HomeMy WebLinkAboutAgenda - 06-12-2007-3dORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: June 12, 2007
Action Agenda
Item No. ,~ a~_
SUBJECT:. OWASA Water and Sewer Rate and Fee Proposals
DEPARTMENT: County Manager PUBLIC HEARING: (Y/N) No
ATTACHMENT(S):
OWASA Letter and Attachments
INFORMATION CONTACT:
Michael A. Clarke 919-918-3651
Ed Kerwin 919-537-4211
Paul Thames, County Engineer
919-245-2303
PURPOSE: To present OWASA's water and sewer rate proposals for FY 2007/08 for BOCC
review and questions.
BACKGROUND: As a follow-up to information OWASA presented to the BOCC in April 2007,
OWASA wishes to provide additional information focusing on two areas:
1. How much revenue does OWASA need to continue providin tq he high quality water and
sewer services expected by its customers, and for what purposes
OWASA will not adopt a budget for FY 2007/08 until June. However, OWASA's Preliminary
Budget identifies total~expenditures of $46.6 million. $28.4 million will be funded from
operating revenues (compared with $27.O million in the current budget). Proposed
expenditures for the next year are:
$18:4 million Capital Improvements
$18.5 million Operations, Maintenance, Capital Equipment
$ 9.7 million Debt Service
$46.6 million Total
As shown, OWASA's Capital Improvements and Debt Service (for Capital Projects) totals
$28..1 million or 60 % of the overall budget.
OWASA recognizes the need to properly fund the renovation and replacement of aging and
inadequate facilities and, for several years, capital program costs have comprised the
majority of its annual budgets. The true cost of water and wastewater services includes the
essential cost of renewing and updating utility assets to protect their value, functionalities
and sustainability.
2
Much of OWASA's infrastructure is several decades old. To ensure reliable and high quality
water and sewer service to all our customers, it is essential to continue the ongoing program
of system rehabilitation and replacement. Without it, OWASA's customers will face more
service interruptions, more leaks, greater expenses, and declining quality of service.
As a matter of basic fairness to OWASA's present customers, it is necessary to spread the
cost of capital improvements over many years so that future customers who will benefit from
these long-lived assets bear part of the cost. Like cities and counties, OWASA therefore
finances a significant portion of its capital program with long-term bonds.
OWASA's customers' demand for water declined significantly after the drought of 2001-02, .
and use has not returned to pre-drought long-term projections. The associated resulting
decline in revenue has detrimentally affected OWASA's fiscal performance. OWASA now
needs to take action to restore its debt service coverage ratio that has declined from the
historic 2.0 level to 1.5 during Fiscal Year 2005-06; not only to sustain OWASA's favorable
bond rating but, more importantly, as a measure of fiscal prudence.
OWASA's rates and fees must also ensure adequate funding for its operation and
maintenance needs. Increasingly stringent treatment standards, escalating energy and
material costs, and other factors are all contributing to upward pressure on~OWASA's rates
and fees.
Although the combined increase in monthly water and sewer rates is proposed to be 9.5%,
OWASA wants to emphasize that the proposed water rate increase is limited to 6.25%,
(similar to adjustments in recent years), and the proposed monthly sewer rate increase is
13.75%. The latter reflects costs including debt service for the $50+ million Mason Farm
Wastewater Treatment Plant (WWTP) improvements (now nearing completion) to improve
the reliability and performance of the treatment processes and to eliminate odor. The WWTP
upgrade also makes possible the reclaimed water project with the University, without which
future water needs would require major investment.
2. How should OWASA raise funds to meet the community's water and wastewater needs
OWASA's rates and fees are founded on three primary principles.
First, in accord with OWASA's 1976 Agreements of Sale and Purchase with the Towns of
Chapel Hill and Carrboro and the University, it bases rates, fees and charges on cost-of-
service principles. Underlying this policy and contractual requirements is the basic concept
that the people who benefit from a service should pay for its cost.
Second, growth should pay for growth. The proposed increases in OWASA's water and
sewer service availability fees are based on this concept as well as the corollary cost-of-
service ratemaking requirement. OWASA recognizes that the increases in the sewer
availability fees are significant, and emphasizes that these fees properly reflect the $50+
million of improvements at the WWTP and other sewer system improvements.
Third, OWASA's rates and fees should encourage conservation. Conservation can
significantly reduce long-term OWASA system costs to its customers by avoiding or deferring
the need to develop an additional water source such as Jordan Lake. The estimated capital
cost of obtaining water from Jordan Lake is about $40 million. Conservation is why OWASA
implemented seasonal water rates for all customers in May, 2002. The increasing block rates
proposed for individually metered single-family. residential customers will strengthen
OWASA's pricing signal, especially for. non-essential water uses. Increasing block rates will
also help offset rate increases and eliminate the seasonal penalty for small volume users.
(See the attached examples of water and sewer bills with increasing block rates and with the
current seasonal rates).
The seasonal rate structure is proposed to continue for other customers because the
increasing block rate structure would not fit or be fair to the variety of commercial,
institutional and master-metered multi-family customers who generally do not have irrigation
needs. Seasonal rates have also proven to be an effective pricing strategy for reducing peak
water demand by non-residential customers.
While education and information are an important part of OWASA's overall conservation
program, an appropriate rate structure is essential to achieve its conservation goals.
Increasing block rates for residential customers have proven successful in many other
communities and are common where water is scarce.
The block rate structure would also more equitably allocate a greater share of water system
costs to high-volume residential customers whose demand creates the need for higher
system capacity. At the same time, water-wise customers will typically experience lower bill
increases than the combined 9.5% rate increase because they will benefit from the lower
block rates applicable to consumption under 6,000 gallons per month
FINANCIAL IMPACT: Minimal impact to the County except for increased water and sewer
rates for existing County facilities and Chapel Hill-Carrboro schools and increased fees for
future County and Chapel Hill-Carrboro School System facilities in the OWASA service area.
RECOMMENDATION(S): The Manager recommends that the Board receive the presentation,
report and attached materials as information and for comment and questions as the Board
desires.
OWASA
May 8; ;2007
... .
ORANGE WATER & 'SEWER AUTHORITY
Qua7~ty `.`Service' S2nce 9;977
Moses Carey Jr., "Chair
Orange County Baard of
Conuriissoners'
P.O :Box 81;8:1
Hillsborough; NC" 2727$
1V~[ark Chilton; Mayor
Town of Carrboro
301 West Main S.tteet
Carrboro, NC 27510;:
Kevin Foy,, Mayor:
Town of Chapel Hill.
405.11!Iartxn:Luther.ICing Jr:
Boulevard
Chapel Hi11; NC 27514
SUBJECT:; Proposed'Water:;and Sewer Rate`Changes and Increases,, Presentations=to
ttlie ()raiiige ~oiunty: Board of Commissiioners sand iCarrbaro:8aard of
Aldermanon May "15 2007 and tothe Chapel Hill Town" Council on May
21 Z~07
Dear Chair Carey, Ivfayor Chilton and Ivlayor Foy::.
'Thank: you foie gtving us'the oppgxtuiuty to make presentations to each; of the local governing;
Baards regarding our watei:' and 'sewer rate proposals
As a follaw~up to the information we proutded to you an April 2, 2097 and as background.
nfarmation for. our: upcoming presentations, .I would like to focus ri this;letter on iwo questions:
,,
1 Haw rt:rlch >revenue: "does DYIjAS4 need to: c~nfinrre tle ligJz duality of `wafer" atrid'sefver
servicei`hatourcreslnmerse~epect r><ndfv~ wlzatpurposes?~
'We will not adopt:-a budget for,..:Fiscal Year ;2Q07=08 until June: However, our P:relurunary
$udget identifies expenditure totals of $46 6 million, of which $28 4 millxon'will be funded from.
operating revenues, .cornpared.to $27:0 tnillibn in the: current budget . Proposed expenditures' for'
the next yeax axe'`
;$18 4 m~lIion for capital improvements
18 5 riulhori, for'operatons and rnairitenance and'.capital;equipnenf;
9 Tmillon fordebt service
$46 6 million
As shown,: our projected capital xnprot!ement;costs and debt. ;service for capital projects, Total„
$28 l: inilhori-or "60% of our budget:
For several years, because- OWASA recognizes the,: need to properly find the renoyatton. and,
Teplacement_'of aging and 'inadequate facilities, the capital program :costs. have comprised'th'e;
ma3ority of,our annual budgets: The True cost of water:: and wastewater. services. includes ;thee
essential cost; of rezewing;;and updating.. utility; assets to protect ;their value, fiuichoriahties; and.,
_ ,
sustainability:
400')ones Ferry Road Equal Q,pporiomty, Einplo~~er. voicc:(~19)"Jfi$-442:1
AQ,$ox 366 Printed on; Recycled l?aper FAX,(919~,9Gt3=;4464
.CarrEaoro,NC275i0-0366; a~~•ri•:ou~usa nr~j;
Proposed Water and Sewer Rate Changes and Increases
May 8, 2007
Page 2
Much of our infrastructure is several decades old. To ensure reliable and high quality water and
sewer service to all our customers, it is essential to continue our ongoing program of system
rehabilitation and replacement. Without it, we will face more service interruptions, more leaks,
greater expenses, and declining quality of service.
As a matter of basic fairness to our present customers, we need to spread the cost of capital
improvements over many years so that future customers who will benefit from these long-lived
assets bear part of the cost. Like cities and counties, we therefore fmance a significant portion of
our. capital program with long-term bonds.
Our customers' demand for water declined significantly after the drought of 2001-02, and use
has not returned to pre-drought long-term projections. The associated resulting .decline in
revenue has detrimentally affected OWASA's fiscal performance. We now need to take action
to restore our debt service coverage ratio that has declined from the historic 2.0 level to 1.5
during Fiscal Year 2005-06; not only to sustain our favorable bond rating but, more importantly,
as a measure of fiscal prudence.
Our rates and fees must also ensure adequate funding for our operation and maintenance needs.
Increasingly stringent treatment standards, escalating energy and material costs, and other factors
are all contributing to upward pressure on our rates and fees.
Although the combined increase in monthly water and sewer rates is proposed to be 9.5%, we
want to emphasize that the proposed water rate increase is limited to 6.25%, similar to
adjustments in recent years; and the proposed monthly sewer rate increase is 13.75%. The latter
reflects costs including debt service for the $50+ million Mason Farm Wastewater Treatment
Plant (W WTP) improvements (now nearing completion) to improve the reliability and
performance of our treatment processes and to eliminate odor. The WWTP upgrade also makes
possible the reclaimed water project with the University, without which future water needs
would require major investment.
2. How should OWASA raise funds to meet the community's water and wastewater needs?
OWASA's rates and fees are founded on three primary principles.
First, in accord with our 1976 Agreements of Sale and Purchase with the Towns of Chapel Hill
and Carrboro and the University, we base our rates, fees and charges on cost-of-service
principles. Underlying this policy and contractual requirements is the basic concept that the
people who benefit from a service should pay for its cost.
Second, growth should pay for growth. The proposed increases in our water and sewer service
availability fees are based on this concept as well as the corollary cost-of-service ratemaking
requirement. We recognize that the increases in the sewer availability fees are significant, and
we emphasize that these fees properly reflect the $50+ million of improvements at the WWTP
and other sewer system improvements.
Proposed Water and Sewer Rate Changes and Increases
May 8, 2007
Page 3
Third, our rates and fees should encourage conservation. Conservation can significantly reduce
long-term OWASA system costs to our customers by avoiding or deferring the need to develop
an additional water source such as Jordan Lake. The estimated capital cost of obtaining water
from Jordan Lake is about $40 million. Conservation is why we implemented seasonal water
rates for all customers in May, 2002. The increasing block rates proposed for inclividually-
metered single-family residential customers will strengthen our pricing signal, especially for
non-essential water uses. Increasing block rates will also help offset rate increases and eliminate
the seasonal penalty for small volume users.
Please see the attached examples of water and sewer bills with increasing block rates and with
the current seasonal rates.
The seasonal rate structure is proposed to continue for other customers because the increasing
block rate structure would not fit or be fair to the variety of commercial, institutional and master-
metered multi-family customers who generally do not have irrigation needs. Seasonal rates have
also proven to be an effective pricing strategy for reducing peak water demand by non-residential
customers.
While education and information are an important part of our overall conservation program, an
appropriate rate structure is essential to achieve our conservation goals. Increasing block rates
for residential customers have proven successful in many other communities and are common
where water is scarce.
The block rate structure would also more equitably allocate a greater share of water system costs
to high-volume residential customers whose demand creates the need for higher system capacity.
At the same time, water-wise customers will typically experience lower bill increases than the
combined 9.5% rate increase because they will benefit from the lower block rates applicable to
consumption under 6,000 gallons per month.
Conclusion
We look forward to meeting with you later this month and the opportunity to receive your
feedback and respond to your questions.
Please feel free at any time to contact me (918-3651 or patandmac(cr~,earthlink.net) or Ed Kerwin,
our Executive Director, (537-4211 or ekerwin(a~owasa.org) with questions or comments.
Sincerely,
Michael A. (Mac) Clarke, Chair
OWASA Board of Directors
Proposed Water and Sewer Rate Changes and Increases
May 8, 2007
Page 4
Enclosures: 1. Additional information about the proposed increasing block rates for
individually-metered residential customers including examples of residential
OWASA bills at proposed and current rates.
2. Additional information about proposed service availability fees.
c: OWASA Board of Directors
Ms. Laura Blackmon, Orange County Manager
Mr. Roger Stancil, Chapel Hill Town Manager
Mr. Steve Stewart, Carrboro Town Manager
Ms. Carolyn Elfland, Associate Vice Chancellor for Campus Services
Ed Kerwin, OWASA Executive Director
8
Attachment #1
PROPOSED INCREASING BLOCK WATER RATES
FOR INDIVIDUALLY-METERED RESIDENTIAL CUSTOMERS
Increasing block water rates are proposed for customers in individually-metered residences
including traditional single-family homes and some townhouses, condominiums, and apartments.
Several thousand customers in multi-family developments receive service through a "master
meter" rather than individual meters and increasing block rates would not apply to them.
With increasing block rates, which would apply year-round, the charge per thousand gallons of
water use would rise as a customer's water use rises. The proposed increasing block water rates
are:
Level of water use er month Char a for volume of water use
first 2,000 allons of water use $2.46 er 1,000 allons
3,000 to 5,000 allons $4.09 er 1,000 allons
6,000* to 10,000 gallons $5.53 per 1,000 gallons
11,000 to 15,000 allons $7.46 er 1,000 allons
16,000 allons or more $13.05 er 1,000 allons
~ The average single-family residential household in our community uses slightly less than 6,000
gallons of water per month.
For a typical customer using 6,000 gallons of water per month:
/ The proposed charge for the first 2,000 gallons would be $4.92 (2,000 gallons times $2.46
per 1,000 gallons).
/ The proposed charge for the third, fourth and fifth thousand gallons would total $12.27
(3,000 gallons times $4.09 per 1,000 gallons.
/ The proposed charge for the sixth thousand gallons would be $5.53 for a total charge of
$22.72 ($4.92 + $12.27 + $5.53) for water volume only.
Our bills also include fixed monthly water and sewer service charges based on meter size, and a
uniform charge per 1,000 gallons of sewer service, and we calculate our bills from meter
readings rounded down to the nearest 1,000 gallons.
Increasing block rates would mean that residential customers who use large amounts of water
would pay a greater share of the system capacity costs for water supply and treatment facilities
needed to meet their higher water demand. Many high volume residential water users would
have higher bills with block rates. If the effect of the proposed 9.5% rate increase is not
considered, the proposed residential block rate structure would mean lower bills for customers
who use small amounts of water each month.
Proposed Increasing Block Rates for Individually-Metered Residential -Attachment #1
May 8, 2007
Page 2
EXAMPLES OF RESIDENTIAL WATER AND SEWER BILLS
WITH CL:-I~RENT AND PROPOSED RATES
Example 1: Atypical household in asingle-family residence using 6,000 gallons of water per
month throughout the year.
At current rates, the monthly water and sewer bill averages $63.56. (With seasonal water
conservation rates, our bills vary by time of year.)
With the proposed block rates and 9.5% rate increase, the monthly bill would be $67.00.
Increase: 5.4%
Example 2: A household using 8,000 alg Ions per month from October through April and 20,000
alg lons per month from Ma~hrough September.
At current rates, our monthly bills over a full year average $124.70. (With seasonal water
conservation rates, our bills vary by time of year.)
With the proposed rate changes including the sewer billing cap, the bills would be $86.38
from October through April and $229.11 from May through September, or an average of
$145.85.
Increase: 16.9%
Example 3: A household using 3,000 alg loos of water per month throughout the year.
At current rates, the monthly water and sewer bill averages $40.61. (With seasonal water
conservation rates, our bills vary by time of year.)
With the proposed block rates and 9.5% rate increase, the monthly bill would be $40.81.
Increase: 0.5%
Example 4: A household using 2,000 gallons of water per month throughout the year.
At current rates, the monthly water and sewer bill averages $32.97. (With seasonal water
conservation rates, our bills vary by time of year.)
With the proposed block rates and 9.5% rate increase, the monthly bill would be $32.56.
Decrease: 1.1
Example 5: A household using 10,000 alg Ions of water per month throughout the year.
Proposed Increasing Block Rates for Individually-Metered Residential -Attachment #1
May 8, 2007
Page 3
At current rates, the monthly water and sewer bill averages $94.15. (With seasonal water
conservation rates, our bills vary by time of year.)
With the proposed block rates and 9.5% rate increase, the monthly bill would be $105.76.
~~
Increase: 12.3%
Attachment #2
Orange Water and Sewer Authority
Proposed Service Availability Fees
OWASA's Service Availability Fees are established to recover the proportionate share of
the capital costs OWASA incurs to provide the "backbone" water supply, treatment and
distribution facilities, and wastewater collection, treatment and disposal facilities necessary to
meet a new customer's capacity requirements. The Service Availability Fees were last updated
in 2001, with annual adjustments made thereafter at the same percentage as annual water and
sewer rate increases. Since the 2001 study was completed, significant capital improvements
have been made. The scope of the 2007 Rate Study included an update of both the water and
sewer Service Availability Fees to ensure that the fees recover the full cost of service and that
growth pays for growth.
The prior update used the System Buy-In methodology to calculate the Service
Availability Fees. The System Buy-In method excludes all debt funded capital from the service
availability calculation and therefore understates the true cost of the assets that will serve new
customers. After evaluation of OWASA's current system and Capital Improvements Plan it was
determined that aPlant-in-Service methodology for determining water and sewer availability
fees would be most appropriate for OWASA.
The Plant-in-Service method utilizes a cost basis comprised of the Reconstruction Cost
New Less Depreciation (RCNLD) value of the existing system assets as well as the cost of the
five-year CIP (in current year dollars). This cost basis is then divided by the total system
capacity upon completion of the projects included in the five-year CIP to determine a unit cost of
the system. Finally, a credit is deducted from the unit cost of the system to reflect the present
value payments of the principal portion of future debt service payments new connections will
make once they connect to the system via monthly user fees in order to avoid a double recovery
of capital costs.
This methodology is considered the fairest methodology of the alternative methodologies
considered because it provides for a reasonable method to include all eligible assets in the
service availability fee calculation while avoiding double counting the asset value of original
projects and their replacement by including all assets, even rehabilitation and replacement assets,
and depreciating all assets.
i~
Proposed Service Availability Fees -Attachment #2
May 8, 2007
Page 2
Orange Water and Sewer Authority
Schedule of Current and Proposed Service Availability Fees
Proposed to be Effective October 1, 2007
Water Service Availabili , Fees
5/8" Meter, Single-family Residential: Existing {Proposed }
<1300 square feet $960.00 $1,052.00
1300-1700 square feet $1,173.00 $1,284.00
1701-2400 square feet $1,484.00 $1,625.00
2401-3100 square feet $2,539.00 $2,778.00
3101-3800 square feet $3,450.00 $3,777.00
>3800 squaze feet $5,794.00 $6,341.00
5/8" Meter, Residential, Irrigation-Only $2,812.00 $3,078.00
5/8" Meter, Multi-family Residential $1,034.00 $1,133.00
5/8" Meter, Nonresidential * $2,812.00 $3,078.00
1" Meter, Nonresidential * $7,030.00 $7,694.00
1-1/2" Meter, Nonresidential * $14,060.00 $15,388.00
2" Meter, Nonresidential * $22,496.00 $24,621.00
3" Meter, Nonresidential * $44,992.00 $49,243.00
4" Meter, Nonresidential * $70,300.00 $76,942.00
6" Meter, Nonresidential * $140,600.00 $153,884.00
8" Meter, Nonresidential * $224,960.00 $246,214.00
* Same fee for Nonresidential, Irrigation-Only accounts
Sewer Service Availability Fees
5/8" Meter, Single-family Residential Existing {Proposed}
<1300 squaze feet $1,685.00 $2,441.00
1301-1700 square feet $2,034.00 $2,949.00
1701-2400 square feet $2,071.00 $3,001.00
2401-3100 square feet $2,538.00 $3,677.00
3101-3800 square feet $2,743.00 $3,973.00
>3800 square feet $3,114.00 $4,514.00
5/8" Meter, Multi-family Residential $1,825.00 $2,645.00
5/8" Meter, Nonresidential $3,623.00 $5,250.00
1" Meter, Nonresidential $9,057.00 $13,125.00
1-1/2" Meter, Nonresidential $18,115.00 $26,250.00
2" Meter, Nonresidential $28,984.00 $41,999.00
3" Meter, Nonresidential $57,968.00 $83,999.00
4" Meter, Nonresidential $90,575.00 $131,248.00
6" Meter, Nonresidential $181,150.00 $262,497.00
8" Meter, Nonresidential $289,840.00 $419,995.00
* In addition to the sewer availability fee, an excess sewer capacity fee of four percent (4%) of the
applicable sewer service availability fee will be charged to recover the costs of excess sewer capacity
installed in an area covered by an agreement for credit payments to the constructing developer. This fee
applies to residential and nonresidential customers.
(3
Making Your Infrastructure Program Affordable:
Service Availability Fees Based On Finished Area of New i_Iomes
Edward A. Holland, Planning Director
Ed Kerwin, Executive Director
Orange Water And Sewer Authority
Carrboro/Chapel Hill, NC
ABSTRACT
This paper describes the development of a tiered system of water and sewer service availability
fees based on the finished area of single family homes.
Orange Water and Sewer Authority (OWASA) customer data exhibit a consistent pattern of
increased average and seasonal water use with increasing home size, as indicated by building
permit and utility billing records. Customers with more modest homes generally use less total
water and exert a lower summer demand than those with larger homes.
OWASA's service availability fees -utility capital recovery charges (or impact fees) assessed to
new development -were traditionally based on meter capacity factors, and all single family
homes were charged the same one-time fee when connecting to the water or sewer system,
regardless of home size or expected water use patterns. Data developed for this analysis
provided a valid utility basis for establishing availability fees that are more responsive to the
actual patterns of water and sewer use that characterize different subsets of residential customers.
A new tiered approach adopted by OWASA's Board of Directors established five separate size
classes for new single family homes. Availability fees for homes in the smallest size class (less
than 1700 square feet) are now 38 percent lower than under the previous rate structure, while
new fees for the largest homes (greater than 3800 square feet) are 70 percent higher than
previously. The analysis of water use patterns also provided a basis for revising service
availability fees for multi-family residences (apartments, townhouses, and condominiums with
individually metered units), which use an average of 3S percent less water than single family
detached homes.
The tiered approach represents a more precise cost-of-service focus than uniform availability
fees, because it considers the actual demand patterns of different residential user groups, rather
than treating all residential customers in the same way. Another benefit has been the reduction
of fees charged for smaller homes, thus lowering one of the economic barriers to more affordable
housing in OWASA's service area.
BACKGROUND
Orange Water and Sewer Authority (OWASA) provides utility service to approximately 65,000
1 ~-
people in the Towns of Carrboro and Chapel Hill and to the University of North Carolina at
Chapel Hill, which represents nearly 30 percent of OWASA's 8 million gallon average day
demand. The rest of the customer base is primarily residential and retaiUcommercial,
representing approximately 55 and 15 percent of total demand, respectively.
Capital improvements are managed through a 15-year Capital Improvements Plan (CIP), which
is updated annually. Anticipated project costs are programmed for the upcoming five years
through a Capital Improvements Budget (CIB), with capital expenditures typically ranging from
$7 million to $10 million per year. OWASA recovers a portion of these costs through service
availability fees. These one-time, upfront charges for new customer connections help fmance
"backbone" projects that support major water and wastewater treatment facilities and their
supporting infrastructure.
OWASA's availability fees are based on the System Buy-In approach, under which new
customers connecting to the system "buy in" to the existing capacity that has already been
provided and fmanced by existing customers. Thus, after buying in, new customers receive
service in an equity position comparable to that of existing customers. Availability charges
based on this method recognize the current value of existing backbone facilities, which is
determined by a variety of factors, including original construction cost, depreciation,
renovations, upgrades, and capacity expansions.
In general, the System Buy-In method is most appropriate for utilities such as OWASA that
are experiencing only moderate growth, and desire to have new and old customers share
equally in costs of the entire system. Other methods, such as MarginaU Incremental pricing,
are sometimes used by utilities experiencing significant customer growth and capital
expansion, but seeking to minimize the rate impacts of system growth and investment on
existing customers.
LOCAL HOUSING FACTORS AND WATER USE
In December 1997 OWASA staff conducted a reconnaissance level survey of water consumption
and housing parameters among 165 single family detached homes. This preliminary analysis,
which was based on 36 consecutive months of customer billing data, indicated a strong
relationship between water consumption, lot size, and tax value. Based on these fmdings, staff
developed additional data to support possible changes to the service availability fees.
Because availability fees are applied primarily to new construction, information was collected on
all new homes built in the OWASA service area during calendar year 1994, and then linked to
the subsequent billing records for each of the corresponding customer accounts. Primary
information sources included local building permits and tax files. After deleting incomplete or
unmatched records, the resulting data set included 305 valid entries containing consistent
information on lot size, fmished area, number of bedrooms, bathrooms, and 31 months of water
consumption from June 1995 through December 1997. Finished area, as recorded in local
building permits, represents total heated floor space.
As with the preliminary fmdings for existing homes, data for the new homes displayed positive
2
15
correlations between water use and tax value (r = O.S71), finished area (r = 0.485), and lot size (r
= 0.267). Although the correlation was somewhat stronger between water use and tax value than
between water use and fmished area, subsequent fee structure analyses were based on fmished
area, because this parameter was thought to represent a more defensible utility-based indicator of
water consumption than tax value. The general fmdings of the analyses are presented in Exhibit
1 and discussed below.
GENERAL METHOD FOR CALCULATING AVAILABILITY FEES
Tiered availability fees were calculated with the same factors used in a recently completed
OWASA rate study to adjust water and sewer use estimates for lost water, infiltration and inflow,
and maximum day demands (1). The general form of the calculation is expressed in Equations 1
and 2:
Water = [Average Use] x [Loss Factor] g [Peak Factor] g [Unit Value] (eq.1)
Sewer = [Average Use] g [Sewer Use Factor] z [I/i Factor] g
[Combined Use and UI Peak Factor] x [i7nit Value] (eq. 2)
Adjustment factors for water and sewer use and capacity unit values are presented in Exhibit
2. The sources and derivations of these factors are described in Exhibits 3 and 4.
The OWASA staff analysis separated customer accounts into three user classes: (1) single
family detached homes; (2) multi-family individually metered apartments, townhouses,
condominiums; and (3) a combined non-residential customer class that included rnaster-
metered apartment complexes plus all other commercial and institutional (CTniversity)
accounts. The use of these three classes is justified by their distinctive consumption patterns
summarized in Exhibit 3.
OWASA's former rate structure treated all single family residential accounts as one customer
class and based availability fees on an average water consumption of 208 gallons per day .
(gpd) for all S/8-inch meter accounts; which typically represent single family residences and
small businesses. By contrast, the present analysis separated consumption records for all S/8-
inch accounts into the three classes described above and found the daily averages for the 24
months of FY 1996-97 to be 193 gpd, 127 gpd, and 322 gpd, respectively, for single family
detached, multi-family individually metered, and non-residential S/8-inch meter accounts
(see Exhibit 3).
These consumption rates, along with the modified adjustment factors, are the basis for the
tiered availability fees that were subsequently adopted as shown in Exhibit S.
Average Water Use
Water consumption data for the calculation of availability fees is described below and in
Exhibits 1 through 3. Data reported for all classes represents the same time base of two
3
((~
OWASA fiscal years, FY 96-97 (July 1, 1995 through June 30, 1997).
Single Family Detached -Average water use for each of the five size groups (fmished area)
of the single family detached class were derived from the FY 96-97 water use data presented
in Exhibit 1. These groupings were selected to optimize several considerations. Each class
spans an equal size range of 700 square feet. The upper and lower-most size classes (less
than 1701 and greater than 3800 square feet) represent substantial differences in size and
value, yet contain sufficient sample data to support a credible statistical pattern. Finally, the
size class with the largest number of new homes (2401 to 3100 square feet) represents the
midrange of both the fmished area and water use variables; i.e., the mean values of this range
are nearly identical to the average values of the entire sample set.
Multi-Family Individually Metered -Average water use (127 gpd) for this class was
obtained from OWASA customer billing records, as described in notes to Exhibit 3.
Non-Residential 5/8-Inch Meter Accounts -Actual account data for this class were not
analyzed for FY 96-97. The reported annual (322 gpd) and winter (302 gpd) averages were
obtained by adjusting the observed annual and winter FY 95 non-residential 5/8-inch account
averages (334 gpd and 313 gpd, respectively) in proportion to the reduction from 200 gpd to
193 observed in annual use for the single family residential class between the FY 95 and the
FY 96-97 sampling periods. Examples: Annual average = 334 gpd x 193/200 = 322 gpd.
Winter average = 313 gpd x 193/200 = 302 gpd.
The resulting availability fees calculated for non-residential 5/8-inch accounts are the basis
for all other non-residential fees, which were scaled up by meter capacity ratios, as in the
previous rate structure, and as recommended by in the recent OWASA rate study~i~.
Water Loss and Peaking Factors
The need for backbone water system capacity is a function of short term (peak) customer
demands and longer term demands represented by losses from the system. The loss factor of
1.08 applied to the average day demands of all user classes reflects OWASA's actual
unaccounted-for loss of eight percent of total fmished water production.
The recent rate study report applied one-day peaking factors of 2.0, 1.4, and 1.5, to the
average day demands of single family detached, multi-family individually metered, and non-
residential 5/8-inch accounts, respectively, in its analysis of backbone capacity needs~r~.
OWASA's present analysis incorporated modifications to the single family peaking factor in
order to reflect actual summertime differences observed among the size classes, as described
below.
Single Family Detached -Peaking factors highlighted with gray shading in Column 7 of
Exhibit 3 were derived by normalizing the average summer demands of each fmished area
size class to the summer average (248 gpd) of the entire single family detached class as a
whole, to which the recent rate study had assigned a peaking factor of 2.0. For example, the
peaking factor of 1.3 applied to the <1701 square foot subclass was obtained by multiplying
4
~~
2.0 (the average peaking factor for the class) by 160/248 (average summer demand of the
<1701 square foot subclass divided by average summer demand for the entire class): 1.3 =
160/248 x 2.0 .
Multi-Family Individually Metered and Non-Residential 5/8-Inch Meter Accounts -The
peaking factors of 1.4 and 1.5 used for these customer classes are the same as those used in
the recent rate study report~l~.
Sewer Use Factors
Sewer system availability fees are based on adjusted water use. The rate study report applied
a sewer use factor of 0.875 to all customer classes, which is consistent with OWASA's
historic estimate that 87.5 percent of billed water. returns to the sewer system as wastewater.
In developing the tiered availability fees, OWASA staff applied different sewer factors to
each customer class to better reflect actual differences in seasonal use observed for each
group. Sewer use was estimated as the ratio of average winter to average annual water
consumption for each class, reflecting the assumption that most winter use occurs indoors
and is returned to the sewer system as wastewater, while a substantial portion of summer
demand is for outdoor use on lawns and gardens. The inverse relationship between the sewer
use factor and peak water demand is apparent in Exhibit 2 and in comparisons among
columns 7, 10, and 12 of Exhibit 3.
Infiltration/Inflow Combined Sewer Use & I/I Factors
Additional adjustment factors were employed in calculating sewer availability fees to
account for periodic high flows related to customer peaks, as well as the unwanted entry of
stormwater (infiltration and inflow) into the collection system. As noted, these are the same
factors used in the recent rate study report (see Exhibits 2 and 4).
Unit Capacity Factors
The total value of water and sewer backbone assets was determined by adding the value of
recently completed major capital improvements and projects that were either underway or
programmed for completion within the next two years, to the total value of water and sewer
assets reported at the end of FY 96. These "reproduction cost less depreciation" (R.CLD)
values had been compiled for the recent rate study report~i~. Additional information is
presented in Exhibit 4.
IlV.II~LEMENTATION OF NEW FEE STRUCTURE
Tiered service availability fees, as outlined in Exhibit 5, were implemented in October 1998 after
the proposal had been discussed in several public meetings and news articles. Customer
response was generally positive, due to the understandable logic and perceived fairness of the
approach. Local housing advocates praised the new fee structure for its benefits to housing
affordability. Administration of the tiered fees has required no internal changes at OWASA
5
1~
other than the submittal of a building permit application or floor plans for new home
construction.
SUMMARY AND CONCLUSIONS
OWASA customer billing data, in conjunction with information derived through local building
permits and tax records, demonstrated a consistent pattern of increased average and seasonal
water use with increasing home size. Customers with more modest homes generally use less
total water and exert a lower summer demand than those with larger homes. These findings
provided a valid utility basis for a tiered system of one-time service availability fees based on the
fmished area of new homes connecting to the public water and sewer system. The new fee
structure has been straightforward to administer, well received by the public, and is credited with
lowering one of the economic barriers to more affordable housing in the OWASA service area.
ACKNOWLEDGEMENTS
The authors wish to thank Mr. Michael Mussman and Mr. William Stannard of Black & Veatch,
LLP and Mr. George Raftelis of Raftelis Financial Consultants, PA for their technical support
and guidance during the development of OWASA's tiered availability fees.
REFERENCES
1. Final Report, Water and Sewer Rates for the Orange Water and Sewer Authority, Black &
Veatch, LLP, January 1998.
6
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Exhibit 1.
Water Use vs
Fini~hPrl Area
July 1995 -June 1997
0 2oao aooo soon
Finished Area (sa ft)
350
~ 300
Q`~ 250
>+
0 200
Seasonal Ratio
Summer
'< 1.70
1.45 ,,,,,
Winter 1.33
1, 1.22 ....................
i
+ , .
1701-2400 2401-3100 3101-3800 >3800
Finished Area of Homes (sq ft)
Finished Area Sample Pct 24-Month Pct Summer Pct Winter Pct Seasonal
(square feet) Size Homes Mean 24-Month Mean Summer Mean Winter Ratio
(# accts) (gpd) Demand (gpd) Demand (gpd) Demand
<1701 28 9% 155 7% 160 6% 151 8% 1.06
1701-2400 81 27% 170 21% 187 20% 153 22% 1.22
2401-3100 104 34% 218 35% 248 34% 186 35% 1.33
3101-3800 59 19% 247 22% 292 23% 202 21% 1.45
>3800 33 11% 311 16% 391 17% 230 14% 1.70
Overall: 305 100% 215 100% 248 100% 182 100% 1.36
Mean Finished Area: 2,820 sq ft
Data Seta 305 homes built in Carrboro/Chap el Hill during 1994, from building permit and tax records.
Water Use: 24 Months, July 1995 -June 1997, from O WASA customer records.
Summer. May -October,' lMnter. November -April.
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Exhibit 4. Calculation of Unit Capacity Values for
Water and Se~nrer backbone Facilities
RCLD value as of 6/30/96:
Plus CWIP &CIB from 7/1/96 through 6/30/00:
Less credit for existing debt as of 6/30/00:
Less credit for projected new debt:
Projected asset value as of 6/30/00:
System capacity as of 6/30/00 (mgd):
Unit capacity value ($/gpd)
Notes Water Sewer
(a)
(b)
$58,645,000 $36,675,000
$11,176, 000 $27,191, 000
(c) ($19,185,000) ($5,100,000)
Notes:
(a) RCLD (Reproduction Cost Less Depreciation) is the asset value of backbone facilities.
RCLD values at the end of FY 96 were comoiled in OWASA's 1998 rate study report ~'~ .
(b) Includes all backbone-related construction work in progress (CWIP) not booked as assets in
(a), plus backbone-related improvements programmed from FY 97 through FY 2000 in
OWASA's Capital Improvements Budget (CIB). Values have not been depreciated.
(c) Represents outstanding debt principle for backbone water and sewer facilities. Debt service
costs are recovered through regular monthly service and/or commodity charges and are
credited against availability fee calculations to avoid double-charging new customers who pay
service availabilit fees. Existing debt as of June 30, 2000 is outstanding from OWASA's 1993
bond sale. Projected new debt rspresents $10 million of anticipated bond sales to finance
m~inr imnrnvomcnfe ~~nrlonniw ~t fha ui~efoui~fer nlnnf
(d) Total asset value as of June 30. 2000 is calculated as (a) + (b) + (c).
(e) Represents maximum sustainable daily flow permitted through the water plant and maximum
monthly flow permitted through the wastewater plant upon completion of all improvements.
(t) Unit capacity value is derived by dividing (d) by (e).
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