To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Utilities Director
Anne Glassman, Business Solutions Manager
Title
Ordinance: Amending Title 3, 4 and 13 of the Castle Rock Municipal Code by changing the Water, Wastewater and Stormwater Monthly Services Charges and Fees, the Renewable Water Resource Fee, The Water and Wastewater System Development Fees and the Stormwater Development Impact Fee, and Authorizing the Administrative Adoption of the Utility Administrative Fee Schedule (Second Reading)
Body
______________________________________________________________________
Approved on first reading with a vote of 7 to 0 with no changes.
Executive Summary
The purpose of this memorandum is to request Town Council approval of an Ordinance Amending Title 3, 4 and 13 of the Castle Rock Municipal Code by changing the Water, Wastewater and Stormwater Monthly Services Charges and Fees, the Renewable Water Resource Fee, the Water and Wastewater System Development Fees and the Stormwater Development Impact Fee, and Authorizing the Administrative Adoption of the Utility Administrative Fee Schedule (Second Reading) (see Attachment A).
This annual study is critical to ensure that Utilities fully re-evaluates costs of service, updates financial plans to inform revenue requirements going into the future based on the best available current information and provides for the most competitive rates and fees possible for our customers given our current cost of service. Staff presented the proposed rates and fees to Utilities Commission in September 2015. Utilities Commission recommended Council adopt the rates and fees for 2016 as presented. On October 6, 2015, staff presented the proposed rates and fees to Council for direction, and Council directed staff to prepare draft ordinances incorporating the proposed rates and fees.
For 2016, Utilities staff recommends no changes for the monthly Water, Wastewater and Stormwater service rates and fees for existing customers. An increase of $0.76 per month for the Water Resource Fee for the average residential customer is recommended. This increase, which is an increase of three percent for the Water Resources Fee and an overall rate increase at or less than one percent on total bills for all customer classes, is critical for Castle Rock to continue to fund the long term renewable water plan. Capital investments on the long term renewable water plan will need to be substantial over the next two years with up to $37 million being brought to Council for approval on the Plum Creek Diversion and WISE projects alone.
Table 1 summarizes the recommended 2016 rates relative to the 2015 adopted rates and projected 2016 rates from last year’s study for a typical single family equivalent (SFE).
Table 1: Summary of Recommended Residential Rates
|
|
2015 |
“2015 |
$ Increase |
$ Change |
2014 Study |
|
|
Adopted |
Study” |
(Decrease) |
|
Proposed |
|
|
Rates |
Proposed |
|
|
2016 Rates |
|
|
|
2016 Rates |
|
|
|
|
Water, Fixed |
$9.54 |
$9.54 |
$0.00 |
0% |
$9.73 |
|
- Block 1, Volumetric |
$2.75 |
$2.75 |
$0.00 |
0% |
$2.81 |
|
- Block 2, Volumetric |
$5.39 |
$5.39 |
$0.00 |
0% |
$5.50 |
|
- Block 3, Volumetric |
$8.08 |
$8.08 |
$0.00 |
0% |
$8.24 |
|
Water Resources, Fixed |
$25.39 |
$26.15 |
$0.76 |
3.0% |
$26.15 |
|
Wastewater, Fixed |
$9.30 |
$9.30 |
$0.00 |
0% |
$9.39 |
|
- Volumetric |
$6.59 |
$6.59 |
$0.00 |
0% |
$6.66 |
|
Stormwater, Fixed |
$6.85 |
$6.85 |
$0.00 |
0% |
$7.06 |
|
Total Fixed |
$51.08 |
$51.84 |
$0.76 |
1.5% |
$52.33 |
The good news is that rates have been kept lower than projected when the 2013 hybrid (Box Elder / WISE alternate source of supply projects) long term renewable water plan was approved by Council in 2013. This positive result has been driven by keeping operating expenditures and needed capital investments under budget since 2013. Going forward, the results of the 2015 Study predict the need for continued modest increases of around 3.5% in the Water Resources fee each year in order to continue to fund the long term renewable water plan. Future needed capital investments for stormwater infrastructure indicate the need for 1% increases each year in 2017 to 2020.
The proposed rate change keeps Castle Rock competitive with other surrounding South Metro water providers that also need to fund investments in a long term renewable water supply. Specific comparisons are available in the staff report.
For SDFs related to new development, Utilities recommends an increase between $2,126 and $2,131 (depending on which watershed in which the development is proposed) per single family equivalent (SFE), a 10.3 to 10.5 percent increase. It is worth noting that SDFs have actually gone down since 2012. The proposed SDFs relative to fees in 2012, only represent a 4.6% increase. In contrast, the Construction Cost Index (CCI) has gone up 2.7 percent since 2012. This recommendation is consistent with Council’s policy that “growth pays for growth”. Recent growth has driven the need for additional water and stormwater capital improvements and a ramping up of the portion of the SDFs for water resources to support the long term renewable water plan including the above referenced two major projects. Table 2 provides a summary of the changes to the system development fees (SDFs).
Table 2: Summary of Recommended System Development Fees (SDFs)
|
|
2015 |
“2015 Study’s |
$ Increase |
$ Change |
2014 Study |
|
|
Adopted |
Proposed |
(Decrease) |
|
Proposed |
|
|
SDFs |
2016 SDF’s |
|
|
2016 SDF’s |
|
Water |
$2,330 |
$3,237 |
$907 |
39% |
$2,410 |
|
Water Resources |
$14,388 |
$15,218 |
$830 |
6% |
$14,883 |
|
Wastewater |
$3,056 |
$3,243 |
$187 |
6% |
$3,161 |
|
Stormwater, Plum Creek |
$923 |
$1,125 |
$202 |
22% |
$957 |
|
TOTAL Plum Creek |
$20,697 |
$22,823 |
$2,126 |
10.27% |
$21,411 |
|
Stormwater, Cherry Creek |
$541 |
$748 |
$207 |
38% |
$561 |
|
Total Cherry Creek |
$20,315 |
$22,446 |
$2,131 |
10.49% |
$21,015 |
The proposed SDF changes keep Castle Rock competitive with other surrounding South Metro water providers that also need to fund investments in a long term renewable water supply as shown in Table 3 below.
Table 3: Comparison of System Development Fees (SDFs)
|
Community |
2015 Rates w/CR 2016 Proposed |
|
Castle Pines North Metropolitan District |
$39,930 |
|
Roxborough Water and Sanitation District |
$37,555 |
|
Pinery Water and Sanitation District |
$36,053 |
|
Arapahoe County Water and Wastewater Authority |
$31,968 |
|
Stonegate Village Metropolitan District |
$31,350 |
|
East Cherry Creek Valley Water and Sanitation District |
$31,271 |
|
Parker Water and Sanitation District |
$30,300 |
|
East Larimer County Water District |
$29,576 |
|
City of Brighton |
$28,606 |
|
City of Fountain |
$28,189 |
|
Thornton Water |
$27,681 |
|
Town of Castle Rock (Plum Creek Basin) |
$22,823 |
|
Town of Castle Rock (Cherry Creek Basin) |
$22,446 |
|
Cottonwood Water and Sanitation District |
$21,718 |
|
Centennial Water and Sanitation District (3 units/acre) |
$19,709 |
|
City of Greeley |
$16,150 |
|
Centennial Water and Sanitation District (5 units/acre) |
$14,901 |
|
Meridian Service Metropolitan District |
$12,500 |
|
City of Fort Lupton |
$9,655 |
|
Inverness Water and Sanitation District |
$9,174 |
|
Colorado Springs Utilities |
$8,401 |
|
Denver Water |
$7,400 |
|
City of Loveland |
$7,070 |
|
City of Fort Collins |
$6,574 |
Staff recommends moving forward with these proposed rates and fees. Meter set fees were evaluated to determine the actual cost and the recommended increases range from 2.42 percent to 10.71 percent. Table 4 provides updated costs for these fees. The “2015 Study” report and all of the associated data have been finalized.
The appropriate ordinances have been prepared for Town Council for approval on first reading . The remaining schedule is to bring the proposed ordinance to Council for second reading on November 17, 2015, and incorporate the proposed rates and fees into the 2016 proposed budget.
Concurrent with the preparation of the proposed rates and fees for 2016, staff has developed an updated Financial Management Plan (FMP), which will be presented to Council for approval, the goals of which are:
• To minimize future rates at or below the 2013 Hybrid Model levels.
• To minimize debt carrying costs at or below industry standards.
• To minimize risk by keeping fixed versus variable revenues and expenses equal or matching where possible.
• To keep costs at or under budget for capital and operational budgets each year by fund and to continuously strive towards more efficient operations.
• To keep our rates and fees competitive with surrounding communities.
• To keep adequate reserves and maintain fund balances between minimums and maximums.
• To keep rates and fees affordable within various national affordability indices.
• To develop regional partnerships to provide economies of scale to reduce total costs of infrastructure to our customers.
• To be an industry leader in the application of financial management benchmarking ourselves against others locally and nationally.
A few key conclusions, recommendations and action items from the draft FMP that have the potential for a positive impact on long term rates and fees include:
• Study the option of using interfund loans from water and wastewater to help minimize the rate increases needed to fund the long term renewable water plan in the water resources enterprise.
• Evaluate options for issuing additional future debt to help fund the long term renewable water plan including options to fix a portion of the Certificates of Participation (COPs) variable interest rate debt.
• Reevaluate annually the reserves to ensure that the levels meet the needed standards in the industry as well as to ensure that the levels are enough to cover the needs of the various enterprises.
• Reevaluate and consider establishing a more robust renewal and replacement reserve to ensure the long term management of the $550M of capital assets for which the Utilities Department is responsible.
The key assumptions used in developing the rate and fee recommendations for 2016 to 2020 in the “2015 Study” include:
• Issues no new debt over the planning period (2016 through 2050).
• Funds required capital plan from fund balances and rates and fees.
• Smoothes required rate increases over study period to ensure no rate shock.
• Continues to fund capital plan for the current hybrid renewable water projects.
• Utilizes current increased Town growth forecast.
• Uses operational budgets consistent with maintaining levels of service as customer base and infrastructure grows.
Two major drivers in the “2015 Study” have had a significant impact on the proposed rates and fees for 2016. First, growth in the customer base has continued to increase significantly in 2015, and resulting projections on future growth have also continued to increase by 4.5% for the five year study period, over projections in last year’s study. Next, the timing and content of the projected capital needs for the system has changed as expected in the five year planning window.
Some of the major updates to the capital plan for the “2015 Study” include:
• Moved planned construction of the Liberty Village Yellow Zone Tank to 2020 for $3.4 million and moved Tank 11B construction out past 2026 for $3.0 million in the water fund.
• For water resources moved $7.0 million Firm Capacity in East Cherry Creek Valley Northern Line and Southern Pump Stations from 2018 to 2025 in the water resources fund.
• Moved $8.0 million for Capacity in Parker Water and Sanitation District’s Rueter-Hess Water Treatment Plant from 2020 to 2025 in the water resources fund.
• Added annual funds to purchase additional shares in Chatfield Reservoir in accordance with the Chatfield Option Agreement signed in 2015.
• Increased capital by $3.5 million for rehab/replacement, Ditch Three and manganese control at Plum Creek Water Reclamation Authority in the wastewater fund.
• Changed the timing of the Douglas Lane and Hangman’s Gulch tributary stabilization projects ($1.85 million in Capital) bringing them forward to 2016 as a result of damaging rainfall in 2015.
Other key drivers to this year’s rates and fees study that have been incorporated into the cost of service model include:
• Developed and will be implementing an updated financial management plan.
• Set targeted minimum fund balances to $1 million for wastewater and water and $500,000 for water resources and stormwater using most of the fund balances for capital project funding.
• Re-spread Interfund loan payback from Transportation fund over a five year payback period versus final payment due in 2016 decreasing water Interfund loan revenues by $3.5 million in 2016 but increasing interest payments in the five-year period.
• Reevaluated and adjusted reserve amounts to ensure amounts meet correct standard levels.
• Incorporated an updated staffing plan to include five new full time equivalents in 2016 and custodial services moving in house.
• Implemented new water efficiency and well replacement master plans.
• Created a Stormwater fatal failure reserve.
• Updated special charges based on actual cost of service which will ensure an estimated $350,000 in revenue is obtained from customers accessing these services to offset the cost of providing the service (see Attachment B).
• Continued implementation of the Utilities five year strategic plan.
Staff Recommendation
The recommended changes to 2016 adopted charges, rates and system development fees for single family equivalents based upon the results of the “2015 Study” are summarized below by enterprise fund.
Water Fund
1. Fixed charges - no change
2. Volumetric rates - no change
3. System Development Fee - increase
Water Resources Fund
1. Monthly charge - increase
2. System Development Fee - increase
Stormwater Fund
1. Monthly charge - no change
2. Development Impact Fee - increase
Wastewater Fund
1. Fixed charges - no change
2. Volumetric rates - no change
3. System Development Fee - increase
Staff recommends Town Council approval on second reading an Ordinance Amending Title 3, 4 and 13 of the Castle Rock Municipal Code by changing the Water, Wastewater and Stormwater Monthly Services Charges and Fees, the Renewable Water Resource Fee, the Water and Wastewater System Development Fees and the Stormwater Development Impact Fee, and Authorizing the Administrative Adoption of the Utility Administrative Fee Schedule as presented.
Attachments
Staff Report
Attachment A: Ordinance
Attachment B: Commission memo