HomeMy WebLinkAboutMinutes Water Resources Advisory Committee - 02/09/2007 SO31 "
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Water Resources Advisory Committee to 49t,��?Q,0,
11:30 a.m. — February 9, 2007 `a �tep `,
Water Department Conference Room C4, 06414%
APPROVED MARCH 29, 2007
Members present: Carola Serrato-Chair, Lena Coleman, Jon Kiggans,cMary Fant,
Ruth Blake and Frank Brogan
Members absent: Capt. Timothy E. Coolidge, Kimberly Stockseth, Herman
Johnson (resigned)
Staff Present:
Ron Massey, Assistant City Manager
Eduardo Gararia, P. E. Director of Water
Danny Ybarra, P.E. Assistant Water Director
Gary Smith, Assistant City Attorney
Max Castaneda, Water Resources Management Advisor
Mucio Garza, P.E. Water System Optimizer
Ivan Luna, Business Practices Manager
Yolanda R. Marruffo, Public Relations and Marketing Coordinator
Steve Klepper, Wastewater Administration Superintendent
Visitors:
Tony Bagwell, HDR
Carl Crull, HDR,
Mark Stroop, Naval Air Station
Mrs. Carola Serrato called the meeting to order at 11:40 a.m.
I. Mrs. Serrato allowed for everyone to introduce themselves and welcomed Ruth
Blake and Frank Brogan.
II. Approval of Minutes
Mrs. Serrato requested that the minutes of January 18, 2007 be reviewed at a
subsequent meeting since there was insufficient time to review them and also to
provide the consultant sufficient time to complete their presentation.
III. Presentation on the Utility Rate Study
Mr. Massey stated that a previous water rate presentation had been made to the
Committee by HDR. At this point, the consultant has reviewed the expenses
associated with the water system and water use data. HDR will explain the
conceptual framework on how the rate structure needs to be adjusted. This
meeting will show conceptual framework. Within 30 days we will review actual
numbers that go with the framework such as cost to produce raw and treated water
and transport treated water. The City Council was previously briefed on January 23,
2007; however, today's presentation identifies greater detail as to the progress
made by the HDR.- Mr. Massey introduced Tony Bagwell who discussed the
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philosophy of setting rates and how allocations will be made. Mr. Bagwell stated
that the purpose of the meeting was to discuss various concepts related tothe
definition of customer classes, cost of service, and cost allocation that lead to a
determination of whether utility revenue requirements are appropriately distributed
to customer classes.
The major steps in a rate study are to assess existing customer use patterns;
evaluate "base year" utility costs and revenue; forecast service demand; forecast
utility capital and O&M expenses to "test year" and beyond; identify future utility
revenue requirements; allocate revenue requirements to customer classes; and
develop a proposed rate structure and pricing levels for each customer class.
Mr. Bagwell identified three key issues including cost of service relating to facilities
used and geographical location of customers; rate of return on equity; and
customer classes and rate components. Secondly, cost allocations for
administrative and direct administrative costs, storm water costs and other costs.
Finally, the rate design to evaluate block versus uniform rate structures and
determine how costs are allocated based on users of the system.
Utility direct and indirect costs are charged directly to the utility, as well as costs for
administrative structure such as Mr. Massey's office. The water administration cost
is a direct cost to the utility. An issue of debate is how storm water costs will be
paid for and charged to only inside city limit residents. HDR studied block rate
structure verses uniform rate structure.
The cost of service is based on where customers are located and how they use the
water system. In the Corpus Christi water system, some wholesale customers only
use raw water by pumping water directly from the reservoir or from the Mary
Rhodes Pipeline. Other wholesale customers access both the raw water and City's
treatment service. Other wholesale customers use the raw water, treated water
system and what we refer to as the "network". This is the major infrastructure that
transfers water throughout the system that includes pipelines, pumping stations and
storage and gets water delivered throughout the system. It does not include the
neighborhood lines, but it includes major infrastructure. Some of that infrastructure
is being used to deliver water clear across town. And finally, we have retail
customers who use the entire water system such as raw water, treatment, major
pipelines and distribution lines to get water to their location.
Based on geographical location, some customers are referred to as inside and
outside city limit status with terms such as ICL and OCL. It is a standard AWWA
practice that guides for setting inside and outside city rights. It distinguishes many
other business arrangements in the United States between owners and non owners
of the system. It's stated that basically, entities that own a utility system can charge
a rate of return to non-owner customers similar to any business which equates to a
profit. It is a standard practice accepted nation-wide.
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Mrs. Serrato asked if inside and outside city limit is based specifically from the point
of taking the water. Mr. Bagwell stated that the City's corporate boundaries
determines inside and outside city limit. Citizens within the city limits are the
owners of the water system. People outside the city limits are not.
Another distinguishing characteristic is the facilities used by the various user
groups and the extent of facilities that they are using. Mr. Bagwell referred to a
slide presentation.
Mr. Bagwell stated that part of the study was to determine the usage of water by all
customers, which is fairly complex. The water system cost was broken down with
and without a return on equity. Cities of Mathis, Beeville and Alice utilize a rate
system identified as "composite rate customers". By contract, their methodology
goes back to review costs for the previous year, where other customers utilize the
current year expenses for setting its rate structure. Then we have raw water with a
return on equity where we are looking forward instead of backwards.
In other areas of the system, there are different pieces that have a cost associated
to them and in many cases; it is being used by inside and outside city limit. So,
there are components with and without a rate of return on equity.
Finally, the retail customers consist of inside and outside city limits. The consultant
will review the location of each of its customers, facilities used and contract terms
to be able to create distinctions in customer classes. In developing the numbers
that go with the concepts, our rate models are developing into pieces that can be
applied to a rate service and the revenue requirements recovered from each of
these groups.
This is a HDR concept, which we were asked to look at as an unbiased rate
consultant. Mr. Massey stated the City Council was briefed on a broad sense on
the progress of the rate study. He stated that the City Council has not seen this
level of detail, but they were asked to coordinate with the stakeholders to obtain
their comments and see what everyone has to say.
Mr. Bagwell stated that HDR had been asked to examine common costs for the
Utility Business Office that bills water and wastewater costs and whose costs
should be spread more broadly to other utilities in addition to just water. Mr.
Bagwell stated that he is working with the City to determine appropriate allocations.
One of the impetuses that gave rise to the study is the City's concern on how storm
water costs are recovered. The costs are not included in the raw water rate. It is
included in the treated water rate. Ideally, storm water should be funded by its own
revenue source. If the City continues to fund storm water with water revenue then
HDR would recommend that it be assigned to the inside city limit retail customers
only.
The City is also incurring costs that are not being charged to the raw water
customers such as capital financing costs. The general fund transfers are
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supportable. Recent cost allocations of various expenses from the City Manager to
City Attorney's office do support the water utilities thus appropriate charges for
services rendered.
Rate structures can also promote water conservation and be adjusted for low-
income groups.
The different rates also offer rate stability. During wet years, cities are unable to
recover their costs. An ideal thing when designing a rate is to find a happy median
to stabilize revenue. Strictly speaking, every customer has a different cost of
service based on different variables, i.e. closeness to a water treatment plant,.etc.
However, the city cannot calculate a rate for every single customer; therefore,
customers are set into various classes. The cost to administer the rate study has to
be feasible for the city. It is important to be able to explain the rate structure easily
to the public.
Different customer classes are created based on whether they create a peak on the
system and whether the customer class is homogeneous. The first group is
residential, multi-family and irrigation generally peak on the system. They have
outdoor landscaping, create high demand during dry weather and the city must
build peak water treatment capacity.
Commercial customers tend not to peak as much; however they can differ in that
one has a parking lot and the other has a parking lot with landscaping. The water
usage will vary based on the businesses located there. It is difficult to create block
rate structure when one customer uses 100% of its water indoor while the next
business uses 100% of its water outdoors.
Industrial is basically flat water usage for cooling, process use or domestic use.
For these last three categories, it is difficult to utilize an increasing block rate or
decreasing block rate that charges higher rates based on usage because they are
using water for different reasons. The City cannot determine what occurs behind
the meter to distinguish the usage of its water in each of the categories. In the
case of residential, that is usually not the case. The city knows what is going on
behind the meter with regards to water use.
Mrs. Serrato asked if HDR was not making a recommendation to tie the last three
categories to a peaking rate. Mr. Bagwell stated that HDR would not be
recommending having a peaking factor in the rate.
Discussion followed on designing rates to charge wholesale customers for peaking
cost. For example, the City of Dallas has contract provisions to allow such costs.
Corpus Christi currently has a declining.block rate structure which reduces the cost
of water as usage increases. HDR is recommending that the City eliminate this
practice as it is frowned upon by the state and may result in future regulatory
funding problems. HDR has examined the customer use patterns indicating that
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they are not relevant as large customers quickly move to the top or the highest tier
of the rate structure and stay there for the remaining portion of the month. The
largest volume tier is the cheapest price. Most of the customers are there within
one or two days.
HDR reported that water use patterns were downloaded from the utility billing
system to determine the residential water use per connection. Seasonal water use
curves indicate that people don't tend to use as much water for irrigation during
winter months. Residential peak time use occurs from June through August.
A comparison of winter to summer water use reflects a peaking factor of about 2
times higher. If peak seasonal use did not occur, the city could possibly bill for half
as much treatment. A great deal of infrastructure is invested to provide peak water
demand.
Mr. Bagwell stated that they have conducted rate studies throughout Texas and a
pattern of average household use during the summer time is typically between
12,000 to 15,000 gallons a month per connection; where as, customers are
irrigating lawns under the first pricing tier.
Mrs. Serrato asked if the City would be eliminating the minimum of 2,000 gallons
and applying a flat rate beginning at zero gallons and if readings were based on
tens or hundreds of gallons. Mr. Bagwell stated that Council would have to
consider the policy issue. Typically, fixed income households pay the minimum
charge. Mr. Massey stated that meter readings are measured in thousands of
gallons.
Mr. Bagwell advises cities to set the minimum charge as high as possible with
consideration of low and fixed income customers and recover the remainder of that
revenue in the volume rates.
Water consumption in apartments indicated an average of 4,000 to 5,000 gallons
per dwelling unit. Therefore, HDR is not recommending a block rate for this class.
Apartments have a separate water meter designated for the common irrigation
area, laundry rooms orfor the recreation room. There is no reason to place a
pricing block for water used inside, but to promote efficient water use. The City
may consider setting the uniform rate at the second tier of the residential rate. For
irrigation meters, which cause peak in the water system, the price may be set at the
higher rate class.
Mrs. Coleman asked if apartment residents are given any cost considerations at
this time. Staff stated that there are no special considerations for individuals on
fixed income and their only tool is to control their use. The minimum water charge
of 2,000 gallons gives them something to budget for.
Mrs. Serrato stated that no action was needed from the Committee other than to
gather thoughts on what to direct to the City Council. Mr. Massey reported that
HDR would provide an additional presentation to the Committee to address actual
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costs and he is sure that the City Council will consider the fairest way to address
households with a fixed income. He further stated that HDR would be working to
make a smooth transition in the rate structure, which would be a challenge. It is
staffs intention to recommend to Council to adopt the new rate structure before
August 1, 2007; however, based on the swing of the new rates, it may have to be
phased in. Mr. Massey stated that staff is having discussions on financing the cost
of storm water management.
Mrs. Serrato asked if any Committee members had any questions to direct to the
consultant. Mr. Kiggans asked when the figures would be presented in order to
analyze the impact to consumers. Mr. Massey stated that their timetable was set
for March 2007. Mr. Massey stated that it would not necessarily be the proposed
rate, but the expected rate based on alternative considerations.
Mr. Bagwell stated that members of the Committee and Stakeholder groups should
understand the concept first prior to reacting to numbers. The policy issues will be
evaluated based on the emerging numbers. The Council wants to know what our
customers have to say about it.
Mrs. Blake stated that there was no mention of winter water averaging and asked if
it was being eliminated. Mr. Bagwell stated that HDR was not doing the waste
water rate study. Mr. Massey stated that the study does not address winter water
averaging. The consultant's work focused on analyzing water rates and no
changes are planned for the winter water averaging policy.
Mrs. Serrato stated that she would like to have discussion on rate of return and
inside vs. outside city limit. She stated that she would reserve that until actual
numbers are brought to the Committee.
With no further business, the meeting was adjourned at 1:00 p.m.
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