To: Members of the Castle Rock Water Commission
From:
Mark Marlowe, P.E., Director of Castle Rock Water
Anne Glassman, Business Solutions Manager
Title
2020 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 2020 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. It effectively accounts for the reserve requirement twice in the first modeling year.
• This recommendation has been completed. This has been deducted from the financial models per the recommendation so that we are not accounting for the reserve twice.
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 2019 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 2021 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 2021 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. If more updated functional allocations provide clarity in terms of costs allocated to the monthly base and volumetric charges, consider implementing the changes into the 2021 Study.
• This recommendation is in progress and final updates and implementations will be included in the 2021 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 2021 Study.
System Development Fees (SDF) Recommendations:
1. Use the consolidated SDF model for future fee calculations for the water, water resources, and wastewater funds.
• This recommendation has been completed. Staff started using this SDF model during the 2020 Study and will continue using for all future studies.
2. Work with CRW’s Engineering team, annually, to determine additional capacities provided by CIP projects.
• This recommendation is currently being implemented in the 2021 Study.
3. 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 has been started and will be completed and implemented into the 2021 Study. Staff has constructed a waterfall matrix which shows when assets are placed in service and when they are retired based on their original asset value and useful lives.
4. 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.
• This recommendation is in progress. Staff has created a model to track SDFs versus rate revenues and expenses over time and 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.