Agenda Cover Memorandum

Transcription

1 Agenda Cover Memorandum Meeting Date: June 11, 2012 Item Title: Action Requested: Approval For discussion Feedback requested For your information Staff Contact: Allison Stutts Phone Number: Address: Background: The water and sewer rate study is complete. The rate study provides 5 possible rate scenarios in addition to a baseline scenario. The baseline scenario suggests that we make no changes to our current rate structure except for passing the City of Chicago water rate increase on to our residents. The rate scenarios include a bond issue for Phase II of the Sewer Construction program estimated at $15M. The scenarios also include the installation of a radio read meter system funded either through a pay as you go program or through bond funding. The rate recommended by Baxter & Woodman is rate scenario 2B. This rate scenario incorporates both a $15M sewer bond for Phase II Sewer Construction and a $3.5M bond for the radio read system. This rate structure for water includes a fixed charge for each account based on meter size with all meters 1 ½ inches and smaller as the base meter. In addition to the fixed charge, two separate variable charges are included. One variable charge for the City of Chicago water rate and a variable charge to account for the City s variable costs associated with operating the system. This rate structure for sewer includes a fixed charge for all customers to capture the fixed costs of operating the sewer system and a variable charge based on consumption to account for our variable costs to run the system. The sewer and water rates are separate rate calculations in all scenarios. If the Council decides to move forward with one of the bond issues for the Sewer or Water project, the sewer and water rates can be selected from the appropriate scenario to comply with the expenditures for each fund. The rate schedule for 2B is provided on the following page: Rev 03/07/12

2 Agenda Cover Memorandum RATE SCHEDULE 2013 Water Bi-Monthly Minimum Charge 1 1/2" Meter $ " Meter $ " Meter $ " Meter $ " Meter $ Water Usage Rates, per 1,000 gal Chicago Water Rate $2.51 Park Ridge Tier 1 Water Rate $2.85 Park Ridge Tier 2 Water Rate $2.85 Sewer Bi-Monthly Minimum Charge $2.98 Sewer Usage Rates, per 1,000 gal $1.27 If the Council wishes to implement a rate that excludes both the Phase II Sewer Construction Program funding and the radio read meter installation, then rate 1C is recommended. The rate schedule for 1C is provided below: RATE SCHEDULE 2013 Water Bi-Monthly Minimum Charge 1 1/2" Meter $ " Meter $ " Meter $ " Meter $ " Meter $ Water Usage Rates, per 1,000 gal Chicago Water Rate $2.51 Park Ridge Tier 1 Water Rate $2.79 Park Ridge Tier 2 Water Rate $2.79 Sewer Bi-Monthly Minimum Charge $2.98 Sewer Usage Rates, per 1,000 gal $1.22 The proposed modification to Article 11, Chapter 1, Section 9 are included. Points of clarification to the rate structure: All current customers receiving monthly bills will be moved to a bi-monthly billing period If a customer has a compound meter, they will only receive 1 fixed charge based on the meter size For accounts with one meter supporting multiple dwellings, they will only receive 1 fixed charged based on meter size For those customers that would like to determine the impact on their bi-monthly bill, a list of account numbers and meter sizes is posted on the City s website with the documentation for this agenda item Recommendation: Move to approve the change in water and sewer rate structure effective with the bi-monthly bills issued at the end of July 2012 to include a fixed charge according to meter size for water and add a fixed charge for sewer in the amount of $2.98 per bill and set the water rates at $2.51 per 1,000 for City of Chicago water PLUS $2.85 per 1,000 for Park Ridge variable water charges plus $1.27 per 1,000 for sewer variable charges. Rev 03/07/12

3 Agenda Cover Memorandum Budget Implications: Does Action Require an Expenditure of Funds: Yes No If Yes, Total Cost: If Yes, is this a Budgeted Item: Yes No If Budgeted, Budget Code (Fund, Dept, Object) Attachments: Rate Study Summary Rate Study Updated Article 11, Chapter 1, Section 9 Rev 03/07/12

4 City of Park Ridge - Utility Rate Study Summary Goals of Study Financial Stability: Maintain positive cash flow and reserve balances. Fairness: Rates must not place a disproportionate burden on any one segment of the customer base. Full Cost Pricing: Structure rates to cover the full cost of service, including operations, debt service and capital projects. Infrastructure Renewal: Provide funding for the City s short- and long- term capital improvement needs. Justifiable Rates: Set rates in accordance with best practices from the American Water Works Association (AWWA). Summary Conclusions The City s water and sewer rates must be increased annually in 2013 through 2017 in order to meet projected expenses during the five-year study period. In addition to raising rates to cover its own costs, the City will need to match increases in water rates adopted by the City of Chicago each year in May when Park Ridge s fiscal year begins. The need to provide a dedicated annual source of funding for infrastructure renewal is a key driver of the rate increases in Park Ridge, as in many communities in this area. Recommendations Rate Structure Distinguish between Chicago and Park Ridge water usage rates, in the rate ordinance, on customer bills and in public information. Charge uniform water and sewer usage rates (volume charges). Eliminate the minimum water billing volume. Establish fixed charges to recover overhead and administrative costs. Escalate water fixed charges by water meter capacity to cover the higher costs of maintaining larger water meters. Establish the base water fixed charge for all customers with a 1½-inch and smaller water meter. This rate structure is based on actual cost of service and it equitably distributes both fixed and variable costs among all rate payers. The base water fixed charge includes all customers with 1½-inch and smaller water meters to ensure that all single family customers pay the same fixed charges. May 2012 Page 1 of 4

5 City of Park Ridge - Utility Rate Study Summary Recommendations Rates Recommended Water and Sewer Rates Rate Scenario2 B Park Ridge Water Rates Minimum Bill $30.20 Tier 1 Rate $ 4.67 $ 2.85 $ 3.05 $ 3.26 $ 3.46 $ 3.67 Ti e r 2 Ra t e $ 5.21 Chicago Water Rate $ 2.51 $ 2.89 $ 3.32 $ 3.82 $ 3.93 Water Fixed Charges 1 ½ Meter $ $ $ $ $ Meter $ $ $ $ $ Meter $ $ $ $ $ Meter $ $ $ $ $ Meter $ $ $ $ $ Sewer Rate $ 1.22 $ 1.27 $ 1.32 $ 1.37 $ 1.42 $ 1.48 Sewer Fixed Charge $ 0.00 $ 2.98 $ 3.10 $ 3.22 $ 3.35 $ 3.49 The recommended schedule of water and sewer rates takes into account projected operating expenses, capital improvement costs and debt service Proposed rate increases are designed to cover these expenses while preventing excessive impacts on unrestricted net assets in the Water and Sewer Funds. The recommended rates are also designed to fund two additional projects. The first project is a multi-year effort to upgrade all existing water meters with automated reading interfaces. The second additional project is the Phase 2 Relief Sewer Improvements. This includes planning, design and construction of additional relief sewers to alleviate flooding. The estimated cost for this portion of the relief sewer project is $15 million. Future water and sewer rates are based on expenditure projections. Baxter & Woodman provided the Excel files that allow for the City to update future projected annual expenditures with actual annual expenditures allowing the City to calculate new rates each fiscal year without the need to employ outside services May 2012 Page 2 of 4

6 City of Park Ridge - Utility Rate Study Summary Rate Scenarios 1A 1B 1C 2A 2B No Change to Rate Structure X Base Charge Escalated based on Meter Size X X X X Fixed Charge Standard Meter 1" X Fixed Charge Standard Meter 1 1/2" X X X City of Chicago Water Increase X X X X X Separate Park Ridge and Chicago Water Usage Rates X X X X X Eliminate Minimum Water Billing Volume X X X X $15M Phase II Sewer Funded with Bonds X X $3.5M Water Meter Program Funded with Cash X $3.5M Water Meter Program Funded with Bond X Average Utility Bill 13 - Base Meter 4,000 gallon $39 $45 $46 $47 $46 Average Utility Bill 13 - Base Meter 12,000 gallon $87 $97 $98 $102 $99 13 Year End Water Projections Surplus/(Deficit) ($642K) $93 K ($118K) ($619 K) ($43 K) May 2012 Page 3 of 4

7 City of Park Ridge - Utility Rate Study Summary Rate Impact CITY OF PARK RIDGE, ILLINOIS WATER & SEWER RATE STUDY PROJECTED BI MONTHLY WATER & SEWER BILLS RESIDENTIAL CUSTOMERS 2012 bills are calculated at current rates. Future bills reflect Chicago water rate increases passed through each May along with Park Ridge rate increases. Low Residential (4,000 gallons bi monthly, 5/8" meter) Baseline $35 $35 $35 $35 $35 $35 Scenario 1A $35 $39 $42 $46 $51 $55 Scenario 1B $35 $45 $48 $50 $53 $54 Scenario 1C $35 $46 $48 $51 $54 $55 Scenario 2A $35 $47 $51 $54 $57 $59 Scenario 2B $35 $46 $49 $52 $56 $58 Average Residential (12,000 gallons bi monthly, 1" meter) Baseline $78 $81 $84 $87 $90 $91 Scenario 1A $78 $87 $96 $106 $117 $125 Scenario 1B $78 $97 $103 $109 $117 $119 Scenario 1C $78 $98 $104 $111 $119 $123 Scenario 2A $78 $102 $113 $121 $129 $133 Scenario 2B $78 $99 $107 $116 $125 $130 Average Residential (12,000 gallons bi monthly, 1 1/2" meter) Baseline $78 $81 $84 $87 $90 $91 Scenario 1A $78 $87 $96 $106 $117 $125 Scenario 1B $78 $114 $120 $127 $134 $137 Scenario 1C $78 $98 $104 $111 $119 $123 Scenario 2A $78 $102 $113 $121 $129 $133 Scenario 2B $78 $99 $107 $116 $125 $130 May 2012 Page 4 of 4

8 RATES AND FEES All properties connecting with the water system of the City or taking and using water from the City s system shall pay the following rates and fees established for various water services and sewer services as described: A. Rates for Water Services and Use in the City, per billing period: 1. Metered construction and regular service to a business unit or single dwelling unit: Formatted: Condensed by 0.1 pt a. Fixed charge based on meter size: 1 1/2" Meter $ " Meter $ " Meter $ " Meter $ " Meter $ b. City of Chicago water rate per 1,000 gallons $2.51 c. City of Park Ridge variable water rate per 1,000 gallons $2.85 (Ord , 4/16/07, S25), (Ord , 4/21/2008)(Ord , 5/18/2009) (Ord , 03/15/2010) 2. Where one meter delivers water to more than one dwelling unit or to a combination of dwelling units and a commercial or business unit, the above rates shall apply for fixed charges according to meter size and for variable rates according to usage.. 3. The fixed charge in subparagraph (A1a.) is applied to all properties, where a water meter is installedthe fixed charge in subparagraph (A1a.) continues to be charged while a property is vacant, in foreclosure, or the water service has been turned off because the fixed charge covers overhead and administrative costs that can be equally applied to all customers.. B. Rates for Sewer Use in the City, per billing period: 1. Fixed charge of $2.98 per account 2. Regular service to a business unit or single dwelling unit: $1.27 per each 1,000 gallons (Ord , 4/21/2008)(Ord , 5/18/2009), (Ord , 4/19/2010) 3. The fixed charge in subparagraph (B1) is applied to all properties, regardless of whether a water meter is installed, upon transfer of the property or upon issuance of a certificate of occupancy in the event that a demolition permit was approved by the City for the property. The fixed charge in subparagraph (B1) continues to be charged while a property is vacant, in foreclosure, or the water service has been turned off because the Deleted: <#>Up to but not exceeding 5,000 gallons $30.20 (basic rate) Formatted: Condensed by 0.1 pt Formatted: Bullets and Numbering Formatted: Bullets and Numbering Formatted: Condensed by 0.1 pt Deleted: Over 5,000 gallons but not exceeding 30,000 gallons $4.67 per 1,000 gallons Over 30,000 gallons $5.21 per 1,000 gallons Deleted: to each unit Deleted: basic rate Deleted: regardless of whether Deleted:, upon transfer of the property or upon issuance of a certificate of occupancy in the event that a demolition permit was approved by the City for the property. Deleted: basic rate Deleted: s Deleted: basic Deleted: rate Deleted: charges for the City s water system as a whole and includes the infrastructure that serves each property within the City Formatted: Bullets and Numbering Formatted: Condensed by 0.1 pt Deleted: $1.22 Deleted: <#>Where one meter delivers water to more than one dwelling unit or to a combination of dwelling units and a commercial or business unit, the above rates shall apply to each unit. Deleted: basic rate Deleted: basic rate

9 fixed charge covers overhead and administrative costs that can be equally applied to all customers. C. Construction Service Meter Fee: For metered construction water service, the applicant shall be required to post the sum of one thousand dollars ($1,000.00) upon the filing of his application for such water service, to guarantee payment for water used during construction and the prompt return in good condition of the construction water meter. Said amount shall not be returnable to the applicant in the event that said premises shall be occupied prior to the issuance of a certificate of occupancy or in violation of terms of this Code providing for the construction and equipment of buildings. Said amount shall be returnable to the applicant, or his assignee, less such amount to pay for water used during construction, upon termination of metered construction water service and the prompt return of the construction water meter in good condition. Deleted: basic rate Deleted: charges for the City s water system as a whole and includes the infrastructure that serves each property within the City. D. Delinquency Fee: A delinquency fee of ten percent (10%) of the amount billed for water service, sewer service and for any other fees and taxes included on the billing statement shall be added to the bill if payment is received after the due date appearing on the face of the bill. E. New Account Fee: A service fee of five dollars ($5.00) shall be paid by a new owner of property, upon transfer of the property for the initiation of metered regular water service. This new account fee shall also be paid for the initiation of metered regular water service upon issuance of a certificate of occupancy for any property for which the City has approved a demolition permit. F. Shut-Off Posting Fee: A service fee of ten dollars ($10.00) shall be added to the bill of any consumer each time the City delivers or posts a notice of impending termination of water service due to nonpayment by the consumer of the bill for water service and sewer service. G. Reinstatement Fee: In addition to any water service, sewer service or other fees due, a service fee of fifty dollars ($50.00) shall be paid by any consumer prior to reinstatement of water service following termination of such service for non-payment of fees or charges or for denial of access or for failure to repair a leak as provided herein or for illegal outdoor water use; provided that if reinstatement of water service is requested other than during regular business hours the fee shall be two hundred dollars ($200.00). (Ord , 4/3/06, S24) (Ord , 11/16/2009)

10 City of PARK RIDGE Water and Sewer Rate Study Prepared by: Baxter & Woodman, Inc. 39 S. LaSalle St., Ste. 816 Chicago, IL

11 City of Park Ridge, Illinois TABLE OF CONTENTS Section Page No. EXECUTIVE SUMMARY 1. PURPOSE OF STUDY 2. PRESENT CONDITIONS 2.1 Overview Water and Sewer Rates Water and Sewer Usage Capital Improvement Plan FUTURE CONDITIONS 3.1 Water and Sewer Usage Revenue Projections Expense Projections Operations and Maintenance Capital Improvement Projects Non-Operating BASELINE CASH FLOW ANALYSIS 5. RATE STRUCTURE ANALYSIS 5.1 Water Usage Rate Distribution Usage Rate Structure Fixed Charges RATE SCENARIO Rate Structure Scenario 1A Scenario 1B Scenario 1C Bi-Monthly Bills Cash Flow Projections /12 City of Park Ridge, Illinois Page 1

12 Section Page No. 7. RATE SCENARIO Rate Structure Capital Improvement Project Alternatives Scenario 2A Scenario 2B Bi-Monthly Bills Cash Flow Projections CONCLUSION AND RECOMMENDATIONS 8.1 Rate Structure Recommended Rate Scenario Implementation Plan 8-3 LIST OF TABLES Table Page No. 1 Existing Water and Sewer Rates Regional Water and Sewer Cost Comparison Water and Sewer Customer Breakdowns Water Pumpage and Billing Summary Water Fund - Baseline Revenue Projections Sewer Fund - Baseline Revenue Projections Water Fund - O&M Expense Projections Sewer Fund - O&M Expense Projections Baseline Five-Year Capital Improvement Plan Water & Sewer System Inventory Target Funding Levels for Long-Term System Renewal Water Fund - Non-Operating Expense Projections /12 City of Park Ridge, Illinois Page 2

13 Table Page No. 13 Sewer Fund - Non-Operating Expense Projections Additional Non-Operating Expenses - New Bonds Bi-Monthly Fixed Charges - Water Scenario 1A Water and Sewer Rates Scenario 1B Water and Sewer Rates Scenario 1C Water and Sewer Rates Scenario 1 - Bi-Monthly Bills for Low Residential Usage Scenario 1 - Bi-Monthly Bills for Average Residential Usage (1 Meter) Scenario 1 - Bi-Monthly Bills for Average Residential Usage (1½ Meter) Scenario 2A Water and Sewer Rates Scenario 2B Water and Sewer Rates Scenario 1 - Bi-Monthly Bills for Low Residential Usage Scenario 1 - Bi-Monthly Bills for Average Residential Usage 7-5 LIST OF FIGURES Figure Page No. 1 Water Fund Cumulative Financial Projections Sewer Fund Cumulative Financial Projections Water Fund Cash Flow Sewer Fund Cash Flow Water Fund Cash Flow Sewer Fund Cash Flow /12 City of Park Ridge, Illinois Page 3

14 LIST OF APPENDICES Appendix A B C D E F G H I J K Glossary of Terms and Acronyms Baseline Revenue and Expense Projections Water and Sewer System Inventory General Fund Transfer Formula for Shared Services Target Fund Balance Policy Bi-Monthly Fixed Charge Calculations Scenario 1A: Revenue and Expense Projections Scenario 1B: Revenue and Expense Projections Scenario 1C: Revenue and Expense Projections Scenario 2A: Revenue and Expense Projections Scenario 2B: Revenue and Expense Projections /12 City of Park Ridge, Illinois Page 4

15 EXECUTIVE SUMMARY Introduction This report was prepared to document the work performed by Baxter & Woodman, Inc. during the authorized by the City of Park Ridge (the City). The City owns and operates a water receiving and distribution system, as well as a combined sewer system consisting of sanitary and storm sewers, catch basins and manholes. These vast networks of piping, pumps and storage facilities require diligent maintenance and constant investment in order to function reliably. The City has undertaken this water and sewer rate study in order to ensure the systems are funded properly, with these key goals: Financial Stability: Maintain positive cash flow and reserve balances. Fairness: Rates must not place a disproportionate burden on any one segment of the customer base. Full Cost Pricing: Structure rates to cover the full cost of service, including operations, debt service and capital projects. Infrastructure Renewal: Provide funding for the City s short- and longterm capital improvement needs. Justifiable Rates: Set rates in accordance with best practices from the American Water Works Association (AWWA). Findings The City s existing water rates are not sufficient to fully cover all budgeted expenses in the Water Fund for the fiscal year ending April 30, 2012 ( 2012). Water billing volume has remained fairly constant since 2010 when the last water rate increase was implemented. Meanwhile, operating costs have been increasing, /12 City of Park Ridge, Illinois Page 1

16 particularly the 25 percent increase in Chicago water rates on January 1, The net result is that water rates are insufficient to fully cover budgeted expenses. This situation is not an immediate threat to the Water Fund s financial capacity, though failure to raise water rates in the future would completely deplete the Fund by 2015 (see figure below). $4,000,000 Water Fund Cumulative Financial Projections Baseline Rate Scenario $2,000,000 $0 ($2,000,000) ($4,000,000) ($6,000,000) Target Unrestricted Net Assets Unrestricted Net Assets ($8,000,000) In contrast, the Sewer Fund is projected to end 2012 with a surplus. However, this is primarily because the City has not yet begun repaying the Series 2012A G.O. Bonds (issued to fund the Phase 1 Relief Sewer Project). Interest-only payments in 2013 and 2014 will not impact the fund balance, but when the City begins repaying the principal in 2015, the unrestricted net assets in the Sewer Fund will decline if sewer rates are not increased (see the following figure) /12 City of Park Ridge, Illinois Page 2

17 $1,500,000 Sewer Fund Cumulative Financial Projections Baseline Rate Scenario - no rate increases $1,250,000 $1,000,000 $750,000 $500,000 $250,000 Target Unrestricted Net Assets Unrestricted Net Assets $0 Conclusions The City s water and sewer rates must be increased annually in 2013 through 2017 in order to meet projected expenses during the five-year study period. In addition to raising rates to cover its own costs, the City will need to match increases in water rates adopted by the City of Chicago each year in May when Park Ridge s fiscal year begins. Water purchase is the single largest cost to the Water Fund by far, and failure to pass through rate increases from Chicago has the potential to significantly affect cash flow and the City s ability to fund critical water main replacement projects. Rate increases are needed to provide for infrastructure renewal. This term refers to rehabilitating or replacing existing system components such as pumps, water mains, sewers and water storage tanks when they reach the end of their useful service life. Water and sewer utilities are capital-intensive enterprises that require continuous investment in order to maintain their integrity. Accordingly, the City s Public Works /12 City of Park Ridge, Illinois Page 3

18 Department has established annual funding targets for water main replacement and sewer rehabilitation for the next five years, which are higher than historic spending in these areas. These targets are $815,000 to $1,000,000 per year for water main replacement (slight increase each year), and $310,000 per year for sewer rehabilitation, in addition to the $5.4 million bond recently issued for relief sewer improvements. The need to provide a dedicated annual source of funding for infrastructure renewal is a key driver of the rate increases in Park Ridge, as in many communities in this area. The alternative of failing to fund critical infrastructure projects is gradual deterioration of infrastructure, which over time, will make service issues such as water main breaks, sewer backups, service outages and property damage more prevalent. Recommendations - Rate Structure The City has an inclining block rate structure for water rates, in which customers using over 30,000 gallons per bi-monthly billing period are charged a higher rate. Water bills also include a minimum usage of 5,000 gallons whether a customer uses that much water or not. Most customers use more than 5,000 gallons every two months, but the small percentage with very low consumption is actually paying for more water than they use. For sewer service, customers are charged a uniform rate per 1,000 gallons with no minimum usage. In order to standardize the rate structures between the two utilities and align the rates with actual cost centers, these changes are recommended: Distinguish between Chicago and Park Ridge water usage rates, in the rate ordinance, on customer bills and in public information; Charge uniform water and sewer usage rates (volume charges); /12 City of Park Ridge, Illinois Page 4

19 Eliminate the minimum water billing volume; Establish fixed charges to recover overhead and administrative costs; Escalate water fixed charges by water meter capacity to cover the higher costs of maintaining larger water meters; and Establish the base water fixed charge for all customers with a 1½-inch and smaller water meter. This rate structure is based on actual cost of service and it equitably distributes both fixed and variable costs among all rate payers. The base water fixed charge includes all customers with 1½-inch and smaller water meters to ensure that all single family customers pay the same fixed charges. The establishment of a fixed charge structure provides a guaranteed revenue base that is independent of the level of usage, which will provide more consistent cash flow year-round. This is especially important given the recent widespread reduction in water consumption resulting from a combination of economic factors and increased awareness of conservation measures. Nearby communities who already employ this rate structure include Evanston, Glenview and Lincolnwood. Several other Chicago area communities that have a fixed charge structure, with escalating charges based on meter size, include Bensenville, Carpentersville, Geneva, Gurnee, Itasca and Round Lake. Several other communities have uniform fixed charges that do not include any usage allowance. Distinguishing between the Chicago water rate and Park Ridge water rate in public information (City newsletter/web site) and on utility bills will help customers to better understand the drivers of water rate increases over the course of each year. The City s rate ordinance can reinforce this distinction and should be modified to /12 City of Park Ridge, Illinois Page 5

20 automatically pass through any future rate increases from Chicago, as this is the largest single expenditure in the Water Fund and delays in passing along these increases could have a significant impact on cash flow. Recommendations - Water and Sewer Rates The recommended schedule of water and sewer rates takes into account projected operating expenses, capital improvement costs and debt service. Proposed rate increases are designed to cover these expenses while preventing excessive impacts on unrestricted net assets in the Water and Sewer Funds. In particular, the rate increases will allow the City to increase funding for its annual infrastructure renewal program. This program allows the City to be proactive in addressing deficiencies in aging infrastructure, which is an important step toward sustainable, long-term asset management. The recommended rates are also designed to fund two additional projects. The first project is a multi-year effort to upgrade all existing water meters with automated reading interfaces. This will eliminate the need for customers to read their own water meters, improve the accuracy and timeliness of water meter readings, and streamline billing data upload and processing. This is a change that many Chicagoland communities have made in recent years to improve billing accuracy and efficiency. The Village of Lincolnwood and the Village of River Forest are two examples of nearby communities who have recently made this type of upgrade to their water metering system. The estimated cost for this project is $3.5 million spread evenly over four years ($875,000 per year in 2013 through 2016) /12 City of Park Ridge, Illinois Page 6

21 The second additional project is the Phase 2 Relief Sewer Improvements. This includes planning, design and construction of additional relief sewers to alleviate flooding. The estimated cost for this portion of the relief sewer project is $15 million. The recommended five-year rate schedule is outlined in the following table. The City s current water and sewer rates are listed for Rate increases would take effect May 1 of each year, with the first rate increase recommended for May 2012 ( 2013). The rate increases include funding for annual water main replacement and sewer rehabilitation, lift station upgrades and debt service for new bonds for a Citywide water meter upgrade and the Phase II Relief Sewer Improvements. Recommended Water and Sewer Rates Rate Scenario 2B Park Ridge Water Rates Minimum Bill $ Tier 1 Rate $04.67 $ $ $ $ $ Tier 2 Rate $05.21 Chicago Water Rate $ $ $ $ $ Water Fixed Charges 1 ½ Meter $ $ $ $ $ Meter $ $ $ $ $ Meter $ $ $ $ $ Meter $ $ $ $ $ Meter $ $ $ $ $ Sewer Rate $01.22 $ $ $ $ $ Sewer Fixed Charge $00.00 $ $ $ $ $ The following table outlines how typical bi-monthly water and sewer bills will increase each year throughout the study period under Scenario 2B. The most significant increase to water and sewer bills will occur in 2013, due to the larger /12 City of Park Ridge, Illinois Page 7

22 upfront water rate increase from Chicago and restructuring of Park Ridge s rates to include fixed charges. However, rate increases are phased in as gradually as possible over five years to minimize the year-to-year burden on customers while avoiding excessive drawdown of unrestricted net assets in the Water and Sewer Funds. Bills calculated at current rates are listed in the 2012 column. Each subsequent year includes rate increases each May. Customer Class Bi-Monthly Water and Sewer Bills Scenario 2B Low Residential Usage (4,000 gallons) $35 $46 $049 $052 $056 $058 Avg. Residential Usage* (12,000 gallons) $78 $99 $107 $116 $125 $130 * Based on a 1½-inch or smaller water meter /12 City of Park Ridge, Illinois Page 8

23 1. PURPOSE OF STUDY The primary purpose of this rate study is to allow the City to confirm that its water and sewer utilities are self-sustaining, meaning that recommended rates will not only provide consistent annual funding for critical infrastructure projects, but also maintain sufficient cash flow for routine operations and maintenance (O&M) and debt service. (See Appendix A for a full listing of terms used in this report.) To this end, the study includes an in-depth evaluation of present and projected revenues and expenses of the water and sewer utilities. A cash flow analysis, along with water and sewer billing projections, is used to determine the rates necessary to make these utilities fully self-supporting. Another goal of this rate study is to evaluate the rate structure to ensure that rates are equitable and defensible in accordance with AWWA guidelines. This part of the study considers such factors as financial impacts on various customer classes and overhead costs to the water and sewer utilities. Finally, this study includes an evaluation of current and projected spending for infrastructure renewal projects. This includes projects needed to maintain existing equipment and piping systems in good working condition, such as water main replacement, sewer lining, lift station improvements, water meter upgrades and water storage tank painting. Evaluating these future needs is crucial because proper system maintenance will allow the City to maintain a high level of service and minimize extra operating costs such as lost water, property restoration, and the labor, materials and contractual services associated with continual repairs of failing equipment and infrastructure /12 City of Park Ridge, Illinois Page 1-1

24 2. PRESENT CONDITIONS 2.1 Overview The City of Park Ridge is located approximately 15 miles northwest of Chicago in Cook County. Land use is predominantly residential, as well as a downtown business district and a large hospital campus. The City is fully developed and no major changes in future water usage are anticipated. The City purchases treated Lake Michigan water from the City of Chicago and distributes the water to its customers. The City s distribution system consists of approximately 138 miles of water main, 1,585 fire hydrants, 15.2 million gallons of storage capacity and over 12,600 water meters. All municipal wastewater and stormwater runoff is conveyed through a Cityowned and maintained combined sewer system consisting of approximately 133 miles of sanitary and storm sewers. Sewage is discharged to the Metropolitan Water Reclamation District of Greater Chicago (MWRDGC) for treatment. 2.2 Water and Sewer Rates The City has a multi-tiered water rate structure, in which the volume charges vary depending on how much water a customer uses. Water bills also include a minimum usage of 5,000 gallons per bi-monthly billing period, though approximately 86 percent of customers use more water than this. For sewer service, customers are charged a uniform rate per 1,000 gallons of water usage with no minimum usage /12 City of Park Ridge, Illinois Page 2-1

25 requirement. The existing rates, which were established in 2010, are summarized in Table 1. TABLE 1 Existing Water and Sewer Rates Description Existing Rate Water Rates Minimum Bill (0 5,000 gallons) $30.20 Usage Rate per 1,000 gallons (6,000 30,000 gallons) $04.67 Usage Rate per 1,000 gallons (above 30,000 gallons) $05.21 Sewer Usage Rate per 1,000 gallons $01.22 Table 2 shows the typical bi-monthly water and sewer bill for a Park Ridge resident compared to equivalent bi-monthly water and sewer costs for residents in other nearby communities. Costs for all communities include water purchase and distribution as well as wastewater conveyance; wastewater treatment costs are paid to MWRDGC through property tax bills. Water and sewer bills in Table 2 are calculated for a residential customer with a 1-inch or smaller water meter using 12,000 gallons bimonthly (in some communities, charges differ based on water meter size, so a specific meter size must be assumed for an equivalent comparison) /12 City of Park Ridge, Illinois Page 2-2

26 Municipality TABLE 2 Regional Water and Sewer Cost Comparison Equivalent Bi-Monthly Water Bill Equivalent Bi-Monthly Sewer Bill* Equivalent Bi-Monthly Water and Sewer Bill** Harwood Heights $042 $16 $058 Niles $061 $00 $061 Forest Park $076 $00 $076 Park Ridge $063 $15 $078 River Grove $069 $09 $078 Des Plaines $065 $15 $080 Lincolnwood $079 $12 $091 Evanston $032 $63 $095 Glenview $068 $27 $095 Oak Park $071 $27 $098 River Forest $074 $25 $099 Elmwood Park $102 $00 $102 Morton Grove $093 $13 $106 Averages $069 $17 $086 * Some communities recover both water and sewer costs solely through their water rate, without a separate sewer rate. ** Rates for communities billing on a monthly or quarterly cycle were converted to a bi-monthly basis for direct comparison to the City s rates. Park Ridge s combined water and sewer bill for average residential usage is about 10 percent below the average for communities in the surrounding area. While this provides a general indicator of water and sewer rate affordability in the area, comparison with other communities rates should not be the sole method for determining the fairness and affordability of the City s water and sewer rates. This is especially important because each community has different financial situations, revenue requirements and cost allocation methods. Furthermore, infrastructure replacement and rehabilitation spending, which is becoming an ever larger portion of total expenses for many municipal utilities, can vary widely between communities based on system age and condition /12 City of Park Ridge, Illinois Page 2-3

27 2.3 Water and Sewer Usage The City breaks down its water and sewer usage by customer type and by water meter size. Over 95 percent of water and sewer accounts are residential customers (includes single family and multi-family dwellings). The remaining accounts consist of commercial customers, park district facilities, schools, and several accounts associated with Lutheran General Hospital. Table 3 includes a more detailed breakdown of existing accounts by water meter size. Of the customers with water meters size 1½ inches and smaller, the vast majority are residential. Of residential customers, only multi-unit residential accounts have 2- inch and larger meters. TABLE 3 Water and Sewer Customer Breakdown Meter Size Number of Accounts % of Total Accounts 1 11, % 1½" 01, % 2 00, % 3 00, % 4 00, % 6 00, % Total 12, % Table 4 summarizes the City s total volume of water pumped from Chicago and total volume billed to customers in 2010, 2011, and /12 City of Park Ridge, Illinois Page 2-4

28 TABLE 4 Water Pumpage and Billing Summary Chicago Water Pumpage (gallons) Water Billed to Customers (gallons) Billed Water Use as % of Chicago Water Pumpage 2010 actual 1,598,017,000 1,251,321,000 78% 2011 actual 1,603,858,000 1,264,886,000 79% 2012 estimate 1,511,013,900 1,246,592,000 83% It is important to note the difference between unbilled water use and unaccounted for water use. Unbilled water use is the portion of water pumped from Chicago that is not captured as metered water consumption by individual customers water meters. Using the data from Table 4, unbilled water use has ranged from 17 percent to 22 percent of water pumpage in the last three years. The portion of Chicago water pumpage that is not accounted for as water billed to customers can still be accounted for in other ways. Unbillable municipal uses such as fire fighting, water main flushing, street cleaning, sewer cleaning and usage at municipal facilities make up some of the difference. There is also some water lost as leakage from pipe joints, which is normal and can be estimated based on pipe age using a formula provided by the State of Illinois (older pipes typically leak much more than newer pipes). The remainder of unbillable water use that cannot be accounted for, such as water lost during water main breaks and unrecorded usage from older water meters, must be limited to no more than eight percent of total water pumpage. This is a requirement from the Illinois Department of Natural Resources (IDNR) that all Illinois communities using Lake Michigan water must meet. Park Ridge has exceeded the eight percent threshold for the past three years. The City s reports to IDNR cited major water /12 City of Park Ridge, Illinois Page 2-5

29 main breaks, leaks from older water mains, and the lack of a City-administered water meter reading program as contributing factors to these excursions.. In response, the City has instituted an annual water main replacement program with plans to increase funding for water main replacements in the future. Water meters over 20 years old are also replaced each year. These improvements seem to have lessened water loss in recent years, as unbilled water use has decreased by five percent and unaccounted for water use has decreased by three percent in the last three years. However, the City still exceeded the unaccounted for water threshold in A proposed program to retrofit existing water meters with automated reading interfaces, to consistently and accurately capture water usage from all customers, should help to further reduce unaccounted for water and bring the City below IDNR s unaccounted for water threshold. 2.4 Capital Improvement Plan From 2008 through 2011, the City invested an average of $560,000 per year in water main replacement, which is the equivalent of about 0.6 miles of water mains replaced per year. The City has nearly 138 miles of water mains, so this rate corresponds to a 225-year replacement cycle. For comparison, the typical life of a water main installed in the post-wwii era is about 75 years (AWWA). Therefore, the Public Works Department proposes to increase funding for water main replacement over the next five years to between $815,000 and $1,000,000 per year (slight increase each year). The City recently issued a $5.4 million G.O. bond for Phase I Relief Sewer Improvements. The purpose of this project, which is already underway, is to increase capacity of the combined sewer system to alleviate flooding during major rainfall /12 City of Park Ridge, Illinois Page 2-6

30 events. All rate scenarios in this rate study include annual debt service payments on this bond, as well as $310,000 per year for an annual sewer lining program to address infiltration and inflow, as well as an annual allocation to lift station upgrades to replace obsolete controls, electrical panels and pumps. Additional improvements considered as alternatives in this rate study include retrofitting all water meters with automated meter reading interfaces (funded either with cash or a bond issue), as well as a $15 million bond issue for the Phase 2 Relief Sewer Improvements /12 City of Park Ridge, Illinois Page 2-7

31 3. FUTURE CONDITIONS 3.1 Water and Sewer Usage No appreciable changes are anticipated in Park Ridge s water and sewer usage in the next five years. pumpage and billing totals for the next five years are as follows: Chicago Water Pumpage: 1,520,000,000 gallons per year (rounded up from 2012 total of 1,511,000,000 gallons) Park Ridge Water/Sewer Billing: 1,246,592,000 gallons per year (matches 2012 total) These projections should be reviewed annually, so if a major redevelopment project occurs that will have significant impacts on water usage, or if declining water consumption trends are observed, the usage projections can be revised accordingly. 3.2 Revenue Projections Several resources provided by the City were used to project future revenues for the Water and Sewer Funds. These include: Audited revenues for 2008 through 2011 and year-end estimated revenues for Water pumpage and billing records from January 2009 through March Estimated employee contributions for health insurance premiums. rates of return on cash held in the enterprise funds. This information was used to create baseline five-year revenue projections for the Water and Sewer Fund. The term baseline refers to existing revenue sources only /12 City of Park Ridge, Illinois Page 3-1

32 and does not include increases to Park Ridge water and sewer rates (excludes rate increases proposed by City staff for 2013). The baseline scenario does include the water rate increases from Chicago, as this is a direct pass-through cost. The baseline revenue forecasts are summarized in Table 5 and Table 6, with details provided in Appendix B TABLE 5 Water Fund - Baseline Revenue Projections Chicago Water Rates $1,741,000 $2,175,000 $2,504,000 $2,876,000 $3,310,000 $3,405,000 Park Ridge Usage Rates $2,472,000 $2,472,000 $2,472,000 $2,472,000 $2,472,000 $2,472,000 Park Ridge Min. Charges $2,297,000 $2,297,000 $2,297,000 $2,297,000 $2,297,000 $2,297,000 Penalties $0,113,200 $0,118,000 $0,118,000 $0,118,000 $0,118,000 $0,118,000 Water Meters $0,041,500 $0,015,000 $0,015,000 $0,015,000 $0,015,000 $0,015,000 Interest $0,008,000 $0,006,000 $0,014,400 $0,007,000 $0,000,000 $0,000,000 Empl. Contrib. $0,012,400 $0,011,024 $0,012,700 $0,014,600 $0,016,800 $0,019,300 Miscellaneous $0,011,000 $0,011,000 $0,011,000 $0,011,000 $0,011,000 $0,011,000 Total Revenues $6,696,100 $7,105,024 $7,444,100 $7,810,600 $8,239,800 $8,337, TABLE 6 Sewer Fund - Baseline Revenue Projections Sewer Charges $1,481,284 $1,521,000 $1,521,000 $1,521,000 $1,521,000 $1,521,000 Devel. Fees $0,014,000 $0,025,000 $0,025,000 $0,025,000 $0,025,000 $0,025,000 Grants $0,431,250 $0,225,000 $0,000,000 $0,000,000 $0,000,000 $0,000,000 Interest $0,000,300 $0,004,000 $0,006,100 $0,007,000 $0,006,200 $0,004,400 Empl. Contrib. $0,006,418 $0,005,110 $0,005,880 $0,006,760 $0,007,770 $0,008,940 Total Revenues $1,933,252 $1,780,110 $1,557,980 $1,559,760 $1,559,970 $1,559, /12 City of Park Ridge, Illinois Page 3-2

33 The only significant growth in revenues expected to occur over the next five years is the result of passing on water rate increases from Chicago. Without increases to Park Ridge s own water and sewer rates, usage revenues are expected to remain fairly consistent over the next five years. 3.3 Expense Projections Several resources provided by the City were used to project future expenses for the Water and Sewer Funds. These include: Audited expenses for 2008 through 2011, year-end estimated expenses for 2012 and budgeted expenses for Input from City staff on inflation factors for operating expenses. Five-year water and sewer system capital improvement plan. Repayment schedules for existing debt. transfers to the motorized and computer equipment replacement funds. water rate increases from the City of Chicago are also utilized through Beyond 2016, it is assumed that Chicago will increase water rates by an inflationary measure only (estimated at three percent per year). Expense projections are separated into three categories: routine operations and maintenance, capital improvement projects and non-operating (includes debt service and inter-fund transfers). These expense categories are discussed in the following subsections, with additional detail provided in Appendix B Operations and Maintenance - Routine O&M expenses include the dayto-day costs of keeping the water and sewer systems in operation. These include administrative and overhead costs, salaries and benefits for operations and /12 City of Park Ridge, Illinois Page 3-3

34 maintenance staff, commodities such as chemicals and fuel, utilities such as electric and gas, and contractual services. These expenses typically increase at regular intervals due to inflation, but can sometimes increase or decrease significantly due to situations such as increasing or reducing staffing levels, or making a major operational change. O&M expenses from previous years and those budgeted in 2012 were compared to assess inflation trends. These observed trends and City staff input on future conditions were used to develop individual inflation rates for each operating expense line item. This information was used to create detailed five-year expense projections for the Water and Sewer Funds. These projections are summarized by budget division in Table 7 and Table 8, with details provided in Appendix B. Each of the rate scenarios discussed later in this report includes these O&M expense projections. Expense Description 2012 TABLE 7 Water Fund - O&M Expense Projections Administration $0,307,700 $0,316,492 $0,327,040 $0,337,780 $0,349,520 $0,363,260 Water Supply and Treatment* $3,718,289 $4,370,826 $4,985,340 $5,689,680 $6,284,520 $6,470,860 Fire Hydrant Services** $0,092,536 $0,055,649 $0,057,900 $0,060,300 $0,063,000 $0,065,900 Water Main Services $0,524,461 $0,570,470 $0,596,500 $0,622,500 $0,649,800 $0,679,800 Water Meter Services*** $0,138,966 $0,185,320 $0,192,400 $0,200,300 $0,208,800 $0,217,900 Totals $4,781,952 $5,498,757 $6,159,180 $6,910,560 $7,555,640 $7,797,720 % Increase 15% 12% 12% 9% 3% * Purchase of water from Chicago constitutes 93% of Water Supply & Treatment costs. Water purchase costs are estimated based on annual pumpage of 1,520,000,000 gallons and Chicago s proposed four-year water rate increase schedule. ** Cost decrease from 2012 to 2013 is due to re-allocation of expenses to other budget divisions. *** Includes $50,000 to $60,000 per year for replacement of water meters in service 20 years or longer /12 City of Park Ridge, Illinois Page 3-4

35 Chicago water rate increases account for approximately 90 percent of projected Water Fund O&M cost increases over the next five years. This is the single largest cost to the Water Fund and, therefore, has a significant impact on the City s O&M costs. Most other O&M expenses are projected to increase annually due to inflation and cost of living increases. Expense Description 2012 TABLE 8 Sewer Fund - O&M Expense Projections Personnel* $379,500 $364,940 $386,950 $403,250 $420,950 $440,350 Contractual Services $187,500 $129,250 $132,000 $135,000 $138,000 $141,000 Sewer Clean and Televise $014,050 $020,000 $020,400 $020,800 $021,200 $021,600 Materials $094,000 $090,000 $092,000 $094,000 $096,000 $098,000 Electricity $005,400 $006,000 $006,300 $006,600 $006,900 $007,200 Totals $680,450 $610,190 $637,650 $659,650 $683,050 $708,150 % Increase -10% 5% 3% 4% 4% * Includes Regular Salaries, Extra Help, Overtime, Insurance, and Uniforms line items. Reduction in Sewer Fund O&M costs in 2013 is mainly the result of decreased costs for contractual services. After 2013, a fairly straight line inflationary cost increase is projected Capital Improvement Projects - The City s baseline five-year capital improvement plan (CIP) includes continuation of ongoing programs including water main replacement, sewer lining and replacement fund contributions for motorized equipment and computers. It also includes repainting a water storage tank and upgrading obsolete equipment in sewage lift stations. Table 9 summarizes the baseline five-year CIP /12 City of Park Ridge, Illinois Page 3-5