ Consider eliminating phasing which doubles the rate that currently is budgeted for developments today.
~ Notification to Amphitheater School District.
~ Look at current Ordinance regarding charges for pipeline installation related to reclaimed water, impact to schools and cost of service.
MOTION: A motion was made by Council Member Carter and seconded by Vice Mayor Kunisch to adjourn at 7:30 p.m.
MOTION carried, 7-0.