HomeMy WebLinkAboutAgenda - 11-24-2008 - c1ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: November 24, 2008
Action Agenda
Item No. C -1
SUBJECT: Efland Sewer Rate Schedule Change
DEPARTMENT: County Manager PUBLIC HEARING: (Y/N)
ATTACHMENT(S):
1. Proposed Efland Sewer rate schedule
-Impact on typical customers
2. Timeline for establishing new rate
schedule
3. Draft letter to customers notifying
them czf this public hearing and
explaining the need for a rate
increase.
INFORMATION CONTACT:
Kevin Lindley, Engineering Specialist,
245-2313
PURPOSE: To provide a forum for public comment and possible 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. as an example of the disparity
between revenues and costs, the current rates generate about $63,000 in revenue per year.
The System's wastewater treatment cost alone is approximately $140,000 per year. In addition,
the System's maintenance and utility costs are projected to be about $60,000 this fiscal year.
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
the Rate Study, made a presentation at the October 21, 2008, BOCC meeting highlighting the
main findings of the Study.'
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 November 6, 2008, BOCC meeting, an attachment was included in the agenda packet for
the Efland sewer rate study which showed the effect on typical monthly bills of staffs suggested
3-year cycle of rate increases. This 3-year plan is designed to recover the funds that were cut
from the System's budget this year and eliminate the General Fund's direct subsidy of the
System by Fiscal Year (FY) 2011-12. A simplified version of this chart is included as
Attachment 1. The timeline required for implementation by the January billing cycle is included
as Attachment 2.
None of the discussion so far takes into account the impacts to low-income residents who may
have difficulty paying the increased rates. Staff is currently investigating existing programs that
are already being administered by the County's Department of Social Services (DSS) and
community groups such as Orange Congregations in Missions (OCIM), as well. as grant
programs that have been successfully implemented by the County's Housing and Community
Development department (e.g. Rogers Road water tap grants). The proposed rate schedule in
Attachment 1 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 this public hearing of
the proposed new rate schedule (Attachment 3). The letter also gives a brief explanation of
the need for increased rates.
FINANCIAL IMPACT: Potentially tens of thousands of General Fund dollars could be saved 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 FY 2008-09 operating budget for the Efland sewer system.
RECOMMENDATION(S): The Manager recommends the Board receive public comment on
the. proposed rate schedule submitted by staff as Attachment 1.
Efland Sewer Monthly Bill Projections for Customers Using Between 2000 and 6000 Gallons ner Month
Rate
*Base Charges -Every customer
pays this, regardless of usage
*Charge per 1000 gallons
Monthly Customer Bills
Monthly Usage ( alg loos)
1000
2000
3000
4000
5000
6000
Current Rates Pro osed Rate Increases
(Unchanged since 1987) January 2009 July 2009 July 2010
$1.70. $12.96 $15.55 $18.66
$4.50 $11.25 $13.50 $16.20
NOTE: Currently,
customers pay $15.20
for 3000 gallons or less
per monin
$15.20 ' $24.21 $29.05 $34.86
$15.20 ' $35.46 $42.55 $51.06
$.15.20- $46.71 $56.05 $67.26
$19.70' $57.96 $69.55 $83.46
$24.20 $69.21 $83.05 $99.66.
$28.70 $80.46 $96.55 $115.86
Timeline for Establishing New Efland Sewer Rates
Working backwards from an implementation date of January 10, 2009 (the
beginning of Orange-Aiamance'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 24, 2008 Public Hearing is held. The proposed rate schedule
is presented and public comments are received.
December 11, 2008 BOCC approves the new rate schedule at its next
regular meeting. 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.
J~~a~k~.,,~c 3
November 10, 2008 *DRAFT*
Dear Sir or Madam,
This letter is an invitation for your participation in public hearing to discuss changing the rate
structure for the Efland Sewer System (System). Some of those receiving this notice are
current customers of the System. Others are receiving this notice because they may be served
by the expansion of the system, which is currently being permitted through the State.
When: November 24, 2008 at 7:30pm
Where: Battle Courtroom
East Margaret Lane
Hillsborough, NC
What: Public Hearing on a proposed increase in Efland Sewer System rates
The proposed rate schedule that will be presented to you at the public hearing will raise the
sewer rate this fiscal yeaz and for the next two fiscal years. The increase in the rate is
necessary for several reasons.
• The rate charged currently has not changed since the system started operatnig in
1987.
• The costs of operating the system have increased steadily since 1987.
• Current rates only pay for 25% of the cost of operating the system.
Most County or City operated utility systems are self-sufficient. The rates are set so that they
provide 100% of the cost of operating the system. Currently, Orange County lias to provide
75% of the budget for the System, since revenue from the current rate only provides 25% of
the System's costs. At the end of the proposed three-yeaz cycle of rate increases, the rate
should generate enough revenue to cover the costs of operating and maintaining the sewer
system.
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 System. The County only collects about $63,000 per yeaz 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 yeaz for routine maintenance, utilities, billing and permit fees.
The 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 large future projects that we lrnow 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
L'
means that we should be saving about $50,000 per year to cover these projects when they need
to be done. Doing these major repairs in a timely manner will help ensure that the System
continues to operate smoothly and efficiently.
Examples of residential sewer bills using the proposed rates
The existing rate structure charges everyone who uses 3000 gallons of sewer per month or less
the same amount, no matter how much sewer was actually used. The proposed new rate
structure also has a minimum charge, called the base charge. Everyone will pay the same base
charge no matter how much sewer they use vz a month. The proposed new rate structure does
not have a minimum usage charge. So, if you use 2000 gallons of sewer one month, your bill
would be less•than a customer who used 3000 gallons of sewer that month.
Shown below is a chart showing the current rate charged for sewer service and the effect on
typical customer bills over the next three years if the proposed rate schedule were to go into
effect.
Monthly Usage Monthly sewer Monthly sewer Monthly sewer Monthly sewer
(gallons) bill with current bill with bill with bill with
rates proposed rates proposed rates proposed rates
Jan 2009 July 2009 Jul 2010
2000 $15.20 $35.46 $42.55 $51.06
4000 $19.70 $57.96 $69.55 $83.46
6000 $28.70. $80.46 $96.55 $11'5.86
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
Manager's Office
Orange County