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HomeMy WebLinkAboutItem 06.fJuly 15, 2013 Item No. AUTHORIZE SPRINGSTED TO PREPARE A WATER AND SEWER UTILITY RATE STUDY Proposed Action Staff recommends adoption of the following motion: Move to Authorize Springsted to p repare a water and sewer utility rate stud Passage of this motion will result in Springsted preparing a water and sewer utility rate study. Overview City of Lakeville water and sanitary sewer rates have remained unchanged for the past three years. However, there are a number of cost factors which will necessitate rate increases in 2014. The City has replaced approximately $3.5 million of water mains during the last 2 years in conjunction with the street reconstruction projects. Based on the number and location of recent water main breaks, it is anticipated that approximately $0.7 -1.5 million of water mains will need to be replaced annually for the foreseeable future. M.C.E.S. has indicated that sanitary sewer budget for treatment and disposal of effluent will increase approximately 3.2% for the coming year. City share of cost may vary depending on sewer flows. M.C.E.S. costs represent approximately 80% of sanitary sewer operating costs. Based on the impending cost increases in water and sanitary sewer operations, staff is recommending City Council authorization for Springsted to undertake a rate study. The Springsted fees are $14,250 in addition to out -of- pocket costs; the study would be financed from the Utility Operating Fund. Primaa Issues to Consider see attached res oases to issues • Springsted qualifications • City of Lakeville utility rate structure and history • Utility Fund financial position Sugporting Information • Springsted roposal for Water and Sewer Utility Rate Study Den s Feller r Finance Director Financial Impact $14,250 plus out -of pocket expenses Source: Water and Sewer Operating Fund Related Documents (CIP, ERP, etc.): _ Notes: Primary Issues to Consider (se attached resoonses to issues • Springsted qualifications. The City of Lakeville has utilized Springsted as its fiscal consultant. The firm has extensive experience in providing a utility rate study for other communities including but not limited to Bloomington, Eagan and St Paul Regional Water Services. • City of Lakeville utility rate structure and history. Qu arterly Rate Structure 010 20-1-1 2012 2013 Sewer Residential Charges shall be based on actual water consumption, or the water consumed during the first quarter of the year, whichever is less. Basic charge per dwelling unit - minimum 5 thousand gallons Rate per thousand gallons $ 6.25 $ 6.25 $ 6.25 $ 6.25 $ 2.99 $ 3.08 $ 3.08 $ 3.08 8 arn mercm Industrial and Institutional Basic charge per account $ 6.25 $ 6.25 $ 6.25 $ 6.25 Rate per thousand gallons $ 2.99 $ 3.08 $ 3.08 $ 3.08 Wager Residential Basic charge per dwelling unit Consumption a) Tier 1 - first 30 thousand gallons b) Tier 2 - 30 to 49 thousand gallons c) Tier 3 - excess of 50 thousand gallons $ 3.60 $ 3.60 $ 3.60 $ 3.60 $ 0.79 $ 0.85 $ 0.85 $ 0.85 $ 1.24 $ 1.34 $ 1.34 $ 1.34 $ 2.00 $ 2.30 $ 2.30 $ 2.30 Commercial. Indus trial and Institutional Basic charge per account Consumption a) Tier 1 - first 30 thousand gallons b) Tier 2 - excess of 30 thousand gallons $ 3.60 $ 3.60 $ 3.60 $ 3.60 $ 0.79 $ 0.85 $ 0.85 $ 0.85 $ 1.24 $ 1.34 $ 1.34 $ 1.34 Irrigation sprinkler accounts Bulk water accounts $ 2.00 $ 2.30 $ 2.30 $ 2.30 $ 2.60 $ 2.60 $ 2.60 $ 2.60 2 Financial position CITY OF LAKEVILLE, MINNESOTA STATEMENT OF NET POSITION - UTILITY FUND DECEMBER 31, 2012 Non - current assets Utility ASSETS 369,955 Current assets 528,160 Cash and investments $ 8,908,539 Interest receivable 50,009 Accounts receivable 2,552,847 Inventory 129,690 Prepaid expenses 13,500 Total current assets 11,654,585 Non - current assets 40,381 Capital assets 369,955 Land 528,160 Buildings and improvements 22,041,706 Machinery and equipment 2,136,623 Infrastructure 124,861,812 Construction in process 1,623,880 Accumulated depreciation (50,090,200 Total non - current assets 101,101,981 Total assets 112,756,566 LIABILITIES Current liabilities Salaries payable 40,381 Accounts payable 369,955 Contracts payable 147,009 Deposits payable 5,900 Accrued compensated absences 127,874 Total current liabilities 691,119 Non - current liabilities Accrued compensated absences 73,481 Net OPEB obligation 20,171 Total non - current liabilities 93,652 Total liabilities 784,771 NET POSITION Net investment in capital assets 101,101,981 Unrestricted 10,869,814 Total net position $ 111,971,795 3 CITY OF LAKEVILLE, MINNESOTA STATEMENTOF REVENUES, EXPENSES AND CHANGES IN NET POSITION - UTILITY FUND YEAR ENDED DECEMBER 31, 2012 Non - operating revenue (expense) Intergovernmental - grants COtility Operating revenues 51,564 User charges $ 9,356,521 Other 180,785 Total operating revenues 9,537,306 Operating expenses 29,395 Personnel services 1,711,932 Commodities 387,863 Other charges and services 2,200,264 Disposal charges 2,950,600 Depreciation 3,116,774 Total operating expenses 10,367,433 Operating income (loss) (830,127 Non - operating revenue (expense) Intergovernmental - grants 98,398 Investment income 51,564 Disposal of capital assets 4,978 Total non - operating revenue (expense) 154,940 Income (loss) before contributions and transfers (675,187) Contributed capital from governmental activities 29,395 Contributed capital from developers 2,903,043 Transfers from other funds 3,122 Transfers to other funds (579,258) Total contributions and transfers (net) 2,356,302 Change in net position 1,681,115 Net position, January 1 110,290,680 Net position, December 31 $ 111,971,795 4 AGREEMENT FOR MANAGEMENT CONSULTING SERVICES THIS AGREEMENT is made as of the 15 th day of , 2013, by and between the City of Lakeville, Minnesota ( "Client ") and Springsted Incorporate ( "Consultant "). WHEREAS, the Client wishes to retain the services of the Consultant on the terms and conditions set forth herein, and the Consultant wishes to provide such services; NOW, THEREFORE, the parties hereto agree as follows: 1. Services Consultant shall provide management consultant services to the Client with respect to a Water and Sewer Utility Rate Study. The scope of services to be provided is set forth in the Appendix A attached hereto. 2. Compensation The Client shall compensate the Consultant at the rates set forth in Appendix A attached hereto. 3. Term and Termination This Agreement shall commence as of the date hereof, and shall continue until terminated by either party by written notice given at least 60 days before the effective date of such termination, provided that no such termination shall affect or terminate the rights and obligations of each of the parties hereto with respect to any project, whether or not complete, for which the Consultant has provided services prior to the date that it received such notice. 4. Indemnification: Sole Remedy The Client and the Consultant each hereby agree to indemnify and hold the other harmless from and against any and all losses, claims, damages, expenses, including without limitation, reasonable attorney's fees, costs, liabilities, demands and cause of action (collectively referred to herein as "Damages ") which the other may suffer or be subjected to as a consequence of any act, error or omission of the indemnifying party in connection with the performance or nonperformance of its obligations hereunder, less any payment for damages made to the indemnified party by a third party. Notwithstanding the foregoing, no party hereto shall be liable to the other for Damages suffered by the other to the extent that those Damages are the consequence of: (a) events or conditions beyond the control of the indemnifying party, including without limitation changes in economic conditions; (b) actions of the indemnifying party which were reasonable based on facts and circumstances existing at the time and known to the indemnifying party at the time the service was provided; or (c) errors made by the indemnifying party due to its reliance on facts and materials provided to the indemnifying party by the indemnified party. Whenever the Client or the Consultant becomes aware of a claim with respect to which it may be entitled to indemnification hereunder, it shall promptly advise the other in writing of the nature of the claim. If the claim arises from a claim made against the indemnified party by a third party, the indemnifying party shall have the right, at its expense, to contest any such claim, to assume the defense thereof, to employ legal counsel in connection therewith, and to compromise or settle the same, provided that any compromise or settlement by the indemnifying party of such claim shall be deemed an admission of liability hereunder. The remedies set forth in this paragraph shall be the sole remedies available to either party against the other in connection with any Damages suffered by it. H SPRINGSTED Page 1 5. Confidentiality; Disclosure of Information Client Information All information, files, records, memoranda and other data of the Client which the Client provides to the Consultant or which the Consultant becomes aware of in the performance of its duties hereunder ( "Client Information ") shall be deemed by the parties to be the property of the Client. The Consultant may disclose the Client Information to third parties in connection with the performance by it of its duties hereunder. Consultant Information The Client acknowledges that in connection with the performance by the Consultant of its duties hereunder, the Client may become aware of internal files, records, memoranda and other data, including without limitation computer programs of the Consultant ( "Consultant Information "). The Client acknowledges that all Consultant Information, except reports prepared by the Consultant for the Client, is confidential and proprietary to the Consultant, and agrees that the Client will not, directly or indirectly, disclose the same or any part thereof to any person or entity except upon the express written consent of the Consultant. 6. Miscellaneous. Delegation of Duties. The Consultant shall not delegate its duties hereunder to any third party without the express written consent of the Client. No Third Party Beneficiary. No third party shall have any rights or remedies under this Agreement. Entire Contract: Amendment This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior written or oral negotiations, understandings or agreements with respect hereto. This Agreement may be amended in whole or in part by mutual consent of the parties, and this Agreement shall not preclude the Client and the Consultant from entering into separate agreements for other projects. Governinq Law This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. Severabilitv To the extent any provision of this Agreement shall be determined invalid or unenforceable, the invalid or unenforceable portion shall be deleted from this Agreement, and the validity and enforceability of the remainder shall be unaffected. Notice All notices required hereunder shall be in writing and shall be deemed to have been given when delivered, transmitted by first class, registered or certified mail, postage prepaid and addressed as follows: If to the Client: If to the Consultant, to: Springsted Incorporated 380 Jackson Street Suite 300 St. Paul, MN 55101 -2887 Attention: Managing Principal rd SPRINGSTED Page 2 The foregoing Agreement is hereby entered into on behalf of the respective parties by signature of the following persons each of whom is duly authorized to bind the parties indicated. FOR CLIENT SPRINGSTED Incorporated Tale Title 0 SPRINGSTED Page 3 APPENDIX A OF AGREEMENT BETWEEN City of Lakeville, Minnesota AND Springsted Incorporated Effective as of July 15, 2013 INSERT PROPOSAL TO CITY OF LAKEVILLE, MINNESOTA rd SPRINGSTED Page 4 This Appendix is acknowledged to be a part of the Agreement, effective as of the date shown above, between the Client and the Consultant. FOR CLIENT SPRINGSTED Incorporated Title Title ® SPRINGSTED page 5 APPENDIX A 0 SPRINGSTED Page 6 Water and Sewer Utility Rate Study City of Lakeville, Minnesota Work Plan July 2013 Objective(s) The purpose of this study is to assist the City of Lakeville in evaluating its cost of providing water and sanitary sewer services to determine the appropriate level of user fees that will provide adequate cash flow to pay for 1) utility capital improvements and asset replacement; 2) anticipated future operating and maintenance expenses; 3) debt service including principal and interest; and 4) provide adequate cash reserves. In addition, there is a need to provide alternatives for the financing of ductile iron water main replacement that will minimize the impact on water rates. Our approach is outlined below: Task 1 Review Background Information ➢ Review background information for each utility ➢ Review the City's current policies, goals, and objectives for each utility ➢ Review historical financial information, volumetric rates, system development fees and other fees and charges that provide sources of revenue for each utility ➢ Review historical trends in revenues, expenditures and ending cash balances for each utility ➢ Review projected maintenance repair or replacement costs of sewer and water assets ➢ Review any current allocation of costs to functional cost components and to rates and charges for each utility ➢ Review current and historical billing data for each utility Review current funding practices, funding sources and policies related to financing capital improvements ➢ Review the capital improvement program for each utility identifying the sources of funding for each improvement ➢ Review any existing debt service coverage requirements for both senior and subordinate debt and the impact of adding additional debt to finance new capital improvements for each utility ➢ Review the City's existing ordinances, policies and practices related to user fees, system development fees and other charges for utility services ➢ Review the historical growth of the customer base and projections for anticipated growth in each utility Review any asset management plans for each utility ➢ Review any engineering studies, cost of services studies and other relevant studies related to the utilities City of Lakeville, Minnesota Water and Sewer Utility Rate Study July 2013 Page 2 Task 2 Analyze information and develop a baseline scenario cost of service analysis for each utility ➢ Analyze the information to identify any omissions and/or inconsistencies and collect additional information, as needed ➢ Develop projected customer growth and future service demands ➢ Develop a Microsoft® Excel 2010 based financial rate model that establishes financial planning, cost of service, and rate procedures. The model will identify the overall change in revenue required to provide for adequate funding for major capital improvement programs, to meet all recurring annual operating and capital expenditures, to cover all debt service requirements, to comply with any revenue bond covenants, and to maintain sufficient cash balances and capital reserves for the utility. The projections will be made using an income statement approach and will include a yearly cash flow analysis. ➢ Develop a 5 -year forecast of revenues and expenditures for each utility to determine the adequacy of revenues provided by existing rates Review the background information and cost of service analysis for each utility with the City staff in a workshop session Task 3 Conduct Rate Study for the Water and Sewer Utilities ➢ Develop a financial projection for each utility that integrates all anticipated revenue sources, including interest on the cash balance, anticipated operating expenditures including existing and projected new depreciation, anticipated capital expenditures, existing and projected debt service and changes in the customer base over the planning period - Develop recommendations for financing anticipated capital improvements including the replacement of ductile iron water mains — Develop recommendations for cash reserve balances Identify the revenue required to provide for adequate funding for major capital improvement programs, to meet all recurring annual operating and capital expenditures, to cover all debt service requirements, to comply with any existing revenue bond covenants, and to maintain sufficient cash balances and capital reserves for each utility. The projections will be made using an income statement approach and will include a yearly cash flow analysis Develop preliminary rate structures for each utility that provides revenue recovery at levels necessary to support the Utility's operation as defined above. Rate structures will take into consideration the following: o Current and future cost of providing water and sewer services in accordance with established and anticipated standards and regulations Projected demand • The need to fund both long -term capital improvements and replacements and annual capital reinvestment • Funding requirements for all current and projected long -term liabilities and debt obligations (bonds and loans) • Maintenance of water and sanitary sewer mains • Perform a sensitivity analysis to illustrate the impacts of adverse assumption changes (e.g. future growth, operating costs, capital costs) City of Lakeville, Minnesota Water and Sewer Utility Rate Study July 2013 Page 3 °- Compare the proposed fees and charges to the current rates, fees and charges for each utility Prepare sample bills for up to 12 customers from representative customer classes, comparing existing rates and charges to proposed rates and charges Prepare a comparison of the proposed utility rates with those of neighboring cities Task 4 Prepare Draft Memorandum of Findings ➢ Springsted will prepare a Draft Memorandum of Findings that will contain our preliminary findings and recommendations. We will submit twelve bound copies and an electronic copy in PDF format to the City of Lakeville. ➢ Review the Draft Memorandum of Findings with City staff in a workshop session. Springsted will modify or change the Draft Memorandum of Findings incorporating the City staff s comments as appropriate. Task 5 Present Memorandum of Findings ➢ Springsted will prepare a Final Memorandum of Findings that will contain our findings and recommendations. We will submit twelve bound copies and an electronic copy in PDF format to the City of Lakeville. We will present the Final Memorandum of Findings to the City in a workshop session Compensation We propose to complete the Water and Sewer Utility Rate Study as described in this proposal for a professional fee of $14,250 excluding out -of- pocket expenses such as mileage and copies. We will complete the project within 6 -8 weeks of receiving the notice to proceed provided that all necessary information can be obtained in a timely manner and provided that City Staff are available for necessary meeting in accordance with the schedule Springsted would invoice for the work based on the schedule shown in the table below. - , - Cumulative Percentage Percentage T of Invoic _ I Invoiced - - - Completion of Task 2 15 % ®/Q Completion of Task 4 75% 90% Completion of Task 5 10% 1 100% Should the City of Lakeville request and authorize additional work outside the scope of services described in this proposal we would invoice the City at either our standard hourly fees or at an agreed upon fee based on the additional scope requested. Additional work includes work outside the scope of services as described in this work plan including, but not limited to: Work related to a special request Additional on -site meetings City of Lakeville, Minnesota Water and Sewer Utility Rate Study July 2013 Page 4 Title _ _ hate Principal & Senior O fficer � -_� - $220 Project Coordinator & Assistant Vice President $190 i Analyst _ $155 Associate $145 support Staff $65