HomeMy WebLinkAboutAgenda -11-06-2008 - 6cORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: November 6, 2008
Action Agenda
Item No. ~ - G
SUBJECT: Efland Sewer Rate St
DEPARTMENT: County Manager
PUBLIC HEARING: (Y/N) 0
ATTACHMENT(S):
1. Raftelis Rate Study Summary -
Powerpoint Slides from 10/21/08
BOCC Meeting
2. Proposed Efland Sewer Rate
Schedule -Impact on Typical
Customers
3. Timeline for Establishing New Rate
Schedule
4. Summary of Water and Sewer Rate
Schedules for Other Local
Municipalities and Systems
5. Implications of Delaying New Rate
Schedule
6. Draft Letter to Customers Notifying
Them of the Public Hearing for New
Rates and Explaining the Need for a
Rate Increase
INFORMATION CONTACT:
Kevin Lindley, Engineering Specialist,
245-2313
PURPOSE: To provide information for further discussion and BOCC decision on the new rate
schedule for the Efland Sewer System.
BACKGROUND: The Efland Sewer System was conceived in the early to mid-1980s as a
remedy for failing septic systems in the Efland Community. The Efland Sewer System was
established by Resolution of the BOCC in November 1985. The rates set at the time were
sufficient 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 cost is 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 arevenue/cost model. The model 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. Frank Davis, the Raftelis representative who headed
2
the Rate Study, made a presentation at the October 21, 2008, BOCC meeting highlighting the
main findings of the Study (Attachment 1).
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 be raised in time for the January
billing cycle, giving only six months to generate the revenue necessary. 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.
At the October 21, 2008, BOCC meeting, a handout was made available to the BOCC which
showed the effect on typical monthly bills of a suggested 3-year cycle of rate increases
designed to eliminate the General Fund Subsidy by FY2011-12. That handout is included as
Attachment 2. The timeline required for implementation by the January billing cycle is included
as Attachment 3. For reference, the FY2008-09 rate schedules for the City of Mebane, Town
of Hillsborough and Orange-Alamance have been included as Attachment 4. There was a
question that arose regarding the rates charged by Town of Hillsborough to the schools that
they service. According to the Town, every customer is billed the same way, so the rate for
schools is the same rate as that of a residential customer. Also, staff was requested to find out
if Orange-Alamance charges atiered-rate to their water customers. Orange-Alamance has a
two-tiered rate, which is shown in Attachment 4. Customers using below 20,000 gallons per
month pay less than customers using above 20,000 gallons per month.
If implementation of a new rate structure were to be delayed beyond the January billing cycle,
the County would need to budget all the funds in that account or the suggested rate schedule
(Attachment 2) would have to change in order to recuperate the $40,000 reduction to the
FY2008-09 operating budget. The percentage increase in FY2008-09 would go up because
there would be fewer billing cycles to make up the budget shortfall before the end of the fiscal
year. Every month of delayed implementation would cost approximately $8,000 in revenue. If
the new rates could not go into effect before the March billing cycle, raising rates substantially in
March and then again in July would cause undue hardship for the customers. The better
strategy might be to implement the new larger rate in March, then wait until FY2010-11 to raise
rates to the level required for sufficiency. If the new rates do not go into effect until April 2009
or later, the percent increase required to recuperate $40,000 this fiscal year would be larger
than 300%. Since 300% is the increase necessary to bring the system to sufficiency, it would
not be practical to set the rates higher. Therefore, implementation in April 2009 or later would
result in a budget shortfall for FY2008-09. A summary table of these rate schedule delay
implications is shown in Attachment 5.
None of the discussion so far takes into account the impacts to low income residents who may
find the increased rates onerous. At the BOCC meeting on October 21, the program used to
qualify Rogers Road residents for subsidized water taps was mentioned as a possible model for
use with the low-income Efland Sewer customers. In initial discussions with Tara Fikes,
Director of Housing/Community Development, this qualification program appears to be useful in
the context of the Efland Community. Discussion is ongoing to determine if the Rogers Road
criteria will need to be modified and what form the aid for low-income customers will take. The
proposed rate schedule in Attachment 2 does not take the costs of such a program 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 rates may tend to
function as a "conservation rate" due to the financial impact of the higher rates.
Finally, please find attached a draft letter to customers notifying them of the public hearing of
the new rate schedule (Attachment 6). The letter also gives a brief explanation of the need for
increased rates.
FINANCIAL IMPACT: Potentially tens of thousands of dollars could be saved in the General
Fund by rescinding the County's subsidy of sewer rates for the Efland sewer system.
Additionally, raising the rates as specified in Attachment 2 by the January 2009 billing cycle
provides a means of balancing the operating budget for the Efland sewer system.
RECOMMENDATION(S): The Manager recommends the Board 1) approve the proposed rate
schedule developed by staff and depicted on Attachment 2; and 2) schedule a public hearing
for the November 18, 2008 regular Board meeting on the new proposed rate schedule.
Efland Sewer System
Board of County
Commissioners
October Meeting
Rate Study Report
October 21, 2008
Workshop .Agenda
• Current Environment and Challenges
• Current Rate Structure
• Revenue Requirements
• Rate Recommendations
- Rate Structure Modifications
- Alternative Rate Programs
• Affordability Strategies
0
2 RFC
CCMl,SULTANiS, INC.
Current Environment and Challenges
• Small Efland customer base - 200 accounts
- Large number of low & fixed income customers
• Substantial treatment costs
- $10.35 per 1,000 gallons of metered sewer flow
- Substantial inflow & infiltration (I&I) - 30%
- Greater than Efland total rate revenues
• Requires annual subsidies from County
General Fund
- Ranging from $80k in '05 to $106k in `07
G
3 RFC
RAFTEUS FINANCIAL
CONSULTANTS, INC.
Current Rate Structure
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Current Rate Structure ~~o~t.>
• No change since 1987
• Minimum charge results in inequities for low
use customers
- Presents challenges to low-income customers
- Low use customer pay higher cost per unit
• Usage charge below cost of service
Below cost of treatment
• 300% across-the-board increase required
for full cost recovery
5 R ~~
RAFTEUS HNANCL4L
CONSULTANTS, INC.
Revenue Requirements
• Based on FY 2009 operating budget
- $207k in O&M expenses
- $144k for treatment costs
- $40k eliminated from original budget
- $0 capital improvements
• Operating costs escalated at 3.0% annual
inflation
- Anticipated shortfall (subsidy?) $142k
• Capital costs through 2017
- $1.7 million to extend service to additional. customer
- 490k for um rehabilitations & manhole collars ~>
$ p p
6 R ~C
CONSULTANTS, INC.
Rate Recommendations
a
7 ~ RFC
RAFTEUS flNANC1Al
CONSULTANTS, INC.
Rate Structure Modifications
• Eliminate minimum usage allowance
• Introduce revenue neutral monthly base charge
- Per customer account charge of $5.20
- Maintain $4.50 per 1,000 gallons of water use
- Customers below 3,000 gallons of water use receive
benefit
- Customers with 3,000 .gallons of water use or higher
pay more
• More equitable and fair to low use and lower
income customers
0
RFC
RAFiEIJS FI1VAfdCtAL
CONSULTANTS, INC.
Alternative Rate Programs
1. Maintain current rates
- Shortfall (subsidy) of $142k
- Shortfalls increasing over time with no increase
2. Increase rates by 150% on January 1
- Recovers $40k eliminated from budget
- Shortfall (subsidy) of $100K
- Should recover additional $80k in FY 2010
3. Increase rates by 300% by January 1
- Achieves revenue sufficiency in FY 2009
- Provides additional revenues in subsequent yearso
to address capital expenditures. ~'
9 RFC
RAFfELIS HNANCIAL
CONSULTMITS, INC.
Affordability Programs
• Lifeline Rates:
- Eliminate monthly base charge for low-income
customers
• Discount Plans:
- Reduce bill of low-income customers by a
percentage
• Leak Repair Programs
- Provide vouchers for plumbers to identify and
repair leaks in low-income homes
• Loss revenue should be recovered through
general fund subsidy
~~ RFC
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discussion?
11 ~~
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~NSULT,4WTS ANC.
Efland Sewer Monthly Bill Projections for Customers Using Between 2000 and 6000 Gallons ner Month
Base Charge Rate Structure
Base Charges
Usage Charge (All Usage)
Monthly Customer Bills
Usage Interval
1,000 allons
2
3
4
5
6
Historical Forecast
FY06-07 FY07-08 FY08-09 FY09-10 FY 10-11 FY 11-12 FY 12-13
N/A N/A $12.96 $15.55 $18.66 $18.66 $18.66
N/A N/A $11.25 $13.50 $16.20 $16.20 $16.20
$15.20 $15.20 $35.46 $42.55 $51.06 $51.06 $51.06
0.00% 133.26% 20.00% 20.00% 0.00% 0.00%
$15.20 $T5.20 $46.71 $56.05 $67.26 $67.26 $67.26
o: oo% 207.27% 20. oo% 20. oo% o. oo% o. oo%
$19.70 $19.70 $57.96 $69.55 $83.46 $83.46 $83.46
0.00% 194.19% 20.00% 20.00% 0.00% 0.00%
$24.20 $24.20 $69.21 $83.05 $99.66 $99.66 $99.66
0.00% 185.97% 20.00% 20.00% 0.00% 0.00%
$28.70 $2'8.70 $80.46 $96.55 $115.86 $115.86 $115.86
0.00% 180.33% 20.00% 20.00% 0.00% 0.00%
Percentlncrease
Percentlncrease
Percentlncrease
Percentlncrease
Percentlncrease
~~
Timeline for Establishing New Efland Sewer 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. Please note that, 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,
per BOCC request.
October 21, 2008 BOCC considers the results of the rate study and
offers guidance on the new rate schedule.
November 6, 2008 BOCC continues discussion of the proposed rate
schedule. Proposed rate schedule is approved or
modified according to instruction received from the
BOCC. Date is set for a public hearing. The
following week, a letter is mailed to all customers of
the Efland Sewer System notifying them of the
proposed rate schedule and the upcoming public
hearing.
November 18, 2008 or November 24, 2008
Public Hearing is held. The proposed rate schedule
is presented and public comments are received.
December 1, 2008 or December 11, 2008
BOCC approves the new rate schedule at its next
regular meeting. The turn-around from the
November 24 Quarterly Public Hearing to the
December 1 meeting is fairly short. If the public
hearing is held on November 24 then the approval of
the new rate schedule might need to be done on
December 11. This approval would be in the form of
an amendment to the Resolution which established
the Efland Sewer System. Notification of the new
rates is sent to all customers.
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.
Summary of Water and Sewer Rate Schedules for Other Local Municipalities
Rate Structure
Base Charge
Minimum Bill
Usage Charge (per 1000 gallons)
Monthly Customer Bills
Usage Interval
1,000 gallons
1
4
6
City of Mebane (min. 2000 gallons) Town of Hillsborough (min. 3000 gallons) Orange-Alamance
In City Out of Ciy In Town Out of Town 0-20K gal 20K plus
Water* Sewer Water* Sewer Water Sewer Water Sewer Water** Water**
$ 6.50 - $ 6.50 - - - - - $ 18.00 $ 18.00
$ 16.00 $ 10.20 $ 27.30 $ 20.40 $ 21.75 $ 22.74 $ 42.42 $ 44.34 $ 18.00 $ 18.00
$ 4.75 $ 5.10 $ 10.40 $ 10.20 $ 7.25 $ 7.58 $ 14.14 $ 14.78 $ 3.00 $ 4.50
All City of Mebane customers pay the All Town of Hillsborough customers pay $ 21.00 N/A
"Minimum Bill" amount listed above for the "Minimum Bill" amount listed above for
usage of 2000 gallons or less per month. usage of 3000 gallons or less per month. $ 24.00 N/A
$20.75 $15.30 $37.70 $30.60 $ 27.00 N/A
$25.50 $20.40 $48.10 $40.80 $29.00 $30.32 $56.56 $59.12 $ 30.00 N/A
$30.25 $25.50 $58.50 $51.00 $36.25 $37.90 $70.70 $73.90 $ 33.00 N/A
$35.00 $30.60 $68.90 $61.20 $43.50 $45.48 $84.84 $88.68 $ 36.00 N/A
* The Ciry of Mebane charges a base charge of $6.50 for every account regardless of usage.
"Water" portion of the bill for both "In City" and "Out of Ciry" customers.
* * Orange-Alamance charges a base charge of $18.00 for every account regardless of usage.
"Monthly Customer Bills" calculation.
This fee has been added to the
This fee is included in the
. Implications of Delaying New Rate Schedule
Note: The proposed rate schedule shown in Attachment 2 assumes implementation in January 2009. If that rate schedule is used but not
implemented in January, there would be a loss of approximately $8000 in revenue for every month of delay. Alternately, the
following table shows the percentage increases that would be required to recuperate the $40,000 reduction in subsidy by the end of
FY2009.
Implementation Percent Increase Re aired for 3 Year Subsid Eliminatio
Date FY08-09 FY09-10 FY10-11 Cost of Dela ed Im lementation
January 2009 150% 20% 20% $0.00
(5 months to recover $40,000)
February 2009 190% 12% 10% $8,000.00
(4 months to recover $40,000)
March 2009 250% 0% 3% $16,000.00
(3 months to recover $40,000)
A ril 2009 or later * ** **
* If a new rate schedule were implemented in April 2009 or later, the rate increase required to generate $40,000 before the end of
FY2009 would be larger than the 300% overall rate increase needed to fully fund the sewer system.
** The percentage increase of the rates in FY2010 and FY2011 are dependent upon the percentage increase in FY2009
.~
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AN~~~+G
November ??, 2008
Dear Efland Sewer Customer,
On "DATE" at "TIME" there will be a public hearing at "LOCATION"
to discuss raising the rate for the Efland Sewer System.
The current rate of $4.50 per 1000 gallons has been in place since the system was
established in 1987. In the twenty years since the start of the system, the cost to run the
system has increased steadily. The rate that the County charges today only pays for 25% of
the cost of running the sewer system. The County currently pays the remaining 75% of the
system's cost.
Most sewer systems set their rates so that 100% of the costs of the system are covered
by the rates. In other words, no subsidy from the County would be required. The rate
schedule that will be presented at the public hearing will raise the rate this year and also the
next two years. At the end of this three-year cycle, the rate should be high enough to cover the
costs of operating and maintaining the sewer system. The proposed rate schedule is shown on
the back of this letter. The effect on your monthly bill is also shown for this year and the next
two years.
As an example of the differences between the costs to run the system and the current
rate, the County pays the Town of Hillsborough about $140,000 per year to treat the
wastewater from the Efland System. The County only collects about $63,000 per year from
the rates. So, the treatment costs alone are more than double what is collected from our
customers. In addition to the treatment costs paid to the Town of Hillsborough, the County
must pay about $60,000 per year for routine maintenance, utilities, billing and permit fees.
Finally, the Efland Sewer System is required to have astate-issued operating permit.
One of the conditions of that permit is that we set aside money every year for future projects
that we know are coming up. This is called a Capital Improvement Plan. Over the next ten
years, it is estimated that the Efland Sewer System will need about $500,000 in major repairs
and rehabilitation. This means that we should be saving about $50,000 per year to cover these
projects when they need to be done.
If you have any questions regarding this rate increase before the public hearing, please
feel free to contact me at (919)245-2313.
Sincerely,
R. Kevin Lindley, PE, MCE
Efland Sewer System Operator
Orange County