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F/2. Resolution 4799 - Resolution Increasing Fees to Sewer Utility UsersRESOLUTION NO.4799 A RESOLUTION TO ADOPT THE FEES, SCHEDULES, RATES, CHARGES AND CLASSIFICATIONS IMPOSED ON THE CUSTOMERS OF THE CITY OF KALISPELL SEWER UTILITY. WHEREAS, pursuant to authority granted to municipalities operating utility services by Section 69-7- 101, MCA, the City of Kalispell did consider it proper to amend the fees, schedules, rates, charges and classifications imposed for utility services to its inhabitants and other persons served by the City of Kalispell Sewer Utility; and WHEREAS, said proposed amended fees, schedules, rates, charges and classifications are reasonable and just; and WHEREAS, the City Council did, on May 19, 2003 set a public hearing to be held on June 16, 2003 on said proposed amendments to the fees, schedules, rates, charges and classifications of the Sewer Utility services of the City of Kalispell and gave the necessary Notice thereof as required by Section 69-7-111, MCA; and WHEREAS, due and proper Notice of said Public Hearing has been given by the City Clerk by publication and mailing as required by law; and WHEREAS, said public hearing was duly held by the City Council at a public meeting thereof in the Kalispell City Hall beginning at 7:00 o'clock P.M. on June 16, 2003, and all persons appearing at said hearing and expressing a desire to be heard were heard, and all written comments thereon furnished to the City Clerk at said meeting prior thereto were given consideration by the Council. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF KALISPELL: SECTION I. That the fees, schedules, rates, charges and classifications applicable to the use of the City of Kalispell Sewer Utility and other services performed by said utility as set forth in Exhibit "A", attached hereto and by this reference made a part hereof, are found to be just and are hereby established and adopted to be imposed for sewer utility services to the inhabitants of the City of Kalispell and those other persons served by its sewer utility service. SECTION II. This decision is final ten (10) days after filing of this Resolution with the City Finance Director. The Finance Director shall file a copy hereof with the Public Service Commission of Montana at that time. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 16TH DAY OF DUNE, 2003. Pamela B. Kennedy Mayor ATTEST: Theresa White City Clerk CITY OF KALISPELL KALISPELL, MONTANA UTILITY SCHEDULE FOR SEWER EXHIBIT "A" EFFECTIVE July 1, 2003 PAGE NO. 1 RESIDENTIAL AND COMMERCIAL SERVICE Available for: User premises located within the City Limits Administrative cost per meter FY03/04 FY04/05 FY05/06 FY06/07 FY07/08 Charge: $2.85 $3.00 $3.25 $3.55 $3.75 Consumption Rate: per thousand gallons/no minimum $3.48 $3.62 $3.80 $3.99 $4.19 *Water billed per Sprinkling rate or separately metered for Sprinkling not subject to Sewer fee. MULTIPLE USERS Number of units will not be a factor in the rate formula. Special Terms and Conditions 1. Out of City rate 1.25 times the in -City rate. CITY OF KALISPELL KALISPELL, MONTANA UTILITY SCHEDULE FOR SEWER EFFECTIVE July 1, 2003 PAGE NO. 2 CYO X11i1".1 0 1 f Available for: Users of the system NOT SERVED by the City Water Utility but within the City limits of Kalispell Rate: Premises discharging sewage into the system from water service originating from other than metered City Water must install a meter, at user's expense, so as to provide a measure of usage. This provision covers all outside sources of water including wells and outside water systems. The charge for sewer services: same as Schedule A In the case of temporary absence of metering, usage will be estimated. At the date of the adopting of this Schedule there are wells supplying commercial and industrial premises, these are required to be metered. Until this metering is accomplished, the sewer discharge from those premises will be determined from the capacity of the pump delivering the water and hours of operation of the pump. In the case of restaurants and bars, etc., served in the same manner, sewer volume may be determined by comparison with a like situation now metered. MULTIPLE USERS Number of units will not be a factor in the rate formula. Special Terms and Conditions 1. Out of City Rate 1.25 times the in -City rate. CITY OF KALISPELL KALISPELL, MONTANA UTILITY SCHEDULE FOR SEWER SCHEDULE C EFFECTIVE July 1, 2003 PAGE NO. 3 Where it has been determined that concentration of BOD (Biological Oxygen Demand) and SS (Suspended Solids) are present in sewage discharged by a Commercial or Industrial user, a surcharge will be made as determined herein: The Utility will consider the average Residential component of sewage to be 200 PPM BOD and 250 PPM SS. Surcharges will be assessed to all users discharging wastes which exceed the component of residential waste as indicated above: FY03/04 FY04/05 FY05/06 FY06/07 FY07/08 For each 25 PPM BOD above 200 PPM $ .21 $ .21 $.22 $ .23 $ .24 For each 25 PPM SS above 250 PPM $ .18 $ .19 $.20 $ .21 $ .22 SEPTIC WASTES Septic sewage introduced into the sewage system shall be charged at the rate per hundred (100) gallons with a minimum charge of 600 gallons per load for bulk loads. The volume charge will be based on the capacity of the hauling tank, not on the volume of the contents. FY03/04 FY04/05 FY05/06 FY06/07 FY07/08 Per 100 gallons: $2.58 $2.68 $2.82 $2.96 $3.11 June 6, 2003 Mr. Jim Hansz Public Works Director City of Kalispell 312 First Avenue East Kalispell, Montana 59903-1997 Econotnic and Engineering Services, hlc. 10900 NE 4th Street, Suite 1110 Bellevue, WA 98004-5876 PO Box 1989 Bellevue, WA 98009-1989 tel 425.452.8100 fax 425.454.4189 www.ees-1.com Subject: Funding Growth Related Utility Infrastructure/Highway 9.3 South Project EES Project #3-02-252 Dear Jim: As you know, Economic and Engineering Services, Inc. (EES) recently provided to the City a letter that analyzed and discussed the City's proposed water, wastewater and storm sewer rate adjustments. Hopefully, that analysis may have answered many of the questions raised by the City Council. However, there was some concern that the previous letter may have led some readers to incorrect conclusions relating to that analysis. In addition, it appears that there still may be some additional questions related to that analysis, and more globally, the basic policy questions related to the funding of growth and system development charges. Provided below is some additional information that may be useful to the City Council in clarifying the conclusions of the previous analysis and assisting them in making their final rate adjustment decision. Prior to EES being retained to conduct the rate study, the City had adopted the City of Kalispell Water, Wastewater and Storm Drainage Facility Plan. The Facility Plan detailed the recommendations for system improvements. It also contained a capital improvement program that has a total cost between Fiscal Years 2001 to 2006 of nearly $30 million! At the start of this rate study process, the City and EES understood the potential magnitude of the rate adjustments facing the City's utilities. Given that understanding, EES as a part of the rate study process, utilized financial/rate strategies to help minimize the immediate and long-term rate impacts to customers. Impacts have been minimized via two strategies: gradual transition of rate adjustments and the use of system development charges (SDC) to help offset the cost of growth related debt service, and reimbursement to existing customers for their investment in capacity for future growth. Under the first strategy, EES developed the revenue requirement analyses and determined the overall deficiency of each utility. On a year -by -year basis, the annual adjustments in some cases would have been large and probably unacceptable to the public and the City's Council. As an example, the FY 2003/04 rate adjustment for the water utility should have been 16.9%, and EES proposed a 10% adjustment in FY 2003/04, and each year thereafter as a result of the transition strategy. Continuing with the water utility example, at the same time, $51,000 of growth -related SDC revenues were used in FY 2003/04 to offset the cost of growth related debt and the overall ' City of Kalispell — Water, Wastewater and Storm Drainage Facility Plan, HDR Engineering, Inc., July 2002, P. 4. Bellevue Mount Vernon Olympia Portland 7ri-Cities F7(a • �' UV% wrl. Mr. Jim Hansz June 6, 2003 Page 2 adjustment. Absent the use of these system development charges in this manner, the overall water adjustment in FY 2003/04 would have been approximately 20.4%. Much of the recent discussion concerning the rate study has focused on the Highway 93 South project. In the May 16th letter to the City, EES was asked to analyze the rate adjustments and attempt to determine the impact from the Highway 93 South project, along with other growth related projects. In response to that request, EES identified that approximately 6.2% of the overall 10% water utility rate adjustment in FY 2003/04 was related to the Highway 93 South project .2 The Highway 93 South project has an estimated impact to the City's residential customers of 55¢/month. In viewing Table 2 from the May 16th letter, one could conclude that elimination of the Highway 93 South project would reduce the need for the proposed 10.0% adjustment in water rates in FY 2003/04. On the contrary, as noted earlier, the water utility is deficient by approximately 16.9% in FY 2003/04. Removing this project simply sets the overall deficiency at 10.7%, or roughly the current proposed rate adjustment for this utility. Therefore, in our opinion, it is an incorrect conclusion to state that the first year water rate adjustment of 10% is needed simply as a result of funding the Highway 93 South project. Rather, delaying or eliminating the Highway 93 South water project simply slides the remainder of the capital projects forward, and the original overall five-year deficiency of roughly 60% is reduced to approximately 54%. Rather than reduce the first year adjustment, EES would be inclined to suggest that the final year of the rate adjustments be changed, if deemed appropriate. For the wastewater utility, EES determined that the impact of the Highway 93 South project was roughly a 3% adjustment to the existing rates.3 The Highway 93 South project has an estimated impact to the City's average residential customers of 61 0/month. In our opinion, any delay or elimination of the Highway 93 South project would not change our final rate recommendations concerning the wastewater utility. As I clearly noted in the Council workshop discussions, the wastewater utility has major treatment plant improvements and rate impacts that extend beyond the current five-year planning horizon. In making our final wastewater rate adjustment recommendations, EES and the City recognized the need to "ramp up" the wastewater rates in a smooth transitional manner, to help minimize the impacts beyond the current five-year planning period. Any lowering of the proposed adjustments will simply require larger wastewater rate adjustments at a later date. Maintaining the proposed adjustments, even if the Highway 93 South project is delayed, will accumulate funds in advance of the treatment plant project, and potentially reduce the amount of borrowed funds over the long-term. For the storm sewer utility, the rate impacts from Highway 93 South were in FY 2005/06. These impacts were estimated at 11.2% 4 This translates to approximately 20¢/month for the average residential customer. Our review of the storm sewer utility indicated that it is significantly under -funded. The final overall five-year deficiency was roughly 102%. Similar to our earlier comments, the delay or elimination of the Highway 93 South storm sewer project would not change our rate adjustment recommendations for this utility. Of the three utilities reviewed, this 2 Letter to Mr. James C. Hansz, P.E., City of Kalispell, Analysis of the City's Proposed Water, Wastewater and Storm Sewer Rate Adjustments, from Tom Gould, EES, Inc. dated May 16, 2003, Table 2, Page 4. 3 Ibid, Table 5, Page 7. 4 Ibid, Table 8, Page 10. mtees Mr. Jim Hansz June 6, 2003 Page 3 utility was in a very weak financial position, due to insufficient rates. With the proposed rate adjustments, the storm sewer utility will be in a much better financial position. Any funds collected, that are not used for the Highway 93 South project, can be used for improved storm sewer O&M activities or other future storm sewer capital improvement projects. Given the above discussion of the proposed rate adjustments, our focus shifts to the actual funding of the Highway 93 South Project and the use of SDC's. As we noted in our May 16th letter concerning the development and financing of utility infrastructures, EES takes no position in relation to the construction of this project. EES simply wants to inform the City Council of "generally -accepted" approaches and perspectives about the funding of a major project such as the Highway 93 South project. The first question that arises is how system development charges help to mitigate the rate adjustments. System development charges may be used for two purposes — to offset new capital projects, or to offset the debt service payments associated with a growth related project. Provided below in Table 1 is a simple example of the use of SDC's and the rate impacts, assuming a $750,000 capital project and $50,000 of annual SDC revenue. Use of SDC Funds to Off -Set the Growth Related Capital Proiect Capital Improvement Funding - Capital Project $750,000 Less: SDC Funding 50,000 Net Funded From Bonds $700,000 Use of SDC Funds to Off -Set the Growth Related Debt Service Capital Improvement Funding - Capital Project $750,000 Less: SDC Funding 0 Net Funded From Bonds $750,000 Impact to Rates - Impact to Rates - Annual Debt Service $52,000 Annual Debt Service $56,000 Less: SDC Funding 0 Less: SDC Funding 50,000 Net Annual Debt Service $52,000 Net Annual Debt Service $6,000 Net Impact to Rates $52,000 Net Impact to Rates $6,000 Rate Revenues $1,000,000 Rate Revenues $1,000,000 % Rate Adjustment Needed 5.2% % Rate Adjustment Needed 0.6% As can be seen from the above example, the manner in which SDC's are utilized has a direct impact upon the rates, and when used properly, SDC's help to shelter the existing customers from growth related capital projects. For the City's study, a combination of the two approaches was utilized. Given the potential variability of growth and SDC revenues, EES applied approximately 50% of the projected SDC revenues against the growth related debt service. s Letter to Mr. James C. Hansz, P.E., City of Kalispell, Development and Financing of Utility Infrastructure, from Tom Gould, EES, Inc. dated May 16, 2003. mtees Mr. Jim Hansz June 6, 2003 Page 4 Provided below in Table 2 is a summary overview of the funding approach used for the Highway 93 South project and the impact to rates. Water Wastewater Storm Sewer Highway 93 South Project - Capital Project $1,229,830 $1,409,970 $395,000 Less: Funding from Existing Rates 0 348,070 0 Less: Funding from Designated Funds 0 0 395,000 Less: SDC Funding 0 0 0 Net Funded From Bonds $1,229,830 $1,061,900 $0 Impact to Rates - Annual Debt Service $90,493 $87,779 $0 Less: SDC Funding 51,000 81,600 0 Net Annual Debt Service $39,493 $6,179 $0 Net Impact to Rates $39,493 $6,179 $0 FY Rate Revenues $1,448,337 $2,893,807 $274,355 % Rate Adjustment Needed 2.7% 0.2% 0.0% As can be seen from the above table, the funding of the Highway 93 South project is similar to the approach shown in Table 1. That is, for each utility, the Highway 93 South project has been primarily funded for the water and wastewater utility via long-term borrowing. For the water utility, repayment of that debt is through a combination of rates and SDC's. When the SDC's are netted against the debt service, the net impact to water rates is 2.7%. It should be noted that in our May 16th letter, EES indicated an impact of 6.2%. In that calculation, we did not apply and net the SDC's against the Highway 93 South project debt. All of the other capital projects in FY 2003/04 for the water utility are replacement projects. Therefore, application of the SDC's against the Highway 93 South project is reasonable and appropriate. For the wastewater utility, the effective use of SDC funds has produced a net impact to rates from the Highway 93 South pro�ect that is minimal. The 3% impact from the Highway. 93 South project, shown in our May 16t letter, did not net out the SDC's against the debt service. Finally, the storm sewer project is currently funded and will require no borrowing. In our May 16th letter, for the storm sewer utility, we showed an impact of 11.2%, which would be a full reimbursement of those funds via rates. However, this project is fully funded at this time, and no increase in rates would be necessary to fund it at this time. The other important point that should be made from Table 2 is that cost -based SDC's are designed to fully reimburse the existing customers for growth related projects, including the Highway 93 South project. It is the timing of construction of the project and the number of new connections per year that can create rate impacts to existing customers. However, over the life of mtees Mr. Jim Hansz June 6, 2003 Page 5 the facility, for every dollar invested in capacity by an existing customer, that customer should be fully reimbursed over time. It is also our understanding that the City Council may believe that the best approach to funding the Highway 93 South project is to have developers pay for this project "up -front." EES is unclear as to exactly what "up -front" may imply. However, if this statement implies that the development community should make a 100% "up -front" payment for this project, then EES believes that this approach for this s e� cific project is not a "generally accepted" approach for projects of this nature. Furthermore, it wouldn't seem to be a reasonable approach or particularly feasible. It is our understanding that the City does have a policy requiring developers to install or pay for the installation of distribution mains that serve a new development. EES agrees with the City's policy and approach, since it conforms to the approach used by many municipal utilities. However, the Highway 93 South project in no way resembles the extension or installation of mains in a subdivision. The Highway 93 South project more closely resembles a transmission main/major interceptor, in that it will serve numerous customers and multiple developments and commercial properties. It is "generally accepted" in situations like this, to establish a system development charge for that project, and be reimbursed as new customers connect to the system (including any subdivisions developed by developers). We are not aware of any utility that has constructed a project similar to the Highway 93 South project that required a developer or group of developers to pay "up -front" for the expansion. Alternatively, if paying "up -front" means that system development charges will be accumulated in advance of the construction project to eliminate any need for borrowing, then there are two issues/concerns that the City Council must consider. First, system development charges occur as new connections come onto the system. New connections occur slowly and over an extended period of time. Therefore, to accumulate sufficient SDC funds to pay "cash" for the Highway 93 South project will require many years. The second concern is that the SDC's that the City will be collecting prior to the construction of the project will not be from the new area being served by that project. Rather, the SDC's used to "pre -fund" and construct the Highway 93 South project will be collected from new in -City customers connecting to the system. Regardless of when the Highway 93 South project is built, and how it is funded, the City will need to be reimbursed by the new customers being served off of the Highway 93 South project. Finally, we would point out that every customer currently connected to the City's utilities, at some point in time, had existing customers come before them who made the necessary investments that provided them with the capacity and facilities to allow their connection to the system. Therefore, in our opinion, it is not unreasonable to ask today's customers to make investments in system capacity to allow for future growth, provided that they are fairly reimbursed for that investment over time, via SDC payments from the future new customers connecting to the system. In summary, EES is of the opinion that the proposed rate adjustments before the City are reasonable and prudent and reflect the funding needs in conformance with the City's Facility Plan. The elimination or delay of the Highway 93 South project would not change our rate adjustment recommendations for the immediate period. Finally, we believe the funding A-ra F71('(1qWL Mr. Jim Hansz June 6, 2003 Page 6 approaches used within this study have attempted to minimize the rate impacts from the City's Facility Plan as much as reasonably and prudently possible. Sincerely, ECONOMIC AND ENGINEERING SERVICES, INC. Thomas E. Gould Principal TG:dlo Economic and Engineering Services, Inca 10900 NE 4th Street, Suite 1110 Bellevue, WA 98004-5876 PO Box 1989 Bellevue, WA 98009-1989 May 16, 2003 Mr. James C. Hansz, P.E. City of Kalispell 312 First Avenue East Kalispell, Montana 59903-1997 tel 425.452.8100 fax 425.454.4189 www.ees-1.com Subject: Analysis of the City's Proposed Water, Sewer and Storm Sewer Rate Adjustments EES Project #3-02-252 Dear Jim: At the workshop meeting on May 12th, Economic and Engineering Services, Inc. (EES) presented to the City Council the proposed rate designs for the water, sewer and storm sewer utilities. As a part of the discussion concerning the rates, the City Council requested that EES provide an analysis of the annual rate adjustments to separate and identify the major cost components associated with those adjustments. Specifically, the City Council desires to better understand the impact to the proposed annual rate adjustments that are related to growth or capacity -related capital projects. To that end, we have prepared a letter report that discusses the analysis we undertook and the findings of that analysis. In this process, we have attempted to provide an analysis and response that will assist the City Council in better understanding the proposal before them. Should you have any questions about our letter report, please do not hesitate to call me. I appreciate the opportunity to provide this letter to you and the City Council. Sincerely, ECONOMIC AND ENGINEERING SERVICES, INC. Thomas E. Gould Vice President TEG:smn Enclosure Bellevue Mount Vernon Olympia Portland tri-Cities Introduction Economic and Engineering Services, Inc. (EES) was retained by the City of Kalispell to conduct a comprehensive water, sewer and storm sewer rate study. As a part of that process, EES has recommended a series of annual rate adjustments for each of the utilities. At the City Council workshop meeting on May 12th, EES presented to the City Council the proposed rate designs for the water, sewer and storm sewer utilities. As a part of the discussion concerning the rates, the City Council requested that EES provide an analysis of the annual rate adjustments to separate out and identify the major cost components associated with those proposed adjustments. Specifically, the City Council desires to better understand the impact of growth- or capacity -related capital projects on the proposed annual rate adjustments. This letter report has been prepared specifically in response to that request. While the City Council requested a response related to the impact of growth related capital projects, EES also heard additional questions. During the workshop discussion, there were questions about what proportion of the rate adjustments were related to the: in Past under -funding of the utilities (i.e. simply catching up - O&M impacts) 11 Highway 93 South project "Growth" or capacity related capital projects In thinking about how to adequately respond to this request and assist the City Council in better understanding this complex issue, EES concluded these three different perspectives or analyses were required to properly respond to the City Council's request due to the variety of discussion and questions that arose at the workshop meeting. Therefore, for each of the proposed annual rate adjustments, EES has broken them into different components to provide different viewpoints and perspectives. The three perspectives and respective components of each analysis were as follows: 11 The total rate adjustment in relation to O&M and capital project funding 11 The total rate adjustment in relation to the impact of the Highway 93 South projects 10 The total rate adjustment in relation to O&M, growth related capital projects, and non -growth related capital projects In developing our analysis, we reviewed each year from each of the three different perspectives. In addition, at the conclusion of each analysis we have also provided a 5-year totalized amount. IttekM Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments City of Kalispell The starting point for developing each of the analyses was the 5-year revenue requirement analysis developed for each utility. From this analysis, EES had an understanding of the annual funding requirements for O&M, debt service and capital improvements funded from rates. An important caveat to our analysis is that the annual revenue requirements do not tie exactly to the proposed rate adjustments. As a result of this, EES had to make some simplifying assumptions to develop the analysis herein. This aspect of the analysis is explained in more detail below. As will be recalled, EES presented the draft revenue requirements for each utility to the City Council. In viewing the results of the revenue requirements, the "raw" annual adjustments from the revenue requirement analyses were highly variable from year to year. Therefore, as a part of our final recommendations on the revenue requirements, EES had proposed "transitioned" rate adjustments (e.g. 10%/year for water) to smooth out the impacts of the overall changes in rates. As a consequence of that recommendation, in developing this analysis, EES had to make certain assumptions in those years where the revenue requirement was slightly different (higher or lower) than the proposed rate adjustments. In making those assumptions, EES has generally assumed that the O&M and debt service component in any year will be fully funded by the rate adjustment, and it is component of capital improvements funded from rates that is used balanced to the proposed rate adjustment. The other key assumption to our analysis that needed to be made was identifying those capital improvement projects that were "growth" or capacity related. In the revenue requirement analysis, the capital projects were not identified as "growth" related or "renewal and replacement" related. Therefore, to identify the growth related capital projects, EES utilized information from the system development charge (SDC) analysis currently being undertaken for the City. The SDC analysis requires the City to identify the "growth" related projects in the City's facility plan. Given the above brief overview of the general methodology used to develop this analysis, the focus shifts to our findings. Summary of the Analyses The results of our analyses will be presented by individual utility. Each of the three analyses undertaken for an individual utility will be presented in both a table and graphical form. Presented below are the findings of our analysis. Water Utility - The water utility has proposed a series of 10% rate adjustments over the five-year period of FY 2003/04 through FY 2007/08. During this five-year period, the water rate study has assumed and planned that the City will undertake $11.1 million in water related capital projects. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 2 City of Kalispell Water Rate Adjustments In Relation To O&M and Capital Project Funding The first analysis undertaken for the water utility was to analyze the proposed rate adjustments in relation to the components of O&M, debt service and capital improvements funded from rates. This analysis will provide the City with an understanding of the impacts of O&M and capital project funding on the City's proposed water rate adjustments. For purposes of this analysis, EES has segregated capital project funding between debt service and capital improvements funded from rates. Capital improvement projects funded from rates is the portion of total capital projects funded from current rate revenues. In contrast, debt service represents the portion of capital projects funded via long-term debt (e.g. revenue bonds). Therefore, this analysis is actually segregating the rate adjustments between O&M and capital funding. Provided below in Table 1 is a summary of this analysis for the water utility. 2003/04 2004/05 2005/06 2006/07 2007/08 O&M 2.6% 2.1% 3.1% 2.3% 2.4% CIP From Rates 0.4% 0.4% 0.6% 0.5% 0.5% Debt Service 7.0% 7.5% 6.3% 7.2% 7.1% Total 10.0% 10.0% 10.0% 10.0% 10.0% As can be seen, the components for each year equal the recommended proposed water rate adjustments. The results of Table 1 are presented in a graphical form on Graph 1. Graph 1 Water Rate Adjustments in Relation to O&M & Capital Projects 12.0% j 10.0% "77 .,., : O Debt Service 6.0% M CIP from Rates777 I I O&M 2.0% ;x 0.0% - s, f FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 3 City of Kalispell Water Rate Adjustments In Relation To The Highway 93 South Project The second analysis prepared for the water utility was to segregate the total rate adjustment between the Highway 93 South project and all other costs. To accomplish this, EES removed the Highway 93 project from the City's water revenue requirement analysis and determined the incremental impact of that change. The Highway 93 South project is a $1.3 million water project in FY 2003/04. Within the revenue requirements, it was assumed that this project is funded via low -interest SRF loan. The projected financial impact to the water utility was an annual debt service payment of approximately $90,000. Provided below in Table 2 is a summary of the analysis. 2003/04 2004/05 2005/06 2006/07 2007/08 Highway 93 6.2% 0.0% 0.0% 0.0% 0.0% All Other Costs 3.8% 10.0% 10.0% 10.0% 10.0% Total 10.0% 10.0% 10.0% 10.0% 10.0% In viewing the above exhibit, it can be seen that the only impact to the rate adjustment appears in FY 2003/04. It is important to understand that the 10% adjustment in FY 2003/04 will fully fund the debt service payment associated with the Highway 93 South project in that year, and every year thereafter. The recommended 10% adjustments in each of the following years are a function of all the other water capital projects planned to be constructed by the City, along with increases in O&M costs. That is the reason why FY's 2004/05 through FY 2007/08 indicate that the rate adjustments are totally unrelated to the Highway 93 South project. A graphical presentation of Table 2 is shown below in Graph 2. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 4 City of Kalispell Water Rate Adjustments in Relation to Growth Related Capital Projects The final analysis developed for the water utility was to place the recommended annual rate adjustments in the context of O&M, growth -related capital projects, and non -growth related capital projects. This is similar to the first analysis undertaken for the water utility, but the capital component of the rate adjustment (i.e. debt service and capital projects funded from rates) has been segregated between growth and non -growth related capital projects. As discussed previously, EES utilized the system development charge (SDC) analysis to determine the proportion of capital projects that are growth versus non - growth related. Provided below in Table 3 is a summary of this analysis. 2003/04 2004/05 2005/06 2006/07 2007/08 O&M 2.6% 2.1% 3.1% 2.3% 2.4% Non -Growth 3.7% 1.3% 5.6% 3.4% 3.7% Growth Capital 3.7% 6.6% 1.3% 4.3% 3.9% Total 10.0% 10.0% 10.0% 10.0% 10.0% As expected, a substantial portion of the City's water rate impacts are a function of meeting expanding capacity requirements of the City's system. A graph of Table 3 is presented below in Graph 3. Graph 3 Water Rate Adjustments in Relation to Growth Related Capital 12.0% .m�� 3 ° 8.0 /o1 C1 Growth Capital 6.0°l0 Non -Growth rn O&M 4.0% 2.0% 0.0% FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 This concludes the analysis of the water rate adjustments that was undertaken for the water utility. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 5 AflimCity of Kalispell Sewer Utility - The sewer utility has proposed rate adjustments of 3%, 4%, 5%, 5% and 5% over the five-year period of FY 2003/04 through FY 2007/08. During this five-year period, the sewer rate study has assumed and planned that the City will undertake $5.6 million in collection system improvements and $6.2 million in treatment plant improvements, for a total of $11.8 million in sewer capital projects. Sewer Rate Adjustments In Relation To O&M and Capital Project Funding Similar to the water analysis, the proposed sewer rate adjustments were analyzed in relation to the components of O&M, debt service and capital improvements funded from rates. As with the water analysis, EES has segregated the sewer capital project funding between debt service and capital improvements funded from rates, which when combined together is analogous to capital project funding. Provided below in Table 4 is a summary of the analysis for the sewer utility. 2003/04 2004/05 2005/06 2006/07 2007/08 O&M 0.7% 3.6% 2.3% 3.7% 1.7% CIP From Rates 0.0% 0.0% 0.0% 0.0% 5.1 % Debt Service 2.3% 0.4% 2.7% 1.3% 1.8% Total 3.0% 4.0% 5.0% 5.0% 5.0% As can be seen, the components for each year equal the recommended proposed sewer rate adjustments. As can be seen, the debt service in FY 2007/08 is negative. The reason is that the total debt service payments were reduced overall because of the full payment of the 1991 revenue bond. The results of Table 4 are presented in a graphical form on Graph 4. In developing this graph, FY 2007/08 has been adjusted since negative values can not be graphed in this format. IKWSAnalysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 6 City of Kalispell Graph 4 Sewer Rate Adjustments in Relation to O&M & Capital Projects 6.0% e O Debt S rvice 4.0% CIP from Rates ° 1 3.0% l O&M i 2.0 % y 1.0 % a i FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 *Note: The negative values shown in Table 4 have been taken out of Graph 4 for presentation purposes Sewer Rate Adjustments In Relation To The Highway 93 South Project The second analysis prepared for the sewer utility was to segregate the total rate adjustment between the Highway 93 South sewer project and all other costs. To accomplish this, EES removed the Highway 93 sewer project from the City's sewer revenue requirement analysis and determined the incremental impact of that change. The Highway 93 South project is a $1.4 million sewer project. Within the revenue requirements, it was assumed that this project is funded via a combination of revenue bonds and CIP from rates. The projected financial impact to the sewer utility was an annual debt service payment of approximately $85,000. Provided below in Table 5 is a summary of the analysis. 2003/04 2004/05 2005/06 2006/07 2007/08 Highway 93 3.0% 0.0% 0.0% 0.0% 0.0% All Other Costs 0.0% 4.0% 5.0% 5.0% 5.0% Total 3.0% 4.0% 5.0% 5.0% 5.0% Similar to the water analysis of the Highway 93 South project, the only impact to the rate adjustment appears in FY 2003/04. The 3.0% adjustment in FY 2003/04 will fully fund the debt service payment associated with the Highway 93 South project in that year, and every year thereafter. The recommended rate adjustments in each of the following years are a function of all the other planned sewer capital projects to be constructed by the City, along with increases in annual O&M costs. A graphical presentation of Table 5 is shown below in Graph 5. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 7 iffEes City of Kalispell Graph 5 Sewer Rate Adjustments in Relation to the Highway93 South Project Sewer Rate Adjustments in Relation to Growth Related Capital Projects The final analysis developed for the sewer utility was to place the recommended annual rate adjustments in the context of O&M, growth -related capital projects, and non -growth related capital projects. As noted previously, EES utilized the system development charge (SDC) analysis to determine the proportion of sewer capital projects that are growth versus non -growth related. Provided below in Table 6 is a summary of this analysis. 2003/04 2004/05 2005/06 2006/07 2007/08 O&M 0.7% 3.6% 2.3% 3.7% 1.7% Non -Growth 0.0% 0.3% 0.0% 0.0% 2.0% Growth Capital 2.3% 0.1% 2.7% 1.3% 1.3% Total 3.0% 4.0% 5.0% 5.0% 5.0% As anticipated, a substantial portion of the City's sewer rate impacts are a function of meeting expanding capacity requirements, particularly at the City's treatment facility. A graph of Table 6 is presented below in Graph 6. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 8 City of Kalispell Graph 6 i Sewer Rate Adjustments in Relation to Growth Related Capital 6.0% 5.0% 4.0%� - O Growth Capital 3.0% Non -Growth � o O&M 2.0%- _ MM MIN 0.0°l0 i FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 This concludes the analysis that was undertaken to analyze the sewer utility rate adjustments. Storm Sewer Utility - The storm sewer utility has proposed rate adjustments of 11.5%, 11.5%, 11.5%, 20% and 20% over the five-year period of FY 2003/04 through FY 2007/08. During this five-year period, the storm sewer rate study has assumed and planned that the City will undertake $5.5 million in storm sewer related capital projects. Storm Sewer Rate Adjustments In Relation To O&M and Capital Project Funding Similar to the water and sewer analysis, the proposed storm sewer rate adjustments were analyzed in relation to the components of O&M, debt service and capital improvements funded from rates. Provided below in Table 7 is a summary of the analysis for the storm sewer utility. 2003/04 2004/05 2005/06 2006/07 2007/08 O&M 5.2% 11.4% 0.4% 1.3% 1.2% CIP From Rates 0.0% 0.0% 0.4% 1.0% 0.9% Debt Service 6.3% 0.1% 10.7% 17.7% 17.9% Total 11.5% 11.5% 11.5% 20.0% 20.0% As can be seen, the components for each year equal the recommended proposed storm sewer rate adjustments. The results of Table 7 are presented below in a graphical form on Graph 7. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 9 City of Kalispell Graph 7 Storm Sewer Adjustments in Relation to O&M and Capital Projects Storm Sewer Rate Adjustments In Relation To The Highway 93 South Project The rate adjustments were analyzed for the impacts to the Highway 93 South project. The Highway 93 South project is a $395,000 storm sewer project, and is planned in FY 2005/06. Within the revenue requirements, it was assumed that this project is funded from reserves set aside for this specific project. For purposes of this analysis, and to place in the same context as the other analyses, it was assumed that the projected financial impact to the storm sewer utility was the equivalent of an annual debt service payment of approximately $32,000. Provided below in Table 8 is a summary of the analysis. 2003/04 2004/05 2005/06 2006/07 2007/08 Highway 93 0.0% 0.0% 11.2% 0.0% 0.0% All Other Costs 11.5% 11.5% 0.3% 20.0% 20.0% Total 11.5% 11.5% 11.5% 20.0% 20.0% Similar to the analyses of the Highway 93 South project, the only impact to the rate adjustment appears in FY 2005/06. The 11.5% adjustment in FY 2005/06 will fully fiord the Highway 93 South project. The recommended rate adjustments in the previous and following years are a result of the other planned storm sewer capital projects, along with increases in annual O&M costs. A graphical presentation of Table 8 is shown below in Graph 8. IgM Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments I City of Kalispell Graph 8 Storm Sewer Adjustments in Relation to the Highway 93 South Project 25.0% i 20.0% Other Costs, 15.0% I E3 Highway 93 10.0% 5.0% 0.0% 1 "" FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 i Storm Sewer Rate Adjustments in Relation to Growth Related Capital Projects The final analysis developed for the storm sewer utility was the analysis of growth related capital projects. Similar to the other analyses, the recommended annual rate adjustments were placed in the context of O&M, growth -related capital projects, and non -growth related capital projects. EES utilized the storm sewer system development charge (SDQ analysis to determine the proportion of storm sewer capital projects that are growth versus non -growth related. Provided below in Table 9 is a summary of this analysis. 2003/04 2004/05 2005/06 2006/07 2007/08 O&M 5.2% 11.4% 0.4% 1.3% 1.2% Non -Growth 6.3% 0.1% 8.9% 16.3% 0.0% Growth Capital 0.0% 0.0% 2.2% 2.4% 18.8% Total 11.5% 11.5% 11.5% 20.0% 20.0% A graph of Table 9 is presented below in Graph 9. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 19 City of Kalispell Graph 9 Storm Sewer Adjustments in Relation to Growth Related Capital 25.0% -7-777-777 20.0% 15.0% Z' ❑ Growth Capital Non -Growth o 10.0 /o O& E M ------------- 5.0% � 0.0 /o FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 I This concludes the analysis of the storm sewer recommended rate adjustments. Five -Year Cumulative Summary of the Analysis The final analytical task undertaken was to summarize the analysis for the five-year period for each of the utilities. In this way, the City can view the full impacts of each of the different perspectives. These are provided below. Rate Adjustments In Relation To O&M and Capital Project Funding Provided below in Table 10 is the summary of the rate adjustments for each of the utilities with regard to the adjustments to O&M and capital funding. Water Sewer Storm Sewer O&M 14.2% 11.5% 23.7% CIP From Rates 2.6% 5.3% 2.7% Debt Service 44.2% 7.2% 73.2% Total 61.0% 24.0% 99.6% Provided below in Graph 10 is the graphical presentation of Table 10. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 12 AtEes City of Kalispell Rate Adjustments In Relation To The Highway 93 South Project Provided below in Table 11 is the summary of the rate adjustments for each of the utilities in relation to the Highway 93 South project. Water Sewer Storm Sewer Highway 93 6.0% 3.0% 11.2% All Other Costs 55.0% 21.0% 88.4% Total 61.0% 24.0% 99.6% Provided below in Graph 11 is the graphical presentation of Table 11. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 13 MMS City of Kalispell Rate Adjustments in Relation to Growth Related Capital Projects Provided below in Table 12 is the summary of the rate adjustments for each of the utilities in relation to growth and non -growth related capital projects. Water Sewer Storm Sewer O&M 14.9% 13.4% 25.7% Non -Growth 21.7% 2.4% 43.4% Growth Capital 24.4% 8.2% 30.5% Total 61.0% 24.0% 99.6% Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments 14 City of Kalispell Provided below in Graph 12 is the graphical presentation of Table 12. Graph 12 Summary of the Cumulative Five -Year Adjustments in Relation to Growth Related Capital Projects 100.0% 80.0% o Growth Related 60.0% Non -Growth 40.0% o O&M 20.0% 0.0% w,.. I I Water Wastewater Storm Sewer This concludes the analysis and summarization of the City's proposed water, sewer and storm sewer rate adjustments. Summary This letter report has attempted to identify the impacts of O&M and specific types of capital projects in relation to the recommended rate adjustments. Analysis of the Proposed Water, Sewer and Storm Sewer Rate Adjustments Is Iftees City of Kalispell