To: Members of the Castle Rock Water Commission
From: Mark Marlowe, P.E., Director of Castle Rock Water
Greg Kropkowski, Business Solutions Manager
Title
2021 Rates & Fees Study Recommendations Update
Town Council Agenda Date: NA
Body
________________________________________________________________________________
Executive Summary
The purpose of this memorandum is to provide Castle Rock Water Commission with an update on the 2021 Rates and Fees Study recommendations from our outside consultant Stantec Consulting Services, Inc. This memo will outline the progress made on each recommendation and our plans for completion.
Rates Recommendations:
Financial Planning Recommendations
1. Consider omitting the beginning fund balance deduction of the 60 days of operating expenses in the first year of the operating fund cash balance, particularly in the Water Resources Fund.
2. Designate capital implementation plan (CIP) funding rules to enable funding from system development fees (SDFs) or rates according to project designations of growth versus rate funded or a combination of the two. This requires further tracking of SDF revenues and expenses as recommended in the 2021 Rates and Fees Study. It will provide better tracking of the use of SDF revenues for designated projects.
• This recommendation is in progress and will be completed and implemented into the 2022 Study. Staff has created a financial model that breaks out rate versus fee revenue and costs by enterprise fund. Specifically looking at CIP costs, staff will use this model to determine if revenues are tracking with actual CIP costs and expenses. Staff will also work towards running scenarios in the financial models that use the break out of rate funded versus fee funded revenues for future rate making.
Cost-of-Service and Rate Recommendations
1. Continue to track actual revenues collected by customer class for water and wastewater and compare to the customer class costs of service in the cost of service (COS) models. This equity analysis will provide feedback on projected cost recovery by customer class, projected accounts for the rate year, and consumption used in the COS models compared with actual revenues, accounts, and usage by class.
• This is a recommendation that staff has been looking at closely over the last few years. Staff will work with Stantec during the 2022 Study to achieve a rollout strategy over time if needed to bring the customer class equities more into balance, thus to smooth rate shock by customer class.
2. Review cost allocation revisions prepared during the 2020 Study and determine the impact on COS rates. Time didn’t allow for changes to be included in the 2021 study. If more updated functional allocations provide clarity in terms of costs allocated to the monthly base and volumetric charges, Staff will consider implementing the changes into the 2022 Study.
• This recommendation is in progress and final updates and implementations will be included in the 2022 Study if needed. Staff will meet with Stantec to determine if these new allocations have significant impacts that would need to be updated during the 2022 Study.
System Development Fees (SDF) Recommendations:
1. Work with CRW’s Engineering team, annually, to determine additional capacities provided by CIP projects.
• This recommendation is currently being implemented in the 2022 Study.
2. Track changes in asset values, for buy-in component, and CIP values, for incremental fee component, year-over-year. This allows CRW to track conversion of CIP to assets and changes in overall system infrastructure values over time as cost estimates are refined each year.
• This recommendation is in use and will continue with the 2022 Study.
In determining the Treatment Fee Component of the Wastewater SDF, the methodology uses the growth related component of investments made in the Plum Creek Water Reclamation Authority (PCWRA) treatment plant. The 2020 fee was not implemented in 2021; however, Stantec recommended that CRW adjust its Treatment Fee Component over the next five years to align the calculated fee with the implemented fee and our recommendations outlined below.
• Staff will evaluate this recommendation as part of the 2022 Study
3. Evaluate the effect on SDF and DIF revenues over time when implementing system development fee increases that are less than calculated. Tracking adjustments to SDFs and revenues collected can be coordinated with CRW’s financial planning to determine if growth is paying for the costs of growth.
• CRW ended up implementing the full calculated fee increases for 2022. This will likely continue with the 2022 rates and fees study. If fees less than the calculated number are recommended, then Staff will use the model that has been created to track SDFs versus rate revenues and expenses over time. This model is able to include projected rate increases over time, which can help determine if the taken increases are sufficient for the future needs of the utility.
4. Stantec has previously recommended adjusting the fees only if necessary, during the annual rates and fees study when material changes are made to CRW’s fixed assets and/or CIP. Given the current recommendation of implementing annual increases to the fees that achieve the methodology-calculated result over five years, Stantec advised adjusting the schedule if cost changes indicate the need to update the fees during subsequent rates and fees studies.
• Since CRW took the full five-year adjustment, this comment is no longer relevant for last year’s study.
• For this coming year and future years, Staff evaluates the schedule every year in the rate and fee study and recommends changes based upon the findings of the study.