DATE: March 29, 2016
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
Russ Truell, ACA of Finance and Administration
Mark Hilty, Water Management Director
SUBJECT:
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Discussion Regarding Water and Sanitary Sewer Cost of Service Study and Rate Plan (WS 4-12-16)
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Purpose
The purpose of this memorandum is to introduce the water and sanitary sewer cost of service study performed as a follow up to the Five-Year Rate Plan for the Water and Sanitary Sewer Utility Funds, Fiscal Year 2015 through Fiscal Year 2019.
Background
The City of Franklin through Resolution No. 2014-57 adopted a five year rate plan to establish the necessary expenditures and revenues for operations. The plan considered the long term effect of capital projects and upgrades of facilities, and operational costs including projected increases in personnel, utilities, and other expenses that scale with changes in system size or customer base. The plan also incorporated the estimated effects of inflation and customer growth on revenues and expenses to allow the Board and staff to better plan for future system needs.
On August 26, 2014, the Board of Mayor and Aldermen adopted the plan (Resolution 2014-57), indicating that rate designs should reflect consistent rate adjustments over a five-year period to achieve required revenues. The approach included adjustments of 3.5% annually for water and 6.75% annually for sanitary sewer.
To ensure plan success, the Water Management Department has been working with Jackson Thornton Utilities (Contract 2014-0027) to perform a follow up cost of service analysis to help determine if any changes should be considered as the plan continues to be implemented.
Options
While there are no specific options being presented as part of this item, staff is requesting feedback on a couple of items.
§ Based on the analyses, the plan is performing well in both the water and sanitary sewer funds. The analyses indicates that the 3.5% annual adjustment for the water fund remains appropriate. With the sanitary sewer fund the analyses suggests that the proposed rate adjustments can be reduced from 6.75% annually to 5.5% annually.
§ The BOMA has adopted rate adjustments for both 2015 and FY 2016. Staff is requesting that BOMA provide feedback pertaining to the rate design for the next two years of the rate plan. The three methodologies presented attempt to bracket the vast number of options that are available. These methodologies are presented in the table below:
Recommendation
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Staff looks forward to the Board’s feedback in order to develop a recommendation for consideration in the future.