HomeMy WebLinkAboutDocumentation_Regular_Tab 20_5/11/2023Agenda Item #20.
Regular Council
a
STAFF MEMO
Meeting: Regular Council -May 11 2023
Staff Contact: Marjorie Craig, Utilities Director Department: Utilities
MI
Consideration of a 5% Water Utility Base Rate Recalibration and a Monthly Water Capital Recovery
Charge to Take Effect in October 2023, While Maintaining the Approved 3.5% Rate Indexing to
Preserve Water Fund Financial Sustainability - Based on February Financial Forecast Workshop
At the February 2023 workshop, the Village Council received and discussed a presentation on the water
enterprise fund's financial forecast by Raftelis Financial Consultants (Raftelis) and requested that staff
bring back a rate recommendation for consideration. The Utilities Department (UD) recommends a base
rate recalibration of 5% and introduction of a monthly water capital recovery charge of $10 per
equivalent residential unit (ERU*) starting in October 2023, while maintaining the currently approved
3.5% rate increase. Even with the recommended increases, the capital project list timeline will need
extending and a new 20-year capital program has been developed.
The Village has a significant amount of aging infrastructure and capital projects that are vital to sound
water system operations and have been under design or planned for several years. As we have begun
to implement a second pipe replacement project, the prices came back 60% higher than estimated only
months before the bid. The water utility has faced other significant operational and capital project cost
increases over the last few years, and rate indexing has not kept up with cost increases. It is imperative
that we address our aging infrastructure issues before the risk of failure increases. Consider that the
Village has experienced 25 pipe breaks since September 2020 due to aging pipe. The water plants
have many components that are at or nearing their useful life expectancy and need safety or efficiency
upgrades.
BACKGROUND
In August of 2022, the concept of a capital recovery charge with an accelerated water main replacement
program was brought before the Council. The Council was receptive to the idea but requested more
information. After a comprehensive review of the utility's capital needs and risk of infrastructure failure,
rising operational and capital costs, and projected funding and revenues, the Utilities and Finance
Departments recognized that an updated financial forecast was also needed to help ensure the utility's
financial sustainability. The Utilities Department (UD) engaged Raftelis, the financial expert that the
Village has used for over 30 years for financial forecasting and rates.
To provide updated capital project information to Raftelis, the Utilities Department reviewed the existing
capital projects, timeline, prioritization, and urgency of the projects based on various factors. Decision
criteria included safety, regulatory requirements, criticality to operations, risk of failure, materials, age,
number of past breaks, efficiency, funding availability. We were also sensitive to the impact that
construction might have on our citizens and customers while considering project phasing and modeling
scenarios. UD's consultant experts updated costs for the projects and a 20-year CIP list was created.
Page 560 of 2350
Agenda Item #20.
Even if the recommended rate increases are implemented, the original CIP project timeline has to be
extended and a new 20 year CIP has been developed.
The team's results were presented at the February 2023 Council workshop and showed that the current
rate structure and funding is not adequate to execute planned capital projects that are urgently needed.
Several projects are presently at, or near, 100% design. Operating costs have increased over the last
few years well beyond the anticipated annual indexing rate due to supply chain issues/ long lead times,
the pandemic, labor issues and wage adjustments, and worldwide economic conditions (some of these
inter -related). These factors have also caused capital projects to increase in price from 30-60%, as
evidenced by our recent pipe project bid.
The financial model results recommended a base rate recalibration of 5%, along with the approved
3.5% annual rate indexing currently in place, to adjust for the inflation experienced over the last several
years. Raftelis also recommended introducing a monthly water capital recovery charge (WCRC) to help
fund the cost of the significant capital projects that the Village must execute due to aging distribution
system water pipes and the water treatment plants. Their model recommended a nominal WCRC of
$10/mo per equivalent residential unit (ERC*), for a period of 20 years and an extended capital project
plan. To escalate the projects, the rates/ charge would have to be raised more than the recommended
adjustments.
The capital recovery charge would help fund projects that are specifically identified as infrastructure
system repair and replacement (R&R) capital projects. These projects would include fire protection and
hydraulic improvement projects, pipe replacement projects (pipes at risk of failure), plant hydraulic
efficiency projects, and any other project specific to our current CIP infrastructure R&R program. This
charge would only be in place as long as the currently planned programs are ongoing, and would sunset
after that point. The recommended charge is $10 per month on an average resident's water utility bill
over a 20-year period, but would end if the projects were funded by other sources and/ or completed
sooner.
Since there are many dynamic factors that enter into a water rate, the rates and financial forecast
should be reviewed every two to five years or as needed if some of the factors change significantly or
a potential impact is recognized.
Another option is to consider splitting the $10/mo per ERU water capital recovery charge over two
years: the first $5/mo per ERU effective in October 2023, and adding the second $5/mo per ERU
effective in October 2024. By October of 2024, the $10/mo per ERU water capital recovery charge
would be in place, effective for 20 years after each charge was put in place or until the Village Council
determines otherwise.
*ERU-equivalent residential unit — typically determined by total water billed divided by total units; most residents
would be one (1) ERU and a customer who uses more water, such as a restaurant, would have a higher ERU,
according to its higher water use
This document and any attachments may be reproduced upon request in an alternative format by
completing our Accessibility Feedback Form, sending an e-mail to the Village Clerk or calling 561-768-
0443.
Page 561 of 2350
Agenda Item #20.
PROJECT NAME: N/A BUDGET: N/A
ENCUMBERED: N/A
Proposed:
N/A
Staff recommends approval
Projected Remaining:
N/A
23.0511.Presentation-Consider Approval of Water Rates Utilities
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