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HomeMy WebLinkAboutIR 10177 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10177 To the Mayor and Members of the City Council August 14, 2018 PATk$q DJA� o Page 1 of 2 �i SUBJECT: WATER DEPARTMENT FY2019 REVENUE REQUIREMENTS 1675 Each year the Water Department completes cost of service studies for Retail and Wholesale customer classes for both water and sewer services. Those studies are used to determine the rates that will be recommended to the City Council. The purpose of this Informal Report is to outline the process and topics addressed in the 2019 rate setting process and to provide the projected change in water and sewer revenue requirements. Retail Water and Sewer Rate Process Retail rates paid by Fort Worth residents and businesses are based on the Department's cost of service, which is established as part of the annual budget process using industry standards. Once the cost of service is determined, the preliminary rates and specific topics that might affect the rate structure are presented to the Department's informal Water and Sewer Retail Rate Structure Stakeholder Group for input and feedback. This group is comprised of customers representing the various retail customer classes, which include residential, commercial, industrial, irrigation and super users. The group is charged with ensuring equity among customer classes and providing input into how costs are allocated within rate structures. Water Department staff met with the Stakeholder Group on May 22, May 29, June 5, June 19, and June 26 to present budget drivers and costs, trends in water and wastewater usage over the last decade, and preliminary 2019 rates for both water and sewer service for all customer classes. Staff requested feedback on specific issues impacting revenue recovery and rate structure. These topics included the fixed versus variable revenue recovery stability plan for retail sewer service, integration of the Super User class into the Industrial class, and full cost of service revenue recovery for all retail classes. Budget Drivers The FY2019 budget is increasing by $5,563,760 or 1.2% over the FY2018 Adopted Budget. The primary drivers in the FY2019 proposed budget are increases in personnel costs to fund new positions to address growth and complexity in the system, meet new regulatory requirements, and provide operational enhancements in the Utility's Call Center to improve customer service; and to capture the City Manager's proposed pay for performance compensation plan as well as increased health insurance and pension costs. The budget also includes an increase in pay-go cash financing to support the City Council-adopted Capital Improvement Plan and to improve debt service coverage ratios. In addition, contractual costs are increasing for sewer treatment provided by a third party vendor, to rebuild a gas turbine at the Village Creek Water Reclamation Facility, and to provide additional emergency response services to main breaks. Other increases include additional funding for vehicle and facility repair and maintenance. These increases are partially offset by a reduction in debt service costs due to the retirement of old debt, and a reduction in the purchase of capital vehicles and equipment. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10177 To the Mayor and Members of the City Council August 14, 2018 P5;Tk$q DJA� o Page 2 of 2 �i SUBJECT: WATER DEPARTMENT FY2019 REVENUE REQUIREMENTS 1675 No Retail Rate Increase Proposal On June 26, Water Department staff met with the Stakeholder Group to discuss several revenue recovery options, including an option for small rate increases to fully address revenue recovery for all retail customer classes and a "no rate increase" option in 2019. It was subsequently determined that the budget expenditure increase of$5.6M would be recovered through increases in revenues from impact fees, taps and extensions attributable to growth in lieu of an increase in retail water and wastewater rates. Wholesale Water and Sewer Rate Process Wholesale rates paid by the Department's 30 water customer cities and 23 sewer customer cities are based on cost of service studies performed on a three-year rotation using consultant services, alternating water and sewer, with Department staff completing the study the alternate years. The process and methodology are established within the Uniform Wholesale Contracts for water and sewer services. Studies are based on test year expenditure data, adjusting for known and measurable changes. Volumes used to calculate the rate change are based on prior year actual use. Results of the cost of service studies and preliminary rates are presented to the Wholesale Water and Wastewater Advisory Committees, comprised of representatives of each of the customer cities. Staff met with the Cost of Service Subcommittee of the Wholesale Advisory Committees on May 17 and June 28, and met with the full Wholesale Advisory Committees on June 6 to present the preliminary FY2019 wholesale water and sewer rates. Final rates were provided to the members of the Wholesale Advisory Committees on July 11. FY2019 Recommendations and System Adjustments Staff recommends no adjustments to the retail rates for 2019. The cost of service studies for wholesale rates result in a need for the following increases: Wholesale Water: + 3.09% Wholesale Sewer: +12.05% Additional detailed information about the recommended FY2019 rates may be provided, as desired. Should you have any questions about the retail or wholesale rate processes, please contact Kara Shuror, Deputy Water Director, at 817-392-8819. David Cooke City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS