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03. Evergreen Sewer RateEVERGREEN W&S DIST 4e6 756 156e P.01 RONALD PAUL FOLTZ CERTIFIED PUBLIC ACCOUNTANT P.O. BOX 4605 TELEPHONE: NSSOUI.A, MONTANA 59806 FACSIMILE: (406) 728-8130 OFFICE AT 112 WEST MAW (406) 728-0957 February 18, 1994 RECEIVED To: Roberta Struck, District Manager F E D i q 1994 Flathead County Water & Sewer District #1 - Evergreen 4 RA1 1IWCQV ,TcciiNSTIt E�"''iti"_'04 MEMORANDUM OF DISCUSSION WITH AMY R013ERTSON OF THE CITY OF KALISPELL ON FEBRUARY 17, 't994 Amy Robertson facsimiled the attached five page memorandum to me the morning of February 17. 1 discussed the memorandum with her by telephone the afternoon of the 17th. The following is a summary of the results of that discussion and her memorandum. MONTHLY CHANGE FOR CAPITALIZATION COSTS Amy's memo did not Include any discussion of the monthly charge for capitalization costs nor did we discuss this monthly charge in any way. It is my assumption that the City has accepted the proposed changes and that the monthly charge to the Evergreen District will be $9,308 instead of $25,769. MONTHLY RATE PER THOUSAND GALLONS DIRECT COSTS As can be seen in the attached memo, Amy agreed with the transfer of $30,100 of administrative personnel costs from the treatment plant to other sewer activities. However, she included sewer billing personnel as part of the administrative costs properly chprged to the treatment plant. i explained that the Evergreen District would be incurring its own costs to bill its customers and that I did not believe it was reasonable to also be required to pay a share of the City's costs of billing City customers. It was my feeling that Amy accepted my premise that this was not a reasonable cost of the operation of the treatment plant chargeable to the Evergreen District. EVERGREEN W&S DIST 406 756 1588 P.02 In Amy's Revised Budget 1=igures, certain costs have been increased because of what she stated were better and more current information. The significant Increases were: Electricity ................... .... .. ... ..... ...... $10,000 Natural Gas ...................................... 16.85Q Total..... .................................... 26,650 All Other Changes - Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542 Net Change ................................... $27.392 The net effect of these changes proposed by Amy is $2,708 reduction in direct costs. I have no reason to question the proposed increase In the budget amendment of $27.392. I do believe, however, that direct costs should be reduced by an additional $33,703 to eliminate the remaining billing costs included in the treatment plant budget. INDIRECT COSTS Amy's memo and our discussions covered the usually large share of indirect (data processing) costs allocated to the treatment plant. Amy explained that the increase was due to the fact that the data processing function is probably miss -named and that its functions include the purchase and maintenance of computers, copiers, fax and postage machines along with related supplies. The high charge in this budget was caused by the budgeted purchase of copier equipment for the water and sewer departments. The purchase of fixed assets (such as a copier machine) should not be charged to operating costs. I still think that the data processing costs allocated to the sewer treatment plant appear to be excessive and the explanation of the purchase of copier equipment does not change my conclusion. REPLACEMENT. COSTS According to Amy's memo, the City Council adopted the $135,000 as the replacement reserve necessary for the sewer treatment plant. Based on discussion with Amy, the $31,000 amount was the replacement reserve adopted by the City Council when the original sewer plant was constructed in 1082. The new replacement reserve of $135,000 was intended to replace that old amount. This would be a logical explanation of the meaning of the Replacement Cost definition in Appendix B to the interlocal agreement. My calculations below have accepted this amount; however, I believe the definition of Replacement Cost should be clarified by negotiation with the City and a formal amendment made to the interiocal agreement to make it clear that the definition should be this $135,000 plus depreciation on any subsequent additions to the treatment plant. 2 FEB 1 9 1991, EVERGREEN W&S D I S'T 406 756 1598 P. 02 ANNUAL FLOW ESTIMATE Amy's memo includes a memorandum and supporting schedule from the Assistant to the City Engineer stating that the annual flow to the treatment plant has been about 475,000,000 gallons for the past two years. Amy used this amount in calculating the revised rats. We had a long discussion about why I thought that the estimated annual flow used In estimating the rate should also include the estimated flow from the Evergreen District, but 1 am not sure I changed her thinking on this. In summary, my recommendation for the Evergreen District's position on the rate to be charged per thousand of gallons Is as follows: The costs related to the billing function are not reasonable costs of the operation of the treatment plant and the estimated direct costs should be reduced by $33, 703. The data processing costs allocated to the treatment plant still appear to be unreasonable. If a portion* of these allocated costs are for capital outlays (a copier) then these costs should be capitalized and depreciated as specified in the Interlocal agreement. The replacement cost amount should be accepted as being in the spirit of the interlocal agreement. The estimated annual flow amount of 475,000,000 gallons should be adjusted to reflect the estimated additional flow from the Evergreen District of 73,000,000 gallons. The effect of these adjustments is as follows: Direct Costs ................. Indirect Costs ................ Replacement Costs ............ Revised Proposed As Amounts Adjustment Adjusted $541,188 $(33,703)a'`W� $507,485 65,052 (10,000)�- 65,052 135,000_ 135,000 Total ................... 741,240 (43,703) 697,537 Annual Flow (thousands of gallons) 475,000 73 000 548,000 Rate per thousand gallons ..... $ 1.56 $ (0.29) $ 1',27 WE' Lam' FEB 1 S 1".391, 3 M E1fIL,O1hf1A%f,1rr nnr LVERGREEN W&S DIST 406 756 15eB P.03 i COMPARISON TO THE RATES CHARGED TO CITY CUSTOMERS According to Amy, all of the replacement reserves included in the City's sewer rate charge relate to the treatment plant, there are no replacement reserve requirements applicable to the sewer lines. This would change the rate charged to City residents for the treatment plant from my calculation of $0.99 per thousand to $1.07 per thousand. Based on the above, the new rate of $1.27 per thousand gallons would be $0.20 higher than the rate presently being charged to the residents of the City of Kalispell. The explanation for this difference is that the present rates charged to the City's residents were set in 1091, before the new treatment plant became operational. According to Amy, the City is just completing a rate study and expects to propose a significant increase in City sewer rates. Based on the above, it is my conclusion that a rate of $1.27 per thousand of gallons appears to be a reasonable interim rate. The changes that cause this increase from the original estimated rate of $0.99 per thousand gallons are as follows: Original estimated rate .................................. $0.99 Change in estimated annual flow from 642,000,000 gallons to 648,000,000 gallons ............................... 0.17 Increase In replacement costs of $32,800 .................... 0.06 Increase in budgeted costs of $27,392 ...................... .05 Revised estimated rate ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27 I thanked Amy for the information she had furnished me and told her that I would report the results of our discussion and send a copy of her memorandum to the Evergreen District. I asked her what happened next and she stated that she did not know. She did state that the City Manager and the City Attorney were interested In amending the Interlocal agreement to clear up some of the ambiguities in it if you have any questions, do not hesitate to give me a call. Sincerely, �01t,0-4�*N- Ronald Paul 1=oltz Certified Public Accountant Enclosure 4 rE8 1 9 19M FLAWEhti?MY it TC �t�;T=:l� It. .i.:... ii��xMf #A iv 'fit • �� +�. l t�b percentage of the designflow of the Force Main as determined by the Y Engineer at the time of the payment by the City to the District recognizing the specific sewage flows reserved and allocated in the - Force Main to accommodate the volume of sewage flow from the District. Payment for upsizing the Force Main to accomodate the City shall be paid by the City to the District at the time the .. +a ..0.4j•: District is obligated to make construction payments for such to their construction contractor(s). The City and District shall be responsible at the same pro rates percentage said, for the maintenance, repair and replacement of that portion of the Force Main, used by the City, based on volume of flow attributed respectively to the City and the District. The City's portion to be determined after the point of connection to the Force Main to the Treatment Plant. ODOR ABATEMENT The District recognizes the City's concern of the potential for odors at the Treatment Plant where the influent arrives at the end of the Force Main and shall construct odor treatment facilities according to the Best Available Technology. SEWAGE TREATMENT RATE The District hereby agrees to make payments to the City based upon a charge per 1000 gallons of influent sewage treated by the City including the replacement costs, plus monthly charges for capitalization costs. Charges 'shall begin at the time of hook-up and the beginning of discharge to the plant by the District. The charges will be set by the City using formulas established within: Appendix B for treating sewage from the point of entering the Treatment Plant to the point(s) of permitted discharge. The Districts influent volume for payment of treated sewage shall be based upon actual flow of sewage from the District's lift station to the Treatment Plant (See Quantity of Sewage to be Treated). The: basis ,for charges for sewage treatment as set forth in Appendix B (excepting Part II) -,shall be -the same for District's and City users and shall be established yearly by.thi City Council and shall become effective each xTanuary_;.lst. 7 R r'. i APPENDIX B It is understood herein that payment of District monthly charges are for services and rents for Reserve Capacity only. The District has no explicit or implicit claims to treatment plant ownership, discharge permit ownership, rights of administration, management, or supervision, or the expenditure of capitalization or replacement fund monies. BASIS FOR CHARGES TO THE DISTRICT Billing Formula: IMonthly Charge in $ = Sum of Part I and Part II Part I in $/Month = (Use in 1000 of gallons/mo. x rate in $/1000 gallons) Part II in $/Month = (Capitalization Cost in $ x .22*) il,.3 67.0 0 Definitions: Treatment Plant --- the entire facility known as the Kalispell Waste Water Treatment Plant, together with equipment, machinery, and land, appurtenant to and used in connection w/said plant Use --- the District's metered flow of sewage to the Treatment Plant for a month in 1000 of gallons.. Rate --- [(Direct Cost/year + Indirect Cost/year + replacement cost/yr.) divided by (yearly Treatment Plant volume in gallons)] x 1000. Direct Cost --- the actual cost to operate the Treatment Plant. Indirect Cost --- the cost to supervise, administer, manage, insure, and oversee the ownership of the Treatment Plant. Capitalization Cost --- the monthly cost (principal and interest) of debt and capital to own the Treatment Plant. Capital --- the amount of City funds contributed to the Treatment Plant ammortized over the duration of this Agreement at an interest rate commensurate with the City's sewer bond rate. ReplaceMen Cost --- $31,000P,,r* plus the monthly cost of depreciation or replacement based upon a 20 year life for Treatment Plant equipment, appurtenances, and accessories added to the plant. *.22 --- the decimal representing the District's Reserved Capacity. (District's 682,000 gallons/total proposed plant design capacity of 3,100,000 gallons). *$31,000 used in this Agreement for reference purposes only. Final figure will change upon completion of new sewer Treatment Plant. 12 APPENDIX C SURCHARGE TREATMENT RATES Special Treated Sewage: The parties hereto agree and acknowledge that under provisions of the sewage ordinances required by the EPA, recognize that concentrations of BOD and TSS are present in sewage discharge by commercial or industrial users. The District agrees that it shall surcharge users for excessive BOO and TSS concentrations. Where it has been determined that concentrations of BOD and TSS are present in sewage discharged by any user, a surcharge will be determined as follows: The maximum component of sewage is 200 PPM BOO and 250 PPM TSS. A surcharge will be assessed to the District for discharging wastes at the point of entry to the plant, which exceeds the maximum component of sewage as follows: For each 25 PPM HOD above 200 PPM .20 Per M Gallons. For each 25 PPM TSS above 250 PPM $ .17 Per M Gallons. These surcharges are subject to change or modification as may be required by the EPA or City Ordinance. 11; v. .. _ ti ,.. - - - - - - :.,a;