To: Honorable Mayor and Members of Town Council
Through: David L. Corliss, Town Manager
From: Mark Marlowe, P.E., director of Castle Rock Water
Nichol Bussey, Business Solutions Manager
Paul Rementer, Enterprise Fund Analyst
Title
Ordinance Amending Chapters 3.16, 4.04, 13.12, 13.15, and 13.30 of the Castle Rock Municipal Code by Changing Stormwater Development Impact Fees, Renewable Water Resource Fees, Water and Wastewater System Development Fees, and Water, Water Resources, Wastewater and Stormwater Rates and Surcharges (Second Reading - Approved on First Reading on September 3, 2024 by a vote 7-0)
Body
________________________________________________________________________________
Executive Summary
A primary goal of the annual rates and fees study is to evaluate the long-term financial plan for Castle Rock Water (CRW) to ensure that future rates and fees will cover future costs of service.
Table 1 summarizes the recommended 2025 residential rates from this year’s study (2024 Study) compared to the 2024 adopted rates and projected 2024 rates from last year’s study (2023 Study) for a typical single-family equivalent (SFE).
Table 1: Summary of Recommended Residential Rates
|
|
2024 Adopted Rates |
“2024 Study” Proposed 2025 Rates |
$ Change |
% Change |
“2023 Study” Proposed 2025 Rates |
|
Water, Fixed |
$10.42 |
$10.94 |
$0.52 |
5.0% |
$10.89 |
|
Water, Tier 1, Volumetric |
$3.08 |
$3.23 |
$0.15 |
5.0% |
$3.22 |
|
Water, Tier 2, Volumetric |
$6.27 |
$6.58 |
$0.31 |
5.0% |
$6.55 |
|
Water, Tier 3, Volumetric |
$9.35 |
$9.82 |
$0.47 |
5.0% |
$9.77 |
|
Water, Surcharge, Volumetric |
$9.35 |
$9.82 |
$0.47 |
5.0% |
$9.77 |
|
Water Resources, Fixed |
$31.12 |
$33.61 |
$2.49 |
8.0% |
$33.45 |
|
Wastewater, Fixed |
$8.57 |
$8.61 |
$0.04 |
0.5% |
$8.57 |
|
Wastewater, Volumetric |
$6.07 |
$6.10 |
$0.03 |
0.5% |
$6.07 |
|
Stormwater, Fixed |
$7.97 |
$8.37 |
$0.40 |
5.0% |
$8.33 |
Key factors driving the recommended rate increases include increases to regulatory costs, labor costs and capital costs. Regulatory cost increases are primarily associated with meeting new regulatory requirements associated with per-and polyfluoroalkyl substances (PFAS also commonly called forever chemicals). Some additional regulatory costs are projected to meet future discharge permit requirements at the Plum Creek Water Reclamation Authority (PCWRA) wastewater plant. Finally, regulatory changes to how Denver Basin groundwater is regulated by the State are anticipated to change the timing requirements for Castle Rock Water’s transition to renewable water supplies which can impact near term needed rates.
Labor costs for operational personnel have increased significantly over the last several years due primarily to increased competition for qualified personnel. This is being driven by a lack of younger people entering the labor force for the trades and the water industry operational career paths and increased competition for those operational labor resources already present in the water industry. Other contributing factors include a lack of interest by staff generally in overtime and on-call work, something that started during the pandemic and has accelerated. The increasing technical requirements for operating advanced treatment facilities like the one operated by Castle Rock Water puts additional pressure on wages for more experienced and technically trained staff. Finally, turnover due to wage competition across the Front Range for qualified operational staff has increased the cost of hiring and training staff on an annual basis.
Capital costs continue to increase especially for renewable water rights and infrastructure. Competition for renewable water is increasing across the Front Range as a result of pressures on the Colorado River, climate impacts, and continued population growth in Colorado communities.
Key assumptions for growth projections, customer characteristics, capital improvement plans, fund balances, and revenue and expenditures forecasts were reviewed and updated by staff to determine the impact they each have on the recommended rates. The water supply and demand model was also evaluated taking the growth projections in Chart 1 below in mind to make sure that the capital plan was keeping pace with growth and that the timing of capital projects continues to be appropriately scheduled.
Chart 1: Residential Actual Growth Compared to Projected Growth
Note: Actual Annual Average 2015 to 2023: 866 Residential Permits
There were no major changes to customer characteristics affecting this year’s recommendations. With respect to capital plans, there were some significant changes to the five-year capital plans, but there were also several major changes to the long term (>5 years out) capital plan which were made for this study year. Additional requirements for desalination related to the Water Infrastructure Supply Efficiency (WISE) project as well as increases in the Plum Creek Water Purification Facility (PCWPF) expansion were incorporated into the capital plan and account for a large increase in near term spending. Long term planning continues to incorporate the impacts of the turf restrictions put in place at the beginning of 2023. Significant changes to the five-year capital plan by enterprise are summarized in Table 2 and in more detail below.
Table 2: 5 Year CIP and Long Term CIP Differences
|
Fund |
2024 Study CIP 2025-2029 |
2023 Study CIP 2024-2028 |
Variance |
2024 Study CIP thru 2065 |
2023 Study CIP thru 2065 |
|
Water |
$65,646,305 |
$61,172,800 |
$4,473,505 |
$448,356,305 |
$416,820,800 |
|
Water Resources |
$148,616,478 |
$174,100,635 |
($25,484,157) |
$503,017,538 |
$461,099,874 |
|
Stormwater |
$15,765,795 |
$12,827,896 |
$2,937,899 |
$146,256,588 |
$148,122,727 |
|
Wastewater |
$36,035,404 |
$20,687,900 |
$15,347,504 |
$200,852,438 |
$214,911,731 |
|
Total All Funds |
$266,063,982 |
$268,789,231 |
($2,725,249) |
$1,298,482,870 |
$1,240,955,132 |
Water Fund:
• Added $5.0 million for Ray Waterman pumping upgrades
• Added $4.8 million for Tank 8B in the Meadows
• Added $3.5 million for Liggett Road upsize
• Added $3.0 million for South Well Field Pipeline to PCWPF
• Added $1.5 million for Bell Mountain Raw Water Pipeline
Water Resources Fund:
• Added $15.0 million for the Box Elder Project
• Added $6.5 million for the Plum Creek Diversion
• Added $2.5 million for SCADA
• Added $1.0 million for the ColoradoScape Demonstration Garden
Stormwater Fund:
• Added $116 thousand for Tributary C
Wastewater Fund:
• Added $13.7 million for the Highway 85 Regional Wastewater Project*
• Added $2.2 million for SCADA
• Added $1.4 million for the PCWRA reuse pond project
*This is a net zero increase due to American Rescue Plan Act (ARPA) funding from Douglas County.
The primary factors affecting revenue and expenditure forecasts in the rate models are as follows:
1) Included in the staffing plan for 2025 is one new full time equivalents (FTEs) which is a Water Plant Operator Supervisor. There are three total FTEs added through 2029. Additional anticipated grade changes for six positions are also a part of the staffing plan through 2029.
2) Added approximately $560,000 per year in staffing costs to make needed wage adjustments to continue to be competitive for operational staffing (Field Services, Plant Operations, Plant Maintenance, and Metering).
3) Included costs to take full WISE water allotment which results in total annual costs for WISE water of $X.
4) Changed timing of many capital projects consistent with water supply and demand model as well as availability of capital reserves.
5) Updated capital plan costs consistent with current capital project cost estimates and changes to the Engineering News Record Construction Cost Index.
6) Added new long term capital projects to meet needs of growth, provide for improvements to the system where necessary to meet upcoming regulatory changes, and make sure rehabilitation and replacement of existing infrastructure was covered.
7) Incorporated debt issuances of up to $55 million to cover shortages of capital reserves into the models for the Water Resources Fund in 2025.
8) Budgeted approximately $14 million in interfund loans from Wastewater to Water from 2025 to 2029 to support capital projects in Water.
Table 3 provides context for the recommended rate action by providing the history of rate action over the last five years as well as a comparison to the Consumer Price Index (CPI) and the Engineering News Record (ENR) Construction Cost Index (CCI).
Table 3: 5 Year Rate Increase History, CPI and ENR CCI
|
Rate Increase History |
|
Fund |
2020 |
2021 |
2022 |
2023 |
2024 |
|
Water |
0% |
0% |
0% |
4.5% |
4.5% |
|
Water Resources |
0% |
0% |
3.0% |
7.5% |
7.5% |
|
Stormwater |
0% |
0% |
2.5% |
4.5% |
4.5% |
|
Wastewater |
(3.0%) |
0% |
(5.0%) |
0% |
0% |
|
|
|
Consumer Price Index (CPI) History |
|
|
2019 |
2020 |
2021 |
2022 |
2023 |
|
CPI |
2.3% |
1.4% |
7.0% |
6.5% |
3.4% |
|
|
|
Engineering News Record Construction Cost Index (ENR CCI) History |
|
|
2019 |
2020 |
2021 |
2022 |
2023 |
|
ENR CCI |
1.7% |
2.1% |
7.4% |
5.6% |
2.6% |
Table 4 summarizes the proposed system development fees (SDFs) for 2024 per SFE.
Table 4: Summary of Recommended System Development Fees (SDFs)
|
|
2024 Adopted SDFs |
“2024 Study” Proposed 2025 SDFs |
$ Change |
% Change |
“2023 Study” Proposed 2025 SDFs |
|
Water |
$6,897 |
$8,276 |
$1,379 |
20% |
$7,587 |
|
Water Resources |
$31,294 |
$33,485 |
$2,191 |
7% |
$32,233 |
|
Wastewater |
$5,562 |
$5,729 |
$167 |
3% |
$5,729 |
|
Stormwater, Plum Creek |
$2,575 |
$2,704 |
$129 |
5% |
$2,833 |
|
TOTAL Plum Creek |
$46,328 |
$50,194 |
$3,866 |
8% |
$48,381 |
|
Stormwater, Cherry Creek |
$1,265 |
$1,265 |
$0 |
0% |
$1,303 |
|
TOTAL Cherry Creek |
$45,018 |
$48,755 |
$3,737 |
8% |
$46,852 |
For SDFs related to new development, Castle Rock Water recommends an increase of $3,866 per SFE in the Plum Creek Basin and an increase of $3,737 per SFE in the Cherry Creek Basin, about an 8% increase for each basin. This recommendation is consistent with Town Council’s policy on SDFs that growth pays for growth.
Several factors are driving the recommended increases in SDFs identified in the SDF model and financial model including regulatory and capital costs as noted above and further discussed below. Project costs continue to rise year over year as shown in the ENR CCI. Another huge driver of the increased SDFs is that the cost and challenge of new renewable water projects has gone up significantly over the course of the last year in response to water scarcity across the western United States. The continued crisis in the Colorado River has driven increases in competition for limited renewable water supplies in Colorado. Changing weather patterns impacting the future of the Colorado River will impact these costs for many years to come. Permitting and infrastructure associated with renewable water projects will also become more difficult and costly as a result. Further, the State is pushing to limit total volumetric withdrawals from nonrenewable wells for which Castle Rock has large investments in place. If successful, the State’s action will mean that Castle Rock needs to get to 100% renewable water sooner than previously anticipated which again impacts the needs for financial resources.
Finally, the details and needs of some of our longer term projects are becoming more defined as implementation occurs and estimated costs are higher than previously estimated. The proposed SDF changes keep Castle Rock competitive with other surrounding South Metro water providers who also need to fund investments in long-term renewable water supply as shown in Table 5 below:
Table 5: Comparison of System Development Fees (SDFs)
|
Community |
2024 Adopted Fees w/CRW 2025 Proposed |
|
Denver Water |
$8,960 |
|
Colorado Springs Utilities |
$11,811 |
|
City of Loveland |
$12,561 |
|
Inverness Water and Sanitation District |
$14,456 |
|
Centennial Water and Sanitation District (5 units/acre) |
$14,901 |
|
Centennial Water and Sanitation District (3 units/acre) |
$19,709 |
|
City of Fort Lupton |
$20,964 |
|
City of Greeley |
$21,246 |
|
City of Fort Collins |
$ 21,463 |
|
City of Fountain |
$22,971 |
|
Meridian Service Metropolitan District |
$ 23,150 |
|
East Larimer County Water District |
$26,748 |
|
Evans |
$28,289 |
|
Castle Rock Water (Cherry Creek Basin Area) with maximum builder incentive* |
$29,253 |
|
Cottonwood Water and Sanitation District |
$29,767 |
|
Castle Rock Water (Plum Creek Basin Area) with maximum builder incentive* |
$30,116 |
|
Aurora Water |
$38,010 |
|
Thornton Water |
$39,484 |
|
East Cherry Creek Valley Water and Sanitation District (Piney Creek Storm Drainage Basin) |
$39,850 |
|
East Cherry Creek Valley Water and Sanitation District (West Toll Gate Creek Storm Drainage Basin) |
$40,320 |
|
Arapahoe County Water and Wastewater Authority |
$40,851 |
|
East Cherry Creek Valley Water and Sanitation District (No Name Creek Storm Drainage Basin) |
$43,100 |
|
Stonegate Village Metropolitan District |
$44,778 |
|
Castle Rock Water (Cherry Creek Basin Area) - no incentive* |
$48,755 |
|
Parker Water and Sanitation District |
$50,160 |
|
Castle Rock Water (Plum Creek Basin Area) - no incentive* |
$50,194 |
|
Pinery Water and Sanitation District |
$50,270 |
|
Castle Pines North Metropolitan District |
$51,242 |
|
Sterling Ranch CAB |
$52,100 |
|
Roxborough Water and Sanitation District |
$56,678 |
|
City of Brighton (Metro Wastewater Reclamation District area) |
$59,230 |
*Incentive involves home builder installing both front and back yards with ColoradoScape. Then SDF is calculated based off of value for fixture units for the house and will be something between the low and high number.
Staff recommends moving forward with these proposed rates and fees, finalizing the “2024 Study” report and all of the associated data, bringing the appropriate ordinances to Town Council for approval on September 3, 2024, and September 17, 2024 and incorporating the proposed rates and fees into the 2025 proposed budget. Concurrent with the preparation of the proposed rates and fees for 2025, staff has updated the Financial Management Plan (FMP), to ensure the study is consistent with the goals of the FMP, which are:
• To minimize debt carrying costs at or below industry standards. CRW continues to stay in the top 25% in the industry with the lowest debt. This is positive, but the current rates and fees study indicates that we will need to take out $55M in additional debt in 2025. This debt issuance could move us into the median category.
• To minimize risk by keeping fixed versus variable revenues and expenses equal to or matching where possible. CRW focuses on keeping these matched to the extent possible while still sending a conservation oriented message with a variable rate. CRW’s success with balancing the revenues and expenses for fixed and variable components is shown in Chart 7 below.
• To keep costs at or under budget for capital and operational budgets each year by fund and to continuously strive towards more efficient operations. As shown in Table 6 below, CRW is keeping annual costs under budget.
• To keep our rates and fees competitive with surrounding communities. CRW rates and fees compare somewhere in the middle of the benchmarking as seen in the rates comparisons in Charts 2-3 and the system development fees in Chart 5.
• To keep adequate reserves and maintain fund balances between minimums and maximums. CRW continues to maintain adequate reserve balances in all funds for operating, catastrophic event, rate revenue stabilization and capital reserve all though we have made some reductions to catastrophic failure reserves in several enterprises to support near term capital expenditures. The level of reserves still meets industry standards.
• To keep rates and fees affordable within various national affordability indices. Last year CRW had Stantec’s help in looking at two affordability methods created by Teodoro. The first of these shown below in Figure 1 is the Affordability at the 20th Income Percentile (AR20). This method measures the affordability of the average water and wastewater bill to the 20th percentile income. This indicates that of the monthly disposable income for this group, 3.64% is spent on essential water and wastewater usage for CRW assuming the recommended 2025 rates are approved. The average for large cities is 12.4%, which puts CRW well below average, a positive result.
The second method, shown in Figure 2 below is the Basic Household Water and Sewer Cost Expressed in Terms of Hours of Labor at Minimum Wage (HM). This metric shows the number of hours required for one to work at minimum wage to pay the monthly water bill. For CRW, the proposed 2025 rates result in an HM value of 7.44 hours. The average for large cities is at 10.1, which puts CRW slightly below average, again a positive result.
Figure 1: Affordability at the 20th Income Percentile (AR20)
Figure 2: Basic Household Water and Sewer Cost Expressed in Terms of Hours of Labor at Minimum Wage (HM)
• To develop regional partnerships to provide economies of scale to reduce total costs of infrastructure to our customers. CRW has formed many partnerships with individual water providers like Dominion and Parker and regional organizations such as South Metro Water Supply Authority, WISE Authority, Plum Creek Water Reclamation Authority (PCWRA), and Cherry Creek Project Water Authority, just to name a few. Our latest partnership is with Central Water Conservancy District, an agricultural water provider located near our Box Elder Project and which shares capacity in Chatfield Reservoir.
• To be an industry leader in the application of financial management benchmarking ourselves against others locally and nationally. Castle Rock Water has thirty different key performance objectives and indicators (KPIs) with measurable outcomes. Many of which are benchmarked against other water providers nationally, regionally and locally. More information and results for these KPIs are available in our strategic plan.
Proposed Motion
“I move to approve the Ordinance as introduced by title.”
Alternative Motions
“I move to approve the resolution as introduced by title, with the following conditions: (list conditions).
“I move to continue this item to the Town Council meeting on _____ date to allow additional time to (list information needed).”
Attachments
Staff Report
Attachment A: Ordinance
Attachment B: Volume 1
Attachment C: Volume 2