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HomeMy WebLinkAboutMinutes - Minutes - Citizens Utility Advisory Commission - Meeting Date: 5/3/2017r'616. Citizens Utility Advisory GLIN-W Commission City of Glendale Citizens Utility Advisory Commission Oasis Water Campus 7070 W. Northern Avenue May 3, 2017 6:00 P.M. FINAL MINUTES I. CALL TO ORDER Chair Jonathan Liebman called the meeting to order at 6:00 p.m. II. ROLL CALL Present: Chair Jonathan Liebman, Vice Chair Ron Short, Commissioners: Amber Ford, Robert Gehl, and Robin Berryhill. Commissioner Ruth Faulls arrived after the Roll Call. III. APPROVAL OF MINUTES OF THE PREVIOUS MEETING Motion by Commissioner Gehl, second by Commissioner Ford, to approve the April 5, 2017 meeting minutes as written. Motion carried 5 0. [Commissioner Faulls was not yet present.] IV. DIRECTOR'S REPORT Craig Johnson, P.E., Water Services Director, presented information to the Commission, which included the following: • Agenda Item V. has been posted as "For Information and Discussion" and therefore no action will be taken at this meeting, but the topic will be slated for action on the May 10, 2017 Commission agenda. • Ms. Sally Melling has retired. Ms. Denise Kazmierczak is her replacement for taking the Commission meeting minutes. • Ms. Kerri Logan has returned as Deputy Director. • Ms. Katrina Alberty has come on board to fill the vacancy left by Ms. Amanda McKeever. • At the April 5, 2017 Commission meeting, Public Works briefed the Commission on their financial rate structure and has agreed to the two options they recommended to move forward to City Council. • This evening, Mr. Rick Giardina from Raftelis will present the Water Services financial plan, cost of service, and rate design update. • The goal for this evening is to present the financial plan and discuss two options that meet the future revenue requirement needs for the next five years. Next Wednesday, May 10, 2017, a draft public participation plan will be presented to the Commission and the Commission will be asked for a recommendation on a financial plan to present to the Council at their Workshop on June 6t`. • At the City Council Workshop on June 6t', Public Works and Water Services will present an update on the associated recommendations for the rate adjustments and the draft public involvement plan, which will take place in July. May 3, 2017 Citizens Utility Advisory Commission Final Minutes Page 2 [Commissioner Faulls entered the meeting during the Director's Report.] V. WATER SERVICES RATE STUDY FINDINGS AND PROPOSED RECOMMENDATIONS Information was provided by Mr. Rick Giardina, Raftelis Financial Consultants; Mr. Craig Johnson, P.E., Water Services Director; and Ms. Vicki Rios, Budget and Finance Director. Mr. Giardina distributed the following detailed financials/pro-formas: • Water & Sewer Funds — Six Year Financial Plan Revenue and Expenditure Assumptions — Baseline (no change in rates) For the Fiscal Years 2016-2017 through 2021-2022 • Water & Sewer Funds — Six Year Financial Plan Revenue and Expenditure Assumptions — Option 1 For the Fiscal Years 2016-2017 through 2021-2022 • Water & Sewer Funds — Six Year Financial Plan Revenue and Expenditure Assumptions — Option 2 For the Fiscal Years 2016-2017 through 2021-2022 Mr. Giardina gave a detailed financial presentation; highlights noted below: Financial Plan, Cost of Services, Rate Design Study Update • Utility Rate Study — A 3 -Step Process o How much is needed? - Financial Plan o Is each customer paying their share? - Cost of Service o How should customers pay? - Rate Design • 1. Financial Plan o Utility Financial Planning ■ Cost increases primarily driven by infrastructure reinvestment, regulatory, and expansion -related capital needs. ■ Revenues based on user charge, customer accounts, and growth projections. ■ Financial policies can help guide the balancing process. o Financial Targets ■ Legal Requirements regarding Debt Service Coverage and other Self -Imposed financial metric targets were presented. o How should capital improvements be financed? ■ 100% Pay -Go or cash financing ■ 100% debt financing ■ Combination of the two ■ Considerations: debt policies, required rate adjustments, project frequency, and magnitude of cost o Financial Plan ■ Option 1 and Option 2 for FY17-18 through FY21-22 — Charts displayed for the following: • % Revenue Increase (water -sewer) o Option 1 increases: ■ FY17-18: 8% water, 7% sewer ■ FY18-19: 8% water, 7% sewer May 3, 2017 Citizens Utility Advisory Commission Final Minutes Page 3 ■ FYI 9-20: 5% water, 5% sewer ■ FY20-21: 5% water, 4% sewer ■ FY21-22: 5% water, 4% sewer o Option 2 increases: ■ FYI 7-18: 13% water, 7% sewer ■ FYI 8-19: 5% water, 5% sewer ■ FY19-20: 5% water, 5% sewer ■ FY20-21: 5% water, 5% sewer ■ FY21-22: 5% water, 5% sewer • Average Monthly Combined Bill — Current $66.69 o Option 1 ■ FY17-18: $71.71 ■ FY18-19: $77.11 ■ FY19-20: $80.96 ■ FY20-21: $84.63 ■ FY21-22: $88.47 o Option 2 ■ FY17-18: $73.46 ■ FY18-19: $77.13 ■ FY19-20: $80.99 ■ FY20-21: $85.04 ■ FY21-22: $89.29 o Financial Metrics ■ Option 1, Option 2, Target, and Baseline for FY2017-FY2026 — Graphs displayed for the following: • Debt Service Coverage (including Legal Minimum) • Days Cash on Hand • Unrestricted Reserve as % of Operations and Maintenance (O&M) • Debt to Operating Revenue • 2. Cost of Service (COS) — Detailed charts displayed for the following: o Water COS Results ■ FY2017 Current Year • Required Change o Single Family -4.7% o Multi Family -6.7% o Commercial -1.5% o Sprinkler +19.9% o Outside City +6.2% • Option 1— FY2022 Test Year o Single Family +25.9% o Multi Family +23.7% o Commercial +29.5% o Sprinkler +57.6% o Outside City +39.8% o Sewer COS Results 0 FY2017 Current Year May 3, 2017 Citizens Utility Advisory Commission Final Minutes Page 4 • Details for Residential, Commercial Groups 2 through 11 and Outside City Option 1— FY2022 Test Year • Details for Residential, Commercial Groups 2 through 11 and Outside City • 3. Rate Design o Current Water Rate Structure ■ Customer Classes ■ Fixed Charges ■ Volume/Usage Rate — per 1,000 gallons o Rate Design Options ■ Across -the -Board (ATB) Increases = to the % Revenue Increase ■ Cost of Service (COS) • Immediate • Transition ■ Structure Changes Based on Pricing Objectives Exercise o Water FY2018 Rate Alternatives ■ Charts for Across the Board, Cost of Service, 5 -Year COS Transition rates were displayed for water line size, single family and multi -family, commercial and sprinkler seasonal. o Current Sewer Rate Structure ■ Customer Classes ■ Fixed Charges — Usage Rates ■ Volume Rates o Sewer FY2018 Rate Alternatives ■ Charts for Base Charge Inside City and Outside City and Volume Charge for Residential and Commercial were displayed for Across the Board, Cost of Service and 5 -Year COS Transition • Pricing Objectives o What do we want to accomplish through our rates? o Mr. Giardina commented that due to time constraints, this discussion could be held at a later date. Slides were included in the Commission packet. Mr. Giardina commented that Option 1 and Option 2 of the proposed increases both meet the department's capital needs but in different ways. Option 2 generates more revenue in the first year, while Option 1 is more even over the five-year period. Mr. Giardina noted that Option 1 and 2 have basically the same impact to the customer. Mr. Giardina noted that the Financial Metrics indicate that the rates cannot remain as they are currently. The department has a very large CIP plan over the next several years which will require debt to accomplish; therefore, a strong Debt Service Coverage ratio is necessary for the best debt rates. Commissioner Faulls questioned the use of 116,000 gallons per year for average customer use and $66.69 as the average customer bill. Commissioner Faulls stated that her bill is higher and that the public will question this data as well. May 3, 2017 Citizens Utility Advisory Commission Final Minutes Page 5 Commissioner Berryhill stated that the development of commercial properties will increase drastically over the next few years and wondered if that was considered in the analysis. Mr. Giardina replied in the positive, noting that growth projections were included in the review. Mr. Johnson noted that the Cost of Service adjustment does not have to implemented all in one year, but could be done transitionally. Mr. Johnson stated that a Cost of Service study has not been conducted for a few years, so this study was very beneficial. Mr. Johnson wanted the Commissioners to feel comfortable in their recommendations to Council. Commissioner Berryhill inquired as to the proposed rate increases for FY22-23 and beyond. Mr. Giardina indicated that they did not extend the rate increases to those out years, however, he would suspect some sort of increase. Commissioner Berryhill thought that rates were not going to be raised suddenly. Mr. Johnson explained that the City held off raising rates in 2010 and the CIP was slowed down, which help to build cash flow. Mr. Johnson added that this proposed financial plan allows the department to move forward with necessary CIP projects and to make financial adjustments which will put the City in a good position for bonding in the next few years. Vice Chair Short inquired if the Commissioners received a list of the proposed CIP projects with cost estimates. Mr. Johnson replied that the CIP list was previously provided to the Commissioners, and he will send another copy. Commissioner Berryhill inquired if there was a catastrophic failure fund for the department. Mr. Johnson replied in the positive and explained the reserves and contingency funding. Mr. Giardina asked if the Commission would generally be in support of the two Options. Chair Liebman replied the public would not be pleased with either immediate increase of 8% or 13%. Mr. Giardina relayed that the actual dollar impact is not as large as the percentage increase may be perceived. Mr. Giardina added that the rates have not been changed since 2010. Mr. Giardina stated that, even with the proposed increases, the City would be in line with other valley cities. Commissioner Faulls asked for clarification that Option 1 and Option 2 are the Across the Board increases and Mr. Giardina replied in the positive. Chair Liebman opined that maybe the Cost of Service commercial rates should be higher than residential rates. Mr. Giardina replied that the commercial Cost of Service rate was basically in line with current usage. Commissioner Gehl asked for clarification regarding the Across the Board increase versus the Cost of Service increase. Mr. Giardina explained the determination to be made is regarding what increase in revenues is the Commission comfortable with in order to maintain a stable utility and how will this be achieved. Mr. Giardina added that the Commission does not have to choose between Options 1 and 2, and could recommend both Options to Council. Mr. Giardina noted that the Commission could recommend that no matter what Option Council chooses, the Commission would like the increase to be based on Across the Board or Cost of Service. Mr. Johnson noted that public comments will be garnered in July and provided to Council at the Workshop on August 15th. Mr. Johnson stated that a two-year increase would be proposed and reviewed for decisions May 3, 2017 Citizens Utility Advisory Commission Final Minutes Page 6 on rates for FY19-20, FY20-21, and FY21-22. Mr. Johnson relayed that a two-year rate increase would position the department for optimal bonding needs. Vice Chair Short inquired if Mr. Johnson was comfortable with either of the Options. Mr. Johnson replied in the positive, highlighting Option 1, but noting that both achieve the necessary revenue requirements. Mr. Johnson stated that the utility needs this injection of funds to get the program where it needs to be. Ms. Rios provided another explanation of the differences in the Cost of Service rates for the various customer types. Ms. Rios stated that Option 1 smoothes out the rate increases. Mr. Rios stated that a two- year rate increase will be requested because cost assumptions and other factors can change over time. Mr. Rios commented that it was not beneficial to lock Council into a five-year rate plan. Chair Liebman asked if the financial targets and capital expenditures are the main revenue drivers. Ms. Rios commented that the City's bond rating is important and it has been upgraded a number of times. Ms. Rios stated that the biggest driver of the rate increase is to complete extensive capital work to the system that has been deferred over a period of time. To complete the projects, the City will need to borrow funds and to borrow funds, the City must meet specific financial metrics. Commissioner Gehl asked about the purpose of the Pricing Objectives. Mr. Giardina explained the Pricing Objectives exercise provides guidance regarding changes in the rate structure. Analysis includes: a list of objectives, ranking of objectives, and where the current plan is falling short. Ms. Rios added that the use of Pricing Objectives can be seen in the seasonal rates and tiered rates currently utilized by the City. Chair Liebman inquired as to what would happen to water and sewer services if the CIP projects were not completed. Mr. Johnson explained that the CIP has been drafted and prioritized according to projects which have been deferred and are now necessary. Mr. Johnson stated that the City is still providing services, but the average age of the distribution equipment is 35 years old. Mr. Johnson stated that without the necessary CIP, there could be catastrophic pipe failures resulting in service interruptions. Mr. Johnson noted that there are three plants over 30 years old: Pyramid Park — built in 1980, Cholla — built in 1986, and Arrowhead — built in 1983. Mr. Johnson explained that these plants need to be updated, with equipment either retro -fitted, repaired, and/or improved. Chair Liebman stressed that the public will need to know all of this information as they will have many of the same questions. Mr. Johnson agreed and stated that the City Manager and the Assistant City Manager would like Mr. Johnson to conduct individual tours with the Council -members so that they understand the CIP needs. Mr. Johnson noted that the Council -members can assist in public outreach and explanation. Ms. Rios provided an example of a roof leaking over many years which could be patched over time, but at some point, a new roof will need to be installed due to cost efficiencies. Ms. Rios stated that water and sewer are at this point. Commissioner Ford expressed dismay that the approach presented is focused on revenue and cost. Commissioner Ford stressed the viewpoint of human need, especially in light of the issue in Flint, Michigan. Commissioner Ford commented that the perspective of drinking clean water and water as a life source should be highlighted. Commissioner Ford stated that these services are a life necessity and no one wants backed up sewers, which is why it is important to fund the CIP. Commissioner Ford commented that the perspective should be: quality, service, need. Mr. Johnson agreed and appreciated the reminder of the human perspective. Mr. Johnson stated that citizens can go to sleep at night knowing May 3, 2017 Citizens Utility Advisory Commission Final Minutes Page 7 that staff is dedicated to taking care of the system. Mr. Johnson commented that the City strives to make the system robust and dependable, the capacity is well-built, and the City must maintain it. Mr. Johnson added that there are also residents on fixed incomes who are challenged every payday for which the tiered rate structure can help. Vice Chair Short asked about the ability to complete some of the CIP via pay-as-you-go, or cash. Mr. Johnson replied that the department has used cash for CIP since 2008 and has been building cash since then. Mr. Johnson stated that there is approximately $100 million in cash now; however, approximately $35-$45 million must remain unused as reserves. Mr. Rios commented that pay-as-you-go is typically used and borrowing is not done unless absolutely necessary, which is in the City's best interest. Mr. Johnson commented that this discussion will be continued at the May 10th meeting and encouraged the Commissioners to review all materials prior to the meeting. Chair Liebman stated that he had additional questions regarding the pro -forma financials which he will submit to staff. VI. CALL TO THE AUDIENCE An opportunity to address the Commission was provided to members of the public. No comments were made. VII. FUTURE AGENDA ITEMS Future agenda items were noted as follows: • Special Meeting of the Citizens Utility Advisory Commission will beheld on May 10, 2017 for further discussion, public input, and potential Commission action regarding the Water Services Rate Study Findings and Proposed Recommendations • Utility Rate Study Public Outreach Proposal VIII.COMMISSIONER COMMENTS Vice Chair Short expressed appreciation to Ms. Sally Melling for all of her years of work and asked staff to send on the sentiment to her. Mr. Johnson stated that he will bring a card for the Commissioners to sign at the next Commission meeting. Vice Chair Short looked forward to working with the new staff members. Chair Liebman concurred. IX. NEXT MEETING DATE The next meeting will be on May 10, 2017. X. CALL FOR ADJOURNMENT Motion by Vice Chair Short, second by Commissioner Gehl, to adjourn the meeting at 8:33 p.m. Motion carried 6 — 0. The Citizens Utility Advisory Commission meeting minutes of May 3, 2017 were approved this 6t' day of September, 2017. Denise Kazmierczak Recording Secretary