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Utility RatesCity of Kalispell Post Office Box 1997 - Kalispell, Montana 59903 Telephone: (406) 758-7701 Fax: (406) 758-7758 REPORT TO: Mayor Tammi Fisher and City Council FROM: Jane Howington, City Manager SUBJECT: Utility Rates MEETING DATE: February 14, 2011 The attached memo and packet serves to provide background information, a summary of the sewer rate analysis, review memos on actions taken by staff regarding operational and budgetary changes, correspondence, and a proposed redistribution of the street assessment program. BACKGROUND: Last year I declined to move forward the draft rate study information provided in the preliminary budget meetings because I felt it was in need of further analysis. Over the summer, after having an opportunity to further analyze the rate information and the enterprise funds, it was obvious there is a need for short term relief for the sewer fund while we work on a comprehensive utility rate proposal. A 5% rate increase was therefore presented to council for consideration. After reviewing the proposal, the council tabled the 5% request on February 14 and directed staff to bring forward the comprehensive proposal. ANALYSIS: As our review began, it became clear that the current rate structure was upside down and the base (administrative) rate was not covering fixed costs as is done with the standard business model. Volume rates should not cover fixed costs. We are attempting to fix this with the proposed rate methodology. The development of accurate rate analysis also depends on the development of sound growth assumptions. To this end, we established three growth scenarios: 1. Zero growth in the first two years and a half percent in years three through five. 2. Flat volume and customer count in each of the five years. 3. Increases in both volume and customer counts in each of the five years. Based on our growth management review, the economic reports for the region and the actual history of the system users, we established scenario #1 as the soundest assumption. The proposed rate analysis and recommendation is therefore based on this assumption. Information on the other two assumptions is provided in the detailed report, but we do not anticipate an in-depth review of this information unless you have questions about them. RECOMMENDATION: The sewer rate will be divided into two rates: a base rate which should cover fixed costs and a volume rate which covers consumption. This proposal recommends adjustment to both types of rates over a multi -year period. We are recommending an increase to the sewer base rate in the current fiscal year; an increase to the volume rate in fiscal 2011/12; and a smaller increase to the volume rate in 2013/14. The water rate is also divided into two rate types. We are recommending the base rate be adjusted to be consistent with the sewer base rate in year 2012/13; and the volume rate be adjusted in 2014/15. The solid waste rate is not out of line for the normal operations of the solid waste function, but it does not adequately cover capital needs. As one of the financial policies recently endorsed by council advocates, capital funds should be established to finance capital equipment replacement needs. Therefore, we are proposing a $.25 increase to the solid waste rate in 2011/12. Finally, in your packet you will find a summary of a proposal for redistributing the street maintenance assessment program. This proposal will provide a reduction in property owners' current street maintenance assessments while building a more robust fund that adequately pays for maintenance and operations, capital, and reconstruction needs. The reduction to the current assessments is projected to offset the recommended increases to sewer, water, and solid waste. By proposing this multi -fund, multi -year package, our enterprise funds can be adequately financed with increases in some rates offset by reductions in other rates. Respectively submitted, Jane Howington City Manager WILLIAM F. SHAW 1170 Clayton Lane, Columbia Falls, Mt. 59912 (406) -892- 7955 DATE: February 10, 2011 SUBJECT: City of Kalispell Sewer Rate Study At the request of Ms. Jane Howington, City Manager, and in coordination with City of Kalispell staff, I have prepared a utility rate study for the Kalispell sewer fund. Following is a brief report introducing you to the methodology used in assembling several scenario about the future state of the City's changes in customer numbers and usage habit, sewer collection and plant operating expenses, and management of debt and capital assets. This report presents basic documentation for the first of three scenarios and a recommendation for potential rate schedule for scenario 1; full documentation of this scenario and two additional scenarios will be provided at the Council workshop. First some preliminary background into the elements have been stipulated as the basic objectives for the study: ❖ The study period must cover at least a five year period —the study projects all elements to fiscal year 15 —16 and includes information about the current (year 10-11) and three previous years. ❖ Among the objectives of the study is to show the following relationships: ➢ Customer count and volume usage and the expenses and revenue associated with fluctuations in those numbers. ➢ Identify a rate that accomplishes the following: ■ Covers all operating expense; ■ Contributes a return on net assets above operating cost; ■ Replenishes the operating reserve; ■ Provides the required bond debt coverage. ❖ Provide a rate structure that changes the current dependence on volume charges to a structure that relies more on admin fees (commonly called a base rate) - 5000 -Sewer Operating Fund Expenses 3 C 3 t tl 2 0 2 00 500 000 500 000 100 Xr _ �1 00 100 r" ;00 n7_na nano n�in ,n_11 11_i� 17_1, 1,_in in_i, Fiscal Year It might be a fairly easy analysis if the only elements —■ - Operatting Expense (includes dent interest) —� involved in the process were just sewer operating Debt Principle plus Operating Expense —Rate Revenue expenses (labor, supplies and material, service Debt Principle plus Interest contracts, fixed costs) and debt principle and interest as I— - Debt CoverRequired I Chart 1 presented in Chart 1. In fact the only known elements in this chart are those left of the dividing line at June 30, 2010; except "Debt Principle Plus Interest" and the "Debt Cover Required." As Don Rumsfeldl has said, "..there are known unknowns..." that raise some serious questions; i.e. what to do about sinking revenues and rising cost? ' Donald Rumsfeld, United States Secretary of Defense — 2001-2006 Page 1 of 8 City of Kalispell Sewer Rate Study February, 2011 There are at least two ways to respond to those questions: raise revenue or reduce costs. Below are two charts (Charts 2&3) that show known variable costs (those that respond to a changed environment) in relation to the volume that the sewer system must handle. It appears that volume and cost have both decreased in two previous year, but is increasing even as costs are further reduced, in the most recent year; it seems rather counter-intutive that the trend could be sustained for long. Like many businesses in these economic times, the easy saving have probably been rung out of the system, now the costs become much less elastic; so we turn to the revenue side of the equation. zoao Sanitary Sewer 1050000 volume vs variable cost 18D a laaaaoa ♦ 160 a laaoaoa 14D a ♦ ♦ ID2aaoa ♦ y E9 ♦ '� N 120a ♦ 1alaoao 7 O U ♦ rn 1a0 a laaoaoa O 0 L 4% a) E sou CL 0 ♦ 99aaoa o sou a8D z8D 0 a 98aaoa 9]8ao8 9saaoa 95aaoa 07-08 08-09 09-10 yea.. Natural Gas Electricity M&S less fixed cost Total Volume metered at plant fA 0 aaau- WWTP-1050000 ♦ labaaoa soo 0 laaaaoo soon T ME MU 07-08 08-09 09-10 1a2aaoa 1n ■ Alum Natural Gas Nor- Electricity M&S less fixed cost Total Volume metered at plant Ch arts s2&3 First we need to make some assumption about various elements: ❖ Cost of labor and input. Inflation is low now and there may a reasonable expectation that it will remain below 4%, probably in the I to 2% for the near term. The only exceptions are the costs of utilities and health insurance; these could increase at 1 '/2 to 2 times the inflation rate. Some further reduction in personal service costs were assumed in year I 1-12. ❖ Number of Customers. Normally, an increase in customers would be expected, but in these times the opposite has been true and that trend could continue for at least the near term. The assumptions made in this scenario is no change in customer count or volume through fiscal year 13-14 and a'/2% increase through the end of the analysis. This is not say that new homes wont be connected during the period; in fact the study assumes that at least 30 new connections per year are made and contribute toward Page 2 of 8 City of Kalispell Sewer Rate Study February, 2011 impact fees; a portion of these fees are assumed contributed towared paying a portion of debt service (about $250,000 of such transfer occurred in year 10-11). ❖ Volume of Usage. Volume is assummed to follow customer count. Sometimes conservation of water is the response to a raise in rates. Prescribed is a period of no change in customer count and volume usage for years 10-11 through 12-13; that is shown in Chart 5. Below are two charts (Charts 6&7) that show the relationship of volume and customer count to both anticipated expense and proposed revenue for each. In these examples, the operating expense includes the amount that is paid into fund 10125 (Evergreen/City Replacement). 8400 Sewer Customer Count and Usage Volume 1000 8200 950 0 8000 900 a 7800 850 a 0 7600 R 800 U 7400 7200 750 7000 700 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fical Year Chart 5 �Volume(Mgal) jll.--CustomerCount A previous analysis2 of the sewer operations emphasized a methodology that relied upon characterizing cost into categories related to volume (collection system), strength of inflow (treatment), customer service or direct allocation (Evergreen). The method is conventional and maintained in this analysis. Using that analogy and making some assumptions about which elements are variable and which are fixed, the result is argued to appear as follows: • allocate all volume cost and 90% the strength and direct assignment costs to volume expense; allocate 10% of strength and direct assignment costs to admin costs; allocate fixed cost, and debt interest and principle to admin costs. Displayed in relationship to flow volume and customer count, the analysis would appear as shown in Charts 6&7. 1000 Sewer Volume Rev and Usage Volume Sewer Admin Rev and Customer Count $3,700 $1,200 950 8400 $1,100 _AL 8200 $1,000 a A 900 $3,200 y �_ - - = ♦ — - i ' -� - - -If t y 8000 $900 850 ° $800 ° y $2,700 x a v 7800 $700 a -" m 800 .6 0 7600 $soo W $2,200 W u 7400 $500 750 $400 7200 _ $300 700 $1,700 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 7000 $200 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Years Charts Fiscal Year 6&% - A -Volume Rev - - -Volume Exp. tVolume (Mgal) — - Adnin Rev($K) - - -Admin Exp tCustomer Count 2 HDR Sewer Utility Study 2010 Page 3 of 8 City of Kalispell Sewer Rate Study February, 2011 In these charts the relationship is actual only for years prior to 10-11; a portion of year 10-11 and forward, assumes that the adopted rate structure is weighted in favor of reliance upon admin fees. From this analysis it is reasonable to postulate that such a structure would reduce the risk of wide fluctuations in revenue when usage habits change because admin revenue would be sufficient to cover the non -variable cost of the sewer fund. So far we have been discussing operating and debt expense, and rate revenue. The relationship would appear like that shown in Chart 8. It shows a wide margin between rate revenue and operating expense plus debt principle; why is that? We will delve into the margin now. The other pieces of this picture are bond obligation requirements and a return on net assets. One of the bond obligations commonly attached to t ' fii d b $a 40OSewer Rate Rev and operating and debt expense $4,200 H R $4' 000 H 0 $3,800 $3,600 R 6 I $3'� $3,200 $3, 000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year I�nue operating + principle Chart 8 en erprtse n s ( usmess type operations) indebtedness is a contractual requirement that the operating revenue, less expenses (before depreciation), exceed the combined principle and interest by at least 125% (commonly referred to as debt coverage). Operating revenues include current revenue from sewer rates, any current interest earned on operating cash and any miscellaneous revenue. Combined principle and interest includes any current sewer debt payment. In Table 1 is presented the calculation of that obligation provided in the most recent city audit; in that t'n5h F16w onyP.id pp calculation, included in the operating revenue was about $800,000 from storm sewer. This study does not include storm sewer in the analysis. Notice that the terms net assets and depreciation are elements of "Operating Revenue $4,259,802 Impact Fees pledged for debt service 250,000 Less: Operating Expense (before deprecia(ion} 2,862,106 Available for Debt Service "Maximum Debt service $1, 35 6,624 Coverage FYI 0 121 % *includes interest revenue "',includes all debt service needs of the sewer fund Table 1 this discussion. The picture now becomes complicated with issues of equipment and plant replacement, major repairs and the need for working capital. All of these elements are asset related. Depreciation can be a measure of how much of the asset has been depleted and helps in scheduling repair or replacement .3 For purposes of this study, depreciation is used as a yardstick to determine a return on net assets and, because it's a term used in the debt cover requirement, it will also be used explain the margin between rate revenue and expense. s For certain business situations, it is desirable to accelerate depreciation and this can distort the estimated relationship between time, wear and tear and obsolescence. Page 4 of 8 City of Kalispell Sewer Rate Study February, 2011 If you add to the picture the cost of assets (including debt) and all available revenue the sewer operations figures would align c 5,500 similar to that shown in Chart 9. � Revenue & Expense hart 9 Chart 10 presents the rest of the picture. The objective is to have the "coverage provided" exceed "debt cover required." In the scenario displayed in Chart 10, that is accomplished in year 12-13. A couple of comments about what this chart is presenting: • The difference between "total allocated cost" and "allocated cost less depreciation" is the depreciation mentioned earlier. While depreciation is a somewhat arbitrary figure (original cost, less salvage value, divided by the anticipated years of service) it does provide some measure of all things associated with assets, including debt used to purchase assets. • The "coverage provided" and "debt cover required" are shown on a separate vertical axis (right side of chart), at a scale different than the "Operating Rev and Exp" scale on the left. The displacement is purposeful; the desire is to show the corresponding relationship between margin revenue (rate revenue less operating cost after depreciation) plus "other revenue" and "debt cover required." 5,000 4,500 0 r a 4,000 W 3,500 >s 3,000 a 0 2,500 2,000 1 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year 1 - Total Allocated Costs —Allocated Cost Less Depr. tRate Revenue --*--Rate Revenue plus Other 5,500 Revenue - Operating Cost - Debt Coverage 3,500 3,000 5,000 V a 2,500 c 0 4,500 2,000 m r 0 CL X 1,500 4,000 w a 1,000 3,500 0 U 500 a � 0 o 0 3,000 -500 2,500 -1,000 07-06 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year - Total Allocated Costs —Allocated Cost Less Depr. f Rate Revenue --*o— Debt Cover Required (125 % of Principle & Interest) Chart 10 --�K - Coverage Provided by Operating Revenue Page 5 of 8 City of Kalispell Sewer Rate Study February, 2011 O Cd C�j a) cn +C Cd N C O N C N N � N N bA U U �-4 C�j y m m ] � � V Q') Q')m Q') Q') � � � CD Co 0 (DO u u O ur O o CD r- CD r- CD r- (D Lf) CO Lf) (D Lf) (D Lf) (D Lf) CD r- CD r- CD r- CD o CD7+ 0 y � Efl Efl 64 � Efl Efl ffl ffl ffl Ffl Ffl Ffl fA fA fA Efl N o O E N r V ('A ("IN N O CD ID N N N N N O O O Efl O 69 69 64 69 69 69 69 EA EA 4H 4H 4H 4H 69 69 69 _ E O N CO� CO (V U7 CD CD CD CD CO CO CO CD 00 y Co U o o ry CO 0) 00 uD o o a-) UD r- o uO O] m CO -T N O) O CV U7 O V m CD IT m O �D UO i CV ':T O) r N CO O m O) N CD O IT N O 0) O 69 69 64 69 69 69 69 EA EA C'3 03 N 4z,� U9 UCN 9 CD4� Mr 4f O O O CO CO CO CD O O O CO CO CO 00CDCDIM1 O r r CD CD CD CD CD r r r O � m o u� � � � 64 69 64 69 69 69 64 64 64 64 64 69 s, s, � sv a� d 4» y O Q- CC.N co N CO � CDCD CD CD CD CD CD CDO O N N m U i C6 07 c�'S 07 00�n O CD N co CD CD a m cc- 0-)O O 0-) CD m O O O CO N O N i 64 m r r N 00 CD m 0) CIA CD CO Un CO O t 4C3 4P, 4C3 4C3 4C3 4C3 4C3 N Ffl CoU9 Ffl 69 'I,4f3 69 - > L.1 4f3 m Efl da dj d7 � O O O � IN I FN (D N N N N IN INO N 7 lyG 64 69 64 6Ln 9 69 69 64 64 64 64 64 64 64 64 64 64 O C6 N r y N m CO. 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The City of Kalispell is the commerce center for the northwest region of the state. While the residential population is in the low to mid 20,000's, the daytime population rises close to 100,000. In the summer months, this population shift skyrockets more with the influx of tourists. As per state law, Kalispell uses a property assessment process to fund its street maintenance program. The ability of 9,000+/- property owners to pay for the maintenance and repair of the city street infrastructure worn and torn by 100's of thousands of people is impossible. Needless to say, the street maintenance program is severely underfunded and our ability to increase revenues using the current methodology is next to impossible. The state legislature has repeatedly turned down requests to provide statutory authority for local option sales tax. There is statutory authority to impose impact fees, but this is only for new construction caused by growth. The possibility of raising gas tax exists, but is under the purview of the county commissioners and does not appear to be a likely option at any time in the near future. The concept of a special retail assessment fee first came to my attention at a CDFA training session. A community in the Commonwealth of Virginia used this type of assessment in a shopping mall/TIF development. Since then, I have become aware that Colorado communities have used this methodology as well. The concept appealed to me immediately as a way to tap into the infrastructure users that do not own property within the corporate limits. After a great deal of fits and starts, we have finally settled on a concept to use special retail assessment fees as a part of a special street maintenance improvement district (SID). SID Concept. Special Improvement Districts (SIDs) serve two primary functions. The first is the creation of some form of infrastructure, such as sewer lines or roads. The second is for the maintenance of some facility or service the City provides, such as street lighting or street maintenance. SIDs are created by action of the City Council. First, a resolution of intent is passed and advertised in the newspaper. This notifies the people who will be affected by the SID. Citizens have the opportunity to protest and make public comments. If the protest hasn't been sufficient to cancel the project, a final resolution may be passed. The boundaries of the district are defined to include the properties that are specially benefitted by the improvement or maintenance of the improvements. The district defined may include a portion of the city or may include the entire city. The costs of the district are distributed across the properties benefiting from the infrastructure or maintenance (the district). State law allows the distribution to be done on a number of bases including, for instance, the area of each parcel in the district, the assessed value of each parcel, number of parcels, front footage of each parcel bordering a street, or a combination of the allowable methods. The Concept of Combining Districts and Assessment Methods. A special improvement district (SID) could be developed to take the place of the current street maintenance district. The SID boundaries would be the same as the corporate boundaries and every parcel in the city would be charged an assessment. The residential properties would be assessed a set fee for each SF dwelling unit. The business and commercial properties would be charged a set fee, but would include a sliding scale for these fees based on property size (maybe 3 or 4 categories). The commercial retail businesses would be charged a retail transaction fee. The revenue from these sources would flow into an enterprise account for street maintenance and improvements which would replace the current street maintenance assessment program. The current assessment budget creates $1.75 million in revenue. The needs for this budget, at a base level, are approximately $4 million dollars. This estimated number includes our current maintenance program; capital equipment replacement needs; capital project needs such as rebuilding infrastructure; and an improved snow removal operation. Staff is also exploring the potential for this assessment to replace the transportation impact fees, however, the enabling legislation is fairly restrictive about how monies in street maintenance funds may be used. We will continue to work on this option. Redistribution of Financial Burden. The development of a street maintenance SID and the incorporation of transaction fees with this SID would provide city council with the opportunity to accomplish the following: 1. Place the costs of street maintenance with the users of the public right-of-way infrastructure. 2. Reduce the current street maintenance assessment burden on Kalispell property owners. 3. Provide adequate funding for the maintenance and upkeep of our right-of-way infrastructure. Example (proposed fees are estimates and may be modified as detailed analysis is completed). Current residential street maintenance assessment of a medium size residential unit is $180.00. The proposed flat rate for single family units is $50.00. Current bank assessment is $1250. The proposed rate is between $100 and $200 based on size of business. Current food store assessment is $1425. The proposed rate for the property owner is between $100 and $200 based on size. Proposed retail transaction fees of selected retail/commercial types based on estimated transaction fee of $.10 and using trip generation model to estimate number of transactions: Major box store transaction fee estimate is $150,000 to $200,000. Grocery store transaction fee estimate is $100,000 to $150,000. Hotel transaction fee estimate is $10,000 to $30,000. Restaurant transaction fee estimate is $10,000 to $25,000. The process of collecting transaction fees would be a combination of self -reporting; verified by annual random audits, and assessments using trip generation numbers if a retail establishment fails to report/remit their transaction fee and information. It should be noted that I am not proposing to base the transaction costs on trip generation, however, I am using that data as a method of estimating the numbers of transactions per type of retail use. Trip generation would also be used to estimate and lien a commercial business should they violate the proposed assessment program. City of Kalispell — Post Office Box 1,997 - Kalispell, Montana 59903 Telephone: (406) 758-7701 Fax: (406) 758-7758 February 10, 2011 Jack Fallon Chairman Flathead County Water & Sewer District #1 130 Nicholson Drive Kalispell, MT 59901 Dear Jack: Please accept this letter as a formal request to open the current Interlocal Agreement between the Evergreen Water & Sewer District and the City of Kalispell. The City desires to discuss the following components of the current Agreement: Simplifying the rate structure to bring the treatment rate for the District to the equivalent of the residents of Kalispell. This would eliminate the debt contributions and the replacement fund currently required of the District. 2. The potential for increasing the District's reserve capacity and customer base to incorporate the 100,000 gallons per day that currently is reserved for areas on the District's RSID borders. Incorporating current language for DEQ or EPA pre-treatment mandates as amended. The current Agreement also stipulates the City is required to notify the District if it is considering changes to the base (or administrative) charges. We will be recommending to Council a new fee structure that may impact this component of the rates. This information will be presented to Council on Monday, February 14, 2011 with the rates being an agenda item at the regular Council meeting on Tuesday, February 22, 2011. I look forward to your favorable reply to this request and the ensuing positive discussion that will hopefully provide an improved Interlocal Agreement for both parties. Please do not hesitate to contact me should you have any questions regarding this request. Sincerely, Jane Howington City Manager ld Glaclier# Compost, November 15, 2010 Jim Hansz Public Works Director City of Kalispell, MT Dear Sir. While we realize these can be difficult financial times for many government entities, it is equally difficult for private employers. This is particularly true -for manufacturers who have little opportunity to raise their prices, despite the rising cost of doing busiiiess.in,Montana. Further, we believe it is inherently anti free enterprise, and anti environment to.'utilizes a taxpayer subsidized enterprise (local landfill) to compete with private industry and dispose of the city's sludge in such an ecologically unsound manner, when a better alternative exists right here in Western Montana. However, because we have already committed to supply finished product to our customer bases we- feel we have no choice but to meet your offer of renegotiating a new tipping fee. We propose to sign anew three, (3) year agreement between Glacier Gold, LLC and -the -City of Kalispell whereby we agree to your; proposed tipping fee of $20700 per:ton from January 1; 2011 through December 31, 2011. Beginning January 1, 2012 the €ee shall result to the current contract terms and rate of $225.06 per ton. This contract shall expire December 31, 2013 I hope we can conclude this:matter to our mutual satisfaction. Please let me know if s this compromise iacceptable, so" that we may finalize the contract before the end of the year. Most Sincerely, Ernest W. Johnson Managing Member IQ P.O. Box 128 Olney, Montana 59927 (406)881-2311 FAX .(406) 881-2323 c City of Kalispell Post Office Box 1997 - Kalispell, Montana 59903 3 e Telephone: (406) 758-7701 Fax: (406) 758-7758 MONTANA February 3, 2011 Mayor Fisher and City Council: The purpose of this memo is to serve as an update on how we have been preparing a more comprehensive rate review and recommendation to bring before you on February 14. This is a huge project and I thought it may be helpful if you were provided with information through a series of memos, rather than dumping everything on you at one time. During the past year as we discussed the sewer rate, council asked me to look into the following: 1. Review and reduce O&M Status: The 10/11 budget's O&M was reduced by $745,171 over the prior year's budget. Personnel changes this year will reduce staffing costs an additional $80,000 to $90,000 in the next fiscal year. Electric costs have already seen a decline from the old plant's usage to the new plant. We are now working with Flathead Electric Coop to audit all city electric accounts for adjustments. 2. Review and renegotiate contracts Status: The contract with Glacier Gold has been renegotiated with the tipping fees now matching those of the County. This arrangement is set for one year, at which time the city will look at increasing use of the landfill to avoid the transportation costs to Glacier Gold unless their fees can be further reduced to match those of the landfill. We are working with Glacier Gold for the next year to allow them time to restructure their business model to not be completely dependent on the city. The city cannot sacrifice taxpayer dollars for the benefit of an individual company. At the same time, however, we do not want to force a small business to close its doors because we have allowed them to be totally dependent on us in the past. I have met with Jack Fallon several times regarding my intent to reopen the Evergreen agreement. Our meetings have been very productive and I am finalizing a formal proposal to present to Evergreen. Elements within the proposal will include the following: ® Simplifying the rate structure to charge Evergreen the same rates as Kalispell customers. ® Offering Evergreen the reserve capacity and customer base of the 100,000 gallons per day that currently abuts their RSID. ® Eliminate the debt contributions and replacement fund requirements as these will be incorporated into the rate. ® Incorporate updated pretreatment language. ® Upgrade odor abatement language. 3. Investigate alternate revenue sources Status: The potential for additional revenue as a result of the Evergreen negotiations is a primary opportunity for revenue growth. The need to revise the base rate formula and charges is also a high priority change that will impact revenues. The current work toward use of the emerging technology for an algae process to treat sludge is a long term solution to cost reduction, as well as having the potential for revenue generation. 4. Review and revise the rate study information from HDR Status: After analyzing the current draft rate study conducted by HDR, I asked Bill Shaw if he would be willing to assist in conducting an external review of our rate information. Bill has done numerous rate analyses in his tenure as both a public works director and a city manager. His approach is very straight forward and will help us build a model that can be implemented internally to make us less dependent on consulting firms. S. Bring back to council a comprehensive rate plan Status: The comprehensive rate plan will be part of the information to be discussed at the work session on the 14`" and is being incorporated in the analysis currently in process. Staff has been working very hard to turn over every stone we can and to look at all rate elements with new eyes. While we have reduced costs and modified methodologies, there remains the base issue of a treatment facility which was built on assumptions that have not come to fruition. I sincerely hope that council will see that staff has worked diligently to take every action possible to cover as much of the increased costs such a plant requires and will now partner with me to move forward in making the difficult decisions necessary to maintain our waste water system through a fiscally responsible rate structure. Powington From: Jane Howington Sent: Monday, December 27, 2010 11:36 AM To: Duane Larson; Duane Larson; Jeff Zauner; Jim Atkinson; Jim Atkinson Qatkinson@flathead.mt.gov); Kari Gabriel; Randy Kenyon; Robert Hafferman; robertt@montana.com; Tammi Fisher; Tim Kluesner; Wayne Saverud Cc: Jane Howington Subject: sewer rate information Mayor Fisher and members of Council, Over the next month staff will be working to prepare information for the February 14th work session. As much as possible, I will try to provide you with information so you can keep track of what we are doing during this preparation period. I know many of you are aware that we have been working with Glacier Gold to reduce their tipping fees for sludge to match the landfill tipping fee. Several members of Council have expressed concern that we should require a further reduction to cover the cost of transportation. While we continue to have discussions on this, I think balancing the number of truckloads between the landfill and Glacier Gold will balance this out. We are proposing only a one year contract with Glacier Gold so we can go out to bid for sludge disposal. That one year will also give them an opportunity to review their business plan and to not be so dependent on the city: I would hate to have the stigma right now that we forced them out of business because we didn't give them an opportunity to alter their product market. I'm hesitant to discuss this in detail in open meeting as this is currently in the negotiation stage and should not be discussed in public until negotiations are complete. There have also been quite a few questions about personnel savings and how that impacts the rates. Most of the Public Works staff costs are allocated to various funds depending on what their work loads are. As you know, the Deputy Director position has been eliminated: 20% of which was allocated to sewer and 20% allocated to WWTP. The city surveyor is retiring at the end of 2010 and 25% of that position's allocation is in sewer. We are not anticipating filling the surveyor position but will need to allocate some funds to hire external surveyors when required. The public works director is retiring at the end of 2010 as is the water resources manager at the end of February 2011. We do not anticipate filling either of these positions immediately but we will have to fill at least the public works director position. Portions of both these positions are in WWTP and sewer. I have been holding "conversations" (prelude to negotiations) with Jack Fallon from the Evergreen Water and Sewer District regarding negotiating a new agreement. Jack has been very good to work with and I think we can alter the way we have been doing business to simplify the current agreement; bring the rates charged to Evergreen into line with the in -city rates; expand their reserve capacity to include the 100,000 gallons external to both the city and the Evergreen RSID. In talking with Jack about how the Evergreen District does business, he has reminded me of the importance to run the utility as a business (somewhere I think we've gotten off this track). One of the most important elements in modeling this is Evergreen's continual review of their base rate: that's the fixed rate they charge all customers to "keep the doors open" as Jack referred to it. Currently, Evergreen's base rate is $9.45 and ours is $3.75. Jack gave me the spread sheets Evergreen uses to determine what fixed costs should be applied to the base rate and I've calculated what our base rate should be using his model. Our base rate should be $9.88. The current Kalispell base rate includes only the cost for billing. I think we should be looking at adjusting our base rate as a more crucial action to take. By not covering the base costs in said base rate, we are forcing the usage rate to subsidize our fixed costs. Looking at past actions, it doesn't seem apparent this issue was addressed with Council. If any of you have any background on this, I'm sure it would help everyone to understand the history here. All for now. I'm sure we'll have further information after the holidays are over. Jane 1 G�ty of Kai"spe% Sealer Rolle StOdy February,2011 Prepared by: William F. Shaw PREFACE...................................................................................................................... 2 BACKGROUND...........................................................................................................3 RATE STRUCTURE & RATES..................................................................................6 SCENARIO1...............................................................................................................10 SCENARIO2...............................................................................................................14 SCENARIO3...............................................................................................................16 SUMMARY.................................................................................................................17 APPENDIXA: ............................................................................................................. 19 APPENDIXB:.............................................................................................................20 APPENDIXC:.............................................................................................................21 PREFACE In mid -January, I commenced a sewer rate study for the City of Kalispell, at the behest of Ms. Jane Howington, City Manager. In coordination with the City's staff and with some reliance upon a previous study,' I assembled an Excel® spreadsheet that allowed the analysis of any number of potential scenarios including the following factors: changes to customer count; usage volume; expenditures; and revenues. Early in the process it was decided that the study must project at least a five year period, from fiscal year 11-12 to 15 —16 and include information about the current (year 10-11) and three previous years. In addition, it must show a relationship between fluctuations in customer count and volume usage, and the expenses and revenue associated with those quantities. Ultimately, the study had to identify a rate and rate structure that accomplished the following: • Covers all operating expense; • Contributes a return on net assets above operating cost; • Replenishes the operating reserve; • Provides the required bond debt coverage. • Provide a rate structure that changes the current dependence on volume charges to a greater reliance upon on admin fees (commonly called a base rate). i HDR City of Kalispell Sewer Utility Study 2010 Page 2 of 21 Kalispell Sewer Rate Study Feb. 2011 During the process, the objectives of the study were brought to focus on three scenario; these were delineated as: • Scenario 1: Assume that the customer count and volume usage remain close to static for years 11-12 and 12-13; the remainder of the study period these increase at about'/2% each year. • Scenario 2: Assume that the customer count decreases for years 11-12 and 12-13 and during the remainder of the study period remain static; during the entire period the volume usage remains flat. • Scenario 3: Assume that both the customer count and volume usage increase at about'/2% each year of the 5 year period. Within the following pages are presented the scenarios and their concomitant effects on sewer rates and rate structures, and ultimately the capacity of the sewer department to provide the desired service with adequate asset maintenance. BACKGROUND The methodology used in the study is conventional in the following manner: • The presumption about the allocation of both costs of operation and value of assets of the system is based on factors associated with the collection, treatment and customer service. For Kalispell, it also includes contractual allocation for sewerage from Evergreen (an unincorporated community east of Kalispell). • The cost associated with any element of the operations is clearly delineated in past and current city budgets in Fund 5310 and value of assets discernible from budgets and related audit reports. • The operation elements are assignable to a specific asset or assets based upon the proportional value of the asset to total assets. • The operational and asset elements are further assignable to specific functions delineated by volume handling, strength of effluent and customer service. • The volume of sewage arriving at the treatment facility is not the basis of the rate but does impact the cost of operation and the sizing of infrastructure. The projection of operational costs relied upon the staff s estimate of near future changes in operational methods and inflation. These projections were based upon anticipated 10-11 year end expenditures. Factors included changes in staffing pattern, personal services cost and benefits, and utility rates. Page 3 of 21 Kalispell Sewer Rate Study Feb. 2011 Chart 1 presents the relationship of operating and non -operating expenses for the sewer fund; non - operating expense includes recent capital investments in the treatment plant (note: shown a 1/4 scale of operating expense). For purposes of the study, net assets, depreciation and working capital were stated as those current to the Trial Balance Statement of January, 2011. The values of those assets are presented in Table 1. Table 1 also shows the assignment of assets to operational functions(the five columns on the right side of Table 1); the proportional allocation to functions is also used to assign operating the non -operating cost. ASSETS ASSIGNED TO SPECIFIC FUNCTIONS OF Operating WASTE WATER COLLECTION AND TREATMENT Total Asset Volume Property $222 $222 Plant $37,307 y Equipment $494 Total Treatment $37,901 $0 N Q Lift Stations $18,T07 `-' •N Collection Lines $5,276 7+ a Total Collection $23,983 $0 Equipment $1,162 Total General Plant $1,162 Total Plant!n Service $63,168 $222 m o Treatment $14,376 m - 14 Collection $6,465 E air Q General $878 $3 U N a 0 Total Accumulated Depreciation $21,719 $3 10100 Sewer Operations $706 $3 U 10123 Designated Growth Related Capital Fund $1,624 $2 10124 WWTP Capital Improvement Fund $345 $1 o 10125 WWTPEquipment ReplacementlEvergreen $329 $1 Total Working Capital $3,004 $7' 3500 3000 2500 a 2000 N 0 0 1500 1000 500 14000 rrl rent I990rr M U N :39I6911194 N 6000 '0= 0 s Fn 4000 M 0 1 M 1 0 "I 11 lb n n n n Rscal year ❑Non -operating ■VWVfP ■ Sanitary Semer ❑ Billing ❑ Lab Table 1 values in $ thousands Kalispell Volume CityBio-02 City Only Direct Only Demand Sus. Solids Assignment $11,931 $7,857 $9,312 $8,208 $150 $104 $123 $109 $12,089 $7,961 $9,435 $8,317 $18,707 $5,276 $23,983 $0 $o $0 $158 $104 $123 $109 $150 $104 $123 $109 $36,230 $8,065 $9,558 $8,426 $4,598 $3,028 $3,588 $3,163 $6,465 $511 $113 $134 $118 $11,574 $3,141 $3,722 $3,281 $411 $91 $107 $95 $1,221 $147 $175 $79 $201 $44 $53 $46 $191 $42 $50 $44 $2,024 $324 $385 $264 The study assumed that even in scenarios where the number of customers were declining, on an annual basis, the number of new homes being connected, on an annual basis, was not less than thirty. This would appear to reasonably represent the current Page 4 of 21 Kalispell Sewer Rate Study Feb. 2011 situation since the number of customers is in decline but the revenues in impact fee funds have not been reduced to nothing. The study makes reference to debt service and debt coverage; these are exclusive terms: debt service is a reference to principle and interest, typically the amount paid in a given fiscal year; debt coverage is a bond obligation requirement that the annual operating revenue, less expenses (before depreciation), exceed the combined principle and interest due in the same period, by at least 125%. In Table 2 is presented the calculation of debt coverage as provided in the most recent city audit; in that calculation, included in the operating revenue was about $800,000 from storm sewer. This Table 2 Cash Flow cowzapp- °Operating Revenue $4, A802 Impact Fees pledged for debt service 250,000 Less: operating Expense (before depreciation) 2,962,106 Available for Debt Service $ l'fi47.6g6 "Maximum Debt Service $1,356,614 Coverage FYI 121% *includes interest revenue *,Iincludes all debt service needs of the sewer fund study does not include storm sewer in the analysis. The capital improvement plan (CIP) used in the study was provided by staff and is presented in Table 3. The CIP was not extended into year 15-16. Sewer Fund Capital Improvement Plan 10-11 11-12 12-13 13-14 14-15 2nd St. E. Alley& 3rd AlleyWest Slip,Lining102672 Table 3 Manhole Rehabilitation 15000 15WO 25000 25000 Machinery& Equipment 6000 30DW 30000 30000 Grandview Plumping Station Upgrade & Northridge Dr/Prkway Dr 0 0 0 Misc Sewer contract main upsize and Facility Enlargements lift stations 44000 45000 45000 45000 45000 o~ �u w By-pass Pump Grandview Lift Station 55047 15000 Sanitary Liquid Disposal Site w } Pump Replacement Lift Station #10 . Nicklaus a US 93 South Bypass Relocation Design & Construction 5413 2 Remove LS #19 and 28 123527 ran 2nd Alley E. Pipe Replacement 157430 Peterson School Pipe Replacement 34598 6th Alley E. and 14th St. Pipe Replacement 29989 5th Alley E Slip Lining 76876 1st Alley WN Slip Lining 77036 Total Sewer Capital Improvement Projects 55413 253574 282028 129989 356584 Misc Replacement Iternsimaintirepair needed each yr 60ON looDool 1000001 100000 100000 IL AWWTPEffluent Quality Upgrade I 1 1000000 Primary Digester Lid Re lacement Belt Filter Press Replacement Total VWVTP Capital Improvement Projects 150000 500000 500000 300000 250000 9000001 600000 60000 1100000 My credentials, with respect to my ability to advise the City Council and staff concerning matters related to sewer rate analysis, includes: Bachelor Of Science in Construction Engineering, over 20 years of public service in municipal government; more Page 5 of 21 Kalispell Sewer Rate Study Feb. 2011 than 7 years as a public works director; more than thirteen years as a city manager. During this term, I have been instrumental in the completion of the several multi -million dollar infrastructure projects; all funded by a combination of bond indebtedness, grant funds and rate revenue. I have produced rate studies for each municipal government that employed me; including both sewer and water rate analysis and impact fee analysis. RATE STRUCTURE & RATES Typically, a utility rate structure possesses at least two elements; a unit charge based on measure of quantity of usage (volume costs) and a flat fee (admin costs) based usually on non -variable costs2. The current Kalispell sewer rate structure allocates all but customer service costs to unit charges. In this type of structure, fluctuations in usage pattern can produce wide swings in the utility Proportion of Debt Related Cost Chart 2 to revenue stream; this creates a severe problem in systems with high fixed costs (non -variable) usually due to debt load; recognizing that "high" is a relative term, Chart 2 compares the 35.00% Operating Cost plus Debt Related Cost 34 00% 33.00% 32.00% 31 00% 30.00% 29.00% 07-00 00-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Kalispell debt service cost to operating costs including debt service; it shows that percentage is within a 30% to 35% range. To show how a volume -reliant rate structure responds to changes in operating conditions lets look at a scenario where the following elements are present: • Customer count and volume usage are as shown in Chart A7(this aspect is the same as scenario 1); • The proportional assignment of variable and fixed expenses are: allocate all volume costa and 90% the strength4 and direct assignments costs to Sewer Customer Court and Usage Volume 8200 1000 8100 8000 950 7900 900 '0 1800 E 7700 850 v 7600 " 800 7500 7400 CHART A7 7300 7200 700 07- 08- 09- 10- 11- 12- 13- 14- 15- 08 09 10 11 12 13 14 15 16 Fical Year +Volume tMgalj +Customer Count z Variable costs are typically those that change with production demand changes, for purposes of uns sway, these include such budget items as "personal services" and "supplies and services." Non -variable cost or fixed costs are typically those that do not change as production demand fluctuates, for purposes of this study, these include such budget items as those categorized as "500" such as "office rent, data processing, admin transfer." For purposes of the study, debt related costs are considered as fixed cost unless noted otherwise. s See Table 1: volume cost are denoted as "Volume Cost" and "Kalispell Volume." 4 See Table 1: strength cost are denoted as `Bio 02" (biological oxygen demand) and "Sus Solids" (suspended solids). 5 See Table 1: direct assignment refers to the cost associated with the Evergreen contract. Page 6 of 21 Kalispell Sewer Rate Study Feb. 2011 volume expense; allocate 10% of strength and direct assignment costs to admin costs; allocate fixed cost, and debt interest and principle to admin costs. • Adjust the volume rate to a level that sufficient rate revenue is generated to allow debt coverage to be met. If the necessary rate revenue were plotted against the operating cost plus principle then Chart 3 would show that relationship. Chart 4 shows the relationship to debt cover. In Table 4 is presented an example of the charges to in -city residents and in -city commercial customers when the admin rate $4,400 $4,200 m 9 $4,000 L 53,800 $3,600 a o $3,400 $3,200 $3 000 fewer Rate Rev and operating and debt expense J I J Chart 3 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year —Rate Revenue —operating + principle ;.t,nn i Revenue - Operating Cost - Debt Coverage3,5°° 3,000 remained unchanged but the volume rate 5,OOD increased from $4.19 to $5.45; $1.26 /1000 gal. '0 4,500 a 2,000 � Increased cost to customers ranged from W 0 a monthly cost of $1.26 for a resident with low � 3.500 a 0 500 n ° ° usage (about 1000 gallon/month) to $630.00 for a commercial customer with about 500,000 300° 5°° gallon/month usage. Circled in Table 4 are an 2,500 -1,°°0 07-08 09-09 09-10 10-11 11-�2 12-13 13-14 14-15 15-16 average residence and mid -sized commercial customer. "'�'"`�` --*- Total Allocated Costs Chart 4 —Allocated Cost Less Depr. f Rate Revenue -&�-- Debt Cover Required (125 % of Principle & Interest) =1 - Coverage Provided by Operating Revenue 4 el- ng 7VTable NON THLY SEWER Volume Volume Volume Admin Total Volume Volume Admin Total BILLING Rate Charge Rate Charge Rate Charge Rate Charge Difference Difference EXAMPLE bi-monthly Monthly 2,000 RESIDENTIAL (INSIDE CITY) 8,000 $4-19 $8-38 $3-75 $12-13 $3-75 $37-27 $5-45 $5-45 $10-90 $3-75 $375 $14-65 $47-35 $2-52 $10 08 $1.26 $4-19 $33-52 $43-60 4 $4-19 $79-61 $103-55 $11.97 19,000 $3-75 $83-36 $5-45 $3-75 $107-30 $23-94 51000 $4-19 $20-95 $3-75 $24-70 $5-45 $27-25 $375 $31-00 $6-30 $3.15 $4-19 $109-00 COMMERCIAL 20,000 (INSIDE CITY) 50,000 $83-80 $3-75 $87-55 $3-75 $213-25 $5-45 $5-45 $3-75 $3-75 $112-75 $276-25 $25-20 $63-00 $4-19 $209-50 $272-50 $31.5 $4-19 $838-00 $1,090-00 $126.00 200,000 $3-75 $841-75 $5-45 $3-75 $1,09375 $252-00 $4-19 $4,190-00 $5,450-00 $630.00 1,000,000 $3-75 $4,193-75 $5-45 $3-75 $5,453-75 $1,260-00 6 A typical residence will use about 140 gallons per day per person, for the average family, 2.3 persons per household, that equates to about 9,600 gallons/month or 19,300 gallons bi-monthly. Page 7 of 21 Kalispell Sewer Rate Study Feb. 2011 If a scenario were based on a decrease in both 5,5°° Revenue -Operating Cost-DebtCoveragei °o customer count and volume usage, as shown in Chart 5, 3,000 then a rate necessary to 5,000 ,. J-'� 2,500 Sewer Customer Count and j -' �•-• �` provide revenue to meet 8000 Usage Volume as°o z,°°° a 1500 795° " debt coverage, as shown 7950 Chart 5 a 4N0 oo° = 7850 rc - in Chart 6, would vary a 850- 3,500 7800 500 v c� " o 7750 830 o 0 over the study period. w 7700 Bloom 3� ci 765° 790= 500 Table 5 provides an 760 7550 770 1111 z ,-,3 ,114 ,1,5 6 example of the charges to 7500 750 07- 08- 09- 16- 11- 12- 13- 14- 15- Total Allocated Costs Chart 6 in -city residents and in- 08 09 10 11 12 13 14 15 16 -Allocated Cost Less Depr. Fical Year tRate Revenue city commercial +Volume (Mgal) Debt Cover Required (125% of Principle & Interest) Customer Count =K- Coverage Provided by Operating Revenue customers when the admin rate remained unchanged but the volume rate increased from $4.19 to $5.66 ($1.47 /1000 gal.) in the first of a five year study period and increased to $6.08 in the last year ($1.89 above the $4.19 rate). Again, circled are average resident and mid -size commercial. Existing Proposed ITable 5 13I4410N THLY SEWER BILLING Volume Volume Volume Admin Total Volume Volume Admin Total EXAMPLES Rate Charge Rate Charge Rate Charge Rate harge � Difference Difference bi-monthly Monthly 2,000 $4.19 $8.38 $3.75 $12.13 $5.66 $11.32 $3.75 $15.07 $2.94 $1.47 RESIDENTIAL (INSIDE CITY) 8,000 $4.19 $33.52 $3.75 $37.27 $5.66 $45.28 $3.75 $49.03 $11.76 5.8 19,000 $4.19 $79.61 $3.75 $83.36 $5.66 $107.54 $3.75 $111.29 $27.93 5,000 $4.19 $20.95 $3.75 $24.70 $5.66 $28.30 $3.75 $32.05 $7.35 20,000 $4.19 $83.80 $14.70 $3.75 $87.55 $5.66 $113.20 $3.75 $116.95 $29.40 COMMERCIAL (INSIDE CITY) $3.75 $213.25 $5.66 $283.00 $3.75 $286.75 $73.50 50,000 $4.19 $209.50 $36.75 200,000 $4.19 $838.00 $147.00 $3.75 $841.75 $5.66 $1,132.00 $3.75 $1,135.75 $294.00 1,000,000 $4.19 $4,190.00 $735:00 $3.75 $4,193.75 $5.66 $5,660.00 $3.75 $5,663.75 $1,470.00 BI-MONTHLY SEWER BILLING Volume Existing Proposed EXAMPLES Volume Volume Admin Total Volume Volume Admin Total Difference Difference Rate Charge Rate Charge Rate Charge I Rate Charge bi-monthly Monthly RESIDENTIAL 2,000 $4.19 $8.38 $3.75 $12.13 $6.08 $12.16 $3.75 $15.91 $3.78 $1.89 (INSIDE CITY) 8,000 $4.19 $33.52 $3.75 $37.27 $6.08 $48.64 $3.75 $52.39 $15.12 $7.56 19,000 $4.19 $79.61 $3.75 $83.36 $6.08 $115.52 $3.75 $119.27 $35.91 5,000 $4.19 $20.95 $3.75 $24.70 $6.08 $30.40 $3.75 $34.15 $_9.45 $4.73 $18. 20,000 $4.19 $8380 $3.75 $87.55 $60,9 $12160 $375 $125.35 $37.8 COMMERCIAL (INSIDE CITY) 50,000 $209.50 $3.75 $213.25 $6.08 $3.75 $307.75 $94.50 $4.19 $304.00 $4.19 $1,216.00 $189.00 200,000 $838.00 $3.75 $841.75 $6.08 $3.75 $1,219.75 $378.00 $4.19 $6,080.00 $945.00 1,000,000 $4,190.00 $3.75 $4,193.75 $6.08 $3.75 $6,083.75 $1,890.00 Page 8 of 21 Kalispell Sewer Rate Study Feb. 2011 1 1 Due to the volatility that can occur when the number of customers or usage habits change, it is typical to assign a greater proportion of certain non -variable cost to an admin rate. What proportion and what expense items to include are open to considerable discretion. At the very least it should include high proportions of debt service and items identified as fixed cost. For purposes of this study the proportional assignment of variable and fixed expenses are, as presented in the beginning of this section: allocate all volume cost and 90% the strength and direct assignment costs to volume expense; allocate 10% of strength and direct assignment costs to admin costs; allocate fixed cost, and debt interest and principle to admire costs. Another aspect of structure involves how the cost and revenue are distributed to the customer types. The methodology of assigning cost based at least partially on strength of effluent is widely practiced where a system serves commercial or industrial customer that have measurable differences in their waste stream from that contributed by residential customer. The previous system study Table 6 Strength Related did find some distinguishing characteristics City Bio- City Only Suspended 02 us - between commercial and residential customers and solids Demand Solids used the assignments provided in Table 6. This Resident 41-10°% 47-50°% 47-50°r6 Bommercial 45-40% 1 52-50% 52-50% study did not review the basis of that finding. I Evergreen I 13-40% 1 0-00% 1 0-00% When relying upon those assignments and others that associate cost with a distribution of assets, the study finds that the current practice of assigning unit cost to customer type does not correspond directly with cost assigned to customer type; however, these do relate reasonably well between residential and commercial type. Table 7 shows the proportion of revenue gained from each customer type relative to the cost of handing and treating sewage contributed by that type', when costs are assigned using the strength of effluent and associated asset cost method; the Table 7 07-08 08-09 09-10 discrepancy shown for The disparity with Resident 89.99% 62.79% 56.30% Corrrnercial 78.45% 63.37% 54.80% Evergreen is likely due to the nature of the current Evergreen 71.56% 43.93% 42.4201. contract. See Appendix Table "Revenue Required" for a review of customer type cost assignment. Page 9 of 21 Kalispell Sewer Rate Study Feb. 2011 With respect to flat rate customer (those that have no meter on their water service) the study assumed that, since all the members of this class were residents outside the city, they would be responsible for at least an equal admin charge as metered out -city residents and not less than the average volume usage of that type. SCENARIO I Scenario 1 assume that the customer count and volume usage remain close to static for years 11-12 and 12-13; the remainder of the study period these increase at about'/2% each year. Chart 1 presents that relationship. Please note that in this chart and all succeeding charts and tables, only years 07-08 through 09-10 are presented as representing data from actual occurrences; all other data has been generated for purposes of the study. The following analysis assumes adoption of a rate structure that assign a proportionally larger share of non -variable expenses to admin fees; Charts 8 and 9 displays the result of assignment of cost and revenue to flow volume and customer count 1000 T— Sewer Volume Rev and Usage Volume 950 c O 900 c - JL - ° 850 0 800 m 750 - Sewer Customer Count and Usage Volume 8200 8100 8000 7900 r_ 0 7800 3 E 7700 4 on 7600 3 7500 7400 7300 7200 07- 08- 09- 10- 11- 12- 13- 14- 15- 08 09 10 11 12 13 14 15 16 Fical Year +Volume (Mg a1) --M-- Customer Count Charts 8 & 9 Sewer Admin Revand Customer Count $3,700.° 8400 m $3,200 L 8200 8000 6 K 6 v 0 7800 $2,700 w E a 0 7600 ' $2,200 U 7400 700 1 F $1,700 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Years At -Volume Rev - - -Volume Exp. Volume (Mgal) $2,000 $1,800 $1,600 $1,400 0 $1,200 F m $1,000 W o° $800 o6 $600 $400 $200 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year —� Admin Rev($K) - - -Admin Exp ---*--Customer Count 7200 7000 Page 10 of 21 Kalispell Sewer Rate Study Feb. 2011 The operating expenses' and debt service are the first target for finding a rate that will return sufficient revenue. Given a projected expense through fiscal years to 15-16, the relationship between expense and necessary revenue would appear as shown in Chart 10. It will be necessary for revenue to exceed these expenses because the second target for rate revenue is to add to provision of operating revenue sufficient to provide debt coverage. The relationship of the rate to that aspect is provided in Chart 11. It shows that the first expected period, where operating revenue meets the debt cover, will occur in year 12-13. In Chart 11 is also shown an expense element titled "Total Allocated Costs." This is the allocated cost including depreciation; recall in Table 2 that depreciation is not included in expense for calculating debt cover. It is included here as providing a yard stick to measure the degree to $4,40o5ewerRate Rev and operating and debt expense $4,200 , $4,000 r $3,800 2 $3,600 Chart 10 o o $3,400 $3,200 $3,000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year —Rate Revenue operating +principle 5,500 3,500 Revenue - Operating Cost - Debt Coverage }� • / `�� • it �. .............. .............. .............. / G 5,000 3,000 N r 2,500 C 4,500 O :5 N� 2,000 N 0 x 1,500 LU 4,000 m d 1,000 2 > o � U s m 3,500 500 d 0 0 3,000 500 2,500 -1,000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Racal Year —0 - Total Allocated Costs Chart 11 Allocated Cost Less Depr. (Rate Revenue e Debt Cover Required (125% of Principle & Interest) --�K- Coverage Provided by Operating Revenue which revenues provide a return on net assets. This revenue margin provides funding for operating reserve and CIP funding.9 s Operating expense are: personal services, services and supplies for the Sewer Operations, Waste Water Treatment Plant, Billing and Laboratory elements of the Kalispell budget. 9 See Appendix "Cost Allocation By Operation" for detail of return on net assets. Page 11 of 21 Kalispell Sewer Rate Study Feb. 2011 If the rate structure an rate were chosen such that the admin fee rises to $15.00 (bi-monthly) from the current $3.75 for year 11-12, and the volume rate adjusted to provide all additional rate revenue, the cost -to -customer for various usage patterns10 would be similar to those shown in Table 8 for year 11-12. BIMONTHLY SEWER BILLING EXAMPLES Volume - Volume Rate Ex' Volume Charge Admin Rate Total Charge Volume Rate proposed Volume Admin Charge Rate Total Charge Table 8 Difference Difference bimonthly monthly RESIDENTIAL(INSIDE CITY) 2000 $419 $419 $8.30 $33.52 $375 $375 $12.13 $3727 $83.36 $4.19 $4.19 $4.19 $8.38 $33.52 $79.61 $15.00 S15.00 $15.00 $23.38 $48.52 $94.61 $1125 $1125 $11.25 $563 8000 $563 19,000 $4.19 $79.61 $3.75 $5.fi3 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50_82 $72.03 $21 21 RESIDENTIAL(Ol1TSIDECITYI 2000 $524 $1048 $469 $469 $469 $15.17 $46.61 $78.05 $524 $524 $524 $1040 $1876 $1876 $1876 $2924 $6068 $92.12 $14.07 $1407 $1407 $7_04 8,000 14000 $524 $4192 $4192 $7_04 $524 $73.36 $73.36 $7_04 COMMERCIAL (INSIDE CITY) 5000 20,000 $4.19 $2095 S3.75 S3.75 $375 $375 $375 $24.70 $07.55 $21325 $04175 $419375 $4.19 $4.19 $4.19 $4.19 $4.19 $2095 S1500 $1500 S15.00 S15.00 S1500 $35.95 $98.80 $224.50 $853.00 $4205.00 $1125 $1125 $1125 $1125 $11 25 $563 $4.19 $8380 $8380 50,000 $4.19 $209.50 $209.50 $563 200,000 1,000,000 $4.19 $419 $83800 $83800 $563 $419[} 00 $4190 DO $563 COMMERCIAL (CUTSIDE CITY) 5000 20000 50,000 $524 $2620 $469 $469 $469 $30_89 $109.49 $266.69 $524 $524 $524 $2620 $10480 $262_00 S1876 $1876 $18.76 $44.96 12356 $28076 $1407 $1407 $14.07 $7_04 $524 $10480 $7_04 $524 $262_00 $7_04 EVERGREEN 17,000,000 $1.05 $31 450_00 $9 645 $41 095.00 $1.05 $31 450_DD $9645 $41 095.00 $0 $0_00 TRUMBLE CREEK 10000 $621 $62.10 $13.37 $7547 $621 $62.10 $5348 $115.58 $40_11 $20_06 For year 12-13, that cost -to -customer would be similar to Table 9. I BI-MONTHLY SEWER BILLING EXAMPLES Volume Volume Rate Existing Volume Admin Charge Rate Total Charge Volume Rate Proposed Volume Admin Charge Rate Total Charge Table 9 Difference Difference bi-monthly Monthly RESIDENTIAL (INSIDE CITY) 2,000 8,000 19,000 $4.19 $4.19 $8.38 $33.52 $3.75 $3.75 $12.13 $37.27 $4.61 $4.61 $9.22 $36.86 $87.59 $15.00 $15.00 $15.00 $2422 $51.60 $102.59 $12.09 $14.61 $1923 $6.05 $4.19 $7961 $375 $83.36 $461 $962 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50.82 $77.32 $26.50 $13.25 RESIDENTIAL (OUTSIDE CITY) 2,000 $5.24 $10.48 $4.69 $15.17 $576 $11.52 $46.08 $18.76 $18.76 $3028 $64.84 $9940 $15.11 $18.23 $21.35 $7.56 8,000 14000 S5.24 $524 $41.92 $4.69 $46.61 $5.76 $9.12 $73.36 $469 $78.05 $5.76 $8064 $1876 $1068 COMMERCIAL (INSIDE CITY) 5,000 20,OD0 $4.19 $2095 $375 2470 $461 $23_05 $92.20 $230.50 $922.00 $4,610.00 $15.00 $15.00 $15.00 $15.00 $15.00 $38.05 $10720 $245.5U $937.00 $4,625.00 $13.35 $19.65 $32. 5 $95.25 $431.25 $668 $4.19 $83.80 $375 $87.55 $4.61 $375 $213.25 $4.61 $3.75 $841.75 $4.61 $3.75 $4,193.75 $4.61 $9.83 50,000 $4.19 $209.50 $16.13 200,000 1,000,000 $4.19 $4.19 $838.00 .63 $4,190.00 $215.63 COMMERCIAL (OUTSIDE CITYI 5,000 20ODO 50,000 $524 $2620 $104.80 $262.00 $469 $4.69 $4.69 $30.89 $1U9.49 $266.69 $576 $576 $5.76 $28.80 $115.201 $200.00 $1876 $18.76 $10.75 $47.56 $133.96 $306.76 $1667 $24.47 $40.07 $8.34 $524 $12.24 $5.24 $20.04 EVERGREEN 17,000,000 $1.05 $31 450.00 $3 167 $34617_00 $2.04 $34 680.00 $2 704 $37 38d_00 $2 767 $1 383.50 TRUMBLE CREEK 10,000 $621 $62.10 $13.37 $75 47 $6.83 $68.30 $53 48 $12178 $46 31 $23.16 TD A typical residence will use about 140 gallons per day per person, for the average family, 2.3 persons per household, that equates to about 9,600 gallons/month or 19,300 gallons bi-monthly. Page 12 of 21 Kalispell Sewer Rate Study Feb. 2011 In the last year of the analysis, year 15-16, the cost -to -customer would be similar to that shown in Table 10. BI-MONTHLY SEWER BILLING EXAMPLES Volume Volume Rate Existing Volume Admin Charge Rate Total Charge Volume Rate Proposed Volume Admin Charge Rate Total Charge Table 10 Difference Difference bi-monthly Monthly RESIDENTIAL (INSIDE CITY) 2,U00 8,000 19,000 S4.19 $8.38 S33.52 $7961 $375 $3.75 $375 $12.13 $3727 $83.36 $478 $4.70 $478 $9.56 $38.24 $90_S2 $15.00 $15.00 $15.00 $24.56 $53.24 $105.82 $1243 $15.97 $2246 $622 $4.19 $7.99 $4.19 $1123 RESIDENTIAL (OUTSIDE CITY Flat Rate} $50.82 $79.46 $28.64 $14.32 RESIDENTIAL (OUTSIDE CITY) 2,000 $524 S1048 $4.69 $15.17 $5.971 $11.94 $10.76 $1876 $10.76 $30.70 $66.52 $102.34 $15.53 $1991 $2429 8,000 $524 $4192 $469 $4661 $5.97 $4776 $4.69 $78.05 $5.97 $03.58 $9.96 14000 $5.24 $73.36 $12.15 COMMERCIAL pNSIDE CITY) 5,000 $4.19 $20.95 S83.80 $209.50 SB30 00 S4,190.00 $3.75 $375 $3.75 $3.75 $375 $24.70 $87.55 $21325 $041.75 $4,193.75 $4.70 $478 $4.18 $4.70 $478 $23.90 $9560 $239.00 $956.00 $4,78000 $15.00 $15.00 $15.00 $15.00 $15.00 $38.90 $11060 $254.00 $971.00 $4,795.00 $1420 $2305 $40. S12925 S60125 $7.10 20,000 $4.19 $1153 50,000 $4.19 $20.38 200,000 $4.19 .63 1,000,000 S4.19 $30063 COMMERCIAL (OUTSIDE CITY) 5,000 20,000 50,10010 $524 $2620 $104.801 $262.00 $4.69 $469 $4.69 $30.89 $10949 $266.69 $5.911 $5.97 $5.97 $29.85 $11940 $298.50 $1S76 $18.76 $1876 $48.61 $138.16 $31726 $1772 $2867 $50.57 $8.86 $524 $14.34 $5.24 $2529 EVERGREEN 17,000,000 $1.85 $31 450.00 $0 $31 450 00 $2.11 $35070.00 $0 $35 670.00 $4420 $2210.00 TRUMELECREEK 10000 $621 $62.10 $1337 $7547 $7.08 $70.80 $5348 $12428 $48.81 $2441 If you compare these tables with Table 4,11 it reveals a striking difference for the effect on residents and commercial customers, when a higher admin rate is adopted as opposed to a total reliance of volume rate adjustment. Residents using 19,000 gallons bi- monthly would experience a $11.97 monthly increase according to Table 4, whereas in Table 8 they are shown to experience a monthly increase of $5.63; over the study period that is projected to increase to $11.23. Commercial customers using 50,000 gallons bi- monthly would experience a $31.50 monthly increase according toTable 4, whereas in Table 8, they are shown to experience a monthly increase of $5.63; over the study period that is projected to increase to $20.38. " Table 4 was generated using the same customer count and volume usage as scenario 1. Page 13 of 21 Kalispell Sewer Rate Study Feb. 2011 I SCENARIO 2 In scenario 2, the customer count decreases for years 11-12 and 12-13 and, during the remainder of the study period, remains static; during the entire period the volume usage remains flat. Chart 12 shows those Sewer Customer Count and Usage elements for the analysis period. Volume I I Again the targets remain both providing sufficient revenue to cover both operating expense and meet debt cover requirements. That could be accomplished in many different combinations of volume and admin fees, but here is shown one that caps the in -city volume rate at $4.78 ($.59 higher than the current $4.19) and allows the admin fee to rise to provide the remaining necessary revenue. Chart 13 displays the relationship of revenue, expense and debt cover. Again the first year that revenue is sufficient to meet debt cover is year 12-13. The cost -to -customer examples for this scenario remain unchanged from those shown in Table 8 in scenario 1. 8200 Chart 12 8100 950 8000 7900 900 7800 3 7700 860 E o is °h 7600 3 7500 800 7400 750 7300 72'00 700 07- 08- 09- 10- 11-12- 13- 14- 15- 08 09 10 11 12 13 14 15 16 Fical Year —#-- Volume (Mgal] --w— Customer Count S.00 Revenue -Operating Cost- DebtCoverage350o Chart 13 5,000 w b 0 4,500 L 6 v 4,000 b c� 3.500 b 0 3,000 2,500 2,000 m y 7 O 1,000 0 U 50o 0 -500 2,500 -1,000 07-OR OR-09 09-10 10-11 11-12 12-13 13-14 1415 15-16 Fi—I Year --* - Total Allocated Costs —Allocated Cost Less Depr. t Rate Revenue Debt Cover Required (125% of Principle & Interest) - Coverage Provided by Operating Revenue Page 14 of 21 Kalispell Sewer Rate Study Feb. 2011 Table 11 show year 12-13. AASEWER BILLING EX EXAMPLES Volume Volume Rate Existing Volume Admin Charge Rate Total Charge Volume Rate Proposed Volume Admin Charge Rate Total Charge Table l l Difference Difference bi-monthly Monthly RESIDENT1AL (INSIDE CITY) 2,000 $4.19 $8.30 $33.52 $79.61 $3.75$12.13 $3.75 $37.27 $3.75 $83.36 $4.61 $4.61 $4.61 $922 $36.88 $87.59 $16.88 $16.88 $16.88 $26.10 $53.76 $104.47 $13.97 $16.49 $2 1.1111 $6.99 800D $4.19 19,000 $4.19 $10.56 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50.82 $79 fi7 $28.85 $14 43 RESIDENTIAL (OUTSIDE CITY) 2,080 $524 $1048 $469 $15.17 $576 $11.52 $46.08 880.64 $21.11 $21.11 $21.11 $32_ $6719 $10175 $1746 $20.58 $2370 $8.73 8000 $524 $4192 $469 $46.61 $576 9469 $7805 $5.76 $1029 14080 $524 $73.36 $11.85 COMMERCIAL (INSIDE CITY) 5,0D9 $4.19 $20.95 $3.75 $3.75 $3.75 $375 $375 $24.70 $07.55 $213.25 $841.75 $4,19375 $4.61 $4.61 $4.61 $461 $461 $23.05 $9220 $230.50 $922.00 $4,610.00 $16.88 $16.88 $16.88 $16.88 $16.88 $39.93 $109.08 $247.38 $93888 $4,1321380 $15.23 $2153 $34.1 $97.13 S433.13 $7.62 20,006 $4.19 $83.81) 50,DDD $4.19 $209.50 $17.07 20DDDD $4.19 S038.00 $48.57 1,D0DDDD $4.19 $4,190.00 $216.57 COMMERCIAL (OUTSIDE CITY) 5,000 $524 $2620 $469 8469 $469 $30.89 $10949 $26669 $576 $576 $576 $28.80 $11520 $288.00 $21.11 $21.11 $21.11 $499 $131331 $309.11 $1902 $2682 $4242 $9.51 20000 $524 8104.80 $1341 50000 $524 $262.00 $2121 EVERGREEN 17000000 $185 $31450.00 $3167 $34617.00 $204 $34680.00 $2704 $37384.00 $2767 $1383.50 TRUMBLE CREEK 10 DOD $621 $62.10 $13.37 $75.47 $6.83 $68.30 $60.17 $128.47 $53.00 $26.50 Table 12 shows year 15-16, the last year of the study period. BI-MONTHLY SEWER BILLING EXAMPLES Volume Volume Rate Existing Volume Admin Charge Rate Total Charge Volume Rate Proposed Volume Admin Charge Rate Total Charge Table 12 Difference Difference bi-monthly Monthly RESIDENTIAL (INSIDE CITY) 2,000 $4.19 $4.19 $8.38 $33.52 $3.75 $3.75 $375 $12.13 $3727 $8336 $478 $478 $478 $9.56 $38.24 S9082 $16.88 $16.80 $16.88 $26.44 $55.12 $10770 $14.31 $17.85 $24.34 $ 16 8,DDD $8.93 $1217 19,D00 S4.19 $7961 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50.82 $85_09 $34.27 $ _ RESIDENTIAL (OUTSIDE CITY) 2,000 $5.24 $10.48 $4.69 $15.17 $5.97 $11.94 $47.76 $21.11 $21.11 $33.05 $68.87 $104.69 $17.88 $2226 $26.64 $8.94 9,000 14000 $5.24 $41.92 $4.69 $46.61 $5.97 $11.13 55.24 $73.36 $4.69 $78.05 $5.97 $83.58 $21.11 $13.32 COMMERCIAL (INSIDE CITY) 5,000 $4.19 S4.19 S2095 $375 1 $375 $3.75 $24.70 $8755 $21325 $841.75 $4,193.75 $478 $478 $4.78 $4.78 $4.78 $2390 $9560 $239.00 $956.00 $4,780.00 $1688 $4079 $11248 $255.88 $972.88 $4,796.88 $1608 $2493 $42.63 $131.13 $603.13 $8.04 20,000 S8389 $16.88 47 50,000 $4.19 $209.50 $16.88 $21.32 200,000 $4.19 $838.00 $3.75 $16.88 65.57 1,000,000 $4.19 $4,190.00 $3.75 $16.88 $301.57 cOMMERCIAL(OUTSIDECITY) 5,000 $5.24 $26.20 $4.69 $30.89 $5.97 $29.85 $21.11 $21.11 1 $21.11 $50.96 $140.51 $319.61 $20.07 $31.02 $52.92 $10.04 29000 $5.241 $104.80 $4.69 $109.49 $5.97 $119.401 $15.51 50,000 $5.24 $262.00 $4.69 $266.69 $5.97 $290 50 $26.46 EVERGREEN 17000000 $1.85 $31450_00 $0 $31450_00 $2.11 $35870.00 $0 $35870_00 $4420 $2210.00 TRUMBLE CREEK 10000 $621 $6210 $13.37 $7547 $708 $70.80 $60.17 $130.97 $55.50 $2775 At the end of the period, compared to Table 10, residents using 19,000 gallons bi- monthly would experience a $11.23 monthly increase; whereas, in Table 12 they are shown to experience a monthly increase of $12.17. Commercial customers using 50,000 gallons bi-monthly would experience a $20.38 monthly increase; whereas, in Table 12, they are shown to experience a monthly increase of $20.32. Page 15 of 21 Kalispell Sewer Rate Study Feb. 2011 I SCENARIO 3 Scenario 3 assumes that both the customer count and volume usage increase at about'/2% each year of the 5 year period. Chart 14 presents that relationship. 5,500 Revenue -Operating Cost - Debt Coverage3,500 Chart 15 s,000 • • 1• z,5oo 4,500 2,000 o R _ i O v 4,000 � is � 1,00o d � � V 500 n 1° a a a 0 3,000 -500 2,500 -1,000 0708 08-09 09-10 10-11 11-12 12-13 1114 1415 15-16 Flacal Year �- Total Allocated Costs -Allocated Cost Less Depr. f Rate Revenue -Debt Cover Required (125 % of Principle & Interest) - Coverage Provided by Operating Revenue Sewer Customer Count and Usage Volume 8200 Chart 14 8100 8000 950 7900 � 900 'a 7800 +e ty s� E 7700 860 Q A 7600 a, 800 7500 7400 750 7300 7200 700 07- 08- 09- 10- 11-12- 13- 14- 15- 08 09 10 11 12 13 14 15 16 Fical Year t Volume (Mgal) -a- Customer Caunt Chart 15 shows the rate revenue stream in relationship to cost and corresponding debt coverage achievement. Table 13 provides the cost -to - customer analysis for the last year of the study period. BI-MONTHLY SEWER BILLING EXAMPLES Volume Volume Rate Existing Volume Admin Charge Rate Total 1 Charge Volume Rate Proposed Volume Admin Charge Rate Total Charge Table 13 Difference Difference bi-monthy Monthry RESIDENTIAL pNSIDE CITY) 2,000 $4.19 $8.38 $3.75 $12.13 $4.40 $8.80 $3520 $83.60 $1688 $1688 1 $16.88 $25.68 $52.08 $100.48 $13.55 $1481 $17.1 $6.78 0,000 $4.19 $33.52 $375 $3727 $440 $3.75 $93.36 $4.40 $741 19,000 $4.19 $79.61 $8.56 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50.82 1 $00.31 $29.49 RESIDENTIAL(oUTSIDE CITY) 21000 $524 $1048 $469 $15.17 $4 S911 $4661 $4.69 $78.05 $5.50 $5.50 $550 $11.00 $44.00 $77.00 $21.11 $21.11 $21.11 $32.11 $65.11 $98.11 $1694 $18.50 $2006 $847 8,000 $524 S4192 $925 14000 $524 $73.36 $10.03 COMMERCIAL (INSIDE CITY) 5,000 $4.19 $2095 $8380 $209.50 $838.00 $4,190.00 $3.75 $2470 $375' $0755 $3.75 $213.25 $3.75 $84175 $375 $4,19375 $440 $440 $4.40 $440 $440 $22.00 $08.00 $220.00 $880.00 $4,400.00 $1688 $1688 $16.88 $1688 $1686 $38.88 $104.99 $236.08 $896.88 $4416.99 $14.18 $17.33 $23.6 $55.13 $223.13 $7.09 20,000 $4.19 KHOO $4.19 $11.02 200000 $4.19 $4.19 _ 7 1,000OOD $111_57 COMMERCIAL (OUTSIDE CITY) 5,000 $5.24 $26.20 $104.80 $262.00 $4.69 $4.69 $4.69 $30.89 $100.49, $266.69 $5.50 $5.50 $5.50 $27.50 $110.00 $275.00 $21.11 $21.11 $21.11 $48.61 $131.11 $296.11 $17.72 $21.62 $29.42 $8.06 20008 $5.24 $10.01 50,000 $5.24 $14.71 EVERGREEN 17,000,000 $1.85 $31 450.00 $0 $31 450.00 $1.94 $32 900.00 $0 $32 980.00 $1 530 $785.00 TRUMeLE CREEK 10000 $621 $82.10 $13.37 $7547 $652 $6520 $60.17 $125.37 $49.90 $2495 Page 16 of 21 Kalispell Sewer Rate Study Feb. 2011 At the end of the period, compared to Table 10, residents using 19,000 gallons bi- monthly would experience a $11.23 monthly increase; whereas, in Table 13 they are shown to experience a monthly increase of $8.56. Commercial customers using 50,000 gallons bi-monthly would experience a $20.38 monthly increase; whereas, in Table 13, they are shown to experience a monthly increase of $11.82. The reduction in cost -to -customer, displayed in the comparison of scenario 1 and scenario 3, is due to the more optimistic outlook on both increased customer count and volume used in scenario 3. SUMMARY Rate studies that attempt to project the operation elements of any business model are difficult simply due to all the factors that could effect the outcome since few of the elements can be known with any certainty. Never -the -less, such projects are necessary in utility rate studies, even in situations where the structure is only advancing one year at a time. A moving target remains a better alternative than no target. The three scenarios presented here are the result of the best guess of the Kalispell staff, the real future will vary from these estimates, but these estimates should be close to the eventual outcome. The actual rate and rate structure will have to be based on a number of factors not available to a model that considers only base elements of the utilities need for a reasonable return on operating cost and net assets. Those factors would likely consider the customer type and the economic capacity of various customer classes. Page 17 of 21 Kalispell Sewer Rate Study Feb. 2011 APPENDIX A: Header tables for both "Revenue Required" and "Cost Allocation." hese REVENUE REQUIRED ACTUAL 07-08 1 08-09 1 09-10 10-11 are extended from Appendix B&C. PROJECT 11-12 1 12-13 1 13-14 1 14-15 1 15-16 Classification Components Expenses (thousand dollars) Volume Related VOL-1 -Operations VOL-3 - Kalispell Only Total Volume Related 3 5 7 6 6 6 6 5 2,960 2,955 6 2.872 2,878 2.058 2,950 3,299 3,250 3,D65 3,256 3,071 3,012 2,976 2,061 2,955 3,306 3,018 2,982 Strength Related Sus ndedSolids-AI SS-1 Bio-a n Demand - In-Ci Onl 60Q2 Suspended Solids- In-CityOrlySS-2 Total StrengthRelated 423 421 499 1,343 460 E66 672 1,698 46D 634 751 1,845 474 418 482 4% 491 587 645 1,773 496 578 686 1,760 625 591 585 593 741 699 1,840 1,768 695 69D 1,762 1,759 Customer Related Actual Customer 46 220 32 144 33 35 36 37 38 38 40 Weighted Customer 115 126 117 130 144 161 180 220 Total Customer Related 266 176 149 161 153 167 11 199 Revenue Related Direct Assi nment 0 0 D 888 D 879 0 9321 0 MI 0 8311 0 840 0 837 474 = Total Revenue Requirements 4,144 6,632 6,1871 6,136 5,824 5,776 5,75d 5,778 5,695 ACTUAL i PROJECTED COST ALLOCATION D7-08 08-09 09-10 10-11 11-12 12-13 13-1 15-16 Expenses (thousand dollars) Personal Services 1,073 1,212 1,173 1,185 949 977 1,013 1.057 1,1 D6 Services and Supplies 716 790 782 814 836 859 882 907 932 Fixed Cost 336 353 414 Operating 349 4D7 4211 428 435 442 Evergreen Replacement 342 396 263 585 Expenses 419 412 412 412 412 412 4112 Interest on Debt 616 587 556 524 5D0 469 437 _ 1° Direct Depreciation 1,276 1 430 1 456 1,458 1 474 1,498 1,526 1,565 1,565 a F- 3,980 4,758 Total Allocated Costs 4,729 4,963 4,641 4,691 4,761 4,845 4,894 Less: Miscellaneous Revenue I 1 1 267 257 57 32 32 32 32 Rate Revenue 3,423 3,386 3,311 3,391 3,835 4,137 4,214 4,235 4,321 Other Revenue 39 4 3 1 26 51 TT 146 220 TOTAL REVENUE 3,463 3,391 3,581 3,649 3,918 4,220 4,323 4,413 4,573 Excess Rate Revenue (revenue less operating cost before dep reciation & Evergreen Re infl) 759 63 3W 398 1,080 1 3% 1,391 1,367 1 4D4 m Debt Principle 845 726 735 764 789 668 778 848 868 } Princi p le p lusInlerest 1108 1,311 1351 1,351 1345 1,192 1278 1,317 1305 �j Debt Cover Required n 125% of Princi le & Interest 1,385 1,639 1,68 1,689 1,681 1,490 1,598 1,646 1,631 m Coverage Provided by Operating Revenue 1,7731 481 904 903 1,282 1,5351 1 593 1,580 1,607 Coverage Excess or (Shortfall) 388 (1,158) (785I (786) (399) 45 (5) (66) (24) y Return on Non -Operating Cost 759 63 3081 244 751 1,027 1,068 1,133 1,244 y Return On Direct Plant 41424 54111 61785 61901 63229 65593 67703 71,117 73,960 a Investment Land/GeneralPlard 1158 158 1158 1158 1158 1158 1158 1,158 115E r Total Operating Capital 42,582 55,269 62,943 63,059 64,387 66,751 68,861 72,275 75,11E Less: Accumulated Depreciation 27,697 24,708 21,720 24,708 27,697 30,681 33,674 36,664 39,654 E Plus: Working Capital 417 225 155 155 193 158 150 101 25 Net Asset Worth 15,302 30,7861 41,378 38,5D6 36,8831 36,2221 35,337 35,712 35,439 Rate of Return 4.96% 0.20% 0.74%11 0.63% 2.04% 2.84% 3.08% 3.17% 3.51% Page 19 of 21 Kalispell Sewer Rate Study Feb. 2011 APPENDIX B: E �m REVENUE REQUIRED Classification Components ACTUAL PROJECTED 08-09 1 09-10 10-11 1 11-12 1 12-13 1 1: Expenses (thousand dollars) Volume Related VOL-1 - Operations VOL-3 - Kalispell Only Total Volume Related 3 1,D61 1,064 5 1,292 1,297 7 6 6 & 1,373 1,379 6 1,356 1,362 6 1,349 1,355 6 1,309 1,315 1,504 1,481 1,397 1,511 1,487 1,403 Strength Related Suspended Solids -All (SS-1) Bio--axygen Demand - In -City Only (BOA-2) Suspended Solids - In -City Only SS-2 Total Strength Related 174 2D0 237 fill 199 199 195 297 352 8" 197 198 278 330 8D6 200 277 328 W5 202 279 330 811 204 275 326 805 269 301 291 319 357 332 T17 847 810 Customer Related Actual Customer Weighted Customer Total Customer Related 23 26 27 28 102 130 29 30 105 135 31 117 148 31 32 110 117 93 95 130 146 133 143 12D 124 161 118 Revenue Related Revenue Related Direct AssignmentAssignmentl 0 D 0 0 01 0 01 0 0 0 0 0 01 0 0 4 01 0 Subtotal Revenue Requirements IAA 2.217 2.47all 2.461 2.337 2.320 2.315 2.327 2.298 VOL-1 - Operations Volume Related _ VOL-3- Kalispell Only Total Volume Related D D 0 0 0 0 0 D 1.620 1,611 1,62D 1,611 0 997 1,659 1,795 1,769 1,668 1,639 1,563 997 1,658 1,795 1,769 1,668 1,639 1,50 _Suspended Solids -All SS-1 Strength Related Bio-oxygen Demand - In -City Only 13013-2 Suspended Solids - In -City Only SS-2 Total Strength Related 192 209 209 297 333 215 328 389 9321 217 219 221 223 306 308 362 365 889 8% 225 221 310 307 303 262 353 394 367 365 360 675 859 9361 894 891 8W Actual Customer Customer Related Weighted Customer Total Customer Related 23 6 6 7 24 31 7 7 T. 7 8 110 27 22 22 25 27 31 34 133 33 28 29 32 341 38 42 Revenue Related Revenue Related Direct AssignmentAssignmentl 0 0 D D 0 0 01 0 0 0 01 0 0 0 0 0 01 0 Subtotal Revenue Requirements 1,305 2,554 2, VOL-1 - Operations 0 Volume Related VOL-3 - Kalispell Only 0 Total Volume Related 0 0 0 0 Suspended Solids - Al Ss 1 Strength Related Bio-oxygen Demand - In -City Only 13013-2 Suspended Solids - In -City Only SS-2 m Total Strength Related 57 fit 0 0 0 D 57 62 d Customer Related } w Actual Customer Customer Related Weighted Customerl Total Customer Related 0 D 0 D 0 D 0 0 Revenue Related Revenue Related 0 Direct Assignment 474 0 803 Subtotal Revenue Requirements NEW. Page 20 of 21 Kalispell Sewer Rate Study Feb. 2011 2,732 2,591 2,562 2,SU ZM5 2,493 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 64 64 65 65 66 67 0 0 0 0 0 0 0 0 0 0 0 0 64 64 65 65 66 fi7 0 01 0 0 0 0 0 01 0 0 0 0 0 01 0 0 0 0 0 01 0 0 0 0 0 01 0 0 979 932 829 8311 0 0 8401 837 1,007 960 959 971 APPENDIX C: COST ALLOCATION BY OPERATION ACTUAL PROJECTED 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Expenses (thousand dollars) = E Operating Expenses Personal Services Services and Supplies 590 506 485 582 564 495 145 _ 158 165 342 396 4191 216 538 572 1,875 2,162 2,136 5D2 569 181 413 433 456 483 633 511 584 600 616 650 196 412 407 2,176 Fixed Cost 184 187 190 193 Evergreen Replacement 412 412 412 412 412 Interest on Debt 545 516 487 464 437 Total Allocated Casts 2,2D9 2,1091 2,119 2,138 2,158 ~ Return On Investment Direct Plant 17,913 3D 395 37,01 37,862 38,682 384 39,066 10,309 40,482 42,332 45,032 47,875 384 48,259 LandlGeneral Plant 384 384 384 384 384 384 384 Total Operating Capital 18,297 3D,7T9 38,185 38,246 40,866 42,716 45,416 Less: Accumulated Depreciation 10,3091 9,197 8,D85 9,19T 11,422 12,534 13,646 14,760 Plus: Working Capital 1021 551 38 Total Rate Base 9,965 23,799 32,274 38 48 391 37 25 -6 31,296 30,914 31,602 32,357 33,953 35,669 }. Q 0 Personal Services Operating Services and Supplies Expenses Fixed Cost Total Allocated Costs Total Rate Base M 0 1451 153 14D 38 D 178 10D 93 87 81 76 0 211 7 0 D D 0 166 190 166 It 190 39 40 41 42 43 0 0 0 0 0 139 133 128 123 119 119 o [] Operating Expenses Return On Investment Personal Services Services and Supplies 372 445 452 172 160 149 67 162 _ 146 47 471 44 4-49 17D 187 42 848 24,039 774 24,813 15,511 117 10,267 353 356 360 366 372 191 197 199 202 175 180 185 Fixed Cost 190 193 196 Interest on Debt 4D 37 36 32 30 Total Allocated Costs 658 8141 791 758 766 777 788 801 Direct Plant 23,511 TT4 24,285 17,388 315 7,870 23,716 23,984 774 774 24,490 24,758 15,511 13,635 170 117 9,963 12,031 24,547 25,111 25,371 26,085 26 085 LandlGeneral Plant 774 774 774 774 774 Total Operating Capital 25,321 25,885 26,145 26,859 26,859] Less: Accumulated Depreciation 17,388 19,265 21,140 23,018 24,894 Plus: Working Capital Total Rate Base 145 8,836 119 7,505 113 5,895 76 -19 4,705 2,747 Personal Services ill 116 83 37 35 33 38 186 156 166 166 94 37 39 170 931 95 110 127 147 42 44 233 233 Services and Supplkes 36 38 39 40 41 Fixed Cost 24 40 41 42 43 Total Allocated Costs Total Rate Base 171 1611 175 161 192 211 Page 21 of 21 Kalispell Sewer Rate Study Feb. 2011 Basic objectives for the study: ❖The study period must cover at least a five year period — the study projects all elements to fiscal year 15 —16 and includes information about the current (year 10-11) and three previous years. ❖Among the objectives of the study is to show the following relationships: ➢ Customer count and volume usage and the expenses and revenue associated with fluctuations in those numbers. ➢ Identify a rate that accomplishes the following: ■Covers all operating expense; ■Contributes a return on net assets above operating cost; ■Replenishes the operating reserve; ■Provides the required bond debt coverage. ❖Provide a rate structure that changes the current dependence on volume charges to a structure that relies more on admin fees (commonly called a base rate). 3500 Operating Expense by dep and Non -operating total This chart provides an 3000 estimate of operating and non -operating costs. 2500 Represented are year over year changes due to either or both inflation and changes = 2000 imposed by management. y Operating expenses include M such budget items a 4 1500 personal service, maintenance and operations and debt interest. l000 Non -operating expense includes items related to 500 asset such a CIP and debt principle. 0 o�1V IV 15 1_'V ':�5 Fiscal year 14000 artment 12000 10000 .M A 2000 C :] Non -operating ■ vWVTP ❑ Sanitary Sewel :1 Billing ❑ Lab 54T 0 s 44 In this chart is shown the various elements used in the rate study as targets for determining the necessary revenue stream. It is significant to note that only the figures to the left of year 10-11 provide existing known quantities. 5000 ►178182 U) 3500 5 3000 O M y 2500 L O 2000 M 1500 i1@11111 676A1 Sewer Operating Fund Expenses — x, I r 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 FscalYear Operating Expense (includes debt interest) —x- Debt Principle plus Operating Expense - X Rate Revenue - Debt Principle plus Interest — - Debt Cover Required References in the study to functional components categories circled here. Kalispe ASSETS ASSIGNED TO SPECIFIC FUNCTIONS OF Operating Volume City Bio-02 City Onl Direct WASTE WATER COLLECTION AND TREATMENT Total Asset Volume Onl Demand Sus. Solids Assignment Property $222 $222 Plant $37,307 $11,931 $7,857 $9,312 $8,208 y Equipment $494 $158 $104 $123 $109 v0i Total Treatment $37,801 $0 $12,089 $7,961 $9,435 $8,317 a Lift Stations $18,707 $18,707 y Collection Lines $5,276 $5,276 s Total Collection $23,983 $0 $23,983 $0 $0 $0 a Equipment $1,162 $158 $104 $123 $109 Total General Plant $1,162 $158 $104 $123 $109 Total Plant in Service $63,168 $222 $36,230 $8,065 $9,558 $8,426 4) c Treatment $14,376 $4,598 $3,028 $3,588 $3,163 Collection $6,465 $6,465 E a General $878 $3 $511 $113 $134 $118 a Total Accumulated Depreciation $21,719 $3 $11,574 $3,141 $3,722 $3,281 10100 Sewer Operations $515 $2 $300 $66 $78 $69 10123 Designated Growth Related Capital Fund $1,624 $2 $1,221 $147 $175 $79 10124 WWTP Capital Improvement Fund $345 $1 $201 $44 $53 $46 10125 WWTP Equipment Replacement/Evergreen $329 $1 $191 $42 $50 $44 Total Working Capital $2,813 $6 $1,913 $299 $356 $238 The use of functional components for the assignment of operating costs and return on net assets provides the information shown in Revenue Required table below (the table is truncated at year 13-14). The complete table in provided in AppendicesA&B of the study. ACTUAL PROJECTED J KCVCIVUt Mr-WuIKCU 07-08 08-09 09-10 10-11 11-12 12-13 13-14 o (n Classification Components Expenses (thousand dollars) N U U VOL-1 -Operations 3 5 7 6 6 6 6 Volume Related VOL-3 - Kalispell Only 2,058 2,950 3,299 3,250 3,065 3,012 2,976 2,061 2,955 3,306 3,256 3,071 3,018 2,982 Total Volume Related Suspended Solids - All (SS-1) 423 460 460 474 478 482 486 Strength Related Bio-oxygen Demand - In -City Only (BOD-2) 421 566 634 625 591 585 583 N Suspended Solids - In -City Only (SS-2) 499 672 751 741 699 695 690 m Total Strength Related 1,343 1,698 1,845 1,840 1,768 1,762 1,759 U Actual Customer 46 32 33 35 36 37 38 Q Customer Related Weighted Customer 220 144 115 126 117 130 144 Total Customer Related 266 176 148 161 153 167 182 Revenue Related 0 01 0 0 01 0 0 474 803 888 879 829 831 Direct Assignment Total Revenue Requirements 4,144 5,632 6,187 , In conjunction with the Revenue Required is the Cost Allocation table (the table is truncated at year 13-14). Taken together, these table provide assurance that revenue is targeted to specific components. The complete table in provided in AppendicesA&C of the study. ACTUAL PROJECTED COST ALLOCATION 07-08 09-10 L 10-11 1 11-12 1 12-13 1 13-14 Expenses (thousand dollars) Personal Services 1,073 1,212 1,173 1,1851 949 977 1,013 782 716 814 836 859 882 Services and Supplies 790 Fixed Cost 236 353 349 407 414 421 428 Operating Evergreen Replacement 342 396 419 412 412 412 412 Expenses Interest on Debt 263 585 616 587 524 500 y9 Direct Depreciation 1,276 1,430 1,456 1,458 1,474 1,498 1,526 0 Total Allocated Costs 3,980 4,758 4,729 4,863 4,641 4,691 4,761 Less: Miscellaneous Revenue 1 1 267 257 32 32 Rate Revenue 3,423 3,386 3,311 3,391 3,835 4,137 4,214 Other Revenue 39 4 3 1 26 51 77 TOTAL REVENUE 3,463 3,391 3,581 3,649 3,918 4,220 4,323 Excess Rate Revenue (revenue less operating cost before depreciation & Evergreen Replm't) 759 63 308 398 1,080 356 1,391 m Debt Principle 845 726 735 764 789 668 778 > Principle plus Interest 1,108 1,311 1,351 1,351 1,345 1,192 1,278 0 U Debt Cover Required (125% of Principle & Interest) 1,385 1,639 1,689 1,689 1,681 1,490 1,598 m 0 Coverage Provided by Operating Revenue 1,773 481 904 903 1,282 1,535 1,593 388 (1,158) (785) (786) (399) 45 (5) Coverage Excess or (Shortfall) Return on Non -Operating Cost 759 63 308 244 751 1,027 1,088 N Return On Direct Plant 41,424 54,111 61,785 61,901 63,229 65,593 v0i Q Investment Land/General Plant 1,158 1,158 1,158 1,158 1,158 1,158 c Total Operating Capital 42,582 55,269 62,943 63,059 64,387 66,751 0 c Less: Accumulated Depreciation 27,697 24,708 21,720 24,708 27,697 30,687 Plus: Working Capital 417 225 155 155 193 158 no d Net Asset Worth 15,302 30,786 41,378 38,506 36,883 36,222 Rate of Return 0.20% 0.740/6 0 2.04% 2.84% Utility rate structures typically have two components: a volume charge and; a base rate. The proportion of cost assigned to each of these charges can be dependentupon many factors but in this study we are interested in separating variable and non -variable (fixed cost) and proportionally assigning these. This is particularly advantages if the utility has debt obligation. 35.00% 34.00% 33.00% 32.00% 31.00% 30.00% 29.00% Proportion of Debt Related Cost to ilr►nrnfinn f f%cf mhic Ilnhf Onlnfnrl f f%c♦ 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Sewer C usto er Co u rat a nd Usage Volume Supposing a rate 0200 structure is volume 0100 charge reliant and operating under the 0000 conditions shown here. ~ Customer count is flat for periods and then 7000 begins to rise at about a00 1/2% each year to the E end of the study. on 00 Volume follows the same 00 trend in this scenario. 7400 7300 7200 07- 00- 00- 10- 11- 12- 1 3- 14- 1 6- 00 00 10 11 12 13 14 15 10 Fical Year -Volume (I'Agal: Customer COL111t $4 4005ewer Rate Rev and operating and debt expense _ $4.200 R $4.000 z $3.800 R $3.600 0 $3.400 FChart 3 $3.200 $3.000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 Fiscal Year Rate Reveiiue -operating + principle Supposing too that our revenue targets were set as shown here: revenue to exceed expense in year 11-12 and revenue meets debt cover in year 12-13. 15-16 5,50o Revenue - Operating Cost - Debt Coverage,5oo �K - 5,000 W co co 0 4,500 CL LU 4,000 E 0 3.500 3,000 2,500 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-19- 1--16 Fiscal Year 3,000 2.500 2,000 1,500 Y 1,000 a U 500 a 0 -500 -1.000 - Total Allocated Costs Allocated Cost Less Depr. , Rate Revenue Debt Cover Required (125% of Principle & Interest) , - Coverage Provided by Operating Revenue Here is shown both the resulting bi-month charge and monthly cost to customer type resident in -city and commercial in -city. BI- I Existing Proposed Table MONTHLY SEWER BILLING EXAMPLE Volume Volume Rate Volume charge Admin Rate Total charge Volume Rate Volume charge I I Admin Rate Total charge Difference bi-monthly Difference Monthly RESIDENTIAL I�EMIAL (INSIDE MITI'} ,000 8,000 19,000 $4.19 $8_38 $33.5 $79_61 $3.75 $3.75 $3.75 $1 _13 $37_ 7 $83.36 $5.45 $5.45 $5.45 $10_90 $43_60 $103.55 $3.75 $3.75 $3.75 $14_65 $47.35 $107.30 $ _5 $10.08 $ 3_94 $1.26 $4.19 4 $4.19 $�1 �1 .9� C 0 M M E RC IAL (INSIDE CITY) 5,000 0,000 50,000 00,000 1,000,000 $4.19 $ 0_95 $83.80 $ 09.50 $838.00 $4,190.00 $3.75 $3.75 $3.75 r $3.75 $3.75 $ 4.70 $87.55 $ 13_ 5 $841.75 $4,193.75 $5.45 $5.45 $6.45 $5.45 $5.45 $ 7_ 5 $109_00 $ 7 _50 $1,090.00 $5,450.00 $3.75 $3.75 $3.75 $3.75 $3.75 $31.00 $6_30 $11 _7fim $ 5_ 0 $ 76_ 5 _ $63.00 $1,093_I$ 5 _00 $5,453.77 1, 60.00 $4.19 412.60 $4.19 $4.19 0 $4.19 $6 0.00 Sewer Customer Count and 8000 Usage volume 7950 Chart 5 7900 — 7850 — 850 LO) 7800 0 E 7750 830 m 7700 810 ' Qn i 7650 790 7600 7650 770 7600 760 07- 08- 09- 10- 11- 12- 13- 14- 16- 08 09 10 11 12 13 14 16 16 Fical Year --#--VOILlme (Mga1) Customer fount Now suppose operating conditions change with respect to customer count and volume as shown here. 5,500 Revenue - operating Cost - Debt Coverage3,500 3,000 5,000 u^, 2,500 rh 4.500 2000, 0 0 1.500 4,000 1,000 � d 3,500 500 d a 0 3,000 -500 2,500 -1,000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year Chart 6 - Total Allocated Costs Allocated Cost Less Depr. Rate Revenue Debt Cover Required (125% of Principle & Interest) - Coverage Provided by Operating Revenue t Shown here are the first and last year of that period. The changing conditions and a volume reliant structure increased charges to the residential customer from $11.97 to $17.96 and the commercial customer from $31.50 to $47.25. I I Existing I Proposed I Table 5 BI-P49ON THLY SEWER BILLING EXAMPLES RESIDENTIAL (INSIDE CITY) COMMERCIAL (INSIDE CITY} Volume Volume Volume Admin Total Volume Volume Admin Total Rate Charge Rate charge Rate Charge Rate Charge 2,000 $4.19 $8.38 $3.75 $12.13 $5.66 $11.32 $3.75 $15.07 8,000 $4.19 $33.52 $3.75 $37.27 $5.66 $45.28 $3.75 $49.03 19,000 $4.19 $79.61 $3.75 $83.36 $5.66 $107.54 $3.75 $111.29 5,000 $4.19 $20.95 $3.75 $3.75 $3.75 $3.75 $3.75 $24.70 $87.55 $213.25 $841.75 $4,193.75 $5.66 $5.6 $5.6 $5.66 $5.66 $28.30 $113.20 $283.00 $1,132.00 $5,660.00 $3.75 $3.75 $3.751 $3.75 $3.75 $32.05 $116.95 $285.75 $1,135.75 $5,663.75 20,000 $4.19 $83.80 50,000 $4.19 $209.50 200,000 1,000,000 $4.19 $838.00 $4.19 $4,190.00 BI-MONTHLY SEWER Volume BILLING EXAMPLES RESIDENTIAL (INSIDE CITY} COMMERCIAL (INSIDE CITY} Existing plume volume Admin Rate , Charae Rate Difference Difference bi-monthly Monthly $2.94 $1.47 $11.76 $27.93 13,9 $7.35 $29.40 $3.68 0 $73.50 $294.00 $1,470.00 $36, 5 $ $735.00 Total volume volume Admin Total Difference Difference Charae Rate Charae Rate charge bi-monthiv Monthly 2,000 $4.19 1 $8.38 $3.75 $12.13 $6.08 $12.16 $3.75� $15.91 $3.78 8,000 $4.19 $33.52 $3.75 $37.27 $6.08 $48.64 $3.75 $52.39 $15.12 19,000 $4.19 $79.61 $3.75 $83.36 $6.08 $115.52 $3.75 $119.27 $35.91 5,000 $4.19 $20.95 $3.75 $24.70 $6_08 $30.40 $3.75 $34.15 $9.45 20,000 $4.19 $03.80 $3.75 $87.55 $6_OB $121_60 $3.75 $125.35 $37.80 50,000 $4.19 $209.50 $3.75 $213.25 $6.00 $304.00 $3.751 $307.75 $94.50 200,000 $4.19 $838.00 $3.75 $841.75 $6.00 $1,216.00 3.00 1,000,000 $4.19 $4,190.00 $3.75 $4,193.75 $6.08 $6,080.00 1101110. ).00 it*� $47.2b simm $945.00 •Scenario 1: Assume that the customer count and volume usage remain close to static for years 11-12 and 12-13; the remainder of the study period these increase at about 1/2% each year. •Scenario 2: Assume that the customer count decreases for years 11- 12 and 12-13 and during the remainder of the study period remain static; during the entire period the volume usage remains flat. •Scenario 3: Assume that both the customer count and volume usage increase at about 1/2% each year of the 5 year period. In each of these scenarios an assumption is made that the proportional assignment of variable and fixed expenses are as follows: • allocate all volume cost -and 90% the strength and direct assignment costs to volume expense; • allocate 10% of strength and direct assignment costs to admin costs; • allocate fixed cost, and debt interest and principle to admin costs. 1000 T— Sewer volume Rev and Usage Volume F $4,200 960 D 900 �7 C ' 860 — Soo 750 $3,700 C iv $3,200 0 a - $2,700 L W ' $2,200 700 1 1 1 1 $1,700 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-16 15-16 Fiscal Years Volume Rev - ——VOILIme Exp 1`olume i,Mgal} Here is shown customer count and volume for scenario 1 and the result of the cost assignment to volume and customer count, along with anticipated revenue assignment. Sewer Customer Count and Usage Volume 8200 1000 8100 950 8000 7900 900 0 7800 U � E 7700 850 w� � R 7600 7 v 800 7500 7400 750 7300 7200 700 07- 08- 09- 10- 11- 12- 13- 14- 15- 08 09 10 11 12 13 14 15 16 Fical Year +Volume 1.10gal] —0-- Customer Count Sewer Admin Rev and customer count $2.000 8400 $1.800 8200 $1.600 3 8000 $1.400 3 7800 $1.00 PC 2 7600 $1.000 w 3 Q300 "a " 7400 S600 0� 7200 S400 7000 `'200 07-08 08-09 09 10 10-11 11-12 12-13 13-14 14-16 15-16 Fiscal Year Admin Rev ($K) - - -Admin E p Customer Count $4,400 $4200 $4,000 'o 53,800 0 0 $3,600 $3,400 $3,200 $3.000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year Rate Revenue operating 4 principle Our targets remain revenues that exceed operating cost plus principle (same as Allocated Cost Less Depreciation) and Dept Cover Required. rn 0 4,500 0- X LU 4,000 c �a a� a� 3,500 a� a O ME 5,50o Revenue -Operating Cost - Debt Coverage,5oo • 3,000 2,500 2,000 rn 0 1,500 a� a� 1,000 0 U 500 0 C 16711If 2,500 -1,000 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 Fiscal Year Total Allocated Costs -.A0* Allocated Cost Less Depr. Rate Revenue Debt Cover Required (125% of Principle & Interest) —X Coverage Provided by Operating Revenue In scenario 1, it is assumed desirable to increase the admin rate to $15.00 and allow the volume rate to increase to make up additional necessary revenue for the study period. Shown here is the cost -to -customer for year 11-12. EXAMPLES SEWER BILLING EXAMPLES Volume Volume Rate Existing Volume Admin Charge Rate Total Charge Volume Rate Proposed I Volume Admin Charge Rate Total Charge Table 8 [ Difference Difference hi -monthly monthly RESIDENTIAL (INSIDE CITY) 2000 1 8,000 19,000 $4.19 $4.19 $4.19 $8.38 $3.75 $12.13 $37.27 $83.36 $4.19 $4.19 $4.19 $8.38 $33.52 $79.61 $15.000 $15.00 $15.00 $23.38 $48.52 $94.61 $11.25 $11.25 $11.2 $5.03 $33.52 $3.75 $79.61 $3.75 $5.03 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50.$2 $72.03 $21.21 $10.61 RESIDENTIAL (OUTSIDE CITY) 2,000 8,000 14,000 $5.24 $10.48 $4.69 $15.17 $46.61 $78.05 $5.24 $5.24 $5.24 $10.48 $18.76 L $29.24 $18.76 $60.68 $18.766= $92.12 $14.07 $14.07 $14.07 $7.04 $5.24 $5.24 $41.92 $4.69 $73.36 $4.69 $41.92 $7.04 $73.36 $7.04 COMMERCIAL (INSIDE CITY) 5,000 20,000 50,000 200,000 1,000,000 $4.19 $4.19 $4.19 $4.19 $4.19 $20.95 $83.80 $209.50 $838.00 $4 190.00 $3.75 $3.75 $3.75 $3.75 $3.75 $24.70 $87.55 $213.25 $841.75 $4 193.75 $4.19 $4.19 $4.19 $4.19 $4.19 $20.95 $15.00 $83.80 $15.00 $209.50 $15.00 $838.00 $15.00 $4,190.00 $15.00 $35.95 $98.80 $224.1 $853.00 $4 205.00 $11.25 $11.25 $11.2 $11.25 $11.25 $5.63 $5.63 $5.63 COMMERCIAL (OUTSIDE CITY) 5000 20,000 50,000 $5.241 $26.20 $104.80 $262.00 $4.69 $4.69 $4.69 L $30.89 $109.49 $265.69 $5.24 $5.24 $5.24 $26.20 $104.80 $262.00 $18.76 $44.96 $18.76"$123.56 $18.76 $280.75 $14.07 $14.07 $14.07 $7.04 $5.24 $5.24 $7.04 $7.04 EVERGREEN 17,000,000 $1.85 $31 450.00 $9 645 $41 095.00 $1.85 $31 450.00 $9 645 $41 095.00 $0 $0.00 TRUM6LE CREEK 10 000 $6.21 $62.10 $13.37 $75.47 $6.21 $62.10 $53.48 $115.58 $40.11 MA no, 01 01 14 110110. Shown here is the last year of the study period and cost -to -customer. Note that the volume rate increased from $4.19 to $4.78 while the admin rate remained at $15.00. Table 10 BI-14ION THLY SEWER BILLING EXAMPLES Volume Existing Proposed Volume Volume Admin Total Volume Volume Admin Total Difference Rate Charge Rate Charge Rate Charge Rate Charge bi-monthly Difference Monthly RESIDENTIAL (INSIDE CITY) 2,000 1 0,000 19,000 $4.19 $8.38 $3.75 $3.75 $3.75 $12.13 $37.27 $83.36 $4.75 $9.56 $4.70 $30.24 $4.78 $90.82 $15.00 $15.00 $15.00 $24.56 $53.24 $105.82 $12.43 $15.97 $22.46 $6.22 $4.19 $4.19 $33.52 $7.99 $79.61 11.23 RESIDENTIAL (OUTSIDE CITY Flat Rate) $50 82 $79.46 $2 64 $14.32 RESIDENTIAL (OUTSIDE CITY) 2000 8 000 14,000 $5.24 $10.40 $41.92 $73.36 $4.69$15.17 $4.69 $45.51 $4.69 $78.05 $5.97 $5.97 $5.97 $11.94 $18.76 $47.761 $18.76 $83.50 $18.76 $30.70 $66.52 $102.34 $15.53 $19.91 $24.29 $7.77 $5.24 $5.24 $9.96 $12.15 COMMERCIAL (INSIDE CITY) 5 000 2fl 000 50,000 1 200,000 1,000,000 $4.19 $20.95 %'175 $3.75 $3.75 $3.75 $3.75 $24.70 $87.55 $213.25 $841.75 $4,193.75 $4.78 $4.78 $4.78 $4.78 $4.78 $23.90 $95.60 $239.00 MUD $4,780.00 $15.00 $15.00 $15.00 $15.00 $15.00 $38.90 $14.20 $110.60 $23.05 $254.00 $4 5 $971.00 $129.25 $4,795.00 $601.25 $7.10 $4.19 $4.19 $4.19 $03.00 $11.53 $209.50 $20.35 $030.00 $64.63 $4.19 $4,190.00 $300.63 COMMERCIAL (OUTSIDE CITY) 5,000 20,000 50,000 $5.24 $5.24 $26.20 $4.69 $4.69 $4.69 $30.89 $109.49 $266.69 $5.97 $5.97 $5.97 $29.85 $119.40� $298.50 $18.76 $18.76 $18.76 $48.61 $138.1 $317. $17.72 $20.67 $50.57 $8.86 $104.00 $14.34 $5.24 $262.00 $25.29 EVERGREEN 17,000,000 $1.85 $31 450.00 $0 $31 450.00 $2.11 $35 870.00 $70.801 $0 $53.48 , 420 I'8.81 $2210.00 TRUMBLE CREEK 10000 $6.21 $62.10 $13.37 $75.47 $7.00 $24.41