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HomeMy WebLinkAboutAgenda - 10-21-2008 - 6eORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: October 21, 2008 Action Agenda Item No. ' e. SUBJECT: Efland Sewer Rate Study DEPARTMENT: County Manager PUBLIC HEARING: (Y/N) NO 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 3. Resolution Establishing the Rules and Regulations for Operation of the Efland Sewer System (11/19/85) INFORMATION CONTACT: Kevin Lindley, Engineering Specialist, 245-2313 This item was delayed from the Board's October 7, 2008 regular meeting due to time constraints. 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 established by Resolution of the BOCC in November 1985 as a remedy for failing septic systems in the Efland Community. The rates set at the time were sufficient for the operation of the system. However, over the last twenty years of operation the costs for operating and maintaining the system 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 is paid from the Orange County General Fund. With this in mind, the BOCC authorized Raftelis Financial to study the system and create a cost model to based on system costs versus revenue, the impact of different rates on customer bills, and County General Fund subsidy. This cost model, which is in the form of a multiple-page spreadsheet, has been completed and is the basis for the scenarios outlined below. In order to capture all 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 2 rate increases on low water users (who typically are also low income users) is mitigated somewhat and it creates a financial incentive to use less than 3,000 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 (a 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 the 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 increases 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 assuming the rates would not be raised until the January billing cycle at the earliest, giving only six months remaining in the fiscal year to generate the necessary revenue. If implementation of a new rate structure were to be delayed, the amount of general fund subsidy budgeted would need to be increased. In addition, the 150% increase would serve only to bridge the gap between the system's requested operating 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 thus 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 attached Raftelis report also includes some ideas on reducing the impact of the higher rates on low income households. 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 much higher sewer rates will have on consumption (and therefore, revenue). The increased 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. According to the County Attorney there is no public hearing requirement before a rate change can be implemented. However, a public hearing has been included in the time line, should the BOCC be inclined to hold one anyway. October 21, 2008 BOCC considers the results of the rate study and provides direction on the new rate schedule. October 22, 2008 The new rate schedule is proposed based on BOCC comments. October 23, 2008 Notice for Public Hearing (2 weeks) 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 November 18, 2008 BOCC approves the new rate schedule. This approval would be in the form of an amendment to the Resolution which established the Efland Sewer System. 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. This proposed schedule will allow customers to receive notice of the pending rate changes before the "use period" (December 10t"-January 10th) of the January billing cycle. FINANCIAL IMPACT: Examples of financial impacts of the study are included in the Background section of this agenda abstract. Approval of increased user fees equates to potential reduction sin the amount of subsidy the County's General Fund has to contribute to the Efland Sewer Enterprise Fund. RECOMMENDATION(S): The Manager recommends 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. Specifically the Board is requested to give guidance on the following issues: 1. Should the rate structure change to a base charge plus usage or remain as a 3,000 gallon per month minimum charge plus usage above 3,000 gallons? 2. If a rate increase is desired, to what extent should the rates increase this year? 3. What is the desired minimum General Fund contribution to the Efland Sewer System and within what timeframe should action occur to achieve this lowered subsidy level? 4. If a rate increase is desired, should there be a public hearing on the proposed rate changes and, if so, when should the public hearing be scheduled and how should public notice occur? ^ 511 East. Boulevard Charlotte • North Carolina • 28203 lupus ~ C4NSlJ1TANT5, ING. 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 ^ www.raftelis.com Fax 704.373.1113 , ,-. 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 customer 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 identifying 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 Efland 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 customers 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 pay a monthly minimum charge of $15.20 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 $4.50 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 8,000 gallons of water per month. Mr. Kevin Lindley September 24, 2008 Orange County page 2 Monthly Bills Under Current Efland Svstr em Rates Monthly Metered Water Usage Interval Monthly Sewer Bill 0 to 3 legal (minimum charge) $15.20 3 to 4 legal $19.70 4 to 5 legal $24.20 5 to 6 legal $28.70 6 to 7 legal $33.20 7 to 8 legal $37.70 Based on the current wastewater rate structure and the typical water usage by the customers of the Efland System, the County collected approximately $62,900 in sewer charge revenues for fiscal year ("FY's 2007. Although the customers of the Efland System are assessed sewer charges based on billed water usage, the County is assessed a $10.35 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 $140,000 compared to the $62,900 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 $142,000, or an additional 300% 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 sufficienry 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 and 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 Orange County September 24, 2008 Pie 3 O 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 $1.7 million will be funded by a ten- year loan with a 3.0% annual rate of interest. However, the actual method of funding the system expansion and other capital costs may differ based on financing decisions of the County. The table below presents the forecast of annual revenue requirements of the Efland System during the first five years (FY 2008 through FY 2012) of the fi$een year 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 Suffidency Fiscal Year Endin June, 30 Revenue Sut~ciencv 2008 2009 2010 2011 2012 Revenue Requirements O&M Expensed $60,831 $62,656 $77,905 $80,243 $82,650 Hillsborough Treatment Costs 144,031 144,031 154,608 189,867 196,918 Annual Capital ProjectsZ 1,200 0 35,000 220,000 0 Annual Debt Service; 0 0 0 51,000 213,889 Total $206,061 $206,686 $267,513 $541,109 • $493,457 Revenues User Charges 63,500 63,468 68,129 83,666 86,773 Other Revenues° 1,500 1,545 1,591 1,639 1,688 Total $65,000 $65,013 $69,721 $85,305 $88,462 Surplus/Deficit (141,061) (141,673) (197,793) (455,804) (404,995) ' O&M includes all equipment, utilities, and other costs associated with the County's operating expenses. z Annual capital projects include those capital projects not funded through debt financing. s Represents debt service on the ten-year loan to finance the $1.7 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 defidt, 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 sufficienry 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.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 Orange County September 24, 2008 page 4 ~Q V 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 customers 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 sufficienry 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 pay 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 $15.20 is greater than the volumetric rate of $4.50 per 1,000 gallons of water usage applied to a customer using the minimum allowance of 3,000 gallons per month (3 x $4.50 = $13.50), the current rate structure includes an "implied base charge" of $1.70. Any customer with no metered water usage during a month is essentially paying for 3,000 gallons, or $13.50 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 Mr. Kevin Lindley September 24, 2008 Orange County page 5 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 sufficienry 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 years to maintain revenue sufficienry 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 sufficienry. 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 aze 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 aze driving the need for the rate adjustments. This will help to avoid rate shock and reduce the potential for customers who feel utility bills aze 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 further 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 aze faced with utility bills that they find burdensome, the result is likely to be excessive account delinquencies, customer complaints, and utility theft. The County may 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 and may be linked to qualification to other governmental low income programs to minimise 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 IU • Lifeline Rates: Special rates often set below the utility's actual cost of service and therefore require offsetting contributions from other rate payers 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 inddence 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 spedfied 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 September 24, 2008 Orange County page 7 ~~ Before using this criterion, however, policymakers should clarify the basis of the decision for including one area while excluding others. We have enjoyed the opportunity to provide this assistance to Orange County and wish to acknowledge the significant efforts contributed by you and your staff in providing timely and 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 yours, RAFTELIS FINANCIAL CONSULTANTS, INC. Frank Davis Manager MEMORANDUM 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 the 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 assistance funds (based on some fixed criteria such as HUD's low/moderate income ~`' ,~ 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 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 environment 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. Adopted November 19, 1985 Amended March 1, 1988 ~5 Amended November 15, 1988 NORTH CAROLINA RESOLUTION ESTABLISHING RULES AND REGULATIONS FOR THE OPERATION OF A SEWER COLLECTION TREATMENT SYSTEtd TO SERVE THE ORANGE COUNTY EFLAND AREA OF ORANGE COUNTY Be it resolved by the Board of Commissioners of Orange County that the following rules and regulations (hereinafter called the Rules) shall govern the operation of the Orange County Sewer Collection and Treatment System serving the Efland area of Orange County [hereinafter called the System]. I. CLASSIFICATION OF SERVICE (Reserved. There are presently no separate classifications of sewer service.) II. WASTEWATER TREATMENT LIMITATIONS Orange County has contracted with the Town of Hillsborough which contract provides that the Town will treat wastewater generated by the System subject to the following conditions contained in the agreement between the County and Town: No customer shall be allowed to connect to the County system unless and until such customer's proposed discharge has been found acceptable by both the Town and County. Approval shall be predicated on (1) the quality of the effluent of the potential user being compatible with the Town's NPDES discharge permit, (2) compliance with the Town's ordinance, rules and regulations concerning 1 im pretreatment of industrial wastewater, and (3) all County (subdivision, zoning, erosion, building, etc.) and State (DOT, etc.) permits having been properly granted. Under no circumstances will the County permit the discharge of septic sewage in its system. III. RATE SCHEDULE AND AVAILABILITY FEES A. Rate Schedule - Based upon monthly water consumption: See Attachment A. B. Availability Fees: Each person, firm, or corporation connecting to the system [hereinafter user or users] other than those initially connected from among those initially applying for connection, shall pay a $600.00 per residential equivalent availability fee to the County and a $400.00 availability fee to the Town of Hillsborough. Availability fees may change from time to time pursuant to duly enacted resolutions of the County and the Town. Those users initially connecting, from those initially applying for connection, shall be exempt from the availability fee. The initial application period expired February 4, 1985. The initial connection deadline will be established by resolution of the Board of County Commissioners. C. Acreage Fee [Reserved]. 2 17 D. Stub-out Service Line Fee [Reserved]. IV. APPLICATION FOR SERVICE Persons seeking service may make application in person at the office of the Orange County Planning Department. The application requirements are as follows: 1. A deposit as provided in Article V of these rules must accompany the application and be paid at the Orange County Planning Department or such other place as is Amended designated by Orange County from time to time. A Sewer Use 3/1/88 and Easement and Agreement. must be on file, signed by the property owner(s)/users. ~2. The conditions set forth in Article IX of these rules must be satisfied in the case of an application for service to undeveloped land. 3. Any former user may again become a user by fulfilling the application requirements set forth in this article and by paying any applicable availability or other fees. In addition, any such former user applying again to be a user must pay any outstanding account plus interest thereon at the legal rate as it is established in North Carolina General Statutes Section 24-1, its successor, and as the same is amended from time to time, compounded annually. Any person who has actually used and benefited from sewer service which has been supplied to premises owned or directly occupied or used by-that person, for which service there is an outstanding. indebtedness remaining due the County, may 3 i8 become a user by completing the application requirements in this article, by paying any availability fee or other applicable fee and by paying the outstanding indebtedness for the service which was supplied to the premises owned or directly occupied or used by such person. V. DEPOSIT A. A minimum cash deposit is required of all Amended users It shall be Thirty Dollars ($30.00). The deposit 11/15/88 shall be paid either in full at the time an application for service is made or in a maximum of three equal consecutive monthly installments, the first of which must be paid when an application for service is made. ~ eq~--~e-~#-~e--a~~-r~c}s~ ~'e~ ee~ed-se~ve~-~a-i~~-~e~-~~ae-~aaa~~e-a€- ee~~~ee-~ase~l-uge~-~~a a~e~r~ge--g~efre~rt -wa~e~ -~s'age-~ ~~ed~e~.~ed--~~e~--~rs~a~c.~e--~~s- ~e~e~~ed-e~-a~~-ese~e~- Deposits will not draw interest. Amended B. A separate deposit will be required for 3/1/88 each connection. C. Each deposit may be redeemed by the user upon disconnection from the system and upon payment in full of all charges for service. VI. INITIAL OR MINIMUM CHARGE A. There will be a separate account established for each sewer connection to the system. Each such account will be in the name of the user. The minimum monthly charge as provided in the rate schedule will be made 4 Iq for each account for any monthly usage up to the minimum 3,000 gallons. B. In those cases where the connection is to property which receives its water by well, the minimum monthly charge will be that established in the rate schedule unless water consumption exceeds the minimum contained in the rate schedule. The County reserves the right to meter the well of any user to determine that user's water usage. VII. COUNTY'S RESPONSIBILITY AND LIABILITY A. The County will run a service line from its collection line to the property line, except as provided in Article IX, relating to extensions of the system. Amended B. All plumbing installed,by the user for 3/1/88 connection to 'the system will be installed according to the North Carolina State Plumbing Code and will be permitted, inspected and approved by Orange County. C. The County is not liable for damage of any kind resulting from sewage or its collection from the user's premises, unless such damage results directly from negligence on the part of the County. The County is not responsible for any damage done or resulting from any defect or operation failure in the plumbing installed by the user, or in any fixtures or appliances on the user's premises. The County is not responsible for negligence of third persons in the installation or operation of the System. The County is 5 ao not responsible for damage caused by forces beyond its control or for the interruption of service caused by forces beyond its control. D. Except in the case of an emergency, the user will be notified in advance. of any anticipated interruption of service. In the case of an emergency the user will be notified as soon thereafter as possible of the interruption of service'. VIII. USER'S RESPONSIBILITY A. The user is responsible for payment of all monthly service charges incurred in connection with sewer Amended 3/1/88 service. The owner of the premises to which services are delivered is responsible for all charges as provided for in the Sewer Easement and Agreement. If a delinquent user is not the owner of the premises to which services are delivered, the payment of the delinquent account will not be required before providing services to the premises at the request of~a new and different tenant or occupant of the premises except as provided in Article IV.3. of the Rules. B. The user is responsible for installing all plumbing and apparatus necessary to connect to the County's service line and for connecting all plumbing and apparatus to the County's service line. Provided, however, Amended no such connection shall be made without a permit to do so 3/1/88 issued by the County and upon such terms and conditions as the permit prescribes. 6 a~ C. All plumbing and apparatus installed by the user will be installed and maintained at the user's expense in accordance with the County's rules and regulations and any other State or local requirements. D. The user will exercise reasonable care and will be responsible for the exercise of reasonable care by anyone on the user's premises with the user's permission over any portion of the County system located on the user's premises. Authorized County representatives will be permitted by the user to access the user's property in~order to inspect, as needed, portions of the County's system located on the premises of the user. E. The user will be responsible for the cost of necessary repairs or replacement of lost or damaged property of the County which is part of the System or used in the operation and maintenance of the System which repair or replacement is caused by or results from the negligence or wrongful act of the user, the user's agents or employees. Likewise any damage or injury to persons or property which occurs on the premises of the user and which is caused by or results from the negligence or wrongful act of the user will be the sole responsibility of the user. F. The amount of any such loss or damage or the cost of repairs or replacements will be, when applicable, added as a charge to the user's account which charge will be 7 as added in full to the user's next statement unless other arrangements are made which are satisfactory to the County. IX. EXTENSIONS OF THE SYSTEM System extensions to serve undeveloped land may occur, but only as follows: A. All such extensions must be consistent with the overall System plan as adopted from time to time by Orange County. All such extensions must be approved by the County Engineer. B. Extension of the System to new developments can only be approved by the County Engineer if Amended all zoning, subdivision, land use plan and comprehensive plan 3/1/88 regulations of Orange County or the Town of Hillsborough, if applicable, are met. With respect to subdivisions, the subdivision preliminary plat must be approved by the County or the Town, if applicable,. which preliminary plat shall include approved preliminary plans for the System extension. Planned development plans which include System extensions must include approved preliminary plans for the System extension. C. All System extensions must be consistent with Goal 9.3 of the Orange County Land Use Plan which goal "prohibit[s] the establishment of public water and sewer services in the areas designated water quality critical areas, except to address emergency situations" and with any 8 a3 Amended Water and Sewer Policy of the County adopted as part of its 3/1/88 - Comprehensive Plan. D. All System extensions shall be installed according to and in compliance with. approved plans. E. Construction of System extensions will be Amended inspected by Orange County at intervals determined by the 3/1/88 County. The person seeking System extension agrees to permit access to the System and the System extension for inspection purposes. User connections to the System will only be permitted after the extension of the System is finally approved in writing by Orange County. F. Upon the completion of the System extension the owner/developer will convey by deed or other appropriate instrument all portions of the System extension, including but not necessarily limited to right-of-way easements, collection lines, service lines, stub-outs, permits, pump stations and equipment, plumbing facilities and hardware. All System extensions will be at no cost to Orange County. X. ACCESS TO PREMISES OF A USER A. It will be necessary for the safe and efficient operation of the System for duly authorized agents of the County to have access at reasonable times to the premises of the user for the purpose of installing, removing, inspecting and otherwise maintaining portions of the System and for the purpose of reading and testing meters and for any 9 a~ other purpose in connection with the installation, operation and maintenance of the System. Each user and property owner upon whose property any portion of the system or connections to it is located recognizes this need. and by making application for sewer services grants authority to authorized agents of the County for this purpose. B. The Sewer Easement and Agreement includes a grant to the County of an easement for the purposes described in that agreement. Each user and owner by making application for sewer services acknowledges the easement and the rights described in that easement. XI. CHANGE OF OCCUPANCY The owner of premises which is served by the Amended System is responsible for notifying the County or its duly 3/1/88 authorized agent of any change in the occupancy of his/her premises.- Any change in the use of the premises which is connected to the System will be communicated to the County and the Town of Hillsborough for prior approval as described in Article II of these rules and regulations. XII. METER READING - BILLING - COLLECTING A. Orange County and, if applicable, its billing and collecting agent's records will be the basis for all charges for service. All users are encouraged to Amended maintain receipts and other payment information and~to bring 3/1/88 any discrepancies in the user's records and the County's records to the attention of the billing and collecting agent 20 a5 of the County immediately so that corrections, if any, can be made. The specific procedures to be followed in the event a user believes there has been a billing error are described in Article %III. B. Meters will be read and bills rendered in accordance with the policies established by the County and any agency with which the County may contract. The County reserves the right to vary the dates or length of time covered by any statement, temporarily or permanently, if necessary for the efficient operation of-the System. C. Statements for sewer service will be computed on the. basis of the published rate schedule then in effect. D. Charges for sewer service commence when connection to the System is complete as prescribed and described in the Sewer Easement and Agreement. E. Each sewer connection will be separately metered and will be maintained as a separate account. F. t4onthly statements will be mailed on or about the date the user's water meter is read, if there is a meter, or the same date each month as determined by the County's billing and collecting agent where there is no water meter. Payment is due when the statement for sewer service Amended is received and delinquent 20 days after the water meter 3/1/88 reading date. If payment is not made within 20 days after the water meter reading date, sewer and water service will be 11 . a~ discontinued. Statements will be sent to the address of the user as it appears on the application for service made by the user. It is the user's responsibility to immediately notify Orange County and its billing and collection agent of any change in this address. The user's failure to receive any statement or notice when it is addressed to the user at the address contained in the application or a new address provided to the County and its billing and collection agent shall not be a basis for forgiving delinquent payment and shall not be a basis for forgiving discontinuation of service. XII. DISCONTINUATION OF SERVICE A. When service is discontinued, the deposit Amended made by the user will be applied toward settlement of any 3/1/88 unpaid account. Any balance will be refunded to the user. If the deposit is not sufficient to cover the outstanding account balance, the County and its billing and collection. agent may proceed to collect the balance in the manner provided in the Sewer Easement and Agreement or in any other manner provided by law for the collection of a debt. B. The County, in addition to prosecution as provided by law, may discontinue and permanently refuse service to any user or property owner who tampers with a meter or sewer connection which sewer connection has been approved by the County. Any sewer connection not approved by the County may be disconnected by the County and service 12 a~ refused to those participating in the unauthorized connection or its use. XIII. COMPLAINTS - ADJUSTMENTS A. If a user believes any statement of charges to be in error, the user may present a claim in Amended 3/1/88 person to the billing and collection agent of the County before the statement becomes delinquent. Any such claim made after the statement has become delinquent will not be effective in preventing discontinuation of service as provided in these rules. and regulations. The user may pay such statement under protest and the payment will not prejudice the claim in case an error is found. Adjustment will thereafter be made for any such error. B. Request for special meter readings or tests will be governed by the rules and regulations established for that purpose by Orange County and its agents. XIV. RETURN CHECK FEE Each check for payment is accepted subject to collection. The normal policies of the County's billing and Amended collection agent regarding returned checks shall be followed. 3/1/88 All fees collected, provided they do not exceed those permitted by law, shall be the property of the County's billing and collection agent. XV. ABRIDGEMENT OR MODIFICATION OF RULES A. No promise, agreement or representation of any employee of Orange County will be binding upon the 13 ae County unless it is agreed upon in writing, signed and accepted by the duly authorized officers of the County which authorization must~be accomplished by resolution of the Board of County Commissioners. B. No modification of rates or any of these rules and regulations may be made by any agent of the County. Any modification of rates and these rules and regulations will be accomplished by resolution of the Board of Commissioners of Orange County. XVI. ADOPTION OF RULES Until further resolution of the Orange County Board of Commissioners, the rules and regulations set out above are adopted as of the date below and become effective on and after November 19 , 1985. Upon motion made by Commissioner Moses Carey , seconded by Commissioner Shirley Marshall the foregoing resolution was adopted by the Orange County Board of Commissioners this the 19th day of November , 1985. Amended by resolution of the Orange County Board of Commissioners on the 1st day of March , 1988. Amended by resolution of the Oran ge County Board of Commissioners on the 15th day of November, 1988. 14 as ATTACHMENT A First 3,000 gals. @ $15.20 (minimum charge) Each additional 1,000 gals. (or any portion thereof) @ _/1000 gals. This rate schedule is, subject to change based upon up-to-date projections of the actual cost of operations and actual cost of operations. 15 30 NORTH CAROLINA ORANGE COUNTY ADDENDUM TO MARCH 24, 1988 SEWER BILLING AND COLLECTING AGREEMENT THIS ADDENDUM to the March 24, 1988 Sewer Billing and Col- lecting Agreement between ORANGE COUNTY, NORTH CAROLINA, hereinafter referred to as County, and ORANGE-ALAbiANCE WATER SYSTEM, INC., hereinafter referred to as Contractor, entered into this 15th day of November, 1988: WITNESSETH: Paragraph 6 of the March 24th Agreement is deleted in its entirety and replaced by the following: 6. The Contractor shall collect a deposit for each account established for the System. Accounts shall be established by the Contractor upon receipt of a copy of an approved application for service from. the County and the receipt of the required deposit from the customer. The amount of the deposit shall be equal to twice the minimum charge for sewer service according to the rate schedule in effect at the time application for service is made. The deposit shall be paid either in full at the time an application for service is made or in a maximum of three equal consecutive monthly installments, the first of which must be paid when an application for service is made. The deposit shall be kept by the Contractor for the County and applied 1 ~i toward settlement of the account upon disconnection from the System. Any balance of the deposit after settlement of the account shall be refunded to the customer by the Contractor. WITNESS our hands and seals on the date first above written. ORANGE COUNTY, NORTH CAROLINA By: Moses Carey, Jr., Chair Orange County Board of _ Commissioners _ ATTEST: (OFFICIAL SEAL) Beverly Blythe Clerk to the Board of Commissioners of Orange County ORANGE-ALAMANCE WATER SYSTEM, INC. By: Turner Forrest President of the Board of Directors 2