Loading...
HomeMy WebLinkAboutAgenda - 10-07-2008 - 7cORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: October 7, 2008 Action Agend~ Item No. SUBJECT• Efland Sewer Rate Study DEPARTMENT: County Manager PUBLIC HEARING: (Y/N) ~~ ATTACHMENT(S): 1. Rate Study Summary from Raftelis Financial 2. 9/5/08 Memo from Paul Thames, County Engineer to the County Manager Describing Progress on the Rate Study INFORMATION CONTACT: Kevin Lindley, Engineering Specialist, 245-2313 PURPOSE: To provide for BOCC review of the recently completed rate study and request BOCC recommendations on implementation of a new rate schedule. BACKGROUND: The Efland Sewer System was conceived back in the mid-1980s .as a remedy for failing septic systems in the Efland Community. Phase I of the system was completed in the late-1980s, and the rates set at the time were sufficient to provide sufficient revenue for the operation of the system. However, over the last twenty years of operation, the costs of both operation and maintenance have increased steadily while the rates have remained unchanged. At the present time, the revenue generated. by the current rate structure accounts for only 20- 25% of the full cost of operating and maintaining the system. The remainder of the system costs are paid from the Orange County General Fund. With this in mind, the BOCC authorized Raftelis Financial, a consultant who specializes in rate studies, to study the system and create a cost model that shows the system's costs versus its revenue and shows how different rates affect customer's bills and the amount of the County's General Fund contribution. This cost model, which is in the form of a multiple-page spreadsheet, has been completed and is the basis for the following scenarios. In order to capture all the system costs, including funding for future capital projects and maintaining a fund balance, the rates would need to be increased by an average of 300%. The current rate structure bills all customers for a minimum of 3,000 gallons of use per month. Raftelis has suggested changing the rate structure to a base charge that would be the same regardless of use plus a charge per 1000 gallons used. This accomplishes two objectives: the impact of the rate increases on low water users (who typically are also low income users) is 2 mitigated somewhat, and there would also be a financial incentive to use less than 3000 gallons per month. Example 1. General Fund Subsidy eliminated this year A customer who uses 2,000 gallons per month now pays $15.20 per month. Given the increase above, that same customer's bill would have a base charge of $20.73 and a usage charge of $18.00 per 1,000 gallons, for a total bill of $56.73 per month (273% increase). A customer that typically uses 6,000 gallons per month currently pays $28.70. Given the scenario above, this would increase to $128.73 per month (348% increase). If the rates are not changed at all, the expected General Fund contribution that would be required this fiscal year would be approximately $142,000, without including any funding for capital projects that are known to be required in the future. The capital project funding, which is required as part of our state issued collection system permit, would be approximately $50,000 per year for the next ten years. This makes the total General Fund Contribution about $192,000 for the upcoming fiscal year. This total subsidy amount would increase as the number of customers and the size of the system increase in future years. This year, in anticipation of BOCC implementation of a new rate schedule, the General Fund contribution to the system's budget was reduced by $40,000. To make up for this budget reduction, the rates would need to be increased an average of 150% this year. This percentage increase is derived from the assumption that the rates would not be raised until the January billing cycle at the earliest, giving only six months to generate the revenue necessary. If implementation of a new rate structure were to be delayed beyond that time, then the percentage would need to be increased. In addition, the 150% increase would serve only to bridge the gap between the system's requested .budget and the approved budget. Capital needs funding and establishment of a fund balance for the system are not included in calculation of the 150% increase. In order to eliminate the General Fund subsidy entirely, the BOCC could establish a schedule by which rates are increased steadily each subsequent year until the system is fully funded. Example 2. Rates increased to make up for reduction in operating budget. With a 150% increase, the 2,000 gallon customer from the above example would have a monthly bill of $35.46 (Base Charge: $12.96 + $11.25 per 1,000 gallons which results in a 133% increase) and the 6,000 gallon per month customer would have a monthly bill of $80.46 (Base Charge: $12.96 + $11.25 per 1,000 gallons which results in a 180% increase). None of the discussion so far takes into account the impacts to low income residents who may find the increased rates onerous. As has been mentioned before and is included in the attached memo from County Engineer Paul Thames to the County Manager, the BOCC may elect to create a "safety net" fund that could be administered by one of the County's social service agencies. This fund could be made available to customers after they meet some fixed income related criteria as determined appropriate by the administering agency. The safety net fund would pay into the Sewer Fund on behalf of qualified customers, thereby reducing their sewer bill. The costs and scenarios mentioned in the previous paragraphs do not take the costs of such a fund into account. Additionally, there is no reliable way to calculate the effect that much higher sewer rates will have on consumption (and therefore, revenue). The increased 3 rates may tend to function as a "conservation rate" due to the financial impact of the higher rates. Working backwards from an implementation date of January 10, 2009 (the beginning of Orange-Alamance's monthly billing cycle), staff has created a proposed timeline for the rate changes. October 7, 2008 BOCC considers the results of the rate study and offers quidance on the new rate schedule. Notice to all current customers would be sent after this meeting that a new rate schedule is being considered and why. October 21, 2008 The draft version of a new rate schedule is created and presented to the BOCC for review. October 23, 2008 Notice for Public Hearing on new rate schedule is published. November 6, 2008 Public Hearing on new rate schedule is held as part of the regularly scheduled BOCC meeting that evening. November 18, 2008 BOCC approves the new rate schedule. November 19, 2008 Notice is sent to all current customers of the pending rate increases. January 10, 2009 New rate schedule is reflected for the first time in customer bills for usage from December 10-January 10. Bills are mailed January 16- 20 and due on February 1. Following this., schedule will allow customers to receive notice of the pending rate changes before the "use period" (December 10t"-January 10t") of the January billing cycle. FINANCIAL. IMPACT: Potentially tens of thousands of dollars could be saved by rescinding the County's subsidy of sewer rates for the Efland sewer system. Additionally, raising the rates to eliminate the County's subsidy or a portion of the County's subsidy as specified above by the January 2009 billing cycle provides a means of balancing the operating budget for the Efland sewer system. RECOMMENDATION(S): The Manager recommends that the Board give direction to staff on implementation of a new rate schedule for the Efland sewer system, based on the findings of the Raftelis Financial rate study. ^ 511 East Boulevard Charlotte • North Carolina • 28203 R,4FTELI5. FINANCIAL Ct7NSULTANT5;, INC. September 24, 2008 Mr. R Kevin Lindley, PE, MCE Engineering Specialist Orange County 129 East King Street Hillsborough, North Carolina 27278 Dear Kevin: ^ Phone 704.373.1199 Fax 704.373.1113 ^ www.raftelis.com Raftelis Financial Consultants, Inc. ("RFC's is pleased to submit this letter report summarizing the results of our wastewater rate study ("rate study' for Orange County, North Carolina ("County"). The purpose of the rate study was to determine the financial. and customer impacts of recovering the annual revenue requirements of the Efland System which is owned and operated by the County. The financial and customex impacts are determined based on three alternative rate scenarios. In addition, this letter report recommends an alternative rate structure we believe is more equitable for low volume customers. Finally, this letter report concludes by ideniifping alternative strategies the County may want to consider in addressing rate affordability for low-income customers. Since 1987, the County has owned and operated a wastewater collection system for a small utility serving approximately 200 customers in Efland, North Carolina (the "Efland System'. Wastewater collected in the Efland System is conveyed to the Town of Hillsborough, NC ("Town' for treatment and disposal. The Efland System consists primarily of residential customers; however, service is provided to a select number of commercial and industrial accounts. The Eflarid System generates averages monthly wastewater flows of 1.5 million gallons, including inflow and infiltration ("I&I'~. The County is in the regulatory review process of expanding the Efland System to provide the capacity to serve add between 75 to 100 customexs over then next few years. Current Rate Structure The Efland System's wastewater rates have remained unchanged since they were first established in 1987. All customers pap a monthly minimum charge of X15.20 which includes the first 3,000 gallons based on metered water usage. Customers using above 3,000 gallons per month are then assessed a volumetric rate of X4.50 per 1,000 gallons of water usage. The table on the following page presents the monthly sewer bills for customers with water usage ranging from 0 to $,000 gallons of water per month. Mr. Kevin Lindley September 24, 2008 Orange County page 2 ~"/ Monthl~Bills Under Current Efland System Rates Monthly Metered Water Usage Interval Monthly Sewer Bill 0 to 3 legal (minimum charge) X15.20 3 to 4 legal $19.70 4 to 5 legal X24.20 5 to G legal X28.70 6 to 7 legal X33.20 7 to 8 legal. X37.70 Based on the current wastewater rate structure and the typical water usage by the customers of the Efland System, the County collected approximately X62,900 in sewer charge revenues for fiscal pear ("FY's 2007. Although the customers of the Efland System are assessed sewer charges based on billed water usage, the County is assessed a X10.35 wholesale sewer charge for every 1,000 gallons of metered sewer discharged from the Efland System to Hillsborough for treatment. The Town meters the sewer discharge through a sonic flow meter located approximately half a mile from the point of discharge into the Town's system. Based on the wholesale sewer charge and the metered discharges, which include substantial amounts (30%) of I&I during wet weather periods, the annual wholesale wastewater charges exceed the annual revenues collected from the Efland System customer base. In FY 2007, the Hillsborough treatment costs were approximately X140,000 compared to the X62,900 in revenues collected from customers of the Efland System. Ultimately, the current wastewater rate structure has required the County to provide an annual financial. subsidy ranging from $80,000 in FY 2005, to $106,800 in FY 2007. Revenue Requirements Forecast and Revenue Sufficiency Based on the estimated operating expenses and capital costs for the Efland System, the current wastewater rates would need to be adjusted on January 1 to provide X142,000, or an additiona1300% in sewer charge revenues to achieve full revenue sufficienry for FY 2009 and eliminate the current subsidy provided by the County. This estimated increase in sewer charge revenues was determined based on our forecast of annual revenue requirements and billed water usage for the Efland System. Due to substantial amounts of I&I during wet weather periods, the actual level of revenues required to achieve revenue sufficiency can be significantly influenced by weather conditions and is therefore uncertain. As part of the rate study, RFC developed afifteen-year forecast of annual revenue requirements for the Efland System. The forecast was based on a review anal understanding of the historical revenue requirements, escalation of operating and maintenance ("O&M'~ expenses budgeted for FY 2008, and projected wholesale sewer costs based on anticipated annual discharges to the Town of Hillsborough for treatment. The annual O&M expenses include equipment maintenance, telephone, utilities, operations, and an allocation of Orange-Alamance expenses. The FY 2008 budgeted costs for these line items are escalated annual by 3.0% to account for inflation and salary adjustments. The Hillsborough treatment costs are forecast based on anticipated increases in metered sewer discharges and the $10.35 per 1,000 gallons rate. Mr. Kevin Lindley September 24, 2008 Orange County page 3 ro Additionally, annual capital costs were estimated based on planned capital project information provided by Orange County which includes rehabilitations to three pump stations, a manhole seepage collar program, and the $1.7 million expansion to the system to allow additional 75 to 100 customer connections. For the purposes of this rate study, it is assumed the $1.7 million will be funded by a ten- year loan with a 3.0% annual rate of interest. However, the actual method of funding the system expansion and other capital costs may differ based on financing decisions of the County. The table below presents the forecast of annual revenue requirements of the Efiand System during the first five years (FY 2008 through FY 2012) of the fifteen pear forecast period. In addition, the table demonstrates the annual revenue deficit or required subsidy from the County under the current wastewater rates for the Efland System. Revenue Requirements and Revenue Sufficiency Revenue Sufficiency Revenue Requirements O&M Expenses1 Hillsborough Treatment Costs Annual Capital ProjectsZ Annual Debt Service3 Total Revenues User Charges Other Revenues4 Total Surplus/Deficit Fiscal Year Ending June, 30 2008 2009 2010 2011 2012 $60,831 $62,656 $77,905 $80,243 $82,650 144,031 144,031 154,608 189,867 196,918 1,200 0 35,000 220,000 0 0 0 0 51,000 213,889 $206,061 $206,686 $267,513 $541,109 $493,457 63,500 63,468 68,129 83,666 86,773 1,500 1,545 1,591 1,639 1,688 $65,000 $65,013 $69,721 $85,305 $88,462 (141,061) (141,673) (197,793) (455,804) (404,995) i O&M includes all equipment, utilities, and other costs associated with the County's operating expenses. a Annual capital projects include those capital projects not funded through debt financing. s Represents debt service on the ten-year loan to finance the X1.7 million for expanding the Efland System a Other revenues include all non user charge revenues, such as interest income etc. Based on the forecast of revenue requirements and the anticipated annual revenue deficit, the County would need to increase the current wastewater rates by approximately 300% to generate an additional $142,000 in wastewater charge revenues and achieve financial sufficiency in FY 2009. This level of rate increase represents a substantial impact on the customers of the Efland System and the anticipated future capital improvements would require subsequent, although less substantial rate increases.l t Since the rate increases would on effect the final six months of the fiscal year, the rate increase is more significant than would be required if the rate increases would have occurred on July 1, 2008. Mr. Kevin Lindley September 24, 2008 Orange County page 4 y-~ Rate Recommendations Due to the small customer base and the large segment of the customer base that would qualify as low income, the County should consider several alternatives to mitigate the substantial impact on customexs of achieving full revenue sufficiency. These alternatives should include the following: 1. Rate structure modifications that will provide rate relief to low water use customers while providing greater consistency with customer equity and cost of service principles; 2. A phased program of rate adjustments designed to avoid rate shock by moving toward revenue sufficiency during the forecast period; and 3. Alternative strategies to address rate affordability for low income customers. Rate Structure Modifications The current monthly minimum charge of $15.20 requires customers with monthly water usage of 3,000 gallons or less to pap for a level of sewer flows they do not discharge into the Efland System. In general, such monthly minimum charges with minimum allowances were originally designed to ensure a certain level predictable or fixed revenues. Although these monthly minimum charges are still used by many utilities, the national trend is moving toward a more equitable and cost justified type of fixed charge set to recover a level of fixed costs that should be recovered regardless of the level of water usage or wastewater discharged. Since the current monthly minimum charge of X15.20 is greater than the volumetric rate of X4.50 per 1,000 gallons of water usage applied to a customer using the minimum allowance of 3,000 gallons per' month (3 x X4.50 = X13.50), the current rate structure includes an "implied base charge" of X1.70. Any customer with no metered water usage during a month is essentially paying for 3,000 gallons, or X13.50 for water usage the customer is not discharging back into the Efland System. As such, the current rate structure is inequitable to customers with less than. 3,000 gallons of metered water use per month. These low use customers are often low or fixed income families focused on limiting their monthly utility expenses. Based on water billing data from Apri12007 through February 2008 provided by Orange and Alamance Counties, approximately 92 customers, or 45% of the Efland System fell within the 3,000 gallon minimum water usage interval. With an average monthly metered water use by those 92 customers of 1,273 gallons, a substantial portion of the Efland System customers are paying for services they do not receive. To improve customer equity, cost of service, and affordability for low income customers, we recommend implementing a base charge and eliminating the minimum usage allowance. Since a good portion of the current 97 customers with water usage under the 3,000 gallon minimum allowance use less than 3,000 gallons, using the implied $1.70 base charge would result in loss of revenues for the County. As such, we recommend implementing a "revenue neutral" base charge of $5.20 be assessed to all customers regardless of water use. Based on water billing data, this revenue neutral base charge and the current $4.50 volumetric charge per 1,000 gallons assessed for all water usage would provide the same estimated wastewater charge revenues in FY 2008 as the current rate structure. Alternative Rate Program Scenarios Since the Efland System has a small customer base from which to recover costs and its wastewater rates have not increased since 1987, significant rate adjustments are required to fully eliminate the current and anticipated future revenue deficits. To demonstrate the magnitude of the potential Ivfr. Kevin Lindley Orange County September 24, 2008 page 5 q~ U financial impacts of the customers of the Efland system, as well as the potential impact on the County, we developed three alternative rate scenarios. These rate scenarios include the following. 1. Maintaining the current rates would require the County. to provide an FY 2009 subsidy of $142,000 which represents the anticipated revenue deficit. Should the current rates continue to be maintained, the County would be faced with continued and increasing rate subsidies under the anticipated operating costs and capital improvement plan.. 2. Adjusting the rates to make up the $40,000 in operating costs eliminated from the Efland wastewater system operating budget would require a January 1 rate increase of 150%. Under this scenario, the County would still incur a FY 2009 rate subsidy of approximately $100,000 with continued and increasing rate subsidies under the anticipated operating costs and capital improvement plan. 3. Adjusting the rate to achieve .financial sufficiency in FY 2009 would require a January 1 rate increase of 300%. Under this scenario, the rates should be sufficient to address anticipated operating costs and capital improvements for FY 2010 as the rates would set higher than would be required had rate increases been implemented on July 1. Less substantial rate increases would be needed in later pears to maintain revenue sufficiency thereafter. As opposed to these scenarios, the County may prefer to incorporate a phased approach in implementing a program of annual rate adjustments to move closer to financial sufficiency. This type of phased approach will help to avoid customer "rate shock" that often results after a substantial rate adjustment occurs after years of minimal or no rate increases. Rate shock is a situation where the public is outraged when major rate increases are implemented seemingly out of nowhere. To avoid this, RFC recommends the County implement a program of annual rate adjustments beginning with an initial 150% increase in FY 2009 followed by gradually more substantial increases in the following years. The County should develop bill inserts to notify customers of the planned rate program and educate them about the current deficits and future capital needs that are driving the need for the rate adjustments. This will help to avoid rate shock and reduce the potential for customers who feel utility bills are burdensome. Alternative Strategies to Address Rate Affordability Although eliminating the minimum usage charge will help to improve customer equity and affordability for low income customers, the County should also consider alternative strategies to furflzer address rate affordability for the low income customers of the Efland System. Although developing effective affordability strategies and policies can be a challenging exercise, the benefits can be substantial. Not only will affordable utility service benefit the Efland System's general economic and social health, but properly structured assistance programs can yield tangible returns in terms of cost management, revenue stability, and public opinion. If customers are faced with utility bills that they find burdensome, the result is likely to be excessive account delinquencies, customer complaints, and utility theft. The County map want to consider a few alternative strategies for Efland System customers that qualify under some financial hardship criteria the County may wish to establish. These criteria will be discussed later anal may be linked to qualification to other governmental low-income programs to minimize administrative costs to the County. The affordability alternatives the County may wish to consider include: Mr. Kevin Lindley Orange County September 24, 2008 page 6 `~..J Lifeline Rates: Special rates often set below the utility's actual cost of service and therefore require offsetting contributions from other rate papers or through a subsidy provided by the County. The most beneficial lifeline rates for the Efland System may be to reduce or eliminate the base charge component of the modified rate structure. This strategy would give the lifeline customer the added benefit of more control over the amount of their bill by controlling water usage. Discount Plans: Plans that reduce the bills of low-income customers by either a fixed amount or a percentage. Again, these plans have the most impact when the discount is applied to base charges rather than the volumetric charge. • Leak Repair Programs: Programs that provide utility vouchers to have plumbers visit qualified low-income housing customers to identify and repair leaks. Low-income housing generally has a disproportionately high incidence of water loss through leakage which results in higher levels of water usage. Since this type of program would benefit the low income customers by reducing both their water and sewer bills, and have a positive impact on water conservation efforts, the County may want to fund this as a joint program with the water providers. Since two of these alternatives focus on the eliminating or discounting a portion of the base charge, the amount of affordability assistance could be enhanced by increasing the base charge component of the rate structure to recover more from the higher income customers through this component of the bill. To ensure these programs are effective in targeting the appropriate customers, the County will need to develop assistance qualification criteria. Criteria commonly used to determine assistance eligibility include the following: Income: This is determined as income commonly set between 1.25 and 2.0 times the poverty level, adjusted by the number of members in the household. Households exceeding an income level specified by the County would be ineligible for assistance. EPA Income Indicator: This is a residential indicator that measures the monthly average residential bill as a percentage of Median Household Income ("MHI'~ for the entire system. The resulting indicator percentage is used to yield an estimated residential burden of Low (< 1.0%), Mid-range (1% to 2%) and High (> 2%). Employment: Eligibility under this criterion is proven through the presentation of . dismissal notices, pink slips, or proof of successful enrollment in government unemployment programs. Eligibility for other aid programs: Under this criterion, eligibility for utility billing assistance is based upon successful enrollment in assistance programs offered by other institutions. This criterion has the benefit of requiring minimal administrative costs because the utility may be able to simply check applicant's names against enrollment databases maintained by other programs. The disadvantage to this approach is that the utility has no control over enrollment criteria. Geographic designation: Using customer addresses as eligibility criteria. may be appropriate if the utility can. document specific poverty areas within the service area. Mr. Kevin Lindley Orange County September 24, 2008 page 7 f~ Before using this criterion, however, policymakers should clat7.fy the basis of the decision for including one area while excluding others. We have enjoyed the opportunity to provide this assistance to Orange County anal wish to acknowledge the significant efforts contributed by you and your staff in providing timely anal accurate input during the project. If you have any questions, comments, or concerns, please do not hesitate to contact me at (704) 373- 1199. Sincerely pours, RAFTELIS FINANCIAL CONSULTANTS, INC. Frank Davis Manager MEMORANDUM II TO: Laura Blackmon, County Manager COPIES: Willie Best, Asst. County Manager Pam Jones, Purchasing & Central Services Director Donna Coffey, Budget Director Kevin Lindley, PE, Engineering Associate FROM: Paul Thames, PE, County Engineer DATE: September 5, 2008 SUBJECT: Efland Sewer Rate Study As per Asst. Manager Willie Best's request, the following information related to the Raftelis study for setting Efland sewer rates is provided for your information and to assist you and the BOCC in making both budget decisions and decisions as to how to set Efland sewer rates so that the County`s contribution to the Efland sewer fund can range from none at all to as much or more than the current contribution. The Raftelis study was ultimately designed to consist of three parts: 1) a model in the form of a set of interrelated spreadsheets that allow one to input a number of factors, assumptions and projections related to number of customers, operating costs, maintenance costs, NPDES permit compliance costs, capital improvement costs, treatment costs, etc. and a sewer rate (per thousand gallons) to derive a shortfall in operating and CIP costs that would be covered by a County contribution to the fund: 2) a written report outlining the basis of the model, its operation or manipulation, and its built-in assumptions (base rate, etc.); and 3) a verbal report and demonstration of the model's functionality. The study will not- make a recommendation as to an actual sewer use rate. The ultimate product of fihe model is, however, a sewer use rate based on the inputs outlined above and the amount of funds, if any, that the BOCC determines to provide to continue directly subsidizing the costs of operating and maintaining the system. The BOCC has indicated that it wants to develop a strategy that minimizes the impact of increasing sewer rates on low income households. Unfortunately, it is not legally possible to adopt a sewer rate structure that addresses this goal directly. While it may be possible to set rates that group users by category, those categories must be based on characteristics such as quantity of sewer use, residential or non-residential commercial/ institutional/industrial, etc. The sewer use rate must be the same for each customer in each category that is created. However, as most low income and single occupant households tend to be among the lower water/sewer consumers, eliminating the base rate used in the current rate structure (minimum charge for 3000 gallons per month of sewer use) should provide some relief from an elevated sewer use rate/cost per thousand gallons to low use households (those that use significantly less that 3000 gallons per month). Another option to provide relief for low wealth households is for the BOCC to set aside unds based on some fixed criteria such as HUD's low/moderate income assistance f categories) in a special account controlled by one of the County's social service departments that are experienced in identifying/qualifying low wealth households, evaluating the amount of assistance required and managing funds that are to be used in this manner. Those funds would then be paid into the Efland sewer enterprise fund on behalf of the eligible rate payers should the BOCC determine that the system should actually operate as an enterprise: As of June 2008, Kevin Lindley and I had manipulated the model with our assumptions and projections relative to costs, continued County subsidies to the sewer operating costs, number of customers, etc. Based on the FY 2007-08 operations, the costs of operating the system came out to be approximately $180,000, one-third of which was derived from sewer use rates and two-thirds came from a direct subsidy from the County's General Fund. These costs contained no funding for ongoing capital improvements (replacing equipment) and no funding earmarked to create and maintain a fund balance. For the purposes of using the Raftelis model to generate example sewer rates, we assumed that annual contributions to the system's CIP fund were approximately $45,000, increasing at a rate of 4% per year thereafter and that an annual fund balance of 15% was created and maintained. Based on fiscal year 2007-08 income and costs, the total funding for the sewer system would have been approximately $259,000 with the inclusion of CIP funding and fund balance. The total billing in FY 2007-08 was for 11,000,000 gallons of sewer use. Assuming that there was no direct General Fund subsidy for the system, the cost per 1000 gallons per month came out to be approximately $23.50 for the first year. This figure represents in excess of a five-fold increase in the existing rate of $4.50 per 1000 gallons. Should the BOCC elect to continue directly subsidizing the system at a rate of $120,000 per year, the sewer rate would decrease to approximately $12.60 per thousand gallons for the first year. If the BOCC had determined to directly subsidize the system at a rate of $60,000 per year, the cost of 1000 gallons of use would come out to be approximately $18.00 per thousand gallons for the first year. None of these figures include costs associated with subsidizing individual rate payer households. Currently, approximately 45% of the Efland sewer customers use 3000 gallons of sewer per month or less (42 households use 1000 gallons per month or less, 19 use between 1000 and 2000 gallons per month, and 31 use between 2000 and 3000 gallons per month). The Efland Cheeks Elementary School averages approximately 80,000 gallons of sewer per month and Hancor generally use in excess of 100,000 gallons per month. At this point in time, we have not broken down the locations of those customers using less that 3000 gallons of sewer per month. Accordingly, we are unable to estimate (by a windshield evaluation of housing conditions) at this time the socio-economic status of those customers would see only a slight increase in their sewer bills on the basis of low to very low sewer use. Determining how many households will qualify for some level of rate assistance will have to be accomplished by a house to house income and occupancy survey. Assuming that the BOCC would want have an opportunity to evaluate and deliberate on how the Raftelis model works and how various decisions on model imputs (including the ~3 amount of direct subsidy) would effect rates prior to holding a public hearing on increasing the sewer rates, we assume that rate increases could not be set prior to the end of this year at the earliest. It is our belief that the. entire issue of setting rates (by means of working through sample rates with the Raftelis model) and determining how. any rate subsidy will be calculated, funded, administered, etc., will require the BOCC to set aside at least an hour and possibly more to discuss.the issue in a less structured environrpent such as a work session. Unfortunately, we have been advised that currently no work session opportunity exists where this issue could be discussed prior to the end of this calendar year. Given this situation, it is unlikely that the BOCC will be able to deliberate on this issue, hold a public hearing and give guidance to the staff on rate increase/direct subsidy policy before March or April 2009. This timetable would give us some two or three months to impose rates sufficient to recover the costs that the BOCC determined (by decreasing the subsidy) in fihis year's budget process should be recovered. That, in turn, will result in a slight increase in the rates cited above, assuming that CIP and fund balance funding is included in the rates. However, once all of the cost and funding issues have been resolved, we can easily generate annual rate recommendations based on increased sewer treatment and operating costs as well as increases in the customer base with the attendant increase sewer flows and tap on fees. If I may provide additional information or clarification of this information at this time, please advise.