Final Water - Watewater Report Calls For Higher Rates

City Commissioner Mark Taussig asked a great question at Tuesday night's City Commission meeting. The Commissioners were talking to their consultants from CH2M Hill about the final report on the Water and Wastewater. Taussig wanted to know "Why if we have plenty of water, does the report call for conservation." Answer (paraphrase) "Because that is what the Citizens Advisory Board wanted."

This is what has been wrong with the millions of dollars of studies in the past five to six years. The "Granola Group" started appointing a "Citizens Advisory Board" to work with consultants. In other words, they spend good money to ask an expert what to do, but the Board tells the expert what they want to hear.

This is why the "Housing Study" said we need 400 new homes per year for the next five years. The city has averaged 150 new homes a year for the past 20 years. Now, all of a sudden we need 3,000 new homes.

The "Housing Study also reported the City of Manhattan had a population of 51,600. They were only off by 7,000 when the U.S. Census came in at 46,400.

And the first draft of the Water - Wastewater used the "Housing Study" to build on. Here is part of the report given to the Commission:

BACKGROUND

The Water and Wastewater Facilities Plans and Cost of Services Study began in 1999 with the purpose developing short-range and long-range plans for the Water and Wastewater Treatment Plants, as well as to developing a comprehensive cost of service analysis to examine current rate design and financial strategies. A chronology of major events in the project process is attached (Enclosure 1).

On May 22, 2001, a Work Session was held between the City Commission, City Administration, and the Cityís consultant team. At the Work Session the City Commission was provided the final update of the project prior to preparation of the final reports. The update included an overview of the purpose of the project, an explanation of all tasks completed as part of the project, a review of the findings and recommendations of both the Consulting Team and Public Advisory Team for water and wastewater facilities improvements, an outline of the Consulting Teamís cost of services analysis, and a discussion of the Cityís options for water and wastewater cost of services.

Based upon the discussion with the City Commission during the Work Session, a memorandum was prepared by the consultant team answering questions which were raised by the City Commission at the Work Session (Appendix W of the Appendices Technical Memoranda portion of the final reports). Subsequently, the final reports for the Water and Wastewater Facilities Plans and Cost of Services Study were completed by the consulting team.

DISCUSSION

The Water and Wastewater Facilities Plans and Cost of Services Study has been completed and the final reports have been submitted to the City by the consultant team. The final reports describe the findings and recommendations that the consultant team developed in coordination with the City Commission, Public Advisory Team, and City Administration throughout the project. The recommendations of the final reports are intended to position the City to accommodate anticipated future regulations, population growth within the City and adjacent areas, and provide reliable treatment systems for the future in an efficient and cost effective manner.

Water and Wastewater Facilities Portion of Project

The Water Facilities Plan portion of the project presents the culmination of a detailed evaluation of the Cityís water treatment system. The key elements of the evaluation consist of the following:

1) Project definition and identification of future water system needs;

2) Recommendation of critical short-term improvements;

3) Resolution of wellfield issues and water rights issues;

4) Identification and evaluation of water supply and treatment alternatives;

5) Involvement of the public and City Commission;

6) Development of long-term recommendations.

These elements are addressed in a series of technical memoranda that were developed throughout the course of the project on specific water system topics. The memoranda are included in the Appendices Technical Memoranda portion of the final reports. Additionally, a summary of the memoranda is included in the Executive Summary for the Water Facilities Plan, which is part of the final reports.

The Wastewater Facilities Plan portion of the project presents the culmination of a detailed evaluation of the Cityís wastewater treatment system. The key elements of the evaluation consist of the following:

1) Project definition and identification of future wastewater system needs;

2) Recommendation of critical, short-term, improvements;

3) Resolution of Biosolids Farm issues;

4) Identification and evaluation of wastewater treatment and discharge alternatives;

5) Involvement of the public and City Commission;

6) Development of long-term recommendations.

These elements are addressed in a series of technical memoranda that were developed throughout the course of the project on specific wastewater system topics. The memoranda are included in the Appendices Technical Memoranda portion of the final reports. Additionally, a summary of the memoranda is included in the Executive Summary for the Wastewater Facilities Plan, which is part of the final reports.

Cost of Services Study Portion of Project

The Cost of Services Study portion of the project was prepared to determine the cost of services for the Cityís Water and Wastewater Utility Funds as part of the Water and Wastewater Facilities Plans. The Cost of Services Study included a historical review of the two utility funds, an evaluation of the appropriate rate structures needed to fund these operations over the planning period, water conservation, connection fees, fees for customers outside the City, comparison of rates, and the establishment of charges for other utility services.

The study developed Financial Projections for three scenarios for the Water Utility Fund. The first scenario is named the "Final Scenario." It assumes a population growth rate in and around the City of 1.25% annually, that the City will provide water to unincorporated areas of Riley and Pottawatomie Counties by the year 2040, that the City will provide water to nearby rural water districts by 2040, and an allotment of 2.2 million gallons per day (MGD) average flow for future major water users within the water system. The projected water rate increase needed for this scenario is 3.07% per year, based on the existing rate structure.

The second scenario is named the "Conservation Scenario." It is based on the same population assumptions as the "Final Scenario". But, it assumes that per capita water consumption would be reduced by 10% through conservation efforts. The impacts of water conservation savings include a delay in the need for a new West Water Treatment Plant from 2014 until 2018. The projected water rate increase needed for this scenario is 2.86% per year, based on the existing rate structure.

The third scenario is named the "Lower Impact Scenario." It assumes a population growth rate for the City and the surrounding area identical to the "Final Scenario." However, the "Lower Impact Scenario" has the following differences: the allocation for future major users was reduced from 2.2 MGD to 1.5 MGD, the long term projects classified as "desirable" in the Facilities Plans were not included in the projected CIP, several long term improvements prioritized as "important" in Facilities Plans were not included in the projected CIP, and water connections fees were increased by $100 per year for five consecutive years beginning in January, 2003.

The Cost of Services Study developed three different rate structures for the "Lower Impact Scenario" to provide information on the financial impacts of a conservation rate structure. In addition to the existing rate structure, a revised decreasing block structure and an increasing block rate structure were developed. The projected water rate increase needed for this scenario range from 1.2% to 3.03% per year, depending of the rate structure.

The Cost of Services Study developed financial projections for two scenarios for the Wastewater Utility Fund. Both scenarios were based on the current average wastewater flow of 116 gallons per person per day. The first scenario was named the "Final Scenario." It assumes a population growth rate in and around the City of 1.25% annually, that the City will provide wastewater service to unincorporated areas of Riley and Pottawatomie Counties by the year 2040, and an allotment 1.9 MGD average flow rate for future major users in 2025. The projected wastewater rate increase needed for this scenario is 5.16% per year.

The second wastewater scenario is named the "Lower Impact Scenario." It assumes a population growth rate for the City and the surrounding area identical to the "Final Scenario." However, the "Lower Impact Scenario" has the following differences: the allocation for future major users was reduced from 1.9 MGD to 1.0 MGD, the long term projects classified as "desirable" in the Facilities Plans were not included in the projected CIP, several long term improvements prioritized as "important" in Facilities Plans were not included in the projected CIP, the first Wastewater Treatment Plant upgrade from 8.7 MGD to 12.7 MGD is divided into two separate, smaller projects, and wastewater connections fees were increased by $100 per year for five consecutive years beginning in January 2003. The projected wastewater rate increase needed for this scenario is 2.93% per year.

The required rate increases for the various scenarios for both the Water and Wastewater Funds are detailed in the Cost of Services Study. Any of the approaches to setting rates could be justified, as long as there is a full understanding of the potential effects and risks associated with each approach.

All the financial projections of the Cost of Services Study anticipated capital improvements, increases in operating expenditures, and growth in the population served as described in the plans.

The Cost of Services Study has recommended that the City establish utility rates for a three year period. This will enable the City to take a long range perspective in the operation of the utilities and improve planning and scheduling of the anticipated capital improvements.

The recommendations of the final report are based upon certain parameters and assumptions, such as population growth rate and changing regulations. Therefore, it will be imperative for City staff to monitor several parameters and regularly assess the potential future impacts of these parameters. These parameters include 1) population served by water and wastewater systems including growth rate from previous years; 2) actual water demands, including annual average and peak-day demands; 3) actual wastewater flow rates, including annual average, peak-month, and peak hour; 4) actual wastewater treatment plant loading, including biochemical oxygen demand and total suspended solids; 5) status of any new or planned future major users; 6) impacts of new regulations and potential impacts of anticipated future regulations; and 7) financial status of the Water Utility Fund and Wastewater Utility Fund.

Based on the evaluation of the above parameters, the City will regularly need to identify growth that has occurred, re-assess the required timing for upcoming expansion and upgrade projects, and re-visit the current and planned three-year cycles for rate adjustments. The Capital Improvements Plan should then be adjusted accordingly. Based on that adjustment, the City will need to examine its water and wastewater rates to ensure that they are appropriate for the current Capital Improvements Plan. The rates can then be adjusted either up or down, if desired by the City Commission.

The Capital Improvements Plan that has been approved for the Utilities Department is based on the "Lower Impact Scenarios." Although the "Conservation Scenario" is recommended by the Cost Service Study, the two scenarios are identical for the very near term and begin to slowly deviate from each other after the next few years. Therefore, the City has the opportunity to consider incorporating the CIP element of the "Conservation Scenario" should the Commission desire to do so in the future.

The Cost of Services Study has recommended that connection fees for both water and wastewater be increased to more accurately reflect the actual costs associated with providing the necessary infrastructure to make these services available to the public. If connection fees are increased, then the needed water and wastewater rate increases could be correspondingly adjusted downward.

Future Policy Direction Decisions

At the start of the project, a Policy Making Workshop was held with the City Commission, City Staff and consultant team with the objective of gathering input from the City Commission on policy issues that would influence the project. Additionally, throughout the course of the project, potential policy issues were raised at City Commission Work Sessions and Public Advisory Team meetings. The final reports have identified and examined those issues, listed related options, and made recommendations.

Based upon the final reports, there are numerous policy issues which the City Commission may want to look at in the near future. Some of those issues include: determining whether the City should become a regional water service provider, setting rates for outside customers, determining whether to fund utility capital improvements through "pay-as-you-go" financing, debt financing, or a combination of the two methods, deciding whether to provide additional water and wastewater capacity to give the City the ability to handle future industry, determining the level of water conservation which is appropriate for the City to undertake to reduce water usage, and setting a water rate structure which is most appropriate for the City.

City Administration recommends that the policy issues identified in the final reports be discussed in more detail with the City Commission at a future Work Session. Following the Work Session, City Administration will prepare recommendations on those issues for City Commission approval at a legislative meeting.

Final Reports

The final reports for the Water and Wastewater Facilities Plans and Cost of Services Study position the City to accommodate anticipated future regulations, population growth within the City and adjacent areas, maintain reliable treatment systems, and optimize operations in an efficient and cost effective manner. Therefore, City Administration recommends that the City Commission accept the final reports.